Has The Global Economy Finally Exhausted Its Good Luck?

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Has The Global Economy Finally Exhausted Its Good Luck?

Authored by Charles Hugh Smith via OfTwoMinds blog,

All of these guarantees and redundancies are as illusory as the "unsinkable" technologies of the Titanic.

The past three decades of global growth are rarely attributed to luck: it's all the result of our brilliant fiscal, monetary and trade policies. Those in

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positions of wealth and power are delighted to take credit for this tremendous success, but as a general rule, the more knowledgeable you are and the higher up the food chain you are, the greater your awareness of the role of luck in any unbroken chain of success.

There are various moving parts in what we call luck. One is what we don't know but think we know, or put another way, we know enough to be confident everything will work as intended and expected.

I described how this worked in the Titanic disaster in Why Our Financial System Is Like the Titanic (March 15, 2016).

The technologies of the early 1900s enabled shipbuilders to construct enormous steel-hulled ships almost 900 feet in length capable of steaming at 24 knots, transporting passengers across the Atlantic in comfort. The technologies that made such ships and transits low risk were largely already present but in forms that were deeply flawed in ways that were not readily visible or understood.

Unbeknownst to the era's designers and shipbuilders, the Titanic's hull plates were brittle due to high sulfur content in the steel, especially at cold temperatures (the water was near freezing at the time of the collision with the iceberg).

Rather than deform as the iceberg scraped against the hull, the plates and rivets fractured, opening the irregular gash that sank the ship.

The watertight bulkheads appeared to make the ship "unsinkable," but this was only true if the hull was compromised across no more than four watertight compartments. The bulkheads may have actually accelerated the sinking, as later studies found the ship would have stayed afloat an additional six hours without any watertight bulkheads, as the ship would have settled evenly rather than sinking bow-first as the forward compartments filled.

The presence of lifeboats seemed to offer a guarantee of safety, yet outdated regulations only required enough lifeboats for half the crew and passengers.

The new technology of radio ("wireless") seemed to provide a reliable way to call for help, yet regulations did not require all ships to staff wireless stations 24 hours a day, so nearby ships never received Titanic's distress calls.

Assuming that human lookouts could detect icebergs soon enough to change course seemed realistic, and favoring the first class passengers in lifeboat access was unquestioned until after the sinking.

After the disaster, all these inadequacies (except the high sulfur steel deficiencies) became obvious, but this "obviousness" only manifested because of the disaster: if the Titanic had narrowly missed the iceberg, everyone would have continued to be resolutely confident that the ship and all the life-safety systems were not just adequate but beyond adequate.

The fact that large ships and powerful engines could be built created the illusion of low risk, because the risk factors were invisible until after the fact. The high confidence in the technologies of the day now seem quaint: the flaws in the steel plates and rivets would remain invisible until the technologies of steel production finally caught up with the other shipbuilding technologies, and better detection and tracking of icebergs would have to wait for radar and better navigational technologies.

But how different is our current extreme confidence in our healthcare technologies?

Much of what we take for granted as essentially guaranteed by our fabulous technologies and systems is more akin to the Titanic than we care to admit. That the world has avoided seriously disruptive global pandemics for a hundred years is more luck than most people understand. RNA viruses mutate at a very high rate (i.e. they replicate with imprecision, generating a high rate of mutations). Whether these mutations end up being "good" or "bad" for the human hosts is a function of randomness, i.e. luck.

The global economy has been astonishingly lucky for 30 years--or even 75 years. Like the passengers on the Titanic, we have unquestioned confidence in our technologies and systems because they appear so "guaranteed", so resilient and so redundant.

All of these guarantees and redundancies are as illusory as the "unsinkable" technologies of the Titanic. The irony is that the more knowledgeable the individual, the more they understand the role of luck in avoiding failure or catastrophe. The less we know, the more trusting we are in compelling illusions of safety and security.

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If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

Tyler Durden

Thu, 01/30/2020 - 09:00


Disaster Accident


El-Erian Fears The Global Economy's Luck May Run Out

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El-Erian Fears The Global Economy's Luck May Run Out

Authored by Mohamed El-Erian via Project Syndicate,

This being December, my natural inclination is to review the past year’s economic and financial developments to help policymakers and investors anticipate what might be coming in 2020. This year is ending on a relatively positive note, especially when compared to the same time last year. There is hope of a global gro

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wth pickup, trade tensions have lessened, and central banks have reaffirmed that that they will maintain ultra-low interest rates and continue to provide ample liquidity. Financial volatility is subdued, and there are reasonable expectations of solid investor returns across many asset classes.

As tempting as it is to dwell on current financial and macroeconomic conditions, doing so risks obfuscating a key element in the outlook for the future. There is a curious contrast between the relative clarity of expectations for the near term and the murkiness and uncertainty that comes when one extends the horizon further – say, to the next five years.

Many countries are facing structural uncertainties that could have far-reaching, systemic implications for markets and the global economy. For example, over the next five years, the European Union will seek to establish a new working relationship with the United Kingdom, while also dealing with the harmful social and political effects of slow, insufficiently inclusive growth. The EU will have to navigate the perils of a prolonged period of negative interest rates, while also shoring up its economic and financial core. As long as the eurozone’s architecture is incomplete, consistent risks of instability will remain.

Moreover, in the years ahead, the United States, having notably outperformed many other economies, will decide whether to continue disengaging from the rest of the world – a process that is at odds with its historic position at the center of the global economy.

Or consider China’s development process. With the global economy acting more as a drag on growth than a boon to it, China may confront the risk that it has overplayed its hand. Heavy reliance on short-term stimulus measures is increasingly inconsistent with pursuing the longer-term reforms that it needs, and its geopolitical ambitions and regional economic and financial commitments (including the Belt and Road Initiative) are becoming costlier. Most important, in the next five years, China and the US, the world’s two largest national economies, will have to navigate an increasingly narrow path as they try to secure their own interests while avoiding an outright confrontation.

Such fluidity clouds the economic, financial, institutional, political, and/or social outlook for other countries. Today’s macroeconomic and geopolitical uncertainties will amplify those fueled by technological disruptions, climate change, and demographics. And they will raise questions about the functioning and resilience of the global economy and markets.

This degree of uncertainty is particularly notable in the multi-decade context of globalization. In recent years, the stability that comes with broad-based adherence to the rules-based international order has been considerably weakened, as has the power of central banks to repress financial volatility and buy time for the real economy.

Left unmanaged, these medium-term structural trends would set the stage for greater political and social fragmentation, and raise the specter of secular de-globalization. If there is one thing that neither the global economy nor markets are wired for, it is a prolonged and deepening rupture in cross-border economic and financial relations. Were such a new paradigm to materialize, today’s trade, investment, and currency tensions would intensify and spill over to the realm of national security and geopolitics.

Bad outcomes are not inevitable (at least not yet). They could still be averted through the sustained implementation of policies to promote stronger, more inclusive growth; restore genuine financial stability; and usher in a fairer, more credible (while still free) system of international trade, investment, and policy coordination.

But much will depend on the functioning of politics in the near term. Going into 2020, politicians have a favorable runway from which to launch the policies needed to extend the positive short-term outlook into the medium and long term. Worries about global recession have receded, financial conditions are ultra-accommodating, and US-China trade tensions have de-escalated. But these auspicious circumstances will not last forever.

Unfortunately, a policy push that could improve and clarify the medium-term outlook is unlikely. The US is entering a tense and divisive election year. Germany, Italy, and Spain are in the midst of difficult political transitions. The EU is dealing with Brexit and other regional divisions. And China’s government is trying to consolidate power in the face of slowing growth and continuing protests in Hong Kong. The main worry – one that too few market participants have spotted – is that over the next five years, global economic and market conditions may need to deteriorate nearer to crisis levels before national, regional, and multilateral political systems muster an adequate response.

Fortunately, we are now in a period when action could be taken to prevent the worst-case scenario from becoming a binding reality. Let us hope that I’m wrong about today’s political paralysis. As long as there is still time, there is a chance that policymakers will follow the advice offered by then-IMF Managing Director Christine Lagarde in October 2017: “Fix the roof while the sun is shining.”

Tyler Durden

Tue, 12/17/2019 - 08:06


Business Finance


For Softbank's Son, "Conflating Luck And Talent Is Dangerous"

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For Softbank's Son, "Conflating Luck And Talent Is Dangerous"

Authored by Scott Galloway via ProfGalloway.com,

Third Base

The Dunning-Kruger effect posits that dumb people are too stupid to know they are dumb. They are not perplexed by difficult situations but overconfident — not knowing what they don’t know. As few people believe they are stupid, or a bad driver, a more relatable component of Dunning-Kruger is incorre

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ctly believing one area of skill translates to another. 

I suffer massively from this. I’m smarter than your average bear when it comes to marketing, so I’ve come to believe that makes me an expert on pretty much anything. I don’t know much about physics but constantly reference Galileo despite knowing little besides the fact that he dared challenge the church. 

There is evidence of this all over the marketplace. Great P/E guys believe they would make great VCs and vice versa. Hedge fund managers believe two years of above-market returns means they are also great operators. To disabuse anybody of this notion, take them to a Sears. Billionaires running for president, actors starting skincare lines, and tech CEOs founding media firms. Being rich also naturally makes you a great film producer. 

Masayoshi Son created $64 billion in shareholder value, mostly through deft acquisitions. Mr. Son can also boast of perhaps the best venture investment in history, $20 million into Alibaba that became $100 billion. That investment is tantamount to Michael Jordan hitting a grand slam on his first at bat wearing a Birmingham Barons hat.

Mr. Son has mistaken luck in venture investing for the ability to responsibly allocate billions based on a gut feeling. The size of SoftBank investments, relative to the diligence, now looks stupid, if not negligent. A writedown on an investment in a dog-walking app may have been avoided had someone in the SoftBank diligence team taken the time to discover they were investing $300 million in … a dog-walking app.

Conflating luck and talent is dangerous. As I get older, I’m struck by how big a part luck played in my life, and how much I mistook it for skill, well into my forties. The Pareto principle shows that even if competence is evenly distributed, 80% of effects stem from 20% of the causes.

Not recognizing your blessings feeds into the dark side of capitalism and meritocracy: the notion that success is a choice, and that those who haven’t achieved success are not unlucky, but unworthy. This leads to regressive policies that further reward the perceived winners and punish the perceived losers based on income level. The most recent example of our belief that poor people are guilty: The US now has the fourth-lowest tax rate in the world, and billionaires have the lowest tax rate of any cohort.

First Base 

I constantly humblebrag that I was raised by a single immigrant mother who lived and died a secretary. But truth is I was born on third base. My parents got me to first base before I was born, immigrating to the US. This took courage, desire, and a dose of selfishness. Both left families that needed them. My mom left London when her two youngest siblings were still in an orphanage.

In Europe I’d make much less money being an entrepreneur and challenging institutions. In China I’d likely be in jail. Having one of my companies fail would have bankrupted me in Europe, as the tolerance for risk or failure is scant. I have no idea what would have happened in China. In the US, a tolerance for failure meant a lifestyle my parents couldn’t have imagined crossing the Atlantic on a steamship in 1961. 

Second Base 

I have some talent and have worked really hard, but mostly my success is due to being born in the right place at the right time, and being a white heterosexual male. Coming of professional age as a white male in the nineties was the greatest economic arbitrage in history. Today’s 54-to-70-year-olds saw the Dow Jones increase an average of 445% from 25-40, their prime working years. For other ages, it doubles at most.

Economic liberalization (globalization, technology, market deregulation) coupled with social norms that clung to the past meant 31% of America (white males) were given license over a lion’s share of the spoils. In nineties San Francisco, I raised over $100 million for my start-ups. I didn’t know a single woman under 40 who raised more than a million. And it seemed normal. Even today, white men hold 65% of elected offices despite being 31% of the population.

Third Base 

Rich, fabulous people are the ideal billboards for luxury brands. Our nation’s best universities have adopted the same strategy. Universities are no longer nonprofits, but the highest-gross-margin luxury brands in the world. Another trait of a luxury brand is the illusion of scarcity. Over the last 30 years, the number of applicants to Stanford has tripled, while the size of the freshman class has remained static. Harvard and Stanford have become finishing school for the global wealthy. 

In the class of 2013 in the Ivy League, five of the eight colleges (Dartmouth, Princeton, Yale, Penn, and Brown) had more students from the top 1% of the income scale than the bottom 60%.

Fast and Slow Thinking

According to @thetweetofgod, intelligence looks in the mirror and sees ignorance; ignorance looks in the mirror it sees intelligence. The sectors that have enjoyed the greatest prosperity spread across increasingly few people — technology and finance — have created an unprecedented level of arrogance among people born on third base.

When we feel threatened, we are more prone to see each other as an enemy, rather than someone who has a different opinion. We want to dismiss and fight the whole person, rather than just what they said. From primeval times, our brains have been set up to identify “enemy” or “one of us,” that simple binary distinction. Do I trust them as a person or are they not “one of us.” When we are in our more evolved, slow thinking mode (Daniel Kahneman), we evaluate arguments. When we are in our knee-jerk, threatened fast thinking, we decide the person is our enemy and argue from our amygdala, not our forebrain. 

When we are threatened, we are also less empathic. Altruistic behavior decreases in times of greater income inequality. The rich are more generous in times of lesser inequality and less generous when inequality grows more extreme. When the poor need our help more, we are less likely to offer it, because we don’t see the poor as one of us. They become “them.” 

Michael Lewis writes, “The problem is caused by the inequality itself: it triggers a chemical reaction in the privileged few. It tilts their brains. It causes them to be less likely to care about anyone but themselves or to experience the moral sentiments needed to be a decent citizen.” 

Tyler Durden

Sun, 12/15/2019 - 12:15

Metasploit for drones? Best of luck with that, muses veteran tinkerer

logicfish Security metasploit drones best luck with that muses veteran tinkerer All https://go.theregister.co.uk   Discuss    Share
Been down this path and it ain't that easy, says man who knows

Black Hat Europe  A veteran drone hacker reckons the recent release of the Dronesploit framework won't go down quite as its inventors hope.…

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