The Musings of Dr. E. Ted

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Labor still beats capital in leadership development

As is my wont I was recently idly surfing the net checking out stuff about leadership. I ran across the latest issue of Entrepreneur magazine, a very good publication I am sure. Here were its three top headlines on the leadership page:

·         3 Tough Habits You Must Drop to Succeed

·         9 Things Managers Do That Make Good Employees Quit

·         22 Qualities That Make a Great Leader

I'm sure these are all good articles. And they are definitely representative of the types of topics that we normally see on leadership development (LD), whether or not it’s for entrepreneurs or suits. But where do these articles say anything about what the qualities are that lead DIRECTLY to a company being profitable, or increasing its valuation.

No, I’m not talking about how to finesse the financials, or about your financial knowledge. I’m talking about the behavioral characteristics that will increase the profitability impact of the person. Call it business acumen, or a nose for profit. Reading about that is a pretty rare commodity in the literature.

Here’s the thing. If you do any of the personality or competency assessments that assess you for leadership ability, they are invariably about how you work on a team, your thinking style or how you take charge. Maybe about engagement or diversity. But these assessments were never designed to assess a person’s propensity to create capital, that is, to make money.

I ran companies for many years. One of them was a public company. In all those years, my shareholders, especially my public ones, cared very little if I was a good leader or not. What they cared about was either the stock price or how much we could sell the company for. That’s because in both cases our stock was part of their retirement savings. If I was a poor leader but increased their savings that was all that they really cared about.

Now of course I’m not saying that we don’t want leaders who meet all the classical criteria for being a good leader like being to get on with people, inspirational and so on. But unless you make money that’s all for naught. Just ask the stockholders of any company that has gone bankrupt.

And that’s my beef with so much of the leadership development canon. It’s aimed at benefiting employees rather than stockholders and investors. Of course we want to benefit both. But we have to include investors and stockholders too. In other words we have to include capital as well as labor.

One of the problems with much of leadership development is that it is disproportionately led by people who have degrees in I/O psychology. That means that have a particular disciplinary focus, which is things like Jungian psychology, therapy, analysis and so on. The focus is on making employees happier and more communicative rather than on cold hard cash. It’s unusual for most LD practitioners to have an MBA (not that I put such particular store by such a degree anyway) or to have held a front-line business role, rather than having come up the ranks through HR.

Now don’t accuse me of saying that I/O psychology cannot be useful in leadership assessment and development. It definitely can. And I know many switched-on LD and HR leaders who truly do get it from a business perspective. But at best the I/O approach is only half of the story. The other side is profitability and capital appreciation. Valuation. If you don’t hit that particular button your risk irrelevance to the business side of the house.

Full disclosure: that’s what my company does. We have psychometric assessments to measure business acumen and to show up-and-coming and extant leaders how to improve their profitability and valuation impact. It’s not the whole story but it sure is a key part. See more here.

I think this bias towards labor rather than capital is one of the reasons that HR and LD get such a bad rap and have such a poor image. There’s a famous article in Fast Company entitled “Why We Hate HR”. It was published in 2005 but it’s just as relevant today. Check out the following:

“When HR professionals were asked about the worth of various academic courses toward a "successful career in HR," 83% said that classes in interpersonal communications skills had "extremely high value." Employment law and business ethics followed, at 71% and 66%, respectively. Where was change management? At 35%. Strategic management? 32%. Finance? Um, that was just 2%.”

You get the idea.

I think the problem is that both HR and leadership development often have an unconscious (or oftentimes conscious) to labor rather than capital. The business side of the house sees that and takes appropriate note. That’s why they often won’t allow HR to play a meaningful role in the business.

I don’t know that the situation has changed that much in the last few years. But HR still has an image problem. Of course there are other factors in it and not all of them are HR’s fault.

And no-one, l least of all me, is arguing for a total switch to capital. That would be wrong and short-sighted too. But there needs to be a lot more balance. Otherwise leadership development just won’t be able to play the role that CEOs and business leaders want it to play and HR and LD practitioners will continue – in the main- to be marginalized. That’s not a good outcome for them, even if it’s the status quo now.

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How do negative impact rates impact leadership and risk globally?

It just came out that the Bank of Ireland and RBS bank have introduced negative interest rates on large deposits. Germany and Japan both have banks with negative interest rates, as well as some of the Scandinavians. That’s got to qualify as a megatrend. It looks like negative interest rates are spreading fast.

We are in uncharted territory. Likely the reasons we have done it are going to have some major unintended consequences. What it does to leadership might be the biggest one of all.

Why would you think that leadership and negative interest rates would be linked anyway? Surely one is about finance, the other about – well leading and leadership. No relationship right?

Well first to negative interest rates. L t’s call that the Big N, just for the sake of convenience. So why go Big N anyway? The economists and central bankers tell us that it is a disincentive for banks and consumers to hold on to their money, so they will go out and either loan or spend it instead. That’s supposed to kickstart economic growth.

Hmm, so far that hasn’t happened. In fact in places like Japan and Europe it seems to have had the opposite effect. Instead there is mounting evidence that consumers, in instead of blowing their savings on froo froos, are actually increasing them (see “Economists Mystified that Negative Interest Rates Aren’t Leading Consumers to Run Out and Spend”). The reason: they can see no economic growth, and they have observed t that banks will take their money from them if they keep it in the bank. So they’re scared. That makes them hunker down and save more. Hence growth actually declines. Not what was intended.

And as the Big N hits, currencies are supposed to go down, which then kickstarts growth through increased exports. But that isn’t working either. Instead currencies in developing countries seem to be heading in the opposite direction, e.g. Brazil and Turkey. It’s even happening with developed countries like Australia. Another strike against the economists.

We all know that economic growth continues to decline. Let’s call it the end of alpha as we know it. The Big N  exacerbates this by reducing demand. Government regulation adds to this by reducing risk even further and that promises to continue (as e.g. the plan by some politicians to restore Glass Seagall). That may well be justified but it will reduces growth even further.

Instead of investing for the future the trend is for companies to repurchase their own shares. That increases EPS but reduces long-term growth potential. Leaders are reducing risk, and propping things up by financial engineering rather than innovating and investing. So CEOs, just like consumers, are hunkering down too. Leadership is becoming timid, limited and focused just on the short-term rather than on visions for improvement.

One straw in the wind. Goldman Sachs, the global growth and profitability champion whose revenues and profits are both declining precipitously. The same thing is happening globally both to financial and other companies. Globally CEOs are pulling in their horns, investing less, innovating less and taking less risk. That’s the reason for the end of alpha as we know it. CEOs are opting for safety rather than venturing, financial wizardry over forging new paths. The Big N is exacerbating this trend.

Behind all this is declining population growth and in most developed countries, actually population declines. The Big N and population decline seem to be linked. If you think the economy won’t grow you put off having kids. That’s leads to declining consumer demand over time and declining growth. It’s a vicious circle.

Safety nets are becoming less functional. Almost all social security systems globally are in disarray and actuarially insolvent. Insurance companies aren’t able to meet their payment commitments to their insured clients because interest rates are too low for them to get the returns necessary to make their insurance commitments. Banks are in trouble because interest rates are too low for them to offer high enough returns to depositors and make a profit themselves.

Meanwhile, despite popular beliefs to the contrary, US entrepreneurship is on the decline (see “The decline of American entrepreneurship — in five charts”). Of course we still have entrepreneur heroes like Jeff Bezos and Elon Musk, but in general they are a declining minority of people.

It might look as if this is just a private sector phenomenon. But the public sector in all countries is also impacted by the same leadership trends. Countries are becoming less liberal or more illiberal. Amazingly the trend is now away from globalization, free-trade and growth. Public sector leaders are also embracing more limited goals for leadership even while averring that they want growth.

Amidst all this it’s difficult to see where the growth will come from that will lift poor people out of poverty. More limited goals means less growth and less to redistribute.

The Big N coincides with and exacerbates the narrowing of leadership globally. We are all on the downside of a long slope following the expansive visions of the last decade of the 1990s. The 2000s so far are the fin de siècle aftermath.

Only an exogenous short sharp growth shock can get us out of the current plateau and decline. Hopefully it’s going to be one that like I have already posited in a previous post, namely that space exploration is poised to become the next global engine for growth.

Hopefully.

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Is organizational culture over-hyped?

If you’re in HR, or you’re the CEO of an organization, chances are that you talk a lot about your “unique” organizational culture. It’s also a favorite of academics. Definitely politically correct. But even the promoters of organizational culture don’t exactly know what it means – see for example this article, direct from the PC headquarters of academia, the Harvard Business Review, “What Is Organizational Culture? And Why Should We Care?”. Of course the author asserts there is such a thing although even he isn’t sure what it really is.

So let me define organizational culture in my own inimitably biased way. The doctrine of organizational culture asserts that organizations have, can have, or should have a set of values and behaviors that are unique to themselves. There is no other organization on the planet that thinks acts and behaves like they do. If you like it’s the organizational parallel to American exceptionalism, or whatever country you like that cares to assert that it too is exceptional.

The doctrine asserts that the reason for the organization’s success is its truly unique culture, that no-one else possesses. You could compare it to anthropomorphism, that humans are the only intelligent creatures in the universe, the chosen ones and that’s why we are all collectively so great.

Of course I’m hardly the first person to write about organizational culture and its discontents. Phil Rosenzweig’s 2007 book “The Halo Effect: ... and the Eight Other Business Delusions That Deceive Managers” debunks organizational culture (and much more). But it’s a tough myth to squash because it is so strongly self-serving for organizations and CEOs that want to create a storyline, or myth about why they are so successful, essentially the corporate version of the chosen one. Or soup up their stock price.

Now this isn’t to say that organizational culture doesn’t exist, or that there aren’t important and systematic differences in it between both market sectors and companies. It’s clear that there are huge differences between the organizational cultures of government agencies, nonprofits, the military and the private sector.

I’ve worked in government so am well aware of the differences between it and the private sector. Basically in government it’s all about keeping the voter happy no matter what the cost or inefficiency. In the private sector it’s (generally) all about making money and being ultra-efficient.

I haven’t worked in the military but I have worked with them and I can easily accept the exceptionalism of being within an organization that serves to kill the enemy and the limits that places on the way you think and act. The same for nonprofits. So let’s accept that each of these sectors is exceptional with its own type of organizational culture.

And it’s also true that within the private sector you get systematic differences in organizational culture too. These revolve around the main focus of the company, be it sales and growth, products, quality and finance.

Again that’s hardly a new idea, check out Danny Miller’s 1992 book “The Icarus Paradox” which sets this out and shows how companies generally fall into these main categories of organizational culture which sets up a bright dividing line between different companies with these different cultures. Incidentally the punch line is that it is the existence of such organizational cultures that inevitably leads them to fail when their culture gets too religious about it.

Nor does my skepticism mean that I cannot admit that there are certain other companies that are exceptional, and that this flows into how they act and think in ways that are unusual, albeit if not exceptional or unique. Mostly these are companies that have been fabulously successful like Google, Yahoo (in its early days), Tesla now (although of course it is bleeding money) and Apple.

These wildly successful companies are sitting on so much money that they can afford things that are luxuries to normal working stiffs in normal companies. Free gyms, time off, free food and other bennies that I probably haven’t even heard of and if I had would make me insanely jealous and gnash my long-suffering teeth.

So let’s admit that companies that are wildly successful from a financial perspective AND pass on some bennies to the serfs, also have unique organizational cultures. But let’s also accept that it’s from their outlandish success, not from the chosen nature of their leaders or people. That is, it’s strictly temporary, and continues only as long as the money lasts. Just like General Motors and US Steel also were exceptional in their day and either defunct, dying or just plain ordinary now.

And finally, being skeptical about organizational culture doesn’t mean that there aren’t outliers. How about Zappos, with its culture? It’s infamous contribution to the management lexicon is “holacracy” which actually means no managers (except, of course, the CEO). Some see it as being bizarre but in my book that definitely counts as being exceptional and a bona fide example of a unique organizational culture, even if it’s totally weird.

There’s probably quite a few of these around which haven’t hit the management textbooks yet (the Trump organization maybe?). So let’s admit the (tiny number) of the weird and bizarre to the august club of exceptional management cultures.

But guess what? All of the exceptions aren’t enough to result in the vast majority of organizations possessing an exceptional organizational culture. In fact the opposite is the case. In the case of the private sector the vast majority of companies are working stiffs trying hard to eke out a small profit and the only thing that distinguishes their culture is how hard they try to cut costs and the extent to which they shave a smidgen off what their competitors achieve.

The vast majority of government organizations aren’t exceptional; they’re just trying to mosey along over-spending their budgets with the program set by the politicians and trying to look like they are working hard for the taxpayers. The militaries of all countries are essentially the same given a few political commissars more or less in some. Ditto for nonprofits, well in the West anyway. The vast majority of organizations in all sectors are boringly similar.

But of course that doesn’t stop anyone of them trying to look as if they are different. Leaders want to think they have made a difference. New CEOs and boards want mission statements that reflect what they think the public would like them to be even if they aren’t. All organizations, just like most individuals, want to be different and exceptional even if they aren’t. It’s just part of human nature to want to stand out from the crowd.

I’m not against organizations trying to be exceptional. What I am against is the tokenism that so many of these attempts involve. Ultimately they are self-defeating because the employees always know even if John Q. Public doesn’t.

To adopt some PC vocabulary myself, I think that if an organization strives for true authenticity, that will get it to the unique organizational culture appropriate for it.

But authentic leadership is yet another story….

  Organizational culture, the halo effect, Zappos, unicorns, mission statements

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Noah’s Ark on a stick is how we get to the stars - soon

I guess you saw that the latest in the Star Trek movie series (Star Trek Beyond) has just come out? It’s a hardy perennial, even though everybody knows that the travel to the stars isn’t possible for us humans because it would take so long to get there.

When the first Trekkie came out, that was a true statement. Now with several companies girding up to go to Mars and other planets, at least the planetary part of the space equation looks doable (see my recent post “Space will be the New Driver of Global Economic Growth”).  But travel to the stars, nah, still impossible. You can’t just repeal the laws of physics and Einstein’s MC2 is a particularly difficult one to crack.

But never say never. You might have heard of a doughty Russian entrepreneur called Yuri Milner. Together with Stephen Hawking he’s got a plan to get to the stars, and yes, it gets us there there within our lifetimes. That’s something. No more “are we there yet”!

The plan is amazingly simple (well, comparatively speaking). Just build spaceships weighing no more than 5 ounces and then blast them with ultra-powerful lasers till they reach about 20% of the speed of light. That gets them to Alpha Centauri, a mere 4 lightyears away, in 20 years or so. Piece of cake right?

Of course these little starships don’t exist yet. Nor do the ultra-powerful lasers. But if they did, in principle it could work. Leave it to Elon Musk.

But, I hear you say, how about getting humans to the stars, just like in “2001: A Space Odyssey”. Isn't that the real goal? The Hawking-Milner plan is a good one but it just doesn’t achieve this goal. And that’s what all tech visionaries are really rooting for.

But could humans even survive once the mini-starships arrived? Maybe the planets are so different they can’t. So what then?

Well here’s a little bit of lateral (dumbass?) thinking from yours truly. It goes along the following lines.

We have already decoded the human genome. Recently biotech tools have emerged that allow us to easily edit it. With these editing tools we can modify genomes in numerous ways.

In essence these new editing tools have given rise to kits of preformed molecular components that can be utilized to form new combinations of DNA. Let’s call these kits LegNA (after Lego-DNA). We won’t know til we get there what the conditions are. So now we can customize this human DNA to let the bodies it forms survive no matter where.

So the best shot (get it?)is to send the expeditions with the right molecular components to be able to build organisms that can survive no matter what the planetary conditions. That includes things like temperature, gravity, radiation, gases, energy sources and so on. The LegNA has got to be capable of handing the full Monty of planetary conditions. That can be done in a tiny package all right, but it’s gonna have to be devised to cover everything.

We aren’t talking just about human DNA. We should be talking about the DNA of all terrestrial animals. After all they have genes that might be more useful for survival on a strange planet than human DNA.

That shouldn’t be too difficult. We have decoded much of the genome of the animal world. It shouldn’t take that much storage space. After all, much of our DNA is common to all of the animal world; there isn’t that much difference between insect and human DNA.

So we could place much of the terrestrial DNA on a USB drive. Call it Noah’s Ark on a stick. THAT”S what we send to Alpha Centauri!

So the starships are going to need to carry an animal-generator. Sort of a Maker for animals for any conditions. 3-D animal printing. Note: also including humans if they could survive.

Getting there is gonna just be a small part of the challenge.

So a 5 ounce spaceship is all we need to get deliver humans or whatever beings will survive there! We don’t need to send humans, we can send their DNA! And the DNA of the whole terrestrial animal kingdom! And we don’t even have to send the DNA in one piece. We will send it in multiple packages for redundancy purposes and as LegNA.

We could call them DNA bio-packets, just like the packets we get in electronic networking. These bio-packets would then be assembled on arrival to manufacture organisms that have the right types of characteristics to survive in the very different worlds they will certainly meet.

Now of course there are some ethical issues in polluting other planets with our DNA. But would the Russians or Chinese care if they could colonize Alpha Centauri and its planets? How about the North Koreans? That would put those uppity Americans in their place! I think it’s likely that military considerations are going to play a big role here, like it or not.

For those of you who are aficionados of the history of science you will likely have seen a (distant) version of this idea before. It’s called panspermia. The scientists Fred Hoyle and Chandra Wickramasinghe published a version of this theory in the 70s. They saw organic cosmic dust providing the raw material for panspermia and as the possible origin of life on Earth.

Another version of panspermia is that either aliens sent life here, or it evolved somewhere else and somehow floated here. I’m just turning this idea on its head and asking why humans couldn’t or wouldn’t be the original source of panspermia rather than some nameless aliens in a universe far, far away.

Once we have 5 ounce spaceships and big lasers we’re just about to be ready to seed the universe with human (or other terrestrial) DNA. Think of a modern Noah’s Ark. Modern biotech has almost assembled the kit of tools we need to do this.

And btw, it doesn’t need to be DNA. It could be XNA, a synthetic DNA that is already being made by molecular engineers. Ingenious, these molecular collections called humans.

Of course, we humans might already be made of DNA sent out by alien civilizations. If we did our own panspermia shot, we would just be sending our stuff back to them. What’s sauce for the goose is sauce for the gander, on a cosmological scale. So they couldn’t blame us for copying them.

My recent post, “Space will be the New Driver of Global Economic Growth”, argued that space exploration would drive the next big round of economic growth. In the telling of this post, planetary exploration is already passé. It’s the stars that are going to take over that role, maybe in another 50 years.

And a lot of that economic activity is going to derive from a totally new human activity, synthesizing totally new types of animals from scratch. Maybe at least in part to replace those that we have condemned to extinction down here on Earth by virtue of our wanton destruction of our own cosmological habitat?

Cowpoodles anyone?

Don’t laugh. A secret military unit somewhere on Earth is probably already working on all of these.

Area 51 perhaps? Together with the flying saucers?

 Star Trek, modern Noah’s Ark, panspermia, Stephen Hawking, Yuri Milner

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Could you purposely redesign your personality with a pill?

Another apparently useless piece of information, courtesy of researchers at the University of Virginia and the University of Massachusetts medical School. It looks like particular chemicals in your immune system cause you to be social. Specifically it’s a molecule called gamma interferon. Who would have thunk it?

For some reason, the immune system governs whether you are social or not. Maybe it’s because being social is good for you. As an introvert I’m not so sure about that, but hey, I’m really biased. But the apparent takeaway is that at least  part of our personality may actually be dictated by particular chemicals in the immune system.

So you thought you were born a crazy extrovert or a socially dysfunctional introvert. Nope. It’s all down to your chemicals. And guess what. It so happens that you can make gamma interferon! Next step pill heaven!

That means you can in principle change your personality. And not just in principle. The researchers actually did it with some poor benighted rats. They were able to make them more or less social just by fooling around with their levels of gamma interferon. Now we can have socially responsive rats. Just what the doctor ordered.

I’ve noticed in my coaching work that a significant proportion of extroverts and introverts actually don’t like being introverts or extroverts, that is, how they were born. Strike me blind if I’m wrong but it’s true. Some extroverts will insist that they are actually introverts and vice versa. I’m sure if I offered them a pill to convert they would take it in a heartbeat. Now that’s an ethical issue so I would draw the line at that. Hmm…I think.

But how many coaches and therapists wouldn’t? How about partners, spouses or bosses? Many might want their spouse, kid, employee or whatever to have a different personality and show them the way to personality heaven.

And who needs these people anyway? Since gamma interferon can be manufactured, won’t enterprising chemists make it? Could this be the next phase in recreational drugs? Move over K2!

And in truth, administered and taken judiciously, gamma interferon, or other personality-changing drugs might well be able to lead to some good. There are plenty of mental health issues that might be addressed constructively by them. And, as the authors of the research paper note, there are some pretty nasty mental health issues that could also benefit from these drugs. How about schizophrenia and autism for a start?

On the face of it this development is a big strike against free will in the determinism-free will debate. But on the other hand, if you can take a pill to change your personality, maybe that’s a big demonstration of free will. You figure it out.

Now this finding leads to some intriguing wider implications. Are other personality attributes also governed by immune system chemicals? Could the Big 5 of the Five Factor model also have identifiable molecules that drive each factor? Could we now have a way to change all the Big 5? And maybe say all the cognitive biases that are being uncovered in behavioral finance? Are we in the end just a chemical automaton? Should psychologists go to biochemistry school?

This throws a whole new light on therapy. Ths state of the art has been pills (mainly for anxiety and depression) and BCT (behavioral cognitive therapy). There’s been a lot of controversy about how effective this combination really is. Adding a battery of pills derived from immune (or other) research could change the balance decisively in the direction of pills and away from the talk side. That’s going to cause of lot of heartburn amongst the therapy and psychiatric professions.

And what about things like professional and career development. Could the outcome of coaching in leadership development be a recommendation that a certain wannabe CEO take pills to become more extroverted and social? Or less so? Or more conscientious maybe since this is one of the Big 5 most associated with good leadership? If I’m the recommendee, should I go along with this recommendation? If I don’t, am I finished in my company?

Come to think of it, since we have competency assessments that assess whether a person has the ideal blend of characteristics to fill a particular role, could the outcome of such tests be recommendations to talk certain pills also? If I want to be a bus driver, would I need to take certain pills to become a more talented and effective bus driver? What if I refuse?

And as I mentioned above, what are the ethics of changing someones personality? Even if you can do it, should you? What are the individual and social impacts of these changes? Could it now be misused and abused, for law enforcement, military and intelligence purposes? That’s just a start to a very long list of nasty possibilities.

We’re probably on the cusp of some far-ranging new developments in personality modification.  There’s almost certainly no going back.

Brush up your high school chemistry….

[etedprince-blog]

The Difference between Agile and Supple Leadership

So where did I get “supple leadership” from? I made it up of course! Actually I was reflecting on the now widespread use of the term “agile leadership”. It’s in use by many companies and there are even assessments for it now such as one from Korn/Ferry. Even I have been guilty of using the term (see my post “Can Behavioral Agility Be Learned?”)  So I wanted to change the narrative to something related but different to highlight an aspect that leadership agility usually doesn’t.

So what is the meaning of each? Agile leadership is when you make major changes in a discontinuous manner. It’s a total change of scene.

Elon Musk is a good example. So is Donald Trump. Musk’s proposed acquisition of Solar City could be viewed an agile but it’s definitely nonlinear, unexpected and kind of unpopular, not that he cares. Trump’s rejection of free-trade pacts is another example. Again nonlinear. A total pivot, again not that he cares.

Agile leaders are like that. Paradigm shifts, fast, often bull-in-a-china shop. Courageous usually, sometimes foolhardy, always unpredictable, often world-changing.

How about supple leadership? Well, it means change again, maybe even radical change. But it’s not treated as discontinuous like agile leadership. Rather it’s treated as continuous and linear and more as a linear continuation of the status quo with the upwards angle significantly increased.

Supple leadership pays far more attention to the natural resistance that comes from major change. It pays more attention to the details and logistics of change and fine attention to the psychodynamics of people having to absorb new ideas and strategies.  As well as supple, it’s subtle (accidental pun unintended). Supple leadership is far less about visible show and far more about motivating people, invisibly if need be.

Mikhail Gorbachev was a supple leader. Maybe that was because it would have been very unwise to his physical health to have been overtly agile, He was highly innovative and brought about massive changes, but of course he didn’t at first bruit it from the treetops. It was only later he did that with glasnost. So he went from being supple to agile.

Franklin Delano Roosevelt is a great example of the opposite movement. He started off as an agile leader. His first 100 days introduced massive changes that were definitely nonlinear and discontinuous.

But FDR evolved in his leadership style. As he evolved he changed his style from agile to supple leadership.  This was a far more linear manner with FDR paying far more attention to how it was done and to the sensitivities of the American people. His fireside chats were the embodiment of supple leadership. They were attempts to persuade and cajole, not to command and force change.

FDR’s tactics to bring Americans around to the idea of becoming a protagonist in World War 2 is another good example. An agile leader would have introduced the idea immediately and seen huge resistance. His supple leadership led Americans to accept it, albeit Hitler broke the camel’s back by declaring war on the US.

So agile and supple leadership are both good leadership styles but not everyone can practice them.  Sometimes agile leaders can rise to the level of supple leadership as FDR did. Other times they never do, as with FDR’s namesake, Teddy Roosevelt who was definitely agile but even more definitely not supple. So you can move from agile to supple and vice versa but not everyone who is agile can achieve suppleness.

Innovation is a hot topic in leadership. But the vast majority of discussions pay little heed to how a leader should introduce innovations. The concepts of agile and supple leadership provide another framework to analyze the issue.

Some circumstances require innovations to be introduced as a big bang. Maybe external circumstances are such that’s there no time to waste. Maybe internal resistance is so strong that only a short, sharp shock will overcome it.

But many times leaders introduce innovations rapidly because they have their own internal needs and drivers that impel them to shake things up radically even if it’s not a wise course of action in those particular circumstances. Innovators are often like that. Sometimes they have a need for shock and awe that transcends the exigencies of the moment. Probably both Musk and Trump are in that category.

We all have seen the phenomenon in which innovations are introduced and then they don’t take. Either they are rejected by the organization’s own immune system as a foreign and unwelcome object. Or customers or external stakeholders don’t see the need and never take up the innovation. That’s when you need supple leadership.

Supple leadership consists of a number of strategies that will be alien to high-impact shock and awe leaders. Supple leaders

·         Avoid heavy-duty PR and promotional campaigns, keeping things relatively quiet and tailoring their message to the circumstances, which might often not be propitious.

·         Avoid making change by fiat or command

·         Don’t go mano-a-mano with opponents

·         Carefully map out the policy terrain before making any move

·         Often disguise their true intentions

·         Often portray themselves as defenders of the status quo

·         Often deliberately shy away from being regarded as an innovator

·         Co-opt resisters rather than eliminate them (c.f. his appointing Joe Kennedy as Ambassador to the UK rather that sidelining him due to Kennedy’s opposition to helping the British).

Now we’re not saying one or the other is the right or the wrong way. It all depends on circumstances. But if you’re naturally an agile rather than a supple leader you might need to become suppler. And if you’re a supple rather than an agile leader there are times when you might need to be more agile and in their face. It's horses for courses.

The idea that to be supple you might sometimes conceal your true intentions might worry some as not being authentic leadership. Maybe. FDR hid his true intentions but I think most people would describe him as authentic. Not all concealing is bad; it might just be necessary and another facet of suppleness. But it could degenerate into inauthentic leadership if someone was inclined that way anyway.

Of course a person may be neither agile nor supple. Many – most – people aren’t. In that case if you are a leader or preparing for a leadership position you need to be aware of these concepts and issues and prepare yourself accordingly.

  Leadership, agility, supple leadership, Elon Musk, Donald Trump

Leadership agility is hot but sometimes you need leadership suppleness. There’s an important difference.

Is too much leadership agility bad?

[etedprince-blog]

Should we deliberately slow down innovation?

Did you notice that Alvin Toffler, author of “Future Shock” just passed away? His book was published in 1970. That was well before the Internet, Twitter, Facebook and even photocopiers and hand-held electronic calculators. Think what he would say today?

Clearly the pace of change has accelerated dramatically since Toffler alerted us to the problem. Essentially he was warning us that as innovation speeds up its gets to be a continuous series of ever bigger shocks. Where are we in the process now?

How many people can keep up with the constant barrage of –admittedly smart and useful  - gadgets, apps and so on? I think now it’s impossible for the vast majority of people to keep up with their names, let alone what they do.

Maybe your kids can keep up with some of the latest chat apps. But as they get older do they also keep up with the shattering advances in biotechnology, space exploration, cosmology and neuroscience? I think not. The shocking future is already with us and the fact is, much as the vast majority of us doesn’t want to admit it, that most of us just can’t keep up.

Is there a neural or cognitive speed limit on how much change we can absorb and respond to constructively? That’s something that neuroscience hasn’t really checked out to the best of my knowledge. But it might be the most important limit there is, up there and maybe beyond the capacity to love, aspire and lead.

But what we can say with almost virtual certainty is that we are approaching our limits, both individually and socially. On the social side it is reflected I n increasing levels of ungovernability or semi-governability in an increasing number of countries. How might it be reflected at the level of the individual?

Here’s my take on it. Most people are at or past their levels of capability to absorb the accelerating levels of innovations and change. The number of people who can still respond effectively to this change is already a minority and is diminishing the more the level of change increases.

This cognitive elite is the one that is supplying most of our knowledge workers, and especially the ones actually creating the innovations and change. The cognitive elite are naturally earning more and more money, but it is a diminishing proportion of the population.

The majority of people are not members of this elite. They are the ones that are losing out in the earnings and lifestyle sweepstakes ( see “In Advanced Economies, Two-Thirds of Population Have Seen Incomes Stagnate”). Many of these are the ones that are voting for radical change, as per Bernie Sanders and Donald Trump. Many of them voted for BREXIT and the Far Right in Europe.

As the levels of innovation and change inexorably rise, the cognitive elite will comprise an ever-smaller proportion of the population and the vast majority of the population will suffer relative declines in earnings and life style benefits and possibilities. So we can expect them to get progressively even more unhappy than they are now.

For these disaffected people I don’t think the problem is just a loss of jobs, although that’s part of it. It’s their perception that with the advance of technology most of them, and their kids, are going to lose out. So there's no hope for them.

And we're not just talking about intelligence and education either. Being part of the cognitive elite is having the innate capability to respond constructively to massive continuous change. That’s not a common capability and people know that.

The conventional answer is to speed up growth. But none of the developed countries now look as if they can do that. The emerging countries are probably a lost cause too despite their needs. So it looks as if we cannot grow our way out of the problem either.

And if we distribute more of the wealth it might make things even worse by reducing incentives in the system to innovate our way out of the problem either. That’s because the more you innovate, the worse the problem of inequality becomes.

It might be that there is an answer but it might be radical and highly discomfiting to everyone including yours truly. But you have to think through the worst if you want to discover the best.

Here’s what I think. It might be that governments might have to adopt deliberate policies of slowing innovation and change. I know, it goes totally against the grain of what every business guru in the world is saying. So be it.

Some possibilities:

·         Weaken patent protection to provide less incentive for technology changes and products

·         Regulate the pace at which companies can introduce new products

·         Regulate the pace of new IPOs especially tech IPOs

·         Introduce curricula in schools and universities showing how to cope with change

·         Introduce curricula to show people how to make do with less

·         Increase the tax on capital gains

·         Eliminate the favored tax treatment for investment funds.

Full disclosure: I am an incorrigible disruptor so this definitely goes totally against the grain.

But desperate times call for desperate measures.

[etedprince-blog]

A New and Practical Pathway to Immortality?

Well here’s an intriguing piece of research. It turns out that at least some genes in both animals and humans are still alive even after the animal itself is dead. So far it looks like they can remain active for up to 48 hours after their host has given up the ghost. (New Scientist, “Hundreds of genes seen sparking to life two days after death”).

At the least this gives us a new way to view the event we call death. It’s not a quick bang, but more of a whimper. In considering this finding this way, rather than a one-time shut-off, it is looking more like a planned shutdown, kind of like shutting down a nuclear plant where many things have to happen in a certain prescribed order to shut down properly.

But let’s think about this some more. If we can decode the shut-down pathway, would that give us some clues about how to abort the sequence? Could we instruct certain genes not to shut down so we could prolong life? Could this open up new forms of emergency medicine for patients who would otherwise have died?

But there’s more. Once you could do that it opens up other possibilities. Like applying the same kinds of approach to people who are healthy and living. Maybe there are ways of preprogramming genes to not enter into any shutdown sequence, as long as the body-owner doesn’t want that to happen. Maybe the body can instruct certain genes to go into shut-down mode only if the owner wants it.

This opens up yet other possibilities, namely those around the idea of genetic programming. That would involve programming genes to switch off and on as needed to prolong normal life spans. But that could also be applied to prolonging life to abnormal lifespans. Could that include immortality?

At first blush that sounds like an absurd idea, akin to perpetual motion machines. But the science of life extension in fact is making steady strides, most of which have been overlooked by most of us who are just concerned to enjoy the lives we have and are apparently ordained for us.

There’s the old stand-by, freezing. But that doesn’t really move the needle, just shifts it to somewhere else but doesn’t actually prolong your life span itself.

Then there’s exercise (see my post “Should exercise be compulsory?”) It works great, but it’s not going to move the needle much, just a few years, unless you get some illness and then all bets are off. Still it’s a reliable standby and the best thing we have so far.

But now we’ve got some new and intriguing possibilities in the form of drugs. One such is attracting a lot of interest now, namely the drug metformin. It’s usually prescribed for diabetics but it’s become clear that this has life-extending effects (Forbes, “Common Drug Has the Potential To Slow Aging, Boost Cancer Recovery”).

The race is on to see where these so-far unique life extension effects come from and then to develop more powerful drugs that have even more dramatic life-extending impacts. The FDA has recently approved a clinical study on precisely this drug for anti-aging prurposes. But we’re at least 10-20 years away from having an approved drug that not only works but avoids side-effects like cancer or going bald. Many of my readers might last the distance but unfortunately I would be on the edge if not well over it.

So that’s where this genetic stuff is truly interesting. It’s a potential new pathway to life extension and it could well do more than move the needle just a little. In principle it could move it a lot, maybe even to immortality if paired with other technologies or even conceivably on its own.

One of these other technologies is telomere engineering. Each of our chromosomes has ends called telomeres and these get shorter as we age. The race is already on to see if and how to reduce this shortening and even to reverse it. There have been some notable successes already (Science, “Harvard team successfully reverses the aging process in mice”) If we could do that in humans then suddenly immortality doesn’t look like such a crazy idea.

No doubt there are other pathways I don’t know about. But the various strands are slowly coming together on the life-extension front. It might not take as long as we think to have at least some major impacts, for example extending life so that we can all have a good quality sojourn on Planet Earth for at least 100 years, and even longer.

That brings up other heady issues, ethical, social, emotional, demographic and so on.

But that’s another story.

[etedprince-blog]

BREXITed - UK Gain, EU Pain

So ok the UK is out. The pundits tell us that was a really bad move by the Brits. I beg to differ. Actually I think that BEXIT is going to lead to the British economy experiencing its biggest growth spurt in a century. It’s the EU we need to be worried about.

How so? Leaving the EU is going to result in an epochal rollback of regulations in England (since Scotland and Northern Ireland are, of course, going to ditch the Emerald Isles). These rules and edicts are currently acting to limit or even throttle business, entrepreneurship and economic dynamism in Britain. This will be deregulation with a capital D. Think a combination of Margaret Thatcher and Ronald Reagan. How often does that happen?

Essentially BREXIT is the equivalent of several Big Bangs, except this time they will actually happen, quickly and will affect all corners of the British economy. It’s the sort of deep restructuring that the EU badly needs but will never dare to do. More! It’s what countries such as the US and China also should implement but will probably never do either and if they do, only minimally and slowly.

The British people did what other peoples in most countries won’t do. Order their leaders to restructure and reform immediately. Just what most economists recommend for flagging growth or stagnation. So why don’t the economists get it this time?

The pundits are worried about banks and so on leaving the UK and many probably will. But the UK currency will almost certainly become cheaper inducing foreigners to buy more British goods and to set up offices in the UK. It’s going to be a swings and roundabouts thing, just like those British roads.

How about those rich Chinese and Russian shoppers? London will now become a bargain basement. You think that will lead to the wives of African dictators forsaking London for Lisbon?

We should be saving our pity instead for the EU. It’s already in big trouble. This will just make things even worse. It’s already propping up economic deadbeats in the southern zone, namely Italy, Spain and Portugal, with France not being far behind. And that’s not even counting Greece. Or Cyprus. Or Malta, Cyprus, etc. etc.

Essentially the UK and Germany were sustaining these walking dead. Now the UK is out its just up to Germany. It and the EU are not going to be able to stand this extra strain. The outlook is for an EU which could itself go bust, with only the IMF to bail it out, and/or the ECB speeding up the printing presses. Not a pretty picture. Where would you prefer to be?

And where do you think those legions of frustrated European entrepreneurs will go now? Poland? Latvia? I predict that if anything the exodus of monied and entrepreneurial Europeans will accelerate to Britain because those treacherous Britons will now make things even more attractive for EU refugees and poach the most canny European rain-makers.

Britain will now rev up efforts to attract European money, investment and entrepreneurs. Where do you think these guys will invest, London or Paris? I mean, who doesn’t love the compulsory 35 hour week, rolling strikes by air traffic controllers and the inestimable luxury of not being able to fire employees who beat up up their bosses?

What about the youth? Will they stay in France, Spain, and Portugal where unemployment amongst youth is 20-50% and an average of 22%? Or will they go to the UK where its 13%. You tell me.

Meanwhile in the EU we can expect more regulation, more bickering, more populists, more dysfunctional economic outcomes resulting from fundamental structural problems in the EU framework. The overwhelming likelihood is that they are going to get worse, not better.

And that’s not even counting jihadists and weak security environments within the EU!

Here’s another thing. To whom do you think England will turn post-BREXIT? Clearly not Russia or China. How about the US? Could we end up with the EngU, a de facto or maybe even a de jure union of the English-speaking peoples instead of a European Union?  Was this the real hidden jewel all along?

I predict a significant strengthening of US/UK economic ties which will at least offset the advantages of a slightly bigger European market. Here’s a really tough question for you; which bloc is the more dynamic economically? The US or Europe?

In effect the UK has dropped a failing economic bloc with a statist, unentrepreneurial and static economic culture for a winning, still-superpower US with a dynamic, risk-taking entrepreneurial culture. Which would you think has the best long-term chances?

So the UK has given up a huge market right? Do you think EU exporters will now refuse to sell to the Brits in a fit of jilted pique? And with a weaker pound, do you think EU importers will pass up the bargains that will now be enticingly on offer, perfidious though Albion might have been? I don’t think so. Much more likely is that the EU will figure out a special relationship so that they don’t miss out on the goodies that the Brits have yet to offer.

And, by the bye, if it really does come to a shooting war in Europe, sad as it might be to have to contemplate such a scenario, who would you prefer on your side. US/Britain or Germany/France. Clearly in such a situation it will be the US and Britain which will be storming the ramparts.

Did anyone ever hear of NATO? Aren’t we hearing that it has now suddenly become vital for Europe? Which contains the EU, remember? Won’t the security blanket for the EU actually be the US/UK, uncomfortable as it might be to acknowledge this inconvenient truth?

BREXIT could go many ways. But I for one don’t think that it’s inevitable that the Brits will be the losers. To me it looks like they made a smart, albeit unplanned and unconsidered move which accidentally is a winner. The wisdom of crowds all over again.

BTW I supported and still support the UK continuing to be part of the EU. Isn’t that contradictory to the tenor of this post? Not at all. I support the continued membership of the UK because I believe that the long-term gains for the world from a broad political grouping transcend the narrow interests of one country in the shorter-term

But if a country leaves because it believes that it’s getting short-changed in the process you can’t blame them. There are net beneficiaries and net losers from the EU exchange. The southern zone are the net beneficiaries, the northern zone the net short-term losers. The answer of course if for the net beneficiaries to do something to redress the balance. If they don’t, just as Italy, Spain, Portugal and France aren’t, then the net losers are going to have a problem.

The EU is angry because they see the UK deserting a ship that both they and the UK see as sinking. And they both know that the southern zone isn’t going to do anything in the short-term to fix things up because their own politicians and populations are being feather-bedded by the arrangement and like things just the way they are.

It’s a tragedy of Shakespearean proportions. The English, having given birth to Shakespeare, see right through the plot and have decided that they don’t want to be part of yet-another Shakespearean tragedy.

Who can blame them?

[etedprince-blog]

A Turing Test for Leadership?

Did you notice that the next Apple developer’s conference will focus on Siri? Meanwhile the digital assistants’ wars have heated up with Google Assistant, Microsoft’s Cortana and Amazon’s Alexa. These all aim to create a human-like assistant that can interact through voice.

Nor are these the only entries. We also have Watson from IBM, NELL from Carnegie Mellon and Cleverbot from Rollo Carpenter. So the race is on to create a program that can work with us indistinguishably from another human.

You might have heard of the Turing test? It was devised by the British mathematician Alan Turing to judge if a computer could be distinguished from a human in a test where the human chats with either a program or a real person via a computer interface.

Periodically competitions are held to see whether a computer program can equal or better a human in interacting with humans. A computer won for the first time in 2014. Here’s the test. “If a computer is mistaken for a human more than 30% of the time during a series of five minute keyboard conversations it passes the test”  In 2014, program Eugene convinced 33% of the human judges (of 30 judges) that it was human.

Since then there’s been a lot of carping about what this means and whether it’s a meaningful result. But you can forget all of that. The indisputable fact is that these programs are getting smarter by the day. Just as a computer recently beat a human for the first time at the board game Go. AI programs are rapidly closing the gap in simulating human interaction.

It’s only a question of time before the computers win the Turing test decisively. We can expect advanced versions of AI programs which will give us advice and even solace, as I pointed out in a recent post (“No Thrills Mom - Towards the Giving Car”). At that stage the programs will no longer be a curiosity or just an assistant. They will become full-fledged companions, as in the movie “Her”.

So what comes after that? Is that the end of the road for AI? Here’s my guess. The next step on the road will be a Turing test for leadership. That is programs that can act as leaders so well that they cannot be distinguished from human leaders. For the sake of convenience I’m going to call this program Turing-L.

That might seem to be an impossible objective. By comparison it’s head and shoulders above the almost-humdrum task of creating a human companion. Now we’re talking about a superior being that’s capable of being anyone’s boss. One that can coach, advice, guide, mentor and order you around in things so you can perform better than if Turing-L did not exist.

Where would you start in creating Turing-L? Well for starters there’s a myriad variety of assessments for leadership qualities in people. That includes my own entry which tests people for their ability to create capital and profits, a hitherto unknown leadership assessment niche. You could start the development of Turing-L by basing it on an amalgam of these assessments to give it a framework for how to act as a great leader.

Of course, this would only be the beginning. The huge new advances in digital assistants mean that there is now a panoply of new approaches and techniques that can add to these traditional leadership approaches.

But in principle there’s no reason why the development of Turing-L should not be possible. Who knows, it might already be under development at some secret location managed by DARPA, the Russian or the Chinese militaries. Or just in Amazon, Google or Facebook.

So what would you use Turing-L for? I have a few ideas, that span the spectrum from immediate and more practical to – well make your own judgment after reading on. These below are the more obvious ones.

·         Leadership education and development for emerging leaders

·         A way for leaders to test out the impact of changing their leadership behaviors: sort of a counterfactual leadership simulator; what if I did this instead of what I usually do?

·         A full-on leadership simulator, say for use in the private sector, the military or politics or the universities.

·         A selection test for potential leaders, including maybe politicians.

Could computerized leadership be used in the system of international justice? Instead of jailing a wayward leader, as currently done by the International Criminal Court, could we make part of their penalty a probationary period being supervised by Turing-L, with a suitable enforcement mechanism of course? Could this be a necessary addition to supranational regimes to hold leaders to account? Could it be a vital element of the next United Nations? One that actually works?

But there is another possibility. Maybe we could use Turing-L to replace human leaders with leadership that is just better in every way. We already know that self-driving cars are almost certainly going to be vastly safer than cars driven by humans. Could it be that computer-driven leadership using Turing-L would result in vastly better leadership outcomes than using capricious and unpredictable humans?

As I have mentioned in another post (“Space will be the New Driver of Global Economic Growth”), I don’t think it’s going to be long before planetary colonization is going to be fully under way. Then we are going to get colonies of humans on other planets and in space colonies.

When a colony in a star-ship is traveling on its own far from Mother Earth, can we be sure that these colonies will select and develop the right leaders? We’ve always been worried about such colonies going rogue on us. Could part of the master-plan be that such colonies would be led by Turing-L or its successor rather than by humans? Might it at the least be prudent to have a computer-guided leadership backup rather than just wait for the extant leadership team just to fail and condemn the whole enterprise?

Leadership in space in remote colonies increasingly disconnected from Earth might well be the first big application of computer-based leadership. Turing-L is a way-station in this progression. We might scoff at such ideas now but – maybe in an emergency – suddenly discover we need wise and smart computerized leaders sooner than we think.

[etedprince-blog]

Would Trump be a Billionaire without his Inheritance?

Is this the elephant in the room? Trump's frequent allusions to his vast wealth and to how smart he is sounds awfully like the rich son who inherited it all but wants to convince everyone else – and himself – that really he did it all himself. So I thought I would do an analysis of this question.

I think I’m well qualified to do that. For the past 10 years I and my company have been conducting research on how the financial behavioral styles of executive’s impact profitability and valuation of the companies they work for.

I’ve published one book on this (The Three Financial Styles of Very Successful Leaders, McGraw-Hill 2005) plus numerous articles and white papers. My company conducts leadership development programs with companies, global in size to startups, to identify the behavioral capability of their executives to make and increase profits, using our proprietary psychometric assessments.

This is what is known in the trade as a “counter-factual”. In other words, we are imagining what could have been the case in another life of the Donald. So it’s just my view. But, as a reminder, financial metrics in his life are history and lagging indicators. Behavior is a leading indicator of performance. So as long as we rely on a behavioral analysis rather than just on his financial history we should be able to make a pretty good case for our counterfactual.

Our assessments are based on our own approach to behavioral finance, which takes the state of the art a giant step further. So what better than to test it out on a person of Donald J. Trump’s stature and reputation!

In order to conduct this analysis we usually use a psychometric assessment, but these are not strictly necessary if you know someone well enough. In the case of someone with the outsized persona of Trump that’s actually quite easy. It would be much more difficult with someone more, ahem, retiring or self-effacing. But we don’t have those particular problems here.

Our assessments identify the values of two factors; a person’s value-adding (VA) driver and their resource utilization (RU) driver. The VA driver is actually a measure of their innovativeness and the likelihood that they will themselves be the initiator of a product or service that is so disruptive that prices can be inordinately high and thus gross margins ultra-high. We’re talking Apple territory here.

The RU driver is a measure of how much they believe they can control facts on the ground by spending money. This driver is a proxy for how much they tend to spend relative to others. So it’s a disguised way of getting a handle on their expense levels.

Put these two together and you have a new way of identifying and measuring a person’s behavioral propensity to create (or consume) capital. We use a concept we developed called financial signatures®. There are 9. The top one (Marketmaker) is reserved for the tiny proportion of people who have very high VA and very low RU levels. Steve Jobs, Sergei Brin, Martha Stewart and so on. For your reference I’ve put the diagram at the top of the article showing the 9 financial signatures®.

The top financial signature® is the Marketmaker. These are only about 1% of the people we test. These are the Financial Alphas, you know as in Tarzan. I recently did a post on what Financial Alphas do for you.

So where does Trump come? Well on the VA side he doesn’t really figure. His MO is the same as most other real estate tycoons except that he now takes less risk than he did 35 years ago. So in his core area he’s not up there with anything that anyone else hasn’t done.

What about outside real estate? Well Miss Universe/Miss USA is a straight clone of any beauty contest. The Apprentice has more of a claim to fame except that is seems to be an outlier; there’s no other thing like it in his background that we know of any way. But there might be more significance to The Apprentice than appears at first sight, as I set out below.

I am struck by how, in reading accounts of his life, the concept of innovation never seems to come up. It’s possible that his entry into politics is a last ditch attempt to prove to others and himself that he can be innovative and so do something the old man indubitably never did. If that’s so, it could well be his best claim to innovator fame. But of course, he’s hardly there yet.

Whatever you think about The Apprentice, since he’s almost 70 and has never done anything particularly innovative we have to regard it as if the jury is in. It looks like the Donald inherited not only the Old Man’s money, but also his business model never changing it to something that was clearly of his own making. That of course is the typical way inheritors of great wealth operate; they go with what works unless they can’t stand being the same as the old man. 

Maybe Trump is striking out on the political front as a way of showing that he truly is wildly different from the Pater. So in that case the Presidential run could be viewed as a last ditch attempt at showing the world he really is his own man, money-wise.

So what level of VA would we assign him? Looks like medium to me. Not bad, certainly better than the general population but no way remotely near the greats such as Jobs or Gates.

What about RU? This is interesting. Trump learned no doubt at his father’s knee and his father was almost certainly frugal in business spending. But when he started out on the great game of life, Trump wasn’t. That’s why he almost imploded in the early 90s.

His evident love of things expensive is instructive in his personal approach to expenses. A luxuriously-appointed 757, various other flying accoutrements, Mar-a-Lago, and so on figure large in his lifestyle. So definitely not a Warren Buffet (you might remember it was big news when Buffett bought a new Cadillac in 2006 and he’s lived in the same, cheap, house since 1958). Now there’s a billionaire!

Trump is not innately a penny-pincher. Narcissists use high expenses as a way to project an image of success which is existentially vital for them. So big-spending is an intrinsic part of the Trump personality territory.

But here’s something interesting. It looks to me like his near-death experience of the early 90s taught him a lesson and since then he has changed his ways to become a tightwad i.e. low RU. In our model that’s good (at least for Donald J Trump and his shareholders and partners). So it looks like he is pretty agile mentally. Again good if you aren’t so agile you turn on a dime at any time. That might be great in business, less so in politics, but that’s another story.

So where does he come out? Medium VA, innately high RU but trending down in the latter. My guess is he started out in life as a Conglomerator, which usually loses money. But after the business emergency in his early career he made a sharp turn in behavioral strategy. He became a lot more frugal changing his business model from owning to selling naming rights, actually a pretty smart move.

So he started off life as a Conglomerator and ended up as an Arbitrageur. Arbitrageurs make money, but not much. They are never going to hit one out of the park but on the other hand you can rely on them not to lose money.

So nope, Trump is not a Financial Alpha. On the other hand he’s a lot better than most of our free-spending politicians and many a captain of industry. And you have to remember that our assessments of financial signature are highly selective, which I am sure the Donald would approve of, and the vast majority of people who are tested never test as a Financial Alpha.

Arbitrageurs don’t become billionaires. If they are a founder they lack the behavioral capability to envisage business models that are so disruptive that it changes the market for everyone. If they already have the money in hand they will be good prudent custodians of the wealth. Just don’t expect anything exciting.

So the answer to the question, would he have become a billionaire without his dad’s inheritance? Nope.

However that doesn’t mean he wouldn’t have been a successful CEO or entrepreneur. Trump has several strong personality traits that suggest he would come up trumps (pun intended) either as an entrepreneur or CEO of a large and successful company. These traits are highly narcissistic, manipulative, forceful, canny, agile, vindictive, unscrupulous.

You might think I’m taking a shot at him. Not so. I have posted already on precisely this subject - “Are Narcissistic, Uncaring People the Most Successful Leaders?” My answer to this is, often.

Often such people can be more successful than other more scrupulous leaders, providing they can airbrush their image to the extent that most people believe that they are more scrupulous than they actually are – Hillary Clinton?

My gut is that Trump could well have been very successful in his own right as an entrepreneur or as a leader of a large company. He could even have made a lot of money. But I think you can safely say he would never been a billionaire or anything remotely like it.

Nor does any of the above mean that he wouldn’t be a good politician or President. I’m not going to comment on the political aspects of his desired role. Suffice it to say that narcissistic, manipulative, unscrupulous people are hardly rare in politics.

Back to The Apprentice. I think that it was genuinely innovative. Yet it seems to have been a flash in the pan viewed in isolation. But I think not. I think there’s (yet) another side to Trump that has been widely noted but not widely understood.

Trump is really a promotional genius. It was that which got him into trouble in the early 90s. It was also that which has spearheaded a brilliant promotional campaign for President. It was what led to the Apprentice.

Trump is really a Promotional Alpha. That’s really his Thing.

How do we square that with my conclusion that he’s not a Financial Alpha? Easy. Just because you’re a genius in something doesn’t mean that you’ll make money at it. Look at Einstein or Leonardo da Vinci. The Apprentice was a creative breakthrough in its own right but it has hardly made Trump rich, nor his TV sponsor, NBC. Fundamentally it’s been chump change. But Trump actually wanted trump change (get it?).

Trump is really a promotional genius whose innate financial behaviors prevent him from becoming a billionaire doing what he’s uniquely talented at, namely promoting, preferably himself. He’s innately a promoter who has managed to get the inherent business disadvantages of this style under control and in the process become a prudent financial manager.

Trump’s tragedy is that he really wants to be a Financial Alpha when he can only be a Promotional Alpha, which can’t make him the money and bring him the respect he so desperately craves.

I wonder if he reads Shakespeare?

[etedprince-blog]

No Thrills Mom - Towards the Giving Car

All this stuff with new-fangled autos has become overwhelming. Self-driving cars, connected autos, car-sharing, electric vehicles, and so on. But the big question is, what does it do for me?

Self-driving cars will change everything. It used to be all about thrills. Hmmm, if I have a high-performance car, I want to drive it myself. Don’t trust anyone else to do it for me. If it’s being driven by a computer, do I really want to be doing 100 mph at 0.9 g around the turns, leaving rubber on the road? More likely once self-driving cars come along I want them to be sure and steady, staid, even boring and just get me there in one piece.

So forget the thrills for the car of the future. Power, performance, electronic wizardry is so passé. Been there done that. What do we all want now in our cars, once self-driving is breathing down our powdered  necks?

Here’s a straw in the wind. The Wall Street Journal just ran an article on Das Burnout’: An Epidemic of Stress in Germany.” Apparently 10% of German workers suffer from burnout. Of course, Germans don’t like talking about mental health issues and their feelings. But what’s the burnout levels in Americans who are famously inclined to talk about them? What’s the proportion generally of burnout out there?

How about cars that cure burnout and restore our sanity, mental poise and morality? Make us happy again. Free us from people telling us what to do as in in the famous quote by (Jean-Jacques) Rousseau   “Man is born free and everywhere he is in chains”. How about restoring us to a (safe) state of nature? Is that too much to ask?

We’ve all been watching the heroin crisis in the US explode. Then we’ve got ISIS, the civil wars in Africa and the Middle East, corruption in most countries. Famines, pestilence, disease, greedy people everywhere preying on their fellow man. Did we ever see any of this coming?

Yep, we did, or at least one person. Ever hear of Emile Durkheim? No? You’re a dummy! He was a French sociologist who lived in the second half of the 19th century. His main claim to fame was his coining of the term “anomie”. Once society becomes “advanced” he posited, individuals are left on their own without a moral compass leading to rising rates of deviance, social unrest, unhappiness, and stress. Sound familiar?

Anomie comes from a lack of meaningful companionship as a community and the lack of a shared moral compass. The opposite is the German idea of “gemeinschaft”, meaning a strong sense of shared community. The Germans still have a lot of that. Maybe that’s why they are still doing so well as a country. Most of the rest of the world is suffering from rapidly rising levels of anomie though.

THAT’S what I want modern autos to address! I can do without horsepower, driving dynamics and thrills if my car makes the world better and safer. Sound too difficult? Then get another job say I. Everything’s difficult. Quit whining.

What’s more important than reducing the high levels of anomie and restoring a state of morality to the world? If auto-makers and other companies are expected to contribute to reducing carbon emissions, shouldn’t they also be charged with making the world a more moral and happy place?

Ok so you agree, but how? Here’s a hint. You won’t do it just by applying advanced tech no matter how winsome.

Sure, after self-driving cars I’m sure were gonna get other whiz-bang do-dahs. How about immersive VR that we can bathe in as Siri Plus Plus takes us to work? Real-time video-conferences with connected autos and passengers about who knows what? Cars that schedule us for our busy lives with other equally busy people?

That’s still blah-land. None of that’s gonna make me happier, cure my burnout or stop me getting car-jacked. It’s definitely not going to impress the impressionable lads in ISIS. More of the same.

Since we all suffer at one level of another from Durkheim's anomie, what I want is a car that reduces or eliminates it. A car that reduces my mental stress, and in the process the desire to take drugs for it. One that will restore balance to my fractured  life and psyche. Make everyone want to be more moral. Help teach my kids the same thing.

OK, I can hear you already thinking this guy is a total looney-toon. How’s he gonna do any of that. Is this another unachievable Trump-boast?

I have a vision. It’s that an auto is a mobile oasis. In it I can feel calm and collected. It advises me how to address the mental blocks I have accumulated. Salve for the tortured soul. Something to slow down or prevent soaring rates of mental illness. Talk-therapy on wheels!

You know, talk-therapy? Sometimes called Cognitive Behavioral Therapy CBT? It’s used by therapists in conjunction with drugs to address many mental health issues. It’s pretty common. But all the research in this area shows that it’s much more effective than drugs on their own.

The problem with CBT is that it’s expensive, hard to find people who can do it, and in any case most people don’t have the time to do it. But why can’t a Siri-impersonator do it?

If you watched the movie “Her” you will recognize that this idea has already been aired (so to speak). In the movie Samantha acts as the digital therapist to Joaquim, a divorcee who’s clearly in the throes of anomie. The climax comes when Samantha disappears (spoiler: she outgrows Joaquin mentally), which is rather naughty of her in the circumstances.

But here’s the beef. I want my next car to come with a Samantha. Nope, I don’t want Siri, she’s really much too limited. I want someone on my level, or more advanced, who can help me with the life problems that everyone has. I want support, advice, insight, analysis, feedback and yes, even a little love if you can get that in the options package.

I want a giving car. Samantha is much more important than horsepower. A giving car has emotional power. Call it a car with horse-sense rather than just horses.

I don’t think this is too much to expect. Google is already rolling out a much more advanced form of Siri. AI is taking huge leaps. The Turing test has now fallen a couple of times to computers (see “Computer simulating 13-year-old boy becomes first to pass Turing test”). Elon Musk, Bill Gates and Stephen Hawking are already warning us about the perils of AI so clearly it’s got some traction.

It seems to me that the deep problems we are having these days are social, not technological. The tragic example of Prince and his drug overdose is yet another canary in the coal-mine. The widespread abuse of heroin is telling us that anomie is probably the deepest problem of our time, bigger than carbon emissions and nuclear proliferation. Anomie is what is motivating the rise of ISIS and other terrorist movements. Anomie is the most direct existential threat to the human race.

For most people in the world, a car is their biggest purchase after their house.

Let’s get some social and existential value from that purchase, not just a momentary thrill.

Let’s get some good old gemeinschaft back into all our lives.

[etedprince-blog]

Is widespread pill usage actually making us more disease prone?

Did you see that employers looking to hire are having a hard time finding them free of drugs, especially marijuana? Meanwhile the House of Congress looks like it’s going to pass a bill to help recovery by drug addicts, especially those who use prescription drugs. But for the moment, it looks like Congress is focused more on helping people to recover from drug addiction than on limiting the drugs themselves. So it looks like the copious supply will continue unabated. Oh well…

What drugs are your friends taking lately? Other than pain-killers and opioids I mean? How about pills for high blood pressure, cholesterol, diabetes, pre-diabetes, statins just to mention a few? Recently I was at a dealer repair center and I heard a group of older ladies discussing their medications. All of them were on them, most for diabetes and most taking not one but numerous different types of pills every day.

So drugs like marijuana are hardly the problem. All the other drugs and pills are. And the problem is going to get worse. Last year the American Heart Association recommended that statin drugs – used to lower cholesterol - be used by a wider swathe of people under new criteria they had devised. Under this change another 8 million to 13 million people would start popping them. That would mean that just under half of all adults aged 40 to 75 would be eligible.

Last year the American Medical Association estimated that around 60% of Americans take a prescription drug. But note carefully the use of the word “prescription”. That 60% doesn’t include non-prescription drugs such as Zantac and Tagamet. These are powerful drugs. Amongst other things they lead to decreased resistance to infection and increased risk of cancer and other diseases. And people often use certain non-prescription drugs long-term. – for pain, constipation, colds etc. So there’s no doubt that the actual rate of people taking pills is a lot higher than 60%.

Neither does that include people taking illicit drugs such as heroin, marijuana, spice and other synthetics. Add that and up goes the PP (pill-popping) rate again. Maybe it’s really more like 80% or even higher. When will it reach 100%? 2020?

And here’s another thing. How about all those drugs we take involuntarily such as antibiotics in meat, and food additives including as endocrine disruptors from bisphenol A, found in most plastic food packaging?  Pretty much everyone is popping these drugs involuntarily and in the main unware of their existence and effects.

We really have no understanding of what this pot-pourri of chemicals is doing to our bodies. How do they affect the brain? These days we know that the microbiome affects everything in our bodies. How is that affected? We don’t know about that either.

There are uncounted interactions between the drugs. We know about a few, not about the vast majority. Nor do we understand the long-term effects of such interactions.

We do of course see some of the more immediate effects. This obvious pernicious ones include obesity, mental disease, cognitive impairment and probably some auto-immune diseases. But that’s only the tip of the iceberg.

Now clearly some of these pills and food additives do some good for the individuals taking them. The problem arises when we all take them. As we know the massive use of antibiotics in animal feed to make livestock grow faster has led to almost universal drug-resistance in many disease agents such as TB. Economists and social scientists know this under there term “the tragedy of the commons”. That means that what is good for an individual can actually be very bad for society as a whole.

What could the tragedy of the commons actually be in the case of our collective pill-popping? It’s almost certain it’s having effects at the genetic level; we just don’t know what they are. But it’s possible to take an educated guess.

There’s a pretty good chance that this deluge of drugs is leading to many disease control mechanisms to become altered. Maybe to become less effective. Probably our collective genes have taken the decision that since there are other agents at work, they’ll sit back and let the outsiders do the work.

Of course, when these pills act on us, often it has numerous unintended side effects that we often just don’t know about, especially the long-term ones. Our own immune system no doubt gets very confused by all this. Sure, nowadays we have immunotherapy drugs for cancer and other diseases and they show a lot of promise. But that’s on an individual basis. What about the collective effects? What happens when you use them on not one or a few people but on a whole population? What happens to the human genome then?

So here’s my educated guess. I think that the ubiquitous taking of multiple drugs is having an impact on the human genome. It is likely reducing its ability to fight certain diseases, maybe many. It is impacting our health – short- and long-term in numerous ways that we don’t yet understand. It could be doing some really nasty things we haven’t even considered yet, like reducing our cognitive capacity – intelligence if we want to use that very loaded word.

And here’s what I think is the bottom line. The impact of these drugs is so widespread and their impact so powerful on individuals that it is having permanent impacts on the human genome. In other words it is affecting the evolution of the human genome and thus the human body and its functioning, including probably its cognitive functioning. It’s possible that some of these changes might have beneficial effects. It’s more likely that many will have – and are already having – pernicious or at least untoward effects. We just don’t know about them yet.

In a recent post I discussed the problem of declining human fertility and declining sperm counts in human males. We don’t know why these are happening. Maybe it’s all those pills?

Unfortunately the tragedy of the commons doesn’t announce itself in advance. One day the effects just become painfully apparent. Then it’s just too late.

We might be very close to that point right now

 Drug use, prescription drugs, non-prescription drugs, evolution, human genome

The near-ubiquitous use of drugs, prescription and otherwise, might be altering the human genome and altering human evolution, with unpredictable health effects.

Are prescription drugs having unrecognized long-term public health effects?

[etedprince-blog]

Could Genetically-Modified Humans Re-Ignite Global Growth?

I’m sure you’ve heard about the Vermont law that says that all foods that include genetically-modified ingredients must be disclosed on the label starting July 2016. Of course most of Europe doesn’t allow GM foods. China officially bans GM crops, although in fact the vast majority of them are in fact GM. So the movement to ban all GM foods is pretty strong despite what’s happening in the Middle Kingdom.

But here’s the problem. It’s a fact that gene-editing and modification technology has just taken a quantum leap. For those of you not in the know it’s called CRISPR/Cas9 (yep, really, I’m not kidding). To keep things simple, it’s kind of like word processing for genes. Copy, cut, paste. So now scientists can do things which even a couple of years ago were not even imaginable. So we’re going to get a lot of GM food, like it or not.

When will we get GM humans? Yep, that’s controversial, but it’s going to happen, just a question of when and by whom. The developed countries of the Western world will first allow it for genetic diseases. But there are some other countries that are not, ahem, quite so finicky. Super-warriors anyone? And, other than curing diseases there might be other conditions which might even influence the developed countries to allow it for certain prescribed purposes.

What might those purposes be? Well in the Western world we can probably rule out creating a race of superhumans, even though that might be possible. Of course we can’t be so sure about some of the other emerging companies out there without democratic governments who might not be so scrupulous.

BTW this technology is quite capable of being used by technologically backward countries; all you need is a well-equipped lab and a couple of PhDs with a bit of background in biochemistry.

But is there some purpose that might get both democratic and non-democratic countries to allow genetic modification of humans that would also get widespread support. Yes, there is.

It’s human fertility. We humans have got a really big problem. Reproduction rates everywhere are declining and it’s now clear it’s not because of the great recession, even though that did have a major temporary effect. Fertility is going down everywhere and is taking populations down with it.

The Economist article cited above on the baby bust surprisingly doesn’t refer to another factor – falling sperm rates in human males all over the world (see “Why are men's sperm rates falling?”).  The reduction has been significant – almost 50% in the past 40 years or so. A French study a few years ago found a substantial decline in average sperm counts between 1989 and 2005, from 73.6 million to 49.9 million per milliliter.

No-one really knows what’s causing it, although there are suspicions that estrogen-inhibitors in food (from food additives and leakage from food container plastics) might be the culprit. Be that as it may, falling sperm rates can’t be good for fertility and might indeed be a major cause for its global fall.

Falling fertility has a lot of effects which many people are deeply concerned about. Declining populations reduce economic growth and often put it into reverse gear. It makes it harder to pay for aging populations. It also hurts defense and military capabilities. Sure, environmentalists – rightly – like it as putting less pressure on the world’s resources. Just don’t tell that to the Chancellor of the Exchequer or the militaries of certain well-known countries (including us).

Countries that have declining populations that are really worried about it include Russia, China (soon), most of Eastern Europe (check out the Lilliputian Baltic States hemmed in by Big Bad Wolf Russia), Western Europe and (inter alia) new Zealand. All of these are facing problems of an economic nature much exacerbated by their falling populations (as well as way too much vodka in Russia).

The US is still increasing its population mainly due to immigration but that’s robbing Peter to pay Paul. Countries like France and Russia are now paying family allowances to get women to have kids but it’s not stopping the decline.

So it doesn’t take a lot of imagination to think of moves by many countries to allow gene editing in humans specifically for fertility purposes. Think I’m dreaming? Check this out: ”UK scientists gain license to edit genes in human embryos” “Scientists in London have been granted permission to edit the genomes of human embryos for research, UK fertility regulators announced”.  So it’s on folks.

Of course, in the UK it’s meant for individuals, not the whole population. But not all governments will make that distinction.

So this in the home of the free, the birthplace of (modern) democracy and an advanced regulatory apparatus to ensure that science is applied ethically. It’s all downhill from there.

If the UK is doing it, what about Russia, China and (OMG) North Korea?  You can be sure it hasn’t escaped their notice. Of course no-one is going to talk about it until they have actually done it and the glorious results are there for all to admire.

And even the central banks might be happy. Higher fertility means more babies, more economic growth and less problems paying pensions for central bankers once they, too, retire. Who isn’t for spurring global economic growth anyway?

Now I’m not advocating genetic modification for humans including to increase fertility. Let nature take its course, say I. I’m just saying it’s going to happen, like it or not. Chances are that the instigators are never going to ‘fess up. One day unaccountably in the future a certain nation or ten is going to announce that its population has suddenly increased, they just don’t know why.

Maybe there’s really no choice but for governments and regulators to accept this possibility and to ring-fence it as well as they can. Otherwise it’s going to become like drugs or prostitution; you can’t stop it once it’s started.

The gene (get it?) is about to come out of the bottle. Better be prepared.

 Generic modification, human gene editing, fertility, sperm counts, CRISPR

[etedprince-blog]

Fast fashion for Wall Street? Spice up investing with synthetic sectors!

Are you into fashion? You’ve probably noticed that retailing icons like Banana Republic and The Gap are getting crushed by the fast fashion guys like Zara and H&M. I mean, who wants something that’s a week old anyhow?

Hmm, tell that to the guys on Wall Street. The same old asset classes, the same old sectors. I was just reading an analyst report on the sectors that are hot and cold. Guess what? Who’s interested in energy as a sector anyway? Or consumer goods? Been there done that!

Give me something new and intriguing to feast on. Why not some high-frequency fashion on Wall Street too? Otherwise it’s just too boring. Wall Street is serving up work duds when the entire world is going to fast fashion!  I guess that’s why hapless investors just give up on active investing and go to ETFs. If it’s gonna be boring, do it properly.

There seems to be so much misplaced gravitas and naïve expectation surrounding the traditional sectors like consumer goods, clothing, technology and healthcare. OK so you’ve got subsectors to give you more choice, but by modern standards they’re old, boring, few and actually no choice at all. No wonder no-one ever makes much money. There’s only so much you can do with sector rotation, or changing allocations with the business cycle. How about some pizzazz, color, change, movement?!

It seems to me that we could spice up sectors by creating your own. Fast fashion uses synthetic materials right? So Wall Street can have synthetic sectors too! With modern fashion, synthetic materials are often vastly superior to natural materials So why shouldn’t our synthetic sectors be vastly better to what Wall Street has been serving up to us for yonks?

How about chocolate-flavored cotton; you remember, Milo Minderbinder in Catch 22? What about the sector of things that are flat and long like steel pipe, penne and pickaxes (sector: “flatties”)? Or things that explode, like soda, dynamite, fireworks and mortars (boomeroos)?

Did you know that written Chinese uses a system where every word has a classifier in front (usually but not always) of it (a “radical”) that describes what kind of word it is? So you can have radicals for knife, ice, table, cliff and so on that are put with any word (actually a character) that has a resemblance to the classifier. Why not use Chinese radicals as a basis for sector allocation? Then we and the Chinese for once could be on the same page.

Actually you could create your own system of Western radicals say based on Latin roots, and then classify products based on them. Then you would have a Latin-based sector allocation. It’s about time we started teaching the Classics again. Let’s use a bit of old-fashioned imagination here folks!

Would that be any less sensible than using the current sector labels? Why should current labels be the basis for sectors if we can create our own? Let investors decide their subsectors for themselves. Self-determination is the watchword for fast fashion, not grand-dame styles proclaimed from on high.

There’s no logical reason why any sector should be defined in a traditional way if you can define it in your own way, as long as you can group some items together which have some resemblance in some shape of form. You could figure out the level of resemblance by running some regressions over a number of years to find the correlations between the synthetic class members. That shouldn’t be difficult for the quants.

Come to think of it, once quantum computers are released to the unsuspecting public, there’s no reason why you shouldn’t run as many of these programs as you like on as many synthetic classes as you like instantaneously, just as they will be used to revolutionize high-speed trading in the near future.

So that would give us fast fashion in the area of sector allocation. Maybe different synthetic sectors every week, never see the same one again. Now that’s intriguing, definitely not work duds. Maybe I would go for that one rather than the old stuff Wall Street keeps on serving up now.

What about just-in-time sectors which you could have disappear once they are used? Just like Snapchat with disappearing photos, so you would immediately generate massive demand from Millennials to trade stocks again; they get Snapchat even if the Street doesn’t. You get the idea.

They would be one-use sectors, kind of like single-use shavers or like the old vinyl records that in the beginning of the recording industry you could only play once. Snapchat-ized dynamic synthetic sectors would be a great way to keep your lead in the market, keep everyone guessing and therefore keep your returns astronomically high. Maybe it would bring back active investing again!

There would be nothing to stop you offering sector specials, maybe open for a day or so before they’re closed. Maybe you could bring them back again a few months later, but with a different twist. With a lot of computing power you’d be able to slice and dice the synthetic sectors into different types of specials. Just because the sectors keep on changing doesn’t mean you can’t keep tracking them behind the scenes, no matter how they are defined and classified. That’s what computers are for.

Maybe some people might feel disoriented by ever-changing sectors. But folks, that’s fast fashion. Better get used to it. The Millenials are already there, it’s just the gerontocrats on Wall Street and in global investing locations generally that haven’t caught up yet.

That’s what investment and trading leadership is going to be all about. The constantly-changing sectors will be like new clothing fashions. The way to get back the cool factor and customer interest might well be to redefine equity trading as a fashion business. After all, defining it as a serious investment activity doesn’t work any more, right?

Synthetic sectors might well be regarded as a whacko idea. But it seems to me that Wall Street needs a few more of them right now. Active investing is pretty much dead, the hedge funds are in disrepute and ETFs are the only game in town, well kind of. But they’re commodities right now, with no cool factor and no chance of ever making real money, like people did in the old days.

Time for Wall Street to dive into fast fashion and reclaim its long-lost cool,methinks.

 Sector investing, sector rotation, fast fashion, investing, ETFs

I

[etedprince-blog]

High Frequency Trading Trashed by Quantum Computers?

I’m sure you’ve all heard of high-frequency trading (HFT). We now realize that  HFT could actually bring down the stock market. As it is, HFT accounts for at least half of all the stock trading in the US.

This isn’t to complain about HFT. It is what it is. Maybe it makes it hard for small investors. It’s certainly changed the nature of equity trading and thus of equity arbitrage which thus impacts investing generally as well as M&A.

Fast-forward to HFT in the near-future. Google is now running the D-Wave “quantum” computer it acquired from Canadian company D-Wave. It’s rated at 1000 qubits (don’t ask). On the scale of quantum computers that’s awesome. Google is still figuring out what it can do with it. That doesn’t mean running big spreadsheets by the way.

There’s a wrinkle though, actually a pretty big one. The D-Wave is not seen by the purists as being a true quantum computer. It’s a hybrid and as such it doesn’t beat conventional computers on many types of problems.

But the race is on. IBM claims to have the real McCoy. It’s widely suspected that a number of private companies are well-advanced.

More to the point we can be pretty sure that the spooks in the US, Russia, China, Israel and others are also well-advanced in their development of a machine that can be used for code-breaking and the like. The NSA has already been confirmed to be building one.  So we can be dead sure that the other countries aren’t far behind. In fact it’s quite on the cards that one or more could be ahead.

So where are we going with all this? Looks like HFT will soon get a big lift from quantum computers. So it will get faster. Now that’s when things get really interesting. What do we really mean by “faster”?

The nature of quantum computers is that they can use the phenomenon of superposition to do a huge number of computations all at the same moment. So when you talk about using a quantum computer for speedy trading, “speedy” means something totally different. In many cases it means instantaneous, no matter how big the problem.

It all depends on the problem. But it’s conceivable that it could be applied to a problem such as predicting the values of all stocks in the world for the next 100 years in one calculation. Or it could calculate the values of all counterparty contracts in the market for the next year. Or simultaneously go short and long on every stock in the world, maybe without people even knowing it. Etc. etc. and so on.

In other words, suddenly HFT is going to look painfully slow, In order to get back into the race the HFT-ers are going to have to acquire one or more quantum computers. It’s going to be the new toy for Wall Street grownups. If you aren’t doing HFT with quantum computers, you won’t compute J

Here’s another thing. Once you have a quantum computer, totally new types of arbitrage are going to open up. In fact the idea of arbitrage itself is going to change. That’s because quantum computers can in certain circumstances be used to introduce and leverage time dilation (go ask a philosopher). So if you think you’re gonna just do things faster, think again. You’re going to have to do them different, very different.

Now I’m definitely not the right person to be talking to about what they can and will actually do. But we can say one thing for sure. They will do things that are unimaginable right now in the investment and equity prediction spaces, inter many alia. And it will all happen pretty soon.

But here are a few odds and ends that occur to me as being issues that are going to emerge as quantum computers are deployed.

The good news:

·         Quantum trading will open up new opportunities for active investing once quants figure out how to make it all work.

·         Same thing for alternative investing.

·         It’s going to change the nature and potential profitability of arbitrage.

·         We might all actually get to know the real exposure from derivatives, synthetics and exotics.

The bad news

·         Trading ahead of the market will now become vastly more simple, powerful and hard to detect.

·         There’s going to be some huge mistakes made by traders, any one of which could break the markets globally.

·         The problem of rogue traders is going to be much more difficult and serious. Instead of trades for a few million maybe they will be for a few billion, or even more. How about a rogue trade for several trillion that goes wrong?

·         This is going to lead to serious issues in money laundering, and other computer-enabled criminal acts such as digital theft (c.f. the IMDB mess in Malaysia and the recent Bangladeshi central bank heist).

The terrible news (for traders and their sponsors):

·         The Feds are going to amp up their regulatory efforts - by a quantum leap (get it? J )

·         Trading and investment services are going to have to ramp up their compliance by another even more quantum amount, which will make their already-diminishing earnings look even more pitiful

·         “Too big to fail” is going to mean companies that are much smaller than right now. A company with just a few traders could well be too big to fail – maybe it can’t fail even if it’s one person. That means a lot more regulatory pressure on trading and financial services firms, even tiny ones.

Quantum computers are definitely progress and overall they are going to improve the human condition.

But that doesn’t mean the money men and women aren’t going to suffer disproportionately.

[etedprince-blog]

We Need the Interplanetary Monetary Fund now!

So finally SpaceX made it and soft-landed its booster rocket. An epochal achievement. And Bezos’ Blue Origin did much the same although on a lower orbit. So now the race is on. Next it will be the Russians, Chinese, Japanese, maybe even the North Koreans, God forbid.

It’s now obvious that we have pretty much everything we need up there to keep body and soul together. Water, methane, minerals, solar energy, inflatable boudoirs. Drop in a few 3D printers and voila, you’re off to the races. Fully formed colonies with hardy colonists. Probably making huge loot from capturing and mining asteroids and selling the stuff to those insufferable and weakly Earthlings. New billionaires being minted far from Earth every day.

There might be free trade with the space colonizing powers like the US, Russia and China but it’s a long way to Tipperary; so the pressure will be on to be self-sufficient. Since there will be colonies on several planets – the Moon, Mars, Titan, Europa it’s gonna be a lot easier to trade with them rather than the Earth guys. Sure you can barter but it’s a long way to truck a rocket-load of nickel from Mars to Titan. Easier to just pay with good hard cash.

Hmm but whose cash? Which currency? Will the American colonies on Mars use dollars when they trade with the Russian colonists on Titan? Or rubles? Now there’s an issue. Not just which currency but who will back it and manage it? Make sure that it doesn’t get out of whack with the fundamentals, too much currency chasing too few goods for example.

Once you have several colonies they’re going to need to levy taxes to pay for the infrastructure that’s going to be badly needed as the colonies develop and expand. The home offices back at the ranch (Earth) are going to want some of that cash to shore up their failing finances as the Earth goes bankrupt.

The colonists are not going to like that one little bit. So some of them are going to revolt and announce their own forms of self-government and independence. No taxation without representation, remember? We’ve see this movie before, right?

So get ready for the new macro-macro-economy; the economies of the countries of Earth and the colonies of the planets. It’s probably just around the corner.

It’s a moot point whether it will be set up by the doughty colonists or Earthlings. One thing’s for sure; if the colonists don’t buy into it it’s not going to work and they’re going to go it alone.

Which will it be – the Interplanetary Monetary Fund or the Monetary Fund for the United Planetary Colonies? The former headed by a prominent, highly educated Earthling, the latter by a hardy, bold, insolent adventurer like Jeff Bezos or Elon Musk? Now that’s gonna be an interesting election…

It’s inevitable that global finance is going to have to make way to interplanetary finance. There will have to be a new currency – spacecoins anyone? There will need to be a Financial Stability Board for Space. The governors of the board will have boondoggles on Titan for meetings. Naturally there will be Ted talks on the Moon.

There’s going to be interminable arguments about how expansive interplanetary financial policy should be and what support mechanism the space colonists should set up to prevent them from going bust. There’s going to be a profusion of words about being too big to fail.

Inevitably there’s going to be busts as a space-based business cycle takes hold. It’s going to be cool to do your degree in space finance at the Martian Institute of Solar Finance. Keynes will now have the same reputation as Marx or even Engels. There will be new types of financial studies such as quantum economics and finance to replace the now-unutterably old-hat disciplines of behavioral economic and finance.

We are about to enter the next Golden Age of growth. Ever since the world was colonized several hundred years ago, growth has been great except for a couple of world wars and a few recessions. That growth has now come to an end. Space colonization will jumpstart the next great growth surge.

This time around it would be better to do things right. That means in particular getting the household finances of the planets in order so we don’t repeat the mistakes of the last few hundred years. We don’t want a repeat of the Dutch tulip manias on Mars or Scottish land scams in Titan.

Time for the eggheads of the international financial institutions to get their noggins together to plan this one out in advance. Get the ball rolling on the Interplanetary Monetary Institute now, before we inadvertently discover extra-terrestrial hyper-inflation.