Winning by Sharing

UK General Election today. A message for our so called leaders.

Inspired by my good friend Frank Dunn, who says;

One of the key discoveries of this century is that co-operative processes in general seem far more likely to survive than isolated, rampantly selfish entities wherein survival is all about group or team effort.

....leading to a future of "Doing better with less"; 

Let's stop claiming to dominate nature and the world; let's stop making possession a superior end. Let's put our cherished deviancies, such as the manufacture of desire and its bulimic satisfaction, back in their place.

Humanity's progress must be situated on the side of being rather than of having.

...and for our so called leaders;

Let us dream: A politician takes the side of talking to us about the world as it is, as it risks becoming; he or she forecasts not sweat and tears, but difficult tomorrows; she or he proposes that we talk about it, as responsible citizens, and allows us to perceive robust paths along which to advance, with a smile, towards the era of less ... A less that will consequently take on the character of better.Robert Lion, France, circa 2007

Peace.

The Right To Reject: General Election

We need a fundamental change in the electoral system so it includes a check box on the ballot paper, along with the list of the candidates that says:

 

Not good enough.  Go back and find some better candidates because most (but not all) of you are pretty crap.  

Here's why. Quoting Robert Lion, France, circa 2007

Let's stop claiming to dominate nature and the world; let's stop making possession a superior end. Let's put our cherished deviancies, such as themanufacture of desire and its bulimic satisfaction, back in their place.Humanity's progress must be situated on the side of being rather than of having.

...and for our so called leaders;

Let us dream: A politician takes the side of talking to us about the world as it is, as it risks becoming; he or she forecasts not sweat and tears, but difficult tomorrows; she or he proposes that we talk about it, as responsible citizens, and allows us to perceive robust paths along which to advance, with a smile, towards the era of less ... A less that will consequently take on the character of better.

Do any of our leaders think this way?

What kind of superpower could Russia be?

Not my words, source unknown.

Russia, China and the US -  Weiqi (Go) and Chess - Strategic Thinking versus Tactical Thinking

<reproduced from an email received with no attribution, not my words/essay>

In 1972, in Beijing, Henry Kissinger asked Chou En-lai, the then Chinese foreign minister if he thought the French Revolution of 1789 had benefited humanity. “We Chinese feel it is too soon to tell,” Chou answered.

As James Pinkerton wrote, “sitting atop 5,000 years of Chinese history, Chou had a point: it can’t hurt to let events unfold before rushing to judgment. The Chinese, after all, invented the game of weiqi - known in the West by its Japanese name, go - which requires the utmost in patience and a sense of long-term positioning. And that outlook spills over into geopolitics; the Chinese worked on their Great Wall, on and off, from the 7th century BC to the 17th century AD.”

The game known in English as go, Igo in Japanese, Weiqi in Chinese, Baduk in Korean — is not just more difficult and subtle than chess. It may also be the world's oldest surviving game of pure mental skill. As for the origin of the game of Weiqi, it is known to have been developed in China, but the dates are open to much speculation. One story has it that it was invented by the Emperor Yao (ruled 2357-2256 B.C.) as an amusement for his idiot son.

A second claims the Emperor Shun (ruled 2255-05) B.C created the game in hopes of improving his weak-minded son's mental prowess . Finally , a third theory suggests that Weiqi was developed by court astrologers during the Chou Dynasty(1045-255 B.C.). In any event , it is generally agreed that Weiqi/GO is at least 3000 to 4000 years old which makes it the world's oldest strategic board game. The origin of Chess being circa 600 AD, considerably later than Weiqi/GO.

Whereas Chess is, as one Grandmaster put it, “99% tactical”, Weiqi/GO is 100% a game of strategy.

Militarily, Chess is a single battle; Weiqi is a multi-front war. The former is conducted on an 8x8 board; the latter on one of 19x19 squares or 361 interstices. Chess is a game that relies entirely on the left hemisphere of our brain, the analytical function; Weiqi requires the employment of both left and right brain hemispheres – analytical and perception of spatial patterns respectively. Chess is designed for short term engagement and Weiqi for the long term.

Chess versus Weiqi - Object Of The Game

Chess: Checkmate Opposing King = Total Victory
Weiqi: Obtain Larger Territory = Greater "market share"

Brain Functions Used In Playing

Chess: Almost Entirely Analytical (left brain).
Weiqi: Fully utilizes/integrates analytic (left brain) and artistic/pattern recognition (right brain) functions. Intuitive analysis. One requiring multi-tasking.

Number of possible First Moves.

Chess: 20 White x 20 Black = 400.
Weiqi: 361 Black x 360 White = 129960, although symmetry reduces this number to an effective 32,490.

Estimated Number of Possible Board Configurations

Chess: 10 to the 120th power
Weiqi: OMNI Magazine in June, 1991 proposed 10 to the 761th, but most believe that the correct figure is really on the order of 10 to the 174th.

Military Analogy

Chess: A single battle.
Weiqi: An entire multi-front war.

The Nature of Play

Chess: Primarily tactical, with only a modest strategic component.
Weiqi: Profoundly strategic, but with incisive, complex, integral tactics.

Countries Using This Kind Of Thinking In Their Political Decision Making.

Chess: US, Western Democracies and Eastern European Nations.
Weiqi: China, Russia, Japan, Taiwan, South Korea, Hong Kong, Singapore.

China and Russia are following the basic principles and concepts of Weiqi; the US is using those of Chess. Acquiring territory by isolating its opponent’s pieces, by finessing them, not using force and the assumption that removing the “King” or the opponents “pieces” will secure victory. Engaging in a multi front effort: not narrowly concentrating and counting on a single objective to achieve its ends

Finally, a quote:

“Dr. Hans Berliner, a leading Chessmaster, former World Correspondence Chess Champion, Professor of Computer Science at Carnegie Mellon University, and one of those whose work on chess led to the development of IBM's Deep Blue and its descendants said: "

You don't have to be really good anymore to get good results. Chess is winding down.....What's happening with Chess is that it's gradually losing its place as the par excellence of intellectual activity". And he concluded: "Smart people in search of a challenging board game might try a game called Go..."

The people doing war games in Washington should take note; they might want to reconsider their tactical and narrow approach in favour of a more strategic one, one that employs the whole brain, not half of it.

Selling England by the pound

Image via Wikipedia

"Digitising the medical records of the country’s 62 million people was the core objective of the National Programme for IT in the NHS, accounting for £7bn of the total estimated cost of £11.4bn".  If you work in the IT industry, as I do, you just know something's profoundly wrong with this number, but that's not the point I want to make. Earlier this week the BBC published a news item about a deal that's been struck with life sciences and pharmaceutical companies to provide access to our patient records, possibly for free in exchange for cheaper medicines in the future. 

A few years go not long before the last general election, a friend called me and said that Conservative Central Office wanted to speak to a few people about new ideas.  CCO wanted to ‘hoover up’ good ideas to help shape and influence policy. He put my name forward.   I wrote a one page document with this core idea;

We propose that it is economically viable for the UK's National Health Service (NHS) to become a self-funding entity by selling anonymised patient healthcare data to a wide variety of industry actors, locally and internationally.  We also propose that an individual’s healthcare data record itself can eventually become an earning asset that can be passed on to future generations. Think about this.  Data is the new oil.

This model was verified by IBM, Google and the UK Work Foundation at a meeting at IBM’s Almeida Research centre in the US, over 4 years ago based on real data and financial modelling produced by an American expert, who has since died. His name was Jeff Kelley.

The BBC's article says: ’Under the plans, NHS records would be made anonymous, but it is not clear whether private firms would have to pay to access them'.

So a profound amount of wealth may be given away in exchange for some benefit that some medicines might be cheaper in the future from Big Pharma.  Oh gee thanks.

When Jeff Kelley was working on this he met all the big pharma firms and they said they would pay for this data – lots of money, and they would still make money, actually more than they make now because this data can reduce bringing a new drug to market from 50 years to 5 years.  That’s worth untold billions to the pharma industry.

So we have a situation where we're going to spend £7bn on digitising NHS patient records, to a company that has already failed to deliver and then give away the data which has the potential to make the entire NHS self-funding.

That's why we're selling England by the pound.

Note: Selling England by the pound is a famous album by rock band Genesis. The song with the album title in the lyrics opens with;

"Can you tell me where my country lies?"
said the unifaun to his true love's eyes.
"It lies with me!" cried the Queen of Maybe
- for her merchandise, he traded in his prize.

****UPDATE 20 April 20 2014****

Fastcompany article describes how Nest & FitBit are creating multi-billion dollar companies from the collection and resale of consumer data. We in the UK however, will give away patient health care data free of charge.  I don't agree with the HMRC selling our tax data to third parties but at least they understand its value.

A message for our leaders

Let us dream: A politician takes the side of talking to us about the world as it is, as it risks becoming; he or she forecasts not sweat and tears, but difficult tomorrows; she or he proposes that we talk about it, as responsible citizens, and allows us to perceive robust paths along which to advance, with a smile, towards the era of less ... A less that will consequently take on the character of better.

Let's stop claiming to dominate nature and the world; let's stop making possession a superior end. Let's put our cherished deviancies, such as the manufacture of desire and its bulimic satisfaction, back in their place. Today's progress must be situated on the side of being rather than of having.

Robert Lion, France, circa 2007

How to solve the current financial crisis

Email written by Frank Dunn, 8th October 2008.  Reproduced with permission and for the record.

Since I was asked this question yesterday by Mike Toogood, CEO of Square Mile estate agents; I have put some effort into collecting the important issues together. 

Short Selling per se is the wrong villain; naked short-selling, especially intraday is what needs to stop.  The short-selling ban for financial stocks was always slightly clumsy, a temporary expedient to solve an immediate problem.  Its effect was similarly temporary: street-savvy traders would always work out ways to circumvent the ban; & they have.  I alluded to a few ways in a previous bulletin.

The ban also never was going to address a key part of the problem: intraday trading.  Many Hedge Fund managers are former ‘prop traders’ (Proprietary Traders who used to work at investment banks trading ‘the book’ – the bank’s own money - for the bank).  As such they learnt not to hold positions overnight unless they were absolutely sure of them.

Instead they dive in & out of the markets, using very short-term trading ‘signals’, nowadays mostly from software, but built around chart patterns; known as Technical Analysis.  Having designed a lot of this software personally, I can tell you a great deal about its strengths & weaknesses.  The flaws of the software are nevertheless not the biggest threat.  It is the timescale at which everyone is now trading; namely building up massive positions during the trading day; and then ‘closing out’ and going home all-square,

Intraday trading like this is normally permitted at very high gearing. This means very little capital is required for moderate positions; but more importantly very large bets can be placed with only modest capital.  The effect of this is to exaggerate & exacerbate very short-term trends; in other words it creates volatility and uncertainty by its very nature. This needs to be prevented.

Moreover, the same traders that pursue high volumes of intraday trading also hold what are called naked positions, or raw or uncovered holdings: large one-way bets for longer periods that a particular price movement is on the way.  This is completely contrary to the original spirit of hedge fund management; whose name implies that you offset any large positions by counterbalancing investments to reduce risk.
Naked holdings are a similarly destabilising influence and need to be prevented.

Solve the problem at source

The rewards for Hedge Funds in performance fees are enormous.  Estimates for the overall size of the business vary widely; but it runs to trillions of dollars.

Yet most of them do not have a clue how to offset risk.  I suggest that they either learn or go back to the less rewarding world of conventional long-only fund management.

The way to make them learn is to make them file nightly reports, via their broker as I have suggested previously; justifying the positions they are taking, in terms of counterbalancing holdings in their portfolio.  No report; no trades; the reports can be forwarded anonymously to the academic world for verification by postgraduate economists; just like an exam marking scheme. (Bernanke could surely set his up in a jiff?)

Of course in the real world, zero net risk exposure is an impossible ideal.  How much exposure should we permit?  My suggestion is that they pay for risk exposure by depositing funds pro rate with their regulatory body: 5% net exposure means you deposit 5% of your fund with the regulators.

This means those that are the most destabilising influence have to cough up the most; which seems fair?  The funds they deposit can be used to offset instabilities yet further (see next section)

Funding a secondary market for interbank trading; using robot Market Makers

The problem with the interbank market is that it is rife with rumour, as we have so recently seen; and those rumours make everyone vulnerable.  What is needed is a secondary market where the borrowers remain anonymous from the general market.  For such a thing to operate requires market makers; that is organisations that offer ‘prices’ (interest rates in the case of loans) that they guarantee to meet, rather than the indicative ones of the interbank market.

Market maker software is now sufficiently advanced to outstrip the capabilities of any human: the spreads that are offered need to be adjusted, not just in relation to the order book of the market under question; but with respect to the dynamics of related markets.

I suggest market-making be a non-profit function; run by the regulators & central banks in conjunction with the larger banks.  Competing market maker models can be used; to measure their effectiveness of a continuous basis.  Funds for the scheme would be obtained from the Hedge Funds who are destabilising the system; as explained in the previous section

There are many other proposals, but these 2 are urgent.  Long-term, I would like other investors to ‘do as I do’; and pursue investment schemes that are deliberately designed to contribute to the efficiency of markets; rather than detract from it.  This is a big ask; and will take some time.  Nevertheless I am happy to report that recent tests of my new smoothing software show we could have traded through the last few weeks; hardly noticing the volatility.  Like Noah, I am prepared for the next big storm: will anyone come & join me?

Finally, I should stress that no-one can solve this alone; not even the US cavalry of the Paulson/Bernanke team.  It has to be a team effort across the globe; something that we all solve together.  So I should stress that my suggestions should be regarded as additional ingredients to be put into the mix; and that they assume the frantic & furious labours of our leaders will get the global co-ordination they need.

Moreover, they are only proposals.  Like all ideas, if they are to be any good; they too need the contribution of others to work.  The time for heroes & saviours is over; everyone has to do their bit.

Frank Dunn is a professional commentator on Hedge Fund strategies & advisor to numerous financial professionals. Along with many noted academics, he has argued for some time that risk models need updating; to reflect the dynamic nature of sentiment risk; that is the changing behaviour of market participants.  He uses a variety of highly mathematical techniques to model this; built upon the theory of Social Networks.

Not winning by not sharing

When one of the world's richest men says; "The trouble with America is that it keeps helping people like me, and I don't need any help." -  Warren Buffett - it's not a good sign. The increasing concentration of wealth in too few hands has historically led to disaster, collapse and dissolution.  The American Empire will be no different. On the bright side, events like this trigger re-birth and hopefully the widespread adoption of decentralised organisation.