Tag: book

Book Review: Trade Wars Are Class Wars

In Trade Wars Are Class Wars: How Rising Inequality Distorts the Global Economy and Threatens International Peace (Amazon,) authors Matthew Klein and Michael Pettis argue that a handful of elites have captured the financial benefits of open global trade and finance. This has caused a global savings glut and a hunt for safe assets that has resulted in a series of boom-busts in American asset prices and an hollowing-out of its manufacturing base. These underlying income and wealth inequalities have manifested themselves as trade wars.


Trade war is often presented as a conflict between countries. It is not: it is a conflict mainly between bankers and owners of financial assets on one side and ordinary households on the other—between the very rich and everyone else. Rising inequality has produced gluts of manufactured goods, job loss, and rising indebtedness. It is an economic and financial perversion of what global integration was supposed to achieve.

America’s openness to international trade and finance means that the rich in Europe, China, and the other major surplus economies can squeeze their workers and retirees in the confidence that they can always sell their wares, earn their profits, and park their savings in safe assets.

The world’s rich were able to benefit at the expense of the world’s workers and retirees because the interests of American financiers were complementary to the interests of Chinese and German industrialists. Both complemented the interests of the wealthiest throughout the world, even from the poorest countries.

The book is an easy read and anyone who is interested in understanding the current macro environment should read it.

Recommendation: Read it Now!

Book Review: Range

In Range: Why Generalists Triumph in a Specialized World (Amazon,) David Epstein write about how people with a wider array of skills and experience end up having a larger impact on society than people who go deep.

There are certain domains that are kind learning environments, like chess or golf, where patterns repeat over and over, and feedback is extremely accurate and usually very rapid. A learner improves simply by engaging in the activity and trying to do better. In wicked domains, like investing, the rules of the game are often unclear or incomplete, there may or may not be repetitive patterns and they may not be obvious, and feedback is often delayed, inaccurate, or both. In the most devilishly wicked learning environments, experience will reinforce the exact wrong lessons.

The story of why Stanley Druckenmiller was appointed the director of equity research in 1978 at the age of only 25 comes to mind. Speros Drelles, the director of investments, demoted Stanley Druckenmiller’s boss after his boss having been with the bank for over 25 years and was approximately 50 years old. [‘You know why I’m doing this, don’t you?’ –Speros Drelles] No. [‘For the same reason they send eighteen-year-olds into war.’ –Speros Drelles] Why is that? [‘Because they’re too dumb to know not to charge. The small cap [capitalization] stocks have been in a bear market for ten years, and I think there’s going to be a huge, liquidity-driven bull market sometime in the next decade. Frankly, I have a lot of scars from the past ten years, while you don’t. I think we’ll make a great team because you’ll be too stupid and inexperienced to know not to try to buy everything. That other guy out there [referring to Stanley Druckenmiller’s boss who he was just replacing] is just as stale as I am. (source)

One of my favorites from the book is this quote from Steven Levitt: “admonitions such as ‘winners never quit and quitters never win,’ while well-meaning, may actually be extremely poor advice.” Levitt identified one of his own most important skills as “the willingness to jettison” a project or an entire area of study for a better fit.

To solve tough problems, go wide rather than deep. And don’t hesitate to kill your darlings.

Recommendation: Skim.

Book Review: This Is Not Propaganda

In This Is Not Propaganda: Adventures in the War Against Reality (Amazon,) Peter Pomerantsev lays out how the very tools that “democratize” information has been turned against democracy itself.

We live in a post-fact world where we are caught in a social-media driven doom-loop:

Social media is a sort of mini-narcissism engine that can never quite be satisfied, leading us to take up more radical positions to get more attention. It really doesn’t matter if stories are accurate or not, let alone impartial: you’re not looking to win an argument in a public space with a neutral audience; you just want to get the most attention possible from like-minded people.

It’s a lamentable loop: social media drives more polarised behaviour, which leads to demands for more sensationalised content, or plain lies. ‘Fake news’ is a symptom of the way social media is designed.

Social media technology, combined with a world view in which all information is part of war and impartiality is impossible, has helped to undermine the sacrosanctity of facts.

Peter Pomerantsev in This Is Not Propaganda

The book came out in 2019 and my personal experience has been that things have become worse. We now have WhatsApp groups where people self-select to receive the version of truth they desire. Political parties have setup up hundreds of such groups to make sure that we always hear what we want to hear.

While it is easy to blame social-media and messaging apps for the current state of polarization, traditional media has also embraced the post-fact world.

About The New York Times, for example:

Under Sulzberger, “there has been a heavy investment in the growth of opinion at the Times,” the journalist continued, noting that Bennet is a friend. “That was something that A.G. wanted and approved, because it drives their subscription strategy. New York Times readers like to read opinions—especially opinions that align with their own—and they increasingly don’t like to read opinions that don’t align with their own.”

The Daily Beast

We often don’t appreciate what we have and take the current state of the world as granted. However, democracy, freedom and progress are all recent occurrences. For the the vast majority of human history, monarchy, serfdom and stagnation was the norm. If we can’t even be bothered to be informed, do our choices mean anything? Before we know it, we’ll be back to the dark-ages.

Recommendation: Worth a read.

Book Review: The Technology Trap

In The Technology Trap: Capital, Labor, and Power in the Age of Automation (Amazon,) Carl Benedikt Frey gives us a brief history of technology’s impact on society and how we can better prepare ourselves for the coming AI revolution.

Historically, new technologies got adopted only when it didn’t threaten the status quo of the elites.

For most of history, the politics of progress were such that the ruling classes had little to gain and much to lose from the introduction of labor-replacing technology. They rightly feared that angry workers might rebel against the government.
One reason economic growth was stagnant for millennia is that the world was caught in a technology trap, in which labor-replacing technology was consistently and vigorously resisted for fear of its destabilizing force.

The Technology Trap

Artisans formed guilds and openly lobbied to prevent guild members and outsiders from producing things in new ways. However, as trade increased, competition between trading blocs eroded the power of protectionists. Areas that became more exposed to outside competition invested more in the invention of new technologies.

New technologies can be either labor saving or labor displacing. The problem with the latter is that displaced works see a rapid erosion in their income. So even though technological innovation boosts aggregate incomes over the long term, it is not cost-less at the individual level.

The simple existence of better technology does not inevitably translate into faster economic growth. For that, widespread adoption is required. If you want society to be open to new technologies, you absolutely must have a social safety net and a plan to make sure the displaced workers have the wherewithal to up-skill themselves.

Recommendation: Skim.

Book Review: The Man Who Solved the Market

In The Man Who Solved the Market: How Jim Simons Launched the Quant Revolution (Amazon,) Gregory Zuckerman chronicles the rise of Renaissance Technologies (RenTec) and its founder, Jim Simons.

It is a fascinating book. You should absolutely, without a doubt, read it.

The basic question that Jim Simons asked was: Is it possible to develop a mathematical model of the market and use it to trade profitably?

Turns out that it is a qualified “yes.” There are a handful of people who can do it successfully over a long enough period of time to become billionaires without blowing up. And they are extremely secretive of the methods they use.

Reading through the book, I realized that some of the machine learning models they seemed to be using in early 2000’s is what Google has commercialized now. It looks like they have a 10-15 year head-start in some areas over everybody else in things like sentiment analysis and language translation.

Also, Simons, worried about the capacity of his algorithms, capped the size of his fund a long time ago and kicked out outside investors. Today, the fund is run for and by its employees.

The gains Simons and his colleagues have achieved might suggest there are more inefficiencies in the market than most assume. In truth, there likely are fewer inefficiencies and opportunities for investors than generally presumed. For all the unique data, computer firepower, special talent, and trading and risk-management expertise Renaissance has gathered, the firm only profits on barely more than 50 percent of its trades, a sign of how challenging it is to try to beat the market—and how foolish it is for most investors to try.

The Man Who Solved the Market

Recommendation: Must Read!