Generally I observed a very likely connection between reading and living a long life. We know Phil Fisher died at age 96 years. Charlie is at 99 now…Warren Buffet at 93 age… Can this be a co-incidence only that most avid readers are living long life?
When you are reading books for most hours of the day, you feel really relaxed and you are saved from the ups and downs of most stressful situations during the day. May be you are not subjected to the emotional upheaval and your breathing is very slow paced and relaxed. You tend to take slow and deep breaths. And we already know the connection between slow and deep breathing and longevity. So reading habit must be adding many years to your life. More research needs to be done in this direction to quantify the exact impact. But my gut feeling tells me that this must be connected. If there is any book in this regard, pls recommend me. Reading habit and longevity.
Jindagi lambi hogi to hi compounding ka real Aanand le payenge. Lambi hogi to apne aap badi bhi ho jayegi.
Bharani, This is great. Can you pls share your notes taking process and the tools you use ( online or offline).
Since people are discussing what and how to read more, I thought about sharing this book which I’m currently reading “How to Read a Book” by Mortimer J. Adler and Charles Van Doren.
It’s a great book which goes into details of:
- Various kinds of books
- Various ways to read a book
- Judging a book by the title and its contents
- Levels of Reading
and just everything related to how to become a better reader
Stephen Fry’s Mythos, & Heroes
The Greek Gods & Heroes accomplish great things, but also end up committing terrible mistakes. The defining feature of Greek mythology is it makes no excuses for their flaws.
If you don’t have the patience to read Edith Hamilton, Stephen Fry’s entertaining yet comprehensive introduction to the Greek Mythology is your next best option.
@Girish_K - I only read physical books. I am too attached to paper and print to be holding plastic. Each book has a character in its cover page, art, age, smell of the pulp, typeface and weight and I wouldn’t want to change that. For me reading is bit more than just the text and the ideas. I do see why e-books could be convenient for others though. I see there are sources that offer free copy of every book imaginable and it would so economical for someone starting out. The ability to carry all the books you own is a big plus as well but that’s not important for me. I can carry 3-4 books on a long trip and read just 10 pages in one book and not feel awful for having been inefficient.
@Deven - I do use YouTube a lot these days as I am pursuing blues and jazz guitar. There’s a phenomenal amount of free content to grow on any and every topic. My son is learning Unreal Engine 5 and Blender and has made so much progress from just YouTube. We live in truly phenomenal times. I dont however subscribe to any YouTube channel as I look for specific things and it could be from anyone - so no favourites as such.
@Mudit.Kushalvardhan - I have noticed my heart rate is lowest when I read. I see it hovering 54-60 most times with a book, so you might be onto something.
@pahaaadi - Armed with well-highlighted book and Notion, I go page by page, chapter by chapter and re-read all highlights and sections around it and summarise it in my own words. It takes 20% of the time it took to read the book on average, sometimes less. I consistently go back to my notes whenever I visit this thread (so easy to scroll and land on something) and re-read. This is how I collect the dividends on my investment.
Four Thousand Weeks, Oliver Burkeman, 2021 - The title of the book stands for the number of weeks we have at our disposal, should we live to 80. So this of course, is a time management book (not to be mistaken for a productivity enhancement book). These 4000 weeks don’t flow uniformly - slow at first, they speed up towards the end. Keeping with the Joneses and finding new Joneses to keep with up, negates any and all improvements in productivity. You will never work less.
Time in industrial era, is broken into chunks, sold to others with tasks lined up to fill them with no scope for the natural rhythm of life to take over. The clock does not stop, but we can choose to not hear it ticking by dissolving the boundary that separates self from reality (through prayer and meditation) and experience a deep, timeless time. Time and life are not separate - separating it causes stress of not using it well or of wasting it. A well lived life is just well-spent time. By attempting to master time, we let time master us. Meaningful productivity gains come from letting tasks take the time they take.
It is impossible for us to experience everything that life offers us. We must make peace with our decision to pursue limited choices and stop clearing the deck for more and cultivate the attitude of ‘joy of missing out’. Choose 3 top priorities and procrastinate on the rest - let the middling priorities be. What you pay attention to, will define your life. Beware of persuasive design and the attention economy (distraction from distraction by distraction) that makes ill-crafted real-life experience a chore. Willpower stands no chance in the attention economy (So avoid exposure).
Don’t plan. Activities resist our plans. While planning may forestall a catastrophe, we feel anxious and worry in the present. We must avoid wandering in times that are not ours (the future) and let the mind handle whatever happens. Respond to the best of your abilities should bad things occur.
Your time-off needn’t be an investment in your future personal growth. Leisure is for self-reflection and philosophical contemplation and for pursuing hobbies with no apparent payoffs. A good hobby should feel little embarrassing and it’s fine, even preferable to be mediocre in them. Have a flexible schedule and don’t hoard your time - share it.
A lot of the stuff in the book is what I already believe in so I did not find anything earth-shatteringly new. It might be borderline offensive to people pursuing productivity hacks and to people who are poor and want to make something of their lives. This is a book a middle-aged man in the first world who has some savings put away would write, for other such middle-aged men of the world. 8/10
This blog is the proper summary of the book. In fact, no point in wasting that much time reading that book ( my personal experience). The points from this blog are SUFFICIENT.
Hope this helps,
dr.vikas
The (Mis)behavior of markets, Beniot Mandelbrot, 2004 - Taleb sort of spoiled the book for me since he has exposed these concepts in his derivative works. Mandelbrot has been a phenomenally original thinker. He founded fractal geometry - fractals are shapes when broken into smaller parts resemble the whole (self-similar), like the florets of a cauliflower or leaves, branches in a tree. We have had obsession for the symmetrical and perfect (pythagoras?) - from triangles to spheres when life was rough on the edges - Mandelbrot set out to understand roughness - be it in tree rings, boundaries of countries, rhythms of war and peace or in price trends of financial assets.
His ideas were widely adopted in chaos theory later on. This work is his application of fractal geometry to understanding price movements in financial assets (cotton in specific). Some of these ideas go all the way back to the 60s but being a lone-wolf who shunned academia and practitioners equally and operated from the periphery, his ideas remained broadly undiscovered (other than the curiosity those fractals generated)
My notes -
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GFC causes - Over-confidence of our understanding of the markets and over-optimism, coupled with the belief that what had been seen before would, more or less, persist into the future (house prices would keep rising, default rates will stay within forecast range etc.)
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Better models make allowances for the atypical - but many models are based on ‘close enough’ approximations of the past
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Financial economics as a discipline is where chemistry was in the 16th century (misty folk wisdom, unexamined assumptions and grandiose speculation)
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Fundamental idea of Mandelbrot - price changes today are dependent on changes in the long past. Prices have a fractal kind of long-memory (sometimes strong, sometimes weak). Today’s big changes make tomorrow’s big changes more likely. Wild Tuesday may lead to a wilder Wednesday. (Momentum works because of long-memory)
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Reaction to bad news might be today for quick-triggered investors while others with different financial goals and longer time-horizons might react after a month or year (reason for long-memory)
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When the historic 90s bull market tired, multiple problems emerges all at once - from recession in japan, devaluation in china, impeachment in Washington and Russia hitting a cash crunch (like we have Ukraine war, high bond yields, high inflation, Israel conflict, China trade war etc. now)
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Market models underestimate financial ruin greatly - Crash of ‘98 was a 1 in 500 billion event, 1987 crash a 1 in 10^50 event and yet they happened. Extremes are the norm, not the exception.
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While it’s impossible to predict stock prices, it is possible to model and measure risk conservatively using mathematical models (non-Gaussian). It would be something of a Richter scale of risk to which we can subject the strategy to a what-if (what if size 7 financial quake hits)
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Power laws - area of land grows as square of its side and gravity weakens as an inverse power of distance. Incomes, forest fires, earthquakes and price changes follow power laws - when plotted, they form fat tails - unlikely events with high impact don’t taper off quickly
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Economics is faddish - what is right or wrong is formed by consensus (Investing is not very different)
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Market time is relative and quite distinct from ‘clock time’. During high volatility market time speeds up and slows down in low volatility (see the similarity to gravity?)
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Asset prices don’t rise or fall by pure chance (As assumed by the drunkard’s walk) but by anticipation, individual and mass psychology.
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A macroscopic rather than microscopic, stochastic rather than deterministic approach might help. When magnets are heated above Curie point, magnetism disappears and comes back on cooling down. We don’t how and why the individual particles interact and what causes what but we don’t need to. That’s why reasons for a crash are dispensed by journalists after the fact. A better approach would be to look at risk
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An archer who is missing the mark makes a measurable error. One wild error that misses by a mile make his errors diverge from the mean. They have infinite expectation and hence infinite variance (One error could be more than the sum of a 100 errors)
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Coin tosses are mildly random while the archer is wildly random. Former is Gaussian and latter is Cauchy (Taleb calls it Mandelbrotian)
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Fourier’s heat equation, Einstein’s Brownian motion, Bachalier’s model for bond prices - all use similar concept - of radiation of probability, similar to how heat diffuses through metal (felt information percolates in the markets same way as heat diffuses through metal - while reading 12 equations book)
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Wind in a wind tunnel blows nice and smoothly at low speeds (laminar flow - currents gliding in steady lines, planes and smooth curves). As wind speed increases, it breaks into gusts here and there, forming eddies and returning to smooth flow alternating between rough and smooth (turbulence as experienced in an aircraft). Traded prices are very comparable
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Big events are concentrated in time causing discontinuities and abrupt lurches among quiet activity (similar to wind turbulence)
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Fractals are generated using simple rules, using a initiator (a geometric object like a straight line, triangle) and a generator which acts as a template and a rule of recursion (Note to self: Try generation using MandelbrotSet the objects in the Fractal Gallery)
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Roughness of a fractal is measured by the fractal dimension (British coastline has a FD of 1.25. Aus 1.13 while SA has 1.02 which is almost a straight-line). FD of 2 would be a 2-D plane and 3 a 3-D space. Bronchia in our lungs have a FD of 3 thus forming very large surface area using simple rules of replication (power of 3 is like volume - 3-dimensional)
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Fractality appears repeatedly in nature’s toolkit - when waves hit the coastline, the energy dissipates on the rocky surface forming the coastline or in lungs the iterative division works in similar fashion during its development (patterns on animal skin too, like that of zebras or tigers). Complex structures deconstruct into simple rules
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Zipf’s law - Value of nth entry in a descending sorted list is inversely proportional to n. Work freq vs work rank. One of the earliest known occurrences of power law. Later in economics Pareto principle of wealth distribution was discovered (Model thinker explains these beautifully)
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When plotted on a log-log plot, phenomena that follow power laws form a straight-line whose slope is the power of the power law
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Absolute odds of being a billionaire are low, but by Pareto’s formula, odds of making a billion when having half a billion are same as making million when having half a million (Money begets money - limits to growth should apply though). Alpha in pareto’s formula signifies how inequitable a society is
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The formula that was discovered in how Nile flooded one year to the next (Hurst), from data in the flood plains could be applied to how clay accumulated in crimean lake bed to rainfall in NY or growth of tree rings - and to how stock prices fluctuate (Long memory at play - wet years cluster together. Back-to-back floods or droughts were very common - thats why dams can’t be built based on 100 yr data)
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Inflation too isn’t random like a coin-toss. High inflation in April, makes it highly likely in May - it becomes persistent too beyond a point like in the 70s. Production, inflation, unemployment all have dependence on the past. (That’s why volatility clusters together)
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When reservoirs hold water from wet years and wet years continue, each year can be worse than the last - prior years leave their memory. (Most of long-memory can be modeled using stock/flow from systems thinking?). Such long-dependence is common in radio-active decay too. When short, medium and long components are present, long dependency can persist much after the short half-life components are gone.
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Long-dependency provided collective brakes to the stock market long after the 1929 crash was over (And such is the momentum these days from last 15 years that compression in P/E multiples is unfathomable even when rates are up significantly. Such is long-dependence)
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Each financial asset had a different H (H and alpha from earlier) which signifies long-dependence. 0.5 signifies independence while 0.7 a strong dependence and long-memory (Can be calculated from price histories). H < 0.5 shows anti-persistence
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Alpha measures the Noah effect (Extremes can be very extreme) and Joseph effect (Extremes can cluster together). Simplest is for coin-tossing H = 1/alpha. Alpha is 2 and H is 1/2. **H and alpha interact together to form booms and busts (Note to self: simulate this)
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Mandelbrot’s theory applies in normal scale of the market but not in quantum or cosmic scales (say not in minutes/hourly or decadal charts)
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Jumps, skips and leaps of discontinuity / dislocations is what distinguishes financial markets from physics, esp. more so in the information age
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Distribution of natural resources, say gold or uranium also follow power laws (Beautiful simulation of how random looking geographic distribution can be generated using simple rules)
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90% of insurance claims come from just 5% of land area. Likewise biggest moves come from small set of days in financial prices. Dollar-yen descended between ‘86-’03 over a long bumpy ride. But half the decline occurred in 10 out of 4695 trading days. Timing (the market) matters
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Intrinsic value of financial assets as a concept is slippery and its value vastly overrated
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Investors vary greatly in importance and impact on the market (A company may have 10k shareholders but < 100 might determine the marginal changes in price)
Mandelbrot doesn’t like technical analysis (calls it financial astrology) and doesn’t think absolute intrinsic value exists either there by dumping on fundamental analysts too. No wonder he isn’t popular. He is very critical on beta as risk, VaR and other such concepts that have been used to model risk and have caused lot of blow-ups. Instead he advocates building models that stress the portfolio with risks that are an order of magnitude higher than any previously foreseen risk (hence unpopular on Wall St.). I specifically loved the idea of long-memory and clustering volatility and reasons why such things happen repeatedly in nature. These are very useful ideas to incorporate into our thinking. 10/10
Excellent writeup. This is not a widely read popular book. But great read with a lot of original ideas as summarized by Phreak above.
The Silk Roads, Peter Frankopan, 2015 - This is a history of the world from a non-western perspective. It is mostly focused on the middle-east though as it focuses on the silk roads of trade. I found it to be an absolutely thrilling read. It is amazing how much history repeats and how much of what’s happening today from Suez blockage, oil embargos, freezing of dollar assets of a sovereign, inflation and geographic transfer of wealth has roots and precedence in the past.
The book spends substantial amount of time on the rise of Islam onward though it brushes up a bit on Greeks, Persians, Chinese and Indians before that. I wasn’t aware of all the intricacies that link the Abrahamic religions and how religious fundamentalism is sometimes at odds with the concept of nation state while at other times bolstering it, in cycles. The rise of the West is seen through all the violence and envy that led to it - without any glorification. At times the narrative is like an alien bemusedly observing the goings on
My notes -
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Persians owed their success to their openness - they would adopt fashions of a defeated foe if they felt it was superior (Herodotus on why Persians were successful)
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For Alexander, as for other Greeks, Europe offered no cities, culture, prestige or reward - culture, ideas and opportunities always came from the East
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Alexander conquered territories and left local elites in power to administer them and hence grew fast (like an acquisitive corporation that left culture intact)
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Expansion without defense was useless - so Alexander built strong fortification (borrowed from Great wall of China that kept the barbarians of the Steppes out)
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Buddhists chose visual representation of the Buddha (as we know now) to keep out cult of Apollo that threatened expansion. Hence Buddha looks lot like Apollo in representation (Buddha would never have approved of this, going by what I read in “Old path, White clouds”)
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Gargi Samhita reveres the Greeks for their Astronomy while calling them barbarians otherwise. Ramayana’s theme of abduction of Sita, rescue war and return (written 500-200 BC) was probably inspired by Iliad (1300 BC) and Odyssey (700 BC) where Helen of Troy’s abduction led to Trojan war and rescue. Conversely, Aeneid was probably inspired by Mahabharata
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We think of globalisation as a uniquely modern phenomenon, yet 2000 years ago, it was a fact of life
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“This province was a byword for grim and fruitless isolation” - Roman soldiers stationed in Britain (how brit it still sounds)
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Capture of Egpyt transformed Rome’s fortunes. Abundant grain from Nile valley, made grain price tumble, boosted household spending power - interest rates plummeted from 12% to 4% and led to a surge in property prices
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Silk and luxuries from the East made wealth flow from Rome to East (50% of annual mint output in trade with East). Cost of these materials were 100x because of toll collected as it traveled from East to West
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As Persia soared (300 AD), Rome teetered - Rome became a victim of its own success - dwindling taxes and burgeoning costs of defending the frontiers and the fiscal deficit led to its eventual collapse
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Ideas borrowed, refined and repackaged also flowed along the Silk Roads, alongside goods
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Buddhist ideas and practices spread west into Central Asia (stupas in northern Pakistan) and then east through the Pamir mountains and into China (By 5th Century AD Buddhism was competing robustly with Confucianism)
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Christianity spread along trade routes and hardened and radicalised Zoroastrian philosophy (by merchants from Syria to Persia - modern Iran)
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Christianity though led from Rome and Constantinople (Istanbul) was born in Asia, its geographic and spiritual focus point Jerusalem, language Aramaic (semitic group), its theological backdrop and spiritual canvas Judaism - stories of floods, droughts, famines unfamiliar in Europe were shaped by Judaic influences from Egypt
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Constantine converted to Christianity and brought the religion to Europe - and Roman identity and Christian identity became one - this led to disastrous consequences to Christians living in Persia as the Shah persecuted them
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Persia and Rome formed a historic alliance in 395 AD to keep out the barbarian hordes from the Steppes - Christianity hence made strong inroads into Asia - bishops appointed from Persia oversaw Christians in Sri Lanka for eg. In middle ages, there were more Christians in Asia than there were in Europe (Islam was barely being both in 7th century)
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Religions strongly borrowed from each other during this period - halo became a visual symbol in Hindu, Buddhist, Zoroastrian and Christian art as link between earthly and divine for eg.
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Cave temples became well-established way of evoking strong spiritual messages and superiority along trade routes - Bamiyan caves in Afghanistan with Buddha statues (751 caves, most destroyed by Taliban in 2001) and Ajanta and Ellora caves
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In 541, Bubonic plague wiped out entire regions - 10000 people killed each day in Constantinople (Istanbul)
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Turks (nomads) rose in 6th century and became strong controlling trade routes (annoying the Chinese) - they proposed that Constantinople attack Persia with them (this infighting is what broke Rome-Persian relations). Extinguishing of Zoroastrian sacred flame effectively broke Rome-Persian relations. Turks never trusted Romans (felt Roman spoke with ten tongues) - This sounds pretty much like a modern World War
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The Shah took over Jerusalem in retaliation with the help of Jews (how unlikely this sounds today) and this pissed off the Romans. Remember that by this time, Islam is not born yet (Prophet Mohammed had barely begun to receive revelations from God by 610) and Zoroastrians and Christians lived together in Persia. Now the Roman fight against the Persians was nothing less than a fight to defend the Christian faith
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Romans appropriated Christianity and effectively called Persian centered Christianity as Eastern Christianity and drove them out or convert them to Roman, western Christianity (it is amazing how religion and state ideologies merged or repelled over time)
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Mohammad wasn’t the only figure talking to God around this time - there were several prophets promising revelations from the angel Gabriel (remarkable similar) even as Churches started appearing around Mecca - competition for hearts, minds and souls was fierce in this region around this period
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The religious wars sucked up capital and trade in the region collapsed - the Prophet preached a doomsday scenario that fell on fertile ground. Enemies of Mohammad were enemies of God he proclaimed. The conservative elite of Mecca who supported traditional polytheistic practises and beliefs (would be called “left” today) opposed this ferociously and Prophet fled to Yathrib in 622 (today’s Medina). This is year zero in Muslim calendar
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The Prophet united various tribes who were deprived of the 30 pounds of Roman Gold from the now collapsed trade and gave them their own identity and faith (let there not be two religions in Arabia were his last words)
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The faithful were to pray facing Jerusalem - this was corrected in 628 (proclaimed as a test) and the direction was changed to Mecca. The ka’ba was old focal point of polytheistic, pagan practises - this was appropriated into Islam to ensure continuity - this was revealed as having been set up by Ishmael, the son of Abraham the putative ancestor the 12 Arab tribes (pure genius)
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Islam took advantage of the fall of Persian empire and took over territory - evangelical zeal was vital to its early success. Loot from non-believers was to be kept by the faithful. The booty was shared innovatively - early adopters were rewarded with proportionately greater share of the prizes like a pyramid system or mafia (again pure genius)
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When Mohammad was cornered in Yathrib, one of his key strategies was to take the support of the Jews - followers of both religions pledged to co-operate and defend each other from Rome / Christians
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Conciliatory tone in Quran - believers of Jewish and Christian faith believed in same God. Mohammad’s revelation had been revealed to Abraham and Ishmael, to Isaac and Jacob, Moses and Jesus- the prophets of Judaism and Christianity are same as those of Islam (Cohabitation was important for its early success)
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Converting Christians was no the most important goal in the 7th century - keeping rival factions out was. The ones that knew most about the Prophet’s early life claimed dominance - effort was to move religion away from Mecca into Jerusalem (isolating southern Arabian traditionalists) - Shia and Sunni split happened within a generation of Prophet’s death
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Christian scholars felt Islam was just a divergent interpretation of Christianity and not a new faith as it was so similar
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Shipwrecks disappear from 7th century onward - a good indicator of disappearance of trade
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Arab world thrived intellectually with works imported from India and from Egypt - mathematics and astrology did well. Meanwhile St. Augustine felt men want to know for the sake of knowing and curiosity was nothing more than a disease - science was defeated by faith. Christians were in intellectual backwaters
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Merchants from Scandinavia - the Vikings set off on a journey south to trade with Islamic world - These men were known as “Rus” or “rhos” - the forefathers of the modern Russians
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The Viking Rus’ had no cultivated fields and lived by pillaging - their captives, the ‘Slavs’, their slaves (fathers of slave trade too) - height of Roman empire needed 250-400k new slaves each year
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Rus’ ruler Vladimir adopted Christianity in 988 (influenced everything from the way they dressed and traded)
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In 1099, Jerusalem fell to knights of the First Crusade - Muslims were expelled from a city they controlled for centuries - Middle East was being recast to function like Western Europe (crusades were in response to inability of Christians to travel to Jerusalem - and also the lure of riches of the Arab world). Jews in Jerusalem felt it was better to be ruled by Christians than the Shia or Sunni factions
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Jews were butchered in Rhineland (Germany) as the idea took over that Jews were responsible for Jesus’ crucifixion and the lands of Israel should be held by the Christians of Europe - (anti-semitism has had deeper roots in Germany)
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In 1187, Saladin (of Egypt) overthrew the Crusaders and Jerusalem once again fell into Muslim hands. Joint efforts made by the kinds of England, France and Germany failed between 1189-1192
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Mongols, under Genghis Khan trampled through most of the world in the 12-13th century - cultivating terrors and fears so as to use violence selectively and deliberately (most surrendered without a fight, knowing their barbarism)
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Mongols, though portrayed as barbaric destroyers were far from only that - they invested heavily in infrastructure of cities they captured - Samarkand being a prime eg. or Beijing. They captured regions from Baghdad to Syria, Poland Hungary heading deep into France
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The crusades established the power of the church over Europe. The crusades though failed miserably and Jerusalem was lost for good - it was all too expensive and dangerous to capture and hold it (far easier to build a Jerusalem in the English pastures)
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Mongols controlled transport through the Black Sea and extracted not more than 3-5% tax - whereas taxes through Alexandra during the time were 10-30% (Mongols weren’t rent-seekers). Tolerance and careful administration backed up by military might
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Russian autocracies later on were a natural byproduct of Mongol system of govt.
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Black Death - spread rapidly in 1340s and took most of the population of Europe, Iran, Middle East, Egypt and Arabian peninsula. 90% of the population was wiped up in a most places
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The plague redefined Europe and led to its rise - wages went up as labour was in shortage - the lower end of the social and economic spectrum rose as a result. Life expectancy went up sharply (survival of the fittest)
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Rise of European art - Leonardo da Vinci, Michalangelo, Raphael owed a lot to rising disposable incomes and the availability of pigments from the east
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Global financial crisis of the 15th century - aka bullion famine - arose out of Europe’s inability to pay for goods (fabrics, ceramics, spices) it brought from the east, esp. China - which was producing more than it could consume - leading to oversaturated markets, balance of payments crisis and currency devaluations (and we think these things are modern creations)
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Chinese govt. (Ming dynasty) spent on the assumption that revenues will only increase so a credit crunch hit in 1420s as some of the richest parts were struggling to meet their obligations - Europe debased currency and precious metal supply wasn’t enough to go around
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Global cooling in 15th century, triggered famines in Steppes and floods in China and the resulting drought had widespread ramifications - in 1453 Constantinople (Istanbul) fell in a triumph for Islam (Many Jews moved to Constantinople in this period as the new Muslim rulers welcomes them - Jews seem to have felt closer to Muslims around this period)
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In a span of 6 yrs in the 1490s, Columbus crossed the Atlantic onto America and Vasco de Gama navigated around Africa on to India (both had same goals) and Europe became the fulcrum between East and West (Near, Middle and Far East definitions arose here)
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Rise of the west was built on the capacity to inflict violence on a major scale. They conquered Muslim territories in Africa, converted mosques to churches and undertook slave trade under the sign of the cross
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Aztecs, Incas and their silver and gold was plundered by the Spanish. Within few decades of Columbus, indigenous population fell from half a million to little more than 2000
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Spain became powerhouse of the world - rise in wealth in one of the world meant demand for slaves in another part (Portuguese were hardened slave traders)
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The wealth of the Americas made Europe richer than they hoped to get through the recapture of Jerusalem. Legacy of Rome and Greece was claimed with gusto by France, Germany, Austria, Spain, Portugal and England when in reality they had little to do with legacy of ancient Romans and Greeks
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Portuguese reached India (da Gama) and mistook temples with Hindu Gods adorned in Gold to be Christian saints (hilarious). Venice which controlled land routes was worried Portuguese could squeeze their margins through the sea - in reality sea was treacherous (50% of ships only made and the rest sunk with precious goods)
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Portuguese sought to control every port from Europe to India and ransacked, captured ports and burnt ships (one ship having indian muslims returning from Mecca was burnt by Vasco da gama) - they met their match in Ottomans who sought control as well
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Ottomans ended up controlling Red Sea, Persian Gulf and the Mediterranean - coffers at Constantinople swelled and they spent it building mosques, madrassas, hospitals, bridges, warehouses and other infra in modern Turkey
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Trade with Europe brought sudden influx of hard currency into India (early 16th century) - most of which was spent by Indian prices in buying purebred Persian and Arabian horses from the steppes - for prestige and social standing - not unlike oil-rich states buying Ferraris and lambos
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Babur, his son Humayun and his grandson Akbar expanded the Mughal empire from Gujarat to Bengal, from Lahore in Punjab deep into central India (16th century)
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1571 founding of Manila by the Spanish, enabled flow of goods from Asia to Americas through the Pacific instead of the Atlantic via Europe for the first time - changed global trade forever - route via Manila led to contraction of the Ottoman expire
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Lots of American silver made its way to China through Manila for Chinese goods - China having used Silver as its currency, experienced devaluation and a serious economic and political crisis under Ming dynasty in 17th century
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England (being Protestants) forged unlikely partnerships with anyone who would side with them against Catholic Europe (specifically Spain) - from Persians to Ottoman Turks. English were scavengers for whatever crumbs will come their way (16th century)
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Spain’s inability to control military spending led to it failing to meet its obligations 4 times in the 16th century (not very different from US now)
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Competition and military conflict were endemic to Europe. Its art was forged by violence and its not surprise the greatest genocide in history had its origins in Europe
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Qur’an about legacies - a Muslim woman could be expected to be looked after better than her European peer, since she would inherit her share of wealth. This led to redistribution of wealth (and inhibited growth), unlike in Europe which led to large income inequality (and growth)
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East India Company behaved like a quasi arm of the state - a position, even a lowly one in it was the way to riches. Elihu Yale started a writer but returned with large quantities of diamonds, precious jewels and 5 tons of spices - the donation from this loot led to renaming of the collegiate of Connecticut as “Yale university” (disgusting)
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While European mainland squabbled over everything and spent heavily on military, England protected by its waters, spent very little and became very prosperous
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The wealth led them to gentlemanly pursuits of fencing and dancing and choosing tailors. Willian Pitt, the governor of Madras brought back a large diamond (Pitt diamond), bought a country estate and a parliamentary seat with it
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East India company shifted from a mercantile power to an occupying power - shift to drug-dealing (Opium in China) and racketeering was hence seamless. Robert Clive became the richest man in the world helping himself to the treasury at Bengal, even as a third of the population dies in the Bengal famine in 1770
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The loss of manpower in Bengal from the famine, led to devastating loss of life and productivity and EIC shares plunged prompting a run on it, pushing it to brink of bankruptcy and bringing the intercontinental financial system to its knees
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EIC was too big to fail and was to be bailed out with American tax - when Britain raised taxes on tea - it led to Boston tea party and ultimately to American independence and Britain lost America as a result (it would do anything to retain India though)
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Britain had weakened throughout the 19th century as Russia posed a threat to Britain’s control of Asia (through its relentless expansion into Central Asia) and Britain gambled away its entire fortune on the outcome of WW-I as a result
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Napoleon was also plotting to conquer Egypt and also to dislodge British from India in 18th century (rumoured to have written to Tipu) - so when Napoleon attacked Russia, British sided with Russians (enemy of enemy is a friend, even if he is also enemy?), much to the chagrin of Persians (who were wary of Russian expansion) - World wars have been common even before they have been called as one
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Russia stretched not just towards Near East and Europe but towards North America, across the Bering Sea (Alaska) in the east - hence Britain wanted to limit Russia around 1820s. They were also worried Russia was pushing Persia to invade Herat (Afghan) to pave a way into India, the British crown jewel - hence Britain intervened in Afghanistan. Chechen terrorists were also funded by British.
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To dismember Russia, Britain even handed over Crimea and Caucasus region to Ottomans. Crimean war was fought between Russian Tsar and the allied forces - Ottomans, Brits, French (all 20th and 21st century wars have deep roots in the centuries prior. Current Crimean annexation by Russia is merely payback for loss in the Crimean war)
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Trans-Siberian Railway was Russia’s own Silk road and connected with Chinese Eastern railway - trade boomed between 1895-1914 with Russo-China bank (strong history of past co-op between the two, as today)
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Opium wars - wars between China and Britain (and France) to gain access to free trade that led to century of humiliation for Chinese (and ceding of Hong Kong)
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Britain wanted to divert the attention of Russia towards Europe (so it could maintain its eastern stronghold) - France was meanwhile threatened by German economic growth (1970s) - so France worked to build an alliance with Russia in 1890s (grossly simplifying as I understand it)
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Britain’s ultimate nightmare scenario in 20th century was an alliance between Russia and Germany (Britain and France were very worried by German growth)
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Germany was hated in popular culture in 1914 as books about German spies and German plans to take over Europe were commonplace (driven by British and French envy?)
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Britain wanted to align with Germany to counter Russia and wanted to align with France to counter Germany in a nightmarish game of chess where all possible moves were bad ones (and led to WW-I)
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WW-I - The story in public consciousness is that of German aggression fought by Allies in a just war when it was one of envy. The redress and reparations demanded from Germany by Britain was exploited by a skilled demagogue that laid the seeds for WW-II
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Britain went from being the world’s largest creditor to being its largest debtor post WW-I (victors only in name). This led to a large redistribution of wealth - discovery of Americas led to wealth flowing from America to Europe - now it flowed in reverse as war bankrupted the old world and enriched America
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When Anglo-Persian Oil (BP) company was setup (1909) - It was felt that the British cannot say what they mean and they Persian did not always mean what they said - so what Brits saw as a contract was merely an expression of intentions to the Persians (hilarious)
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Knox D’Arcy’s concession (to drill for oil in Persia) is as significant as Columbus discovery of America (both led to large scale expropriation of wealth)
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Sykes-Picot line - French would keep Syria and Lebanon and British Mesopotamia, Palestine and Suez (Southern Israel, Palestine, Jordan, Southern Iraq). Brits got Suez Canal, Haifa port and oil fields in Persia and Middle East (Laid seeds for all future wars in the region)
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Britain installed reliable strongmen who would serve their interests well in 1915 (Power of Iranian religious fundamentalists rise from this)
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Balfour Declaration - Concerned with the rising levels of Jewish immigration into London, Britain wanted to establish Palestine as the home of the Jewish people (seeds for current Israel - Palestine war). Jews from Europe migrated to Palestine. Lord Rothschild played a strong part in this (hence the West’s protection of Israel to this day!)
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Women from Kyrgyz, Turkmen, Ukrainian and Azerbaijani republics had voting rights before women in the UK did
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Creation of Iraq was a hodgepodge made of former Ottoman provinces profoundly different in history, religion and geography - Basra (towards India and Gulf), Baghdad (towards Persia) and Mosul (towards Syria and Turkey) - this helped Brits shape the land to suit its needs
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Tehran considered America as more British than the British - worshippers of gold and stranglers of the weak (when Standard Oil got a 50 yr concession). America literally took over from the Brits when the latter was too weak financially to carry on its imperialism after WW-I
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“Complete independence is never given - always taken” - Iraq’s view of dealing with the British control In early 20th century
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Britain gave assurance to Poland to assist it if Germany invaded it after German occupation of Czechoslovakia in 1939. Hitler played an ace when he stuck an alliance with Soviet Union and both of them invaded Poland - all this despite trade collapsing from 50% to 5% imports from Germany to Soviet Union after Hitler got elected (he hated the Soviets)
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Ukraine was the bread basket Germany eyed, after having been locked out of food and fuel in WW-I (Hitler’s obsession) - Ribbentrop-Molotiv pact let them access to Ukraine wheat and Russian oil to fuel their WW-II ambitions (Stalin was fueling Hitler’s war)
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Britain and France were caught cold by German-Soviet co-op. Britain’s oil interests in Iran and Iraq were severely threatened
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Hitler’s harking back to semi-mythical golden age playbook and purification was adopted by Persia too when it changed its name to Iran and purified its language of certain words (strange how this playbook still continues to be played everywhere still)
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When Stalin starting reneging on deals made on wheat and oil, Hitler lost it and invaded Soviet Union (dressed up as an ideological battle of course - to eliminate Bolshevism). He saw Soviet Union as producer (Ukraine and Caucasus) and consumer (Belarus and Baltics) - he wanted to cut Ukraine off and take its produce for feeding his massive army (Kiev was taken in < 6 months)
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British rule in India was often cited by Nazis on how large-scale domination could be accomplished by a few people
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Britain and US sought to strengthen the Soviet Union against Hitler (an alliance unimaginable today). To get armaments into the Soviet Union, the only way to take control of Iran - so BBC Persian radio service falsely accused the Shah of removing Crown Jewels from the capital (BBC’s long history of manipulation)
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Plans for “phased withdrawal” from India to protect Muslim minorities was rejected by London as too costly and too lengthy
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Britain sabotaged ships headed to Palestine with 4000 Jews (holocaust survivors) so that they could maintain friendly relations with the Arabs and retain Haifa port and keep Suez secure
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After WW-II Stalin’s role in the war’s genesis (alliance with Hitler) was quickly forgotten and replaced with story of triumph and destiny - Communism was all set to sweep the world as Islam had done in the 7th century (Stalin blamed WW-II on modern monopolistic capitalism)
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Early 50s America funnelled “aid” to Iran (which it helped destabilise) to create a client state by propping by regime (and regime changes) - continuing Britain’s imperialism. “Oil in this region is the greatest single prize in all history” (report to US state dept.)
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Oil in Persia was British, Bahrain and Saudi was US’s while Iraq and Kuwait would be shared between the two (Roosevelt’s plan)
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Fear of Soviets and Communist influence is what made the west renegotiate revenue share with Arabs in favour of local rulers and governments (Why US hates communists so much)
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Brit solvency depended on Iran not going commie. When Mossadegh was chosen as PM, he passed a law nationalising Anglo-Iranian (with support from Ayatollah Kashani, a populist cleric). Britain imported embargo on Iranian oil (origin of oil embargo perhaps). When this didn’t work, they set to work with CIA for a regime change (a repeat-use playbook)
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Mossadegh is the spiritual father of Ayatollah Khomeini, Saddam Hussein, Osama bin Laden and the Taliban
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Posturing about democracy while sanctioning and orchestrating for regime changes made for strange bedfellows
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In 1956, Egypt’s Nasser (taking up where Mossadegh left) scuttled ships and barges in the Suez canal and effectively close it causing serious dislocations in commodity movements, esp. oil to Western Europe (Covid Suez blockage has good precedent). This led to rise in Arab nationalism
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If cheap Middle East oil was denied to British, our gold reserves would disappear in 2 years and sterling would disintegrate and we wont be able to pay for defence (senior Brit diplomat after Suez blockage). Eventually Britain had to turn to IMF for assistance
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Israel became a focal point for Arab nationalists to rally around, just as Crusaders had found in the Holy land hundreds of years earlier (dont be surprised if Middle-east unites against Israel today as well)
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Iran was funded with US military aid and soft loans from the US to short up defence against Communism - Iran’s military spending rose from $293 million to $7…3 billion in just 15 yrs - as a result Iran had one of the largest army and air force in the world
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Forming of OPEC for the first time took care of the producer interests from the west’s interests of providing cheap and plentiful oil to their domestic markets
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USSR supplied 3/4ths of all armaments New Delhi procured from abroad in the ‘60s. Soviets cultivated Iraq and India and also several others. MiG-27 and MiG-29 manufacturing licenses were given to India while being denied to Chinese (Soviets have history of being friendly to India)
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Iran’s revenues rose 8x and, in a decade in the ‘70s, govt. revenues rose 30x. Iraq’s was 50x between ‘72 and ‘80 from $575m to $26b (we know 70s as the decade of inflation - thats from the western perspective)
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Yom Kippur war (’73) had Arab world united, almost like a caliphate against Israel (led by Saudis). Costs per barrel tripled overnight as oil was weaponised (prompted US to invest in electric cars, renewable solar and wind power)
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Middle East alone accounted for 50% of global arms imports in the ‘70s. Iran alone it went up 10x leading to ‘78 (all the oil money was spent on defence). Since it was good business, no hurdles were put up
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Iranian revolution led to the overthrowing of the Shah by Ayatollah Khomeini. US lost its ability to keep an eye on USSR from its Iranian listening bases which drove the US towards co-operation with Chinese military and intelligence for the same (and a subsequent rise of China economically)
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USSR got access to military secrets from the Iranian US embassy as US left the country in a hurry without shredding docs when it was shutdown by the Ayatollah (Iranian revolution benefitted the USSR hugely)
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US announced an embargo on Iran oil in ‘79 to keep Khomeini in check and froze $12b of Iran assets (exactly what it did post to Russia post invasion of Ukraine). Embargo was anyway useless as oil always found its way around it and reached US (Same is true today with Russian oil)
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By end of the ‘80s, Iran, Iraq and Afghanistan lay in the balance - Saddam Hussein rose up in Iraq thanks to the big bet by US as a counter to Iran. Iran needed spares for its US arms which it got through Israel - much as the Ayatollah despised jews, Israel hated Saddam more and was partners with Iran (how strange this is today). US played all sides (not strange at all)
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China resisted USSR’s expansion and trained its Uighur Muslims to become Mujahidin and supplied Afghanistan with arms to defend itself against USSR (Uighur radicalisation was again a failed Chinese ploy as it came to regret it later)
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Saddam was shocked in ‘86 when US had sold arms to Iran (called it a stab in the back). All the mistrust Middle East has towards US comes from decades of poor US policies in the region
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In ‘91 when Gorbachev resigned as President of Soviet Union and announced dissolution of USSR into 15 independent states, the cold war was won by US
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When Osama bombed US embassies in Tanzania and Kenya and Taliban refused to give him up, US undertook strikes that killed Afghan civilians and hardened anti-US stance in the region. Afghans insisted that the US speak to Saudi to cut off Osama’s funding (which US refused to do)
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9/11 changed the way US engaged with the world as a whole. They wanted new regimes in Afghanistan, Iran and Iraq. Engagement in Iraq and Afghanistan alone is estimated to have cost the US $6 trillion or 20% rise in US debt between 2011 and 2012 (seeing GFC as one of making of the banks is very narrow-minded - everything goes back much further)
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Use of energy, resources and pipelines as economics, diplomatic and political weapons would be the order of the 21st century as Kremlin backed Gazprom controlled most of energy to Europe (Putin’s PhD was on this)
I haven’t gained this much useful perspective on the goings on from anything else I have read in the past. History wasn’t a subject I particularly liked in school (I was a math and sci guy). I feel some things should be read when we are ready and not forced down. If you are curious about the world today and want something that’s epic in scope, this is the book to go for as my notes barely do justice. 11/10
Woah, truly epic in scope with a deceptively innocuous title. Thank you for reading and summarizing this book.
I have very belatedly recognized the importance of history - unfortunately the subject was treated in school as just a chronicle of events or propaganda. But history is the most reliable way to get an appreciation of the base rates of the key outcomes of a situation; and hence useful for investing as well. Kissinger (who is by far the most brilliant and a renowned ‘applied’ historian) said history teaches you to compare the current with analogous situations in the past. He said (or so I think) he would always prefer a historian to an intelligence analyst when he was in office.
Historians often come with substantial hindsight and WYSIATI biases. E H Carr in his celebrated lecture “What is History?” deals with these biases beautifully.
In any case I need to read this one for sure.
Quality of Earnings, Thornton O’Glove, 1987 - The author is one of the earliest accounting skeptics, having done his bit to advance forensic accounting. It is not always about spotting fraud or shorting opportunity but the techniques can be useful to understand how aggressive is an orgs accounting vs peers, or to even foretell problems. It discusses how to read a AR, what to look for between income statements, ARs, cash flow and balance sheet, how to spot discrepancies, how to weigh in on the audit report etc.
My notes -
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IPO Mania in the 1950s - Many companies had nothing more than a romantic name, high-flying ambitions and a willing set of brokers eager to place them and reap the rewards
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In a IPO mania, very few even read the prospectus and still made money. Genuine knowledge matters little in the short run, esp. in an emotional market
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The pros should seek out bad news while the amateurs may only want to hear the best about the stocks they own
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Author always assumes the worst of managements and thinks they are always upto hiding things with cosmetic adjustments
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Most people prefer illusions to reality, as long as it conforms to their committed view
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Author wanted a job telling people what stocks not to buy
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Bear market of ‘69-’70 - investors no longer wanted to learn how to double money overnight but were looking for excuses to dump whatever stock they owned to preserve whatever capital remained
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Celebrity is a person famous for being famous (Daniel Boorstin)
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“Better a highly quotable ignoramus than an astute scholar who can’t gather his thoughts” (journalists look for quotable quotes)
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Prices reflect only the view of optimists - though there might be pessimists around who believe it should trade cheaper - they may not do anything (natural tendency for prices to drift upwards)
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Analysts must be on good terms with the businesses they cover, so offer supportive commentaries (hence 86% of brokerage recos are neutral or buys, 12% are sells and only 2% are strong sells)
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If you put out negatives on a stock, the people who own it hate you, the management hates you and the ones that dont own it dont care (lose-lose situation)
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Jim Chanos doesn’t visit managements of businesses he is bullish on so as not to be blindsided by them
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4 types of auditor opinions - 1. clean (unqualified acceptance) 2. subject to (accepted subject to pervasive uncertainty) 3. except for (unable to audit certain parts of the company) and 4. disclaimer (most negative). Most opinions are clean and few fall in #2 and #3 while #4 is rare (until its too late)
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CPA firms that do audit work for low fees cannot sustain quality work
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For the big 8 firms, audit was merely a opening for consulting business - auditor opinions fence were always favorably biased to keep other business
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Annual reports either play down bad news or hide it in the back of the statement. No one says this has been a bad year and we dont expect next year to be good either (although this happens so often)
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Safe and sure in the knowledge that most investors dont read old reports, managements make promises they cant keep
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A sudden shift in gears is indicative of a situation that will not run around fast (when optimism turns to pessimism)
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Abnormally large inventory is one of the most certain signs of trouble ahead
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Stocks of managements that involve in hype also fly at least in the near term (Keynes beauty contest)
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A frank discussion of the problem (in an AR), along with thoughts of proper solutions, is a mark of a management that can be trusted. ARs should be looked upon as sources of info and not literary masterpieces or wellsprings for inspirational prose
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Differential disclosures - when what a company says doesn’t match between documents
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When managements use the word “challenge”, they mean “trouble”
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When a company has two streams of revenues - say from insurance and from real-estate, the former is more durable stream (higher quality of earnings) while the latter is hard sell, volatile business (MOSL for eg. has HFC, WAM, Brokerage and Capital markets - first two are durable and last two very cyclical)
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Pay close attention to reported earnings - are there things which should be in “Other income” included in operating earnings? There’s a large latitude based on “intent” here for businesses to play with - where they sometimes include sales of a real-estate asset or investment portfolio in operating income
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Accounting bath - when large write-off happen after a new management takes over (Spandana for eg.) and with the slate clean, profits tend to rise over following years - it makes the management look good that they turned a loss-making entity into profit-making one
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When the treasury officer or CFO is contributing to profits than the engineers, be wary
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Income statement can be made to look good by adjusting SG&A (with some one-offs), tax rates or adopting a more liberal method of depreciation (as E2E did recently)
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For QSR, with lower labor costs and overheads, small RM price moves can affect margins by a lot
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For cost changes - understand what part of it are one-offs and what is sustainable (product mix, efficiency, RM costs can all be sometimes one-offs)
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Most orgs maintain two sets of books, one for the shareholders and another for the IRS (Tax). The tax book could be more conservative and is more indicative of cash flow (even depreciation methods could vary between the two)
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Oil and Gas companies (exploration) could use full-cost or successful effort accounting - in the former expenses are capitalised leading to better income statement than latter
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Revenue recognition could be done using percentage completion method for income statement while for tax statement it could on delivery to customer
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An org may start with less aggressive policies but may switch to aggressive ones to maintain the facade of growth
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It is time to play devils advocate when receivables go up more than avg. or when inventory gets bloated - alarm bells should go off. Latter esp. is a good indicator of future slowdown
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Companies can stockpile inventory but not services (key diff between the two types of businesses)
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Increase in RM inventory usually mean business is speeding up (unless its a Covid-type risk being averted). Shilchar was a good eg. of this from FY23 AR (idea for re-entry came from this book)
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Finished goods rising in a business with rapid change in products and taste (fashion retailer) could be bad news
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Negative inventory divergence - finished goods rising while RM inventory is falling - clear sign of future distress (unless its a seasonal business, stocking up for the season)
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In the 80s inventors became aware that debt was a crucial part of the balance sheet and was no longer deemed dangerous (dropping interest rates)
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Rising stock market diminishes the urge to go private as takeover bids become more expensive
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Few purchasers of long-term bonds intend to hold them to maturity - they buy them in the expectation that interest rates will decline and bonds appreciate in price
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Revenues of a healthy company are used to pay for past (interest), present (wages, rents, RM) and future expenses (R&D and expansion). Ailing corps in stagnant industries increase payouts
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In a majority of cases, prices of a common stock is influenced by dividend rate than by reported earnings - expanding, while paying consistent and increasing dividends - deserves to trade lot higher (These ideas also change based on market conditions and discount rates)
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A firm that continues to pay dividend even in distress is stupid - Avon paid dividend while divesting its cash cow - its the equivalent of burning everything, incl. the ship to keep it going (Check Vedanta or Banco Products for eg.)
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GAAP is more CRAP (Common Reported Accounting Principles)
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LIFO vs FIFO (former could depress no.s in a rising RM scenario while latter would look more green), depreciation (straight-line vs accelerated), r&d expensed vs capitalised or the way pensions are accounted could all changed perceived value of a company many fold - the temptation to switch to aggressive accounting is hence irresistible (esp. if CEO compensation depended on stock price)
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Only 16% of NYSE listed corps. had utilized accelerated depreciation
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Accountant with a sharp pencil and a sharper mind can re-rate a stock
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When management sets the stage for a big bath - it writes off every dubious asset in sight - plant & equipment, inventory are written down to a low level to present the bleakest picture possible so the sunny picture might be presented by the new management
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Stock prices of companies doing a big bath fell in the month post write-offs but rose subsequently (very common pattern - see AurionPro in FY21)
This books reads like a laundry list of all the things orgs typically do, to make their numbers look better. It was a breezy read and while there isn’t a lot that is new for someone who has read a handful of investing books, its still useful to remove the rose-tints off the skeptical lenses in a bull market. 9/10
Book Review: Broken Money by Lyn Alden
I really enjoyed reading the first 2/3rd of the book. The last 1/3rd deals with cryptocurrency and bitcoin - I didn’t have enough of a background context or familiarity to grasp these chapters. I will re-read this section again in the near future.
The first 2/3rd of the book deals with history of money and the technological changes that led to a difference between speed of transaction and speed of settlement and the operational implications of this gap.
The book answers a lot of questions such as
- Why did Gold and Silver became the universally adopted currencies ?
- Why did we need both Gold and Silver ? And why today Silver isn’t considered as hard money as Gold ?
- Why commodity money only works well when trading partners are at the same technological level?
- Why the vector tech and banking innovations meant that a move away from the gold standard was inevitable?
- How is money created in our fiat / central banking system ?
- How did the dollar become the reserve currency of the world ? And what are the dangers of having a lot of your liabilities denominated in dollars?
- Why the reserve currency status of the dollar is a double edged sword for the US ?
- Why didn’t money printing cause retail inflation in 2008 while it did in 2020 ?
- How low interest rates, higher money supply and monetization of deficit have introduced noise in price signals?
- Why increasing rates is less effective or even counterproductive to combat inflation which emerged due to monetization of fiscal deficit ?
Lyn Alden explores these and many other questions using a systems view lens.
Recommended reading. 8/10
This was brilliant! Thank you for the summary. Looking forward to reading the book.
BTW Peter Frankopan also has another book ‘The New Silk Roads’.
Book Review: Currency Wars by James Rickards
This book came highly recommended by two global macro investors. One of them recommends reading all books by Jim Rickards to become macro aware. So I had high expectations going in.
The book chronologically covers currency wars from WWI to 2011. This timeline helps to see the path dependence and cause and effect of many events. Unfortunately, if you aren’t already familiar with at least some of these events you aren’t going to walk away with a deeper understanding of why and how of events. The book I suspect will probably be more helpful for those who are looking to fill in the gaps in their understanding rather those who like me are somewhat new to the subject or are working off a clean slate. I also got a sense that the author was emphasizing certain events to fit his world view - a return to a monetary system which is anchored to gold.
Here are some questions that the book answered that I found interesting:
- How the classic gold standard was self-regulating and how with the abstraction of gold in the gold exchange standard domestic constraints hijacked this self-regulating nature of the system?
- Why during crisis all countries went off the gold standard ? And why the price of gold convertibility was critical when countries wanted to get back on the gold standard ?
- In what way devaluations carried out by Britain and France in the 1920’s and 1930’s differed from the 1933 USD devaluation ?
- What led to the demise of the London Gold Pool in 1968? And why more than any other country, France wanted to convert its dollar reserves into Gold?
- Why was Germany willing to bailout other European companies in 2010 despite the high cost ?
- How QE can be viewed as an attempt to export inflation to rest of the world ?
- Why currency pegs operationally imply that your trading partner has the biggest say on your monetary policy ?
- How do gold bugs think about what should be the price of gold?
The book also got me interested in the following topics:
- The economic and political changes from the end WWI to the Great Depression in the mid 1930’s and its implication on the investing climate
- The 2010 Sovereign Debt Crisis
- The relationship between complexity, scale, energy requirements, and the rise and fall of systems of any kind - in this case the dollar system of international settlements and monetary policy.
I don’t recommend reading this as the only book or the first book on currencies, global macro and money. But I do think that it should on such a reading list and it should be read if you have an interest in these topics. Rating: 7/10
Book Review: 1931: Debt, Crisis and The Rise of Hitler by Tobias Straumann
This is a very interesting book that explains the 1931 Sovereign Debt Crisis of Germany. Tobias Staumann argues that while the crash of 1929 led to a global recession, it was the 1931 sovereign debt crisis that transformed a global recession into a global depression.
After WWI, global balance sheets were nested and chain linked to one another. US was the largest creditor nation and Germany was the largest debtor nation. UK and France had to pay war loans to the US, and they in turn, to a large extent, relied on German war reparations. So the weakest link in this global debt chain was Germany and within Germany the weakest link was its banking sector.
Germany essentially had an unfunded long term liability of war reparations but war and hyperinflation had destroyed its capital base. So to rebuild the economy, to pay for reparations, and to fund unemployment benefits and social security programs it had to borrow. Most of this borrowing came from foreign short-term loans and deposits which were ‘hot money’ ie chasing higher yields (official rate in Germany was 2x that of UK and US) and which had to be rolled over every few weeks and months.
So Germany was structurally fragile to both a currency crisis and a banking crisis. At the first sign of trouble, foreign investors will start pulling money out of Germany. They would sell short term paper and/or convert their RM deposits into $ or gold, which would eventually push the German central bank to suspend gold convertability to halt the decline in their reserves. Moreover, since the deposits weren’t sticky, German banks would be forced to call their loans to meet their survival constraint.
Till 1930 such a crisis hadn’t come to pass for one important reason: these short-term foreign loans in practice were considered senior to war reparations in the capital structure. Germany if faced with a recession could delay making war reparations. So whenever Germany found itself in trouble it could raise rates to attract more deposits.
But all this changed after the 1930 Young Agreement. Germany now had to pay an unconditional annuity of RM650 million no matter what. Operationally this changed the seniority in the capital structure. Foreign loans now became junior to war reparations and annuity.
As it turns out this had some far reaching implications:
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Germany could now no longer rely on foreign loans to fund reparations as investors priced in higher probability of default. So funding risk increased.
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Germany now has to fund both war reparations and debt through a budget surplus (so that they have the money) and a trade surplus (so that they have forex/gold to pay). By 1929 Debt to GDP was 80%+ and the economy was contracting. Operationally this meant instead of adopting a counter cyclical policy of increased government spends and lower taxes, Germany has to adopt a pro-cyclical policy of lower wages, higher taxes, and reduced spending. And as the economy contracted Germany had to adopt multiple rounds of such austerity measures, which were deeply unpopular with the population.
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This put the German government in a dilemma: if they renegade on repatriations it would lead to capital flight leading to a banking and currency crisis. If they continued to pay repatriation they would be forced to impose harsher austerity measures, which was politically unsustainable. Hitler and Nazi party had emerged as the second largest party to the surprise of many in 1930 and one of their election planks was to end reparations. More austerity would be mean political defeat for government and Nazi eventually forming the government.
Given the above the book answers the following questions through a political - economic - foreign policy lens :
- Why wasn’t Germany able to get additional bridge loans or credit lines from UK, US or France when these powers realized that a crisis is brewing?
- Why weren’t the original reparations ever renegotiated ? And why didn’t the US come out earlier to announce a debt moratorium on WW1 loans and reparations?
- What were the catalysts in the summer of 1931 which converted a regional funding crisis to a global liquidity crisis?
One thread I will pursue further is a financier named Felix Somary. He was among the very few people who was able to connect the dots of the impending global depression, repeatedly warned governments and central bankers. He also moved his client money out of the markets before the above events took place. In 1927 when Keynes disagreed with him on an impending crisis, Keynes asked Somary where does he foresee a crisis coming from. Somary replied “from the gap between appearance and reality” and from “fundamental global imbalances that were about to unwind in a chaotic way”
Highly recommended. 9/10
The wizard of Kremlin by French Italian writer Guiliano Da Empoli originally published in French and later translated to English is page turner and has been winning accolades and rave reviews since publication.
Its after a long time that I have read fiction and was completely blown away by the book that I completed this in a single day cover to cover.
Even though the genre is fiction ,reality and politics are intervened and most of the characters take their original name.
The books protagonist is Vadim Baranov who is supposed to be a reflection of Vladislav Surkov who was part of Putins inner circle for a long time , who helped install Putin in the chaotic 90s after the formation of Russia and subsequent disintegration under Boris Yeltsins second term. He is called as Putins Rasputin and the Grey Cardinal.
What makes this book an absolute delight to read is the wise cracks, quotes from high literature and above all its perspective that is different from the western take on Russia’s troubled history right from the formation of an empire under Peter the Great to Ivan the terrible to Katheryn the great to the Tsars and then to the Soviets most notably Stalin and to the present Tsar Vladimir Putin (He is referenced as Tsar in most of the book).
The author drives the point that Russia when viewed from the western lens in a violent nation which is barbaric , but viewed from the insider perspective all of things happening and has happened in this great and vast countries’ history makes perfect sense.
"You can invent whatever you like—a proletarian revolution or unfettered liberalism—but the result is always the same: The oprichniki , the tsar’s elite watchdogs, are at the top.”
The Russians (or the Russ people) always wanted strong leadership, command and control mechanisms and to be directed by a father figure. Its only taken different forms as Tsars, communist dictators and under Putin as Soverign Democracy (Whatever that means 
)
"No one ever escapes his fate, and the fate of the Russians is that they are ruled by descendants of Ivan the Terrible,” says Vadim Baranov.
Putin found Surkov’s theories on “vertical power” and “sovereign democracy”—which involved plans to set up an autocratic system that looked like a democracy, complete with fake opposition parties controlled by the Kremlin—highly appealing. These theories and many others of Surkov’s that Putin put into practice, slowly turning Russia into a dictatorship over the years and starting to subjugate neighboring countries such as Ukraine, are center stage in the novel.
Baranov’s description of the restlessness and boundlessness of the “new Russia” under Yeltsin is marvelous and provides essential context to the subsequent rise of the tsar. “You could leave home in the afternoon to buy cigarettes,” Baranov remembers, “meet a friend, and wake up two days later in a chalet in Courchevel [in the French Alps], half-naked, surrounded by sleeping beauties, with no idea whatsoever how you had gotten there.”
I will not discuss further details of this wonderful book and rip you all of the pleasure of exploring this one that I enjoyed thoroughly.
Highly Recommended read
The Secret Wealth Advantage: How you can profit from the economy’s hidden cycle by Akhil Patel. It’s a must-read book for everyone to understand how real estate cycles affect the economy and your portfolio.
The internal dynamics of the 18-year cycle become clear through study of each historical cycle. It manifests itself as a clear definable pattern of 14 years of rising, then four years of declining, land prices.
The 14-year rising phase of the cycle encompasses three Acts:
a) the Start of the cycle, an Expansion and a Peak: This lasts for six to seven years; best time to invest in stocks, alternative investments (Bitcoin), etc.
b) a mid-cycle Recession, usually lasting a year or two; stock markets crash and economy slows down but property markets and baking systems hold up (2020-21)
c) a Land Boom, Mania and Summit, for another six to seven years, completing the 14-year phase: With the economy awash with cheap money and business conditions buoyant, the stock market surges further into new highs. It is led by construction and banking stocks – the two sectors experiencing the largest boom. Surging stock prices also reflect the increase in assets valued on company balance sheets, much of which is related to property, and the fact investors are prepared to pay more in relation to company earnings. (Delta corp shifting to real estate?)
The declining phase of the cycle comprises the fourth Act and consists of:
d) a Crash and a Rescue, lasting four years on average and bringing a full 18-year cycle to a close: Real estate will slow down, and real estate stocks will also stop rising before the general market.
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During the past history of the world, following each depression some new discovery or some new invention has stimulated business and progress and brought on another boom. (Best to invest in these new age businesses after depression)
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Denial is the prevailing emotion. Few believe that things might be turning around because there is a ceaseless flow of bad news. This fear holds investors back in cycle after cycle. The key to managing emotions at this stage is to tune out the noise and take action. This is the best stage in which to buy stocks and property. The lows are in place and the economy is moving into a new cycle. Ahead of you is an economic expansion lasting 14 years, interrupted only by a mid-cycle Recession. Now is the time to buy.
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Towards the end of the boom, businesses are squeezed in two ways: from rising rents and the rising cost of loan interest. This reduces investment in the economy and has a direct effect on large sectors, notably the construction industry where the largest input costs are the rate of interest and the price of land. As construction slows, this reduces employment and demand, which leads to a crisis.
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When the crisis occurs bank balance sheets are clogged from all of the property loans, but they are incapable of offloading them without realising major losses that would make them insolvent. As my family found out in 2009, they will address this by calling in loans from small businesses, leading to a wave of business failures and unemployment. The process of freeing up bank balance sheets takes years and occupies much of the Start and Expansion stages of the cycle. But eventually it happens and, once returned to financial health, the credit creation process can begin all over again. It has ever been thus.
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A sign that bank lending is pushing up house prices is when the ratio of private debt to GDP increases.
Commodity Cycle:
There was, he claimed, a long-term rhythm in capitalist economies that could be identified through the movement of commodity prices. These went up for 25 to 30 years and down for a similar length of time, completing a cycle of 50 to 60 years. Kondratiev identified that commodity prices had major inter-generational lows in 1789, 1849 and 1896 – approximately every 50 years – and peaked at similar intervals – in the years around 1814, 1873 and (just before he began his great study) 1920. He referred to this rhythm as the ‘Long Cycle’. Each 55 to 60-year Long Cycle spans (approximately) three real estate cycles, but they are linked, not just through the technology that moves them forward, but also, as we will consider, through economic rent.
- When the long-term price trend was rising, Western economies experienced expansion and great prosperity; when it was down, depression and difficulty.
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As citizens, we should remember this because the real estate crisis of the late 2020s will coincide with the peak and then fall in the Long Cycle. This makes those years a time of great geopolitical jeopardy. Great vigilance over, and scrutiny of, the actions of our political leaders is required.
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Soft Landing: (In last two years of Mania) As inflation has been rising, central bankers can see that the economy is in danger of overheating and are forced to act. Interest rates are raised (they may have started during the Mania), but this will not moderate the boom. They may turn to other measures to bring inflation and runaway bank lending under control and to cool the economy. But there can be no ‘soft landing’ because land prices have now peaked. Rising interest rates will eventually cause them to fall.
Ways to find Summit:
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On the eve of the crisis, all of the elements come together to create a perfect storm: a slowing property market (when everyone is fully invested), rising or high-interest rates, borrowers under pressure, a lack of liquidity and tightening regulations. As we saw from the prior chapter, the land or property market is the first to peak. (Keep on Comparing Nifty Realty vs Nifty 50 performance)
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At the Summit of the cycle, the system is in a critical state. While the Crash may not take place for another year or two, the system is vulnerable and the crisis will break out at its weakest point, the one most susceptible to the risk posed by rising interest rates. This will expose the people who are most highly leveraged, either because they have to roll over loans at higher rates or because the interest on loans adjusts upwards.
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Before the crisis the property stocks will be best performing but as we get closer to crisis the real estate will start underperforming and will first show signs of slowdown.
I read this book cover to cover in three days. The writers have crystallised very well how startup founders think about reaching out to 50 crore Indian middle class customers. I always look for good Indian writing especially when it comes to business. And this book really does the job.
Started reading Elon Musk by Walter Isaacson. The book is such a fun to read as it describes Elon Musk’s ambitious, controversial, visionary, determined and quirky nature through several examples. Since the book is quite long, I am planning to share notes of few chapters that I have gone through so far. One can pick this book and start from any chapter and you would like writer’s simple language to exemplify Elon’s traits.
Some notes -
- Musk founded Space X in 2002 as he had ultimate mission to establish human race in Mars and be able to make space faring trips possible for humans. While leading at Space X Elon Musk focused heavily on first principles thinking. Along these lines, he established following rules -
- Question every cost
- Space X needed a valve and the supplier quoted the price of $250K. Musk declared it insane and asked to make it inhouse. Another supplier quoted $120K for an actuator, Musk declared it to not be more complicated than garage door and asked his engineers to make in $5K.
- Musk questioned every specification and requirement mandated by military and NASA to save costs. If someone brought up some military specification as requirement, Musk would say who wrote that why does it make sense. He said - All requirements should be treated as recommendations unless decreed by laws of physics.
- Have maniacal sense of urgency
- An engineer gave him some timeline to build engines at SpaceX, Musk asked it to cut it to half. Eventually they delivered the engines in half amount of time. Lot of times though they failed to meet such unrealistic deadlines given by Musk, but they would still beat all of their peers
- Learn by failing
- Musk liked approach of building testing failing and rebuilding as fast as possible. He would ask to focus on figuring out fix for problems fast rather than avoiding problems
- Improvise
- Once at SpaceX, one of the fuel tank got ripped due to lighting strike. Musk jumped on his plane to get 3 hr flight to oversee the fixing personally. He ordered engineers to fix them and said we cant throw them away. When engineers said there was no way to fix them, Musk in his fine leather boots and suit spent all night applying epoxy to cure the cracks and ruined his boots. Even though idea did not work out but it uplifted engineers to never bow down and be willing to take risks.
- Question every cost
- Once NASA gave some space contract worth $227M to rival private company and when Musk got to know that NASA has given the contract to that company to save it from bankruptcy, he sued them saying NASA should be in business of promoting innovation not propping up companies. He won the project eventually.
- Boeing and Lockheed used to get fixed price contracts on cost plus basis from NASA and Defense department. Musk argued that it stymied innovation as there was little incentive for cost plus contractors to take risks and innovate. He said “Boeing and Lockheed just want their cost-plus gravy trains and want to suckle on the tit of government forever”
- Elon Musk brought together two separate teams working on electric car to build Tesla. Tesla was though company originally founded not by Musk but since he was the primary investor and alpha personality in the founding team, Musk finally got his way as CEO of the company few years down the line. Musk had several conflicts with Eberhard (the original founder of Tesla) on design decisions, costs of the car etc. Once he argued about seat size of the car and said his wife won’t be able to get in the car, then in separate instance he prevailed over the headlights design saying they are like eyes of the car and you have to have beautiful eyes.
- On SpaceX front, the team had to move away from mainland American launch site to some remote American island - Kwaj. SpaceX team used to fly from LA to Kwaj shipping components to remote site in Kwaj to become first private space company to successfully launch the rocket. Sometimes they used Musk jet to ship the components back and forth. SpaceX had 3 unsuccessful launch attempts due to different sets of failures. First two failures could be partially attributed to Musk’s cost cutting measures and his deliberate ignorance of few risks to speed up the launch process. But after 2 failures, Musk asked his team to go more by the specifications than before. 3 failures led to SpaceX in cash starved situation eventually before they succeeded in 2008
- Tesla was about to go bankrupt around 2007-08 as the company was burning cash and had delays in commercialization at scale. The company even used advance deposits of customers after prototyping the first car. All this led to divorce of Elon Musk and his wife categorically called out that Musk was emotionally distant in relationship and was only focused on his businesses. Finally several famous people in Silicon Valley wrote checks to invest in Tesla in 2008, even its own employees wrote checks for the same to salvage Tesla. Elon borrowed to cover his personal expenses as well. Daimler also invested $50M in 2008. All this led to Tesla being saved before they finally went to produce Model S at scale for the customers.
- While designing Model S, Tesla’s team was having difficulty figuring out the optimal location of battery pack underneath the car without making the car shape bulbuous and providing sufficient headroom. Musk made sure that car designing team and the car engineering team sit together so that designers can think like engineers and engineers can think like designers. This was unlike any normal car company where two departments used to be in different offices or different countries. This followed the principle of Steve Jobs that design is not just about aesthetics but true industrial design must connect the looks of the product to its engineering.
Many more such examples to follow in future notes…