CFA Society Chicago Book Club:

My Side of the Street: Why Wolves, Flash Boys, Quants, and Masters of the Universe Don’t Represent the Real Wall Street by Jason DeSena Trennert

my sideIf you have a history in this business or seeking to pursue it, have read any of the popular finance books, or simply sat back and enjoyed some of the classic Wall Street movies, you will certainly appreciate this well-crafted and first hand perspective of the finance industry.  The title was quite interesting because if you are a voracious reader of investment literature, you will reflect back on the excesses in the Wolf of Wall Street, the questionable high frequency trading dark pools in Flash Boys, or the so called “Master of the Universe” in Bonfire of the Vanities.  The author paints a much different picture for people who have formed their views on Wall Street based on the financial crisis, outsized bonuses, insider trading scandals, options back-dating, and movies like Boiler Room.  He describes the hundreds of thousands of finance professionals that work hard every day to support their families, pay their mortgage, and act with ethics in their business practices.

You can learn a significant amount from someone as successful as Mr. Jason Trennert.  The opportunity to learn his side of the street can be very valuable to our own careers.  Mr. Trennert, also known as “Jase” by those close to him, takes us through his experiences starting off as a cold caller, moving on to institutional sales with extensive travel and client facing interaction, business school at Wharton, and eventually starting his own firm.  Ultimately, it seems that his love for macro, entrepreneurial spirit, and past experiences set him on the path to start Strategas.  You can learn from Mr. Trennert’s experiences on how to break into Wall Street, build connections, go from back to front office, the value of reading both investment literature and non-fiction, the importance of curbing the late night entertaining, when to say no to opportunities, and perhaps when to know it’s time to become the captain of your own ship.  At the end of the book, Mr. Trennert offers some wise career tips such as assuming no one will help you until you’ve accomplished something, focus on achievement rather than status, live CAPM, play your strengths, Wall Street is both large and small, and finally….Read!

 

Upcoming Schedule:

April 19, 2016: While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis by Roger Lowenstein

May 17, 2016: The Green and the Black: The Complete Story of the Shale Revolution, the Fight over Fracking, and the Future of Energy by Gary Sernovitz

June 21, 2016: Age of Ambition: Chasing Fortune, Truth, and Faith in the New China by Evan Osnos

 

To sign up for a future book club event, please click here:

http://www.cfachicago.org/apps/eve_events.asp

CFA Society Chicago Book Club: “The Age of CryptoCurrency: How Bitcoin and Digital Money are Challenging the Global Economic Order” by Paul Vigna and Michael J. Casey

Bitcoin with its underlying blockchain technology is by far the most controversial and least understood of the fintech innovations revolutionizing financial services. Since it was conceived in 2008 it has generally been viewed with suspicion, even outright derision. But both the currency and the technology are gaining legitimacy and there’s growing interest in its potential, as shown by these informal indicators:

  • Strong growth in startup funding by top VCs and investors: bitbetween 2013 and 2015 venture investments grew from $95M to $622M per this recap http://www.coindesk.com/bitcoin-venture-capital/
  • Improvement in price volatility (but still far from stable): high/low in 2013 was $1,147/$13, and in 2015 was $456/$214
  • Robust discussions at the 2016 World Economic Forum, European Parliament, IMF, CFTC and other venues to consider the value, drawbacks and risks of bitcoin and blockchain
  • Continuing evolution of regulations: New York’s BitLicense requirements, IRS and CFTC rulings, general openness in the UK, Hong Kong, Switzerland, Bulgaria, Romania and elsewhere

At the February CFA Chicago Book Club meeting we discussed Paul Vigna’s and Michael J. Casey’s excellent book on all things bitcoin and blockchain. The two Wall Street Journal reporters thoroughly explored the origins, mechanics, personalities, motivations, recent developments and future of this fascinating technology.

There’s a shroud of ambiguity around bitcoin. It can be characterized as a currency, commodity, payment protocol or an expansive platform for trading anything of value, and the authors clearly explain each of these perspectives. They also describe the underlying technology and its two key breakthroughs: a universal ledger that captures every transaction and is continuously verified, and an incentive system for “nodes” to maintain the ledger. Bitcoin exists as a chain of digital signatures. Owners privately transfer coins by digitally signing a hash of the previous transaction and the public key of the next owner, adding their signatures to the end of the coin. Note, a “hash” is just a long string of characters and hashing is a common technique used in encryption and data-storage. The open source blockchain code tells computer nodes how to collaborate in maintaining the integrity of the universal bitcoin ledger via a process called mining.

Everyone’s heard about bitcoin “miners” who dig up newly minted electronic currency, but mining is really a misnomer. Networked computer nodes do the work of confirming that transactions are valid, verifying the ledger is correct, getting all other nodes to agree, closing the previous block of transactions and opening a new one. While doing so they can earn new bitcoin as a reward. There’s more to it, but essentially this is mining. The sequential blocks of transactions form the chronological blockchain ledger. One block, or group of transactions, is closed and a new one is opened every 10 minutes or so. Anyone with a computer and internet access can establish a node and mine, but to increase the likelihood of earning bitcoin miners employ massive computer power. There are dedicated server farms in the U.S. and abroad using computers designed just for this purpose. China is especially active in bitcoin mining.

The origins of bitcoin have contributed to its mystique and notoriety. A person or group named Satoshi Nakamoto conceived the open-source computer code on October 31st, 2008, by posting on a message board for cryptographers. It caught the attention of Hal Finney who dabbled in encryption technology in his off hours. He and Sathoshi worked to get the open-source protocol running in 2009, and slowly others began to adopt and use bitcoin. The cryptocurrency also appealed to “Cypherpunks”, an anarchic, libertarian group concerned with privacy protection and subverting the power of banks and governments to create economic crises and serve corporate interests at the expense of citizens. Satoshi’s true identity and motivation for introducing bitcoin aren’t known. He or she essentially disappeared in 2011 and past communications were encrypted, sparingly worded and didn’t elaborate on philosophy.

The current system for handling credit card transactions illustrates the problem bitcoin intends to solve. The authors walk through an everyday coffee purchase: seven entities are involved, including the merchant, front-end processors, payment processors, banks, credit card associations, clearing houses, etc. These entities share our banking and personal information, and of course earn fees which are paid by the merchant and ultimately you and I. Fees can total 3%, and much more when traveling abroad. This same transaction using bitcoin is strictly between the merchant and purchaser. The universal ledger confirms funds are available and validates the transaction. No personal information is shared because bitcoin is encrypted. No third party intermediaries are needed and no transaction fees are charged. In this scenario there’s no need for banks, credit cards, payment processors, dollars, euro or yen. Bitcoin proponents envision huge economic benefits from eliminating transaction fees.

A growing list of merchants accept bitcoin as payment for some or all of their products, including Dell, DISH Network, Microsoft, Expedia, Overstock, Newegg and many others. However, there are good reasons to be skeptical. Public perception suffered after several hacking incidents. For example, Mt. Gox, an early bitcoin exchange lost 650,000 of its client’s bitcoins and finally collapsed, impacting 127,000 users. Silk Road was another high-profile debacle. It was an Ebay-like site for trading in illegal drugs and assassinations that used encryption to hide web traffic and the anonymity of bitcoin to keep transactions private. Its operator, Ross Ulbricht was sentenced to life in prison for money laundering and trafficking narcotics. There’s also conflict within the bitcoin community itself, most recently related to a proposal to expand bitcoin transaction volume capacity, which is a small fraction of established payment systems. The argument exploded very publicly into death threats, virus attacks and censoring bitcoin discussion boards. Breakdowns like these, coupled with extreme price volatility in past years and other concerns damage public trust in bitcoin as a reliable currency.

Trust is a recurring theme in the book. In our current system banks and other central institutions maintain the central ledger that establishes the essential trust in who owes what to whom. Various parties in this system dedicate enormous resources to verify their records match and confirm trust. But with bitcoin, trust is automated. To be effective as currency bitcoin must be widely held and widely accepted. It’s the classic “chicken or egg” dilemma. Money must be a unit of account, a store of value and a medium of exchange, three conditions banks are currently tasked with safeguarding. But there’s an enormous cost for this in money, privacy, and economic damage banks are perceived to cause in crises. The authors deftly explore multiple perspectives on trust and the central role of banks:

  • In developing countries millions of people lack access to banks. Bitcoin may be an ideal solution for countries with limited banking infrastructure, weak legal systems, 10%-20% fees on transfers from citizens working abroad and a high degree of self-employment.
  • Russia’s and China’s national security depends on controlling their national currencies, so unregulated and encrypted bitcoin may be a threat to government’s hold on power.
  • Developed countries incur hundreds of billions in transaction fees that could be used productively. But unlike bitcoin, the incumbent system allows for Keynesian intervention during crises to offset currency hoarding.

To the extent bitcoin has obstacles; the underlying blockchain technology has opportunities. Financial institutions are using it to create more efficient financial payment, trading and settlement systems. Major firms actively exploring blockchain solutions include Bank of America, Banco Santander, IBM, ING, Mizuho, NASDAQ, PwC, UBS and many others. Meanwhile, startups like Next, Ripple, Mastercoin, Ethereum, BitShares, Counterparty, Stellar and others are developing digital asset exchanges for peer-to-peer trading. The authors explore a variety of blockchain applications that extend beyond digital currency. Decentralized autonomous corporations (DACs) are similar to crowd-funding but DAC shareholders participate in ownership and any increase or decrease in value. Reputation markets for restaurateurs, contractors, freelancers, etc. use blockchain to hold their record of customer reviews, which can then be securitized to monetize goodwill. Voting can use an encrypted private key to send a tiny amount of bitcoin to a polling wallet. Votes are time-stamped and permanent in the blockchain to prevent fraud. Smart contracts, where bitcoin payments are made to a neutral wallet and disbursements are triggered automatically. Examples include homeowner’s escrow for insurance and tax payments, and credit default swaps where a credit event automatically triggers payment to the CDS owner. Smart property, where digital ownership tokens are assigned as property deeds, titles and certifications of ownership, makes them easily tradable with other digital asset claims. There are endless applications using the blockchain platform, and it’s seen by some as the internet all over again.

Blockchain clearly has a very bright future. As for bitcoin as digital currency, the authors present several future scenarios and discuss potential government reactions and the impact on various stakeholders:

  • Bitcoin is adopted worldwide: The UK, Canada, Switzerland and Singapore are poised to lead due to their innovation-friendly regulations. The U.S. would take a back seat given the restrictions here. Banks and governments would have greatly diminished power. Millions of unbanked people in developing countries would gain access to an efficient financial system.
  • Bitcoin is not adopted: The obstacles to realizing the grand vision are never overcome and a ‘just good enough’ option with lower fees and greater efficiency takes hold within the existing system.
  • Hybrid system: Bitcoin grows alongside the existing system and national fiat currencies continue to be used. Exchanges are needed to convert to and from digital currency. Blockchain technology is used by institutions to improve transaction confirmations, payment systems, etc. Credit card companies, payment processors and currency traders could disappear. Or bitcoin could be adopted principally for online and certain other types of commerce.
  • Multi-coin world: Currency itself becomes less important. The principle means of exchange could be smart property trading on blockchain-based exchanges where property items are divided to level needed. Commerce becomes a form of barter without the limitations of trading physical property. The authors posited selling half a horse for a flight to LA!
  • National cryptocurrency: Countries launch their own digital currency using blockchain technology. People trade currency peer to peer without intermediaries, but control is still centralized leaving the state as the ultimate counterparty. Governments retain the ability to use policy measures to stimulate the economy. Cross-border transfers of digital currencies are difficult to restrict which undermines capital controls. The U.S. digital dollar has an enhanced role as a reserve currency, but the Fed is more accountable to the global marketplace. For example, if the U.S. digital dollar were mismanaged other currencies would become favored.

Regardless which of these scenarios is realized, bitcoin and blockchain have staggering potential to reshape financial services and other areas of the economy. They can no longer be dismissed as a fringe, radical movement. It will be fascinating to observe this space in the coming months and years.

 

Upcoming Schedule:

March 15, 2016: My Side of the Street: Why Wolves, Flash Boys, Quants, and Masters of the Universe Don’t Represent the Real Wall Street by Jason DeSena Trennert

April 19, 2016: While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis by Roger Lowenstein

May 17, 2016: TBD

To sign up for a future book club event, please click here:

http://www.cfachicago.org/apps/eve_events.asp

CFA Society Chicago Book Club:

The Entrepreneurial State: Debunking Public Vs. Private Sector Myths by Mariana Mazzucato

The Entrepreneurial StateAround the time we read this book, a major global growth scare was negatively impacting the financial markets.  Examples were the China slowdown which weakened emerging market exports, Japan’s ability to stimulate demand after two lost decades, and the low inflation and growth coming out of Europe.  Growth is known to be export or investment led, but a traditional catalyst has historically been technological led innovation.  Looking at Europe over the past decade, there has been a lingering question as to why Europe has not been a major innovator.  Why has the US been a major leader in technological innovation producing companies like Google or Apple?  Where are the Silicon Valley’s of Europe?  Is it possible that government led European austerity could be a major contributor to stagnant growth?  The author thinks yes.

Austerity programs in Europe have led to reduced government spending and an expectation that the private sector is going to lead the way in innovation.  Looking at the US, and despite popular opinion, the high risk and innovative catalysts for growth have not come from venture capitalists or the private sector.  It has been the State.  Against popular myth, the State doesn’t just invest in infrastructure, correct market failures, take part in countercyclical Keynesian fiscal policies, or create the right economic conditions for the private sector.  The State has actually been extremely entrepreneurial and has led the way in nanotechnology, the internet, GPS, touch screen display, SIRI, green technologies, and biotech among other things.  The State is not at the back end of innovation but at the forefront.  The issue with the private sector is that they are quite focused on short-term profits and an eventual exit strategy which has put downward pressure on the time horizon resulting in shorter term 3-5yr projects rather than the high risk and highly uncertain 15 year projects which have produced the major growth catalysts such as the internet.  While 9 out of 10 high risk investments will fail, it takes just the 1 to more than offset the other 9 failures.  While that 1 positive outlier has handsomely rewarded and offset the unprofitable investments for venture capitalists, the reward to the State has come in the form of indirect taxation revenue which has been only a fraction of the total high risk investment return and has certainly not compensated for the high risk of these uncertain long term investments.  For more State run innovation led growth to continue, we need to find a way for the high risks to be rewarded without only the fractional indirect return of taxation.

The bottom line is that high levels of government austerity can significantly curb long term innovation and growth.  Especially considering that economies can’t rely on the private sector to invest in the high risk and uncertain areas that can be the major turning points or catalysts for growth.  If the State could have a much greater combined direct and indirect return on their investments, then perhaps the State would have a much greater pool of assets to invest towards high risk investments which could accelerate long term growth.

 

Upcoming Schedule:

February 16, 2016: The Age of Cryptocurrency: How Bitcoin and Digital Money are Challenging the Global Economic Order by Paul Vigna and Michael J. Casey

March 15, 2016: My Side of the Street: Why Wolves, Flash Boys, Quants, and Masters of the Universe Don’t Represent the Real Wall Street by Jason DeSena Trennert

April 19, 2016: While America Aged: How Pension Debts Ruined General Motors, Stopped the NYC Subways, Bankrupted San Diego, and Loom as the Next Financial Crisis by Roger Lowenstein

To sign up for a future book club event, please click here:

http://www.cfachicago.org/apps/eve_events.asp

CFA Society Chicago Book Club:

Rise of the Robots: Technology and the Threat of a Jobless Future by Martin Ford

Martin Ford, a software engineer by trade, projects a veryrise-of-the-robots-side bleak future for the working prospects of humanity.  In a world that sees its share of apocalypse futures through Hollywood movies and TV shows, one can easily dismiss the premise of his book as another alarmist tale.  However, as the reader pushes through the seemingly endless examples of worker displacement in global commerce, it starts to sink in that maybe we are in for a rough time.  With the arrival of self-driving cars, automated tellers, digitalized customer service machines, 3-D printers, computer written news articles, drone delivery systems, and robotic assembly lines one starts to wonder if there is anything that cannot be automated.  Even in our own industry robo-advisors and computer trading systems are burgeoning industries.

The cause of all this technological advancement, in Mr. Ford’s view, has been the shortsightedness of capitalists driven by extending their bottom line by cutting expenses, increasing productivity and demanding less expensive labor.  After all, in a demand driven economy what happens if there is no demand as individuals find themselves short on the resources needed to buy the goods produced?  This new economy is driving inequality and it will only continue to get worse.  Education has been no panacea as graduates find themselves prepared for a world in which their skills are no longer required.  The top will continue to grow and the masses will be left to fend for themselves.

The reality is that policy makers and regulators are woefully behind the curve, and given today’s dysfunctional governments, why would anything change.  His solution is for an immediate $10,000 minimum guaranteed income for all.  How that is the magic number is lacking in derivation, but he defends the concept in order to keep the demand engine going in a jobless future.  He highlights a large array of taxes to pay for this transfer of wealth (carbon tax, VAT, wealth tax, technology tax, etc.), and defends the transfer to face the oncoming scenario where a majority of the population is not working.    Although the large majority of the change is out in the future, say 2050, we need to start now to ease the transition, and give the policy makers time to adjust the income guarantee and tax structure in the future.

At the club’s meeting we shared our ideas of this potential new world.   We felt that the book was a bit short on detailed specifics, as Charterholders who crave detailed data generally are when faced with a conceptual thesis.   But overall we felt the time spent was very enlightening.

First we talked about the time frame, mostly agreeing that it usually takes much longer than experts, like Mr. Ford, initially foresee.   However, we had difficulty denying that in the far future his reality of limited workers (those to keep the technology running) would not come to fruition.   We discussed changes in our industry that were examples of technological change.  The group contemplated and had big discussions on how does society, and namely democracy, work when the vast majority of voters are not productive.   In a short term practical discussion, we talked on how to position investments to take advantage of the changing world.

This was the second book we embarked upon looking at the future of technology this year (the other being Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies written by Erik Brynjolfsson and Andrew McAfee – see previous blog), and each highlighted that the world was changing very fast and society needs to start addressing the changes.  We all agreed these are very important challenges and would recommend everyone to read one or the other to get a sense of the dynamics that are changing our world.

Upcoming Schedule:

January 19, 2016: The Entrepreneurial State: Debunking Public Vs. Private Sector Myths by Mariana Mazzucato

February 16, 2016: The Age of Cryptocurrency: How Bitcoin and Digital Money are Challenging the Global Economic Order by Paul Vigna and Michael J. Casey

March 15, 2016: Pension Finance: Putting the Risks and Costs of Defined Benefit Plans Back Under Your Control by Barton Waring

To sign up for a future book club event, please click here:

http://www.cfachicago.org/apps/eve_events.asp

CFA Society Chicago Book Club:

No Ordinary Disruption: The Four Global Forces Breaking All the Trends by Richard Dobbs, James Manyika, Jonathan Woetzel

No ordinary disruptionEverything can be measured, and what gets measured gets managed.” So reads the motto of one of the world’s most pre-eminent consultancies, McKinsey & Co. This month’s CFA Society Chicago Book Club Selection, No Ordinary Disruption: The Four Global Forces Breaking All of the Trends, is written by three men from McKinsey and they truly take this tagline to heart. The “four global forces” in the title include: urbanization, the challenges of changing demography, technological advance and acceleration, and growing interconnectedness of the global economy. Major news outlets have focused on these forces in some form or another for many years (or perhaps decades), but the main value that this book brings is its focus on anecdotes and “measurements.”

The first half of the book focuses on the forces themselves and where we find evidence of their existence. The center of global economic growth has been moving east for some time and many Chinese and Indians (among others) find themselves commanding a larger standard of living. Meanwhile, “The West” has been fraught with stagnation and labor’s replacement with capital in many industries due to technological advances. Furthermore, the demography of many developed nations has produced more retirees per working person. Each of these facets is well laid out with stories of real life examples in the development of smarter and less expensive robots, the crises affecting aging developed economies, and the rise of emerging markets.

The second half of the book begins to falter a bit with the prescription on what to do about the changes coming. Almost every single course of action recommended would be common in MBA programs or even undergraduate studies of business. Employers and companies are encouraged to adapt to this new environment we find ourselves on the brink of.  Which skills will be necessary aren’t named specifically, but the emphasis is really on the ability to change. This reflects the true challenge going forward in managing that which is measured.

Overall, the book provided for a great discussion on what the future will look like and how it affects the investment profession. Even though its prescriptions weren’t always insightful or groundbreaking, the idea of a different economy and investment environment can be both frightening and exciting. We will continue to watch these factors to see where they take us going forward.

 

Upcoming Schedule:

January 19, 2016: The Entrepreneurial State: Debunking Public Vs. Private Sector Myths by Mariana Mazzucato

February 16, 2016: TBD

March 15, 2016: Pension Finance: Putting the Risks and Costs of Defined Benefit Plans Back Under Your Control by Barton Waring

To sign up for a future book club event, please click here:

http://www.cfachicago.org/apps/eve_events.asp

CFA Society Chicago Book Club:

The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee

Second Machine AgeThe CFA Society Chicago book club met on Oct 20th, 2015 to discuss The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies written by MIT professors Erik Brynjolfsson and Andrew McAfee.  The book discusses the digital age and how it will impact our global economy.  To start off, the first machine age was attributable to the evolution and invention of the steam engine.  If you viewed an economic graph of human history, you would find relatively stagnant economic growth going back thousands of years until the chart vertically takes off around the late 18th century.  Technology is clearly what has shaped recent human history starting with the steam engine which led to the industrial revolution, internal combustion engine, electricity, and supernormal growth.  Like today, there was significant concern new technologies such as the steam engine would displace millions of workers.  While there were certainly many people that were impacted, people eventually evolved and adapted to the new opportunities that were presented by the invention of the steam engine.  There was a lag, but then a significant rise in employment and growth.  Looking back in history, new technologies have destroyed jobs but have also created new jobs albeit on a lag as people adjust and educate themselves to the newer times.  While it took a couple of decades for the invention of the steam engine to turn into the industrial revolution, the authors see the same evolution happening in the digital age.  While there are many similarities between the industrial revolution and the digital age, the former was about automating physical labor while the later is focusing more on cognitive tasks.

The next major inflection point is upon us due to the major breakthroughs in robotics, artificial intelligence, 3D printing, and the expanding computing power of the smart phone.  Google announced in 2010 that they had successfully created the autonomous car that can navigate on major freeways with the help of sensors, algorithms, and meticulously preprogrammed street mapping technology.  Long after the computer beat the world’s best chess player, Watson came along in 2011 and beat our best Jeopardy players.  More recently in 2014, Microsoft announced that not only could we communicate with anyone in the world for free via Skype, we could also communicate with anyone speaking any language via a real time translation service.  The computing purchasing power has been doubling almost every 18 months and while it is always dangerous to extrapolate, the authors don’t see this trend slowing down any time soon.  As always, there are economic challenges as technology races ahead.  Education and flexibility will continue to be important as new technologies emerge and robotic use continues to advance the global economy.

 

Upcoming Schedule:

November 17, 2015: No Ordinary Disruption: The Four Global Forces Breaking All the Trends by Richard Dobbs, James Manyika, Jonathan Woetzel

December 15, 2015: Rise of the Robots: Technology and the Threat of a Jobless Future by Martin Ford

January 19, 2016: The Entrepreneurial State: Debunking Public Vs. Private Sector Myths by Mariana Mazzucato

February 16, 2015: TBD

To sign up for a future book club event, please click here:

http://www.cfachicago.org/apps/eve_events.asp

CFA Society Chicago Book Club:

The New Cold War? Religious Nationalism Confronts the Secular State by Mark Juergensmeyer

The New Cold WarThe United States won the Cold War when the Soviet Union collapsed in 1991.  Liberal democracy and capitalism reigned supreme; the primary ideological alternative, communism, had proved to be economically and politically unviable.  In 1992, Francis Fukuyama published The End of History and the Last Man, in which he argued that, with the collapse of communism, humanity may have reached the endpoint of its cultural and political evolution.  But history didn’t end, and according to Paul Berman, the euphoria of the moment “led so many people – in the United States, nearly everyone – to underestimate the dangers of the moment.”

The dangers came from an ideology far older and more intractable than communism, and if most scholars underestimated it, Mark Juergensmeyer definitively did not.  In his book The New Cold War? Religious Nationalism Confronts the Secular State, published in 1993, Juergensmeyer identifies the continued dominance of religion in many parts of the world, and how many of these religious worldviews conflict with the secular values of liberal democracy.

Juergensmeyer starts in the Middle East, with the Iranian Revolution of 1979 as his first recent example of religion overthrowing a secular government.  Religion has had influence in many other Middle Eastern countries as well, including Egypt.  Even Israel, essentially a secular state, has constituencies that have called for an explicitly religious state.  For example, the Kach Party has stated that non-Jews have no place in Israel, and have called for the country to be run according to Jewish law.  Some of the Kach Party’s statements about Arabs were eerily similar to Hitler’s statements about Jews.

Juergensmeyer also traces the strength of religion in politics in South and Central Asia, including Sri Lanka, Mongolia, Uzbekistan, and most notably India.  Running a secular government has been a challenge in India given the competing religious factions, including Hindu nationalists (such as the BJP) and Sikh nationalists.  In some instances, this competition has resulted in violence, perhaps reaching is apex in 1984 with Operation Blue Star and its aftermath, in which thousands were killed, including Indira Gandhi, the first female Prime Minister of the country.  Although Sikh and Hindu nationalists strongly disagree about many things, they are united in their opposition to secularism; according to Juergensmeyer, “the Sikh rhetoric is strikingly similar to the language of Hindu nationalists”.

The key question that Juergensmeyer asks at the end of the book is if secular western democracy can be compatible with religious nationalism.  He spotted many challenges in 1993, and the last 22 years have only highlighted the challenges in reconciling these two ideologies.  Perhaps surprisingly, religious nationalism can be very compatible with democracy in many countries, simply because many countries have a homogenous religious population.  If 95% of Iranians are Shi’a Muslims, democracy and theocracy may look very similar in that country.  Indeed, Fareed Zakaria, in his book The Future of Freedom, stressed that often Americans focus too much of promoting democracy, and not enough on promoting liberalism, and then are surprised when liberal values don’t automatically follow from democracy.

And thus the main tension between liberal democracy and religious nationalism comes from the tension between liberalism and theocracy.  Questions about human rights, protection of minorities, and freedom of expression may be answered very differently depending on how societies are structured.  This tension was much discussed in the aftermath of the recent Charlie Hebdo shooting, and highlighted that, however optimistic Juergensmeyer was about reconciling liberal democracy and religious nationalism, there may be intractable differences that continue to cause major problems in our world.

 

Upcoming Schedule:

October 20, 2015: The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee

November 17, 2015: No Ordinary Disruption: The Four Global Forces Breaking All the Trends by Richard Dobbs, James Manyika, Jonathan Woetzel

December 15, 2015: Rise of the Robots: Technology and the Threat of a Jobless Future by Martin Ford

January 19, 2016: The Entrepreneurial State: Debunking Public Vs. Private Sector Myths by Mariana Mazzucato

 

To sign up for a future book club event, please click here:

http://www.cfachicago.org/apps/eve_events.asp

CFA Society Chicago Book Club:

SUPERPOWER: Three Choices for America’s Role in the World by Ian Bremmer

In a recent talk Ian Bremmer explained why he wrote this book now, an endeavor he had not contemplated in prior years stating “I think it is extremely important for all Americans to discuss our country’s role in the world, its choices, and make it a large part of the upcoming election.”    Bremmer feels that the United States is at a crossroads in its foreign policy, wandering between multiple ideologies which has weakened its position and left our allies and foes wondering what, if any commitments the USA is prepared to support.  As a guide Bremmer offers our future President three choices: Indispensable America, Money America and Independent America.  Each is expanded upon and discussed in the main body of the book after a brief synopsis of the current and recent history of the world’s foreign relations and America’s involvement.

Bremmer begins by giving a general outline of questions for the reader to consider as one weighs the three options and includes the topics: Freedom is? America is? China is? America’s biggest problem in the Middle East is? What are the USA’s spy capabilities? What are the risks? What is the primary responsibility of the president? What should America look like in 2050?  He uses this outline to help readers shape their own views and then benchmark those views against his three options described below:

  • Indispensable America: “Argues that only America can define the values on which global stability increasingly depends.  In today’s interdependent, hyperconnected world, a turn inward would undermine America’s own security and prosperity.  We will never live in a stable world while others are denied their most basic freedoms – from China to Russia to the Middle East and beyond.”  Since America is the only country that is capable of utilizing its vast resources to underwrite global security and support a general prosperity, it is our duty to help all democratic minded people who support human rights through military campaigns globally.  It is through our defense of our values that we can accomplish a peaceful world, and any retreat would subject millions (if not billions) of individuals to pain and suffering under the hands of maniacal dictators and cultures bent on domination and control.  It is America’s duty to free the world, and we as a nation must not only project strength but use our strength as needed.  This option calls for an expansion of military and economic aid throughout the world.  Pulling back fails to recognize the interconnectedness of the world, and America’s need for a stable world for economic growth.
  • Moneyball America:  This option “acknowledges that Washington cannot meet every international challenge.  With clear-eyed assessment of USA strengths and limitations, we must look beyond empty arguments over exceptionalism and American values.  The priorities must be to focus on opportunities and to defend U.S. interests where they are threatened.”  This option states that the U.S cannot be everywhere and do everything globally.  The next president will have to weigh each challenge, doing a cost benefit analysis on America’s role and decide which areas are worth America’s involvement and which are situations where the U.S. is simply overspending for the return received by both America and the world.  In order to do this correctly, a well thought out and consistent message and action plan must be accomplished.  If the U.S. is not clear when it will get involved and when it will not, the world will be left in confusion as to our intentions and commitments.
  • Independent America: This option “asserts that it is time for America to declare independence from the responsibility to solve other people’s problems.  Instead, Americans should lead by example – in part by investing in the country’s vast untapped potential.”  This argument is based on the belief that America’s history of foreign involvement recently has not benefited the world, and has left our own country in decay.  This option allows for a massive decrease in military and foreign aid that should be invested in America through: rebuilding our public infrastructure, investing in American education, increasing our care to our brave veterans, decreasing taxes, and getting our own financial position under control.  Bremmer recognizes this cannot be done immediately, but should be done gradually so as our allies can prepare their own defenses to face future challenges.  The next president should send a clear message that we are going independent and that the world will need to take a much bigger role in helping the oppressed and realize the U.S. is not going to be the policeman of the world into the future.

Bremmer leads the reader through the three choices, and offers a fourth which is “Question Mark America” which he totally dismisses.  This is the America which we are, going back and forth between the three options mattering on political polls and global sentiment.  He openly criticizes our current and near history policies, and calls for a clear solution and hopes that all Americans will force the presidential candidates to be coherent and specific on their foreign policy in the upcoming election.

The author does choose an option and defends his position – we will not disclose the final chapters so as not to spoil the ending.  However the strength of the book is not Bremmer’s own conclusion but that it is well constructed for all readers to really contemplate the current policy, the options and reach one’s own conclusion.  Many members began with one view but were slowly swayed one way or the other as they read this thoughtful treatise, remarking that the book contained many compelling and thought provoking ideas.

As a group we felt the book was an accurate snapshot of world events, and provided an excellent event synthesis on recent historical events.   Although a few indicated they began as a supporter of Indispensable America, after reading the arguments however, the group mainly felt the rest of the world needed to provide further global support and the U.S. was carrying too much of the burden.  In general it was felt that the world needed to step up their involvement in global policies and they needed to be more independent in their own defense structures.  We discussed in detail what we felt were the three major “hotspots” of the world namely the Middle East, Korean Peninsular and Eastern Europe.  Although we concluded it was impossible to serve as policeman to the entire world, the group in general thought it would be too dangerous to completely remove our commitments to these three areas.  Thus, the group in general thought Moneyball was the ultimate solution, although many agreed that the U.S. was not very good at deciding on the fly which was the best time and place for engagement.  In order for Moneyball to work a deep discussion is needed by our political structure to set up clear and decisive guidelines so our allies are fully aware of our intentions.  We also recognized the limitations to this strategy given the changing and dysfunctional environment in Washington at the present time.

There was also support for Independent America, given a long lead time for our Allies to “step up” their capabilities, but most thought the world would become too dangerous if we pulled back entirely and the ultimate result would provide a greater instability to world economic and political order.  We also discussed the fact that there may be alternatives to these three options including the idea presented to pull back but give implicit assumption guarantees to several of our allies in the crossfire such as South Korea, Baltic States and Israel.  Many also felt that pulling back was a hard decision when so many are suffering; can America sit by while many die to ruthless, uncivilized factions?  Simply withdrawing may be too repugnant for many, but who is willing to send their sons and daughters to sacrifice for these countries?  The question is difficult and the answer more so, but these are the thoughts of the reader who chooses to engage in Ian Bremmer’s world.

Lastly, it was noted that one entity was glaringly omitted from the book (although one brief mention did occur but was minor) – the United Nations.

 

Upcoming Schedule:

 

September 15, 2015: The New Cold War? Religious Nationalism Confronts the Secular State by Mark Juergensmeyer

October 20, 2015: The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies by Erik Brynjolfsson and Andrew McAfee

November 17, 2015: No Ordinary Disruption: The Four Global Forces Breaking All the Trends by Richard Dobbs, James Manyika, Jonathan Woetzel

December 15, 2015: TBD

 

 

To sign up for a future book club event, please click here:

http://www.cfachicago.org/apps/eve_events.asp

CFA Society Chicago Book Club:

On Saudi Arabia by Karen Elliott House

The CFA Society Chicago Book Club met July 21st for a lively discussion of On Saudi Arabia: Its People, Past, Religion, Fault Lines – and Future by Karen Elliott House.  The book is a fascinating look at the perspectives and interests propelling Saudi society and we were all surprised at how little we knew of this important trading partner and regional power including the following surprising facts:

  • 60% of the population is under 20 years old0307272168-195
  • 40% unemployment among 20- to 24-year-olds
  • 90% of private sector jobs are held by foreign workers
  • Individual initiative and risk-taking are frowned upon
  • Cinemas, music, men and women shaking hands, and books on Saudi Arabia are all forbidden
  • Saudis aren’t interest in democracy: seen by some as forbidden under Islam and by others as chaotic

The author conducts probing interviews with princes and religious leaders, stays in the home of a devout Muslim family, discusses the future with teenagers and college kids, and explores criminal behavior with ex-convicts.  She shows how the Saudi royal family uses religion and oil wealth as “opium of the people” to buttress their authority and maintain stability, but serious internal challenges are threatening the status quo.  Easy access to information tops the list.  Saudis are more informed and connected via social media and cable news and as a result are demanding transparency and fairness from government.  They also more openly question the royal family’s lavish lifestyle, which is in stark contrast to the conservative Islamic principles they advocate.  Meanwhile divisions among Saudis along tribal, religious, gender, reformist/traditionalist lines are increasing social tensions.  When the book was published in 2011 the Arab Spring was in full effect, fueled by these same internal dynamics.  This is still seen as a serious threat to the monarchy.

Saudi Arabia’s biggest external threat is Iran and its desire to expand influence in the region.  The Saudi monarchy has positioned itself as the leader of all Islam because the two holiest Muslim sites, Mecca and Medina, are in Saudi Arabia.  To an ambitious Iran these might be tempting to capture.  Increased Iranian prosperity following this year’s negotiated nuclear agreement could make them even more viable targets.  Add to that the increased competition in global oil production from fracking and alternative energy sources and its clear Saudi Arabia, while still strong, has some crucial challenges to address.

We debated various paths forward but ultimately agreed Saudi Arabia faces an unclear and possibly explosive future.  Resolving the poor education system was heavily discussed, since it generally fails to produce graduates with marketable skills and critical thinking ability.  But government corruption, dependence on royal favors and hand-outs hinders a productive working class.  Saudi men are reluctant to take jobs they see as beneath them.  Saudi women are largely sidelined, comprising a mere 12% of the workforce even though they increasingly educated and motivated.  Women are restricted to working only with other women, and often seek “acceptable” teaching or medical positions.  There’s a growing demand among women to lead more fulfilling lives, but many defend the status quo and feel it’s inseparable from their Islamic beliefs.  Women’s rights have become a proxy war between progressives and conservatives.  We also compared Saudi Arabia’s economic prospects to Russian and Chinese models, but its social code and wealth structure are just too different to be relatable.

Royal succession may offer a glimpse at Saudi Arabia’s future.  After his crowning earlier this year, King Salman made 29-year-old Prince Mohammed bin Salman deputy crown prince and concentrated unusually large responsibilities with him.  The prince now heads the state oil monopoly, the public investment company, ministry of defense, and leads the air war in Yemen.  This is shocking for a country that has stayed unified for decades by sharing positions among the royal family.  If this is any indication of its future, Saudi Arabia might become increasingly assertive in the region while enforcing religious conservatism internally.  We were also surprised that Saudis are generally not interested in gaining democratic freedoms.  The country is more a collection of tribes and Islamic factions than a unified state, and Saudis see a need for strong rulers to prevent internal wars.  Democracy is also seen by some as forbidden by Islam because elected leaders promise what they don’t have and praise themselves – both are Islamic taboos.

On Saudi Arabia offered a valuable look at the many layers of Saudi society and the challenges it faces.  It was fascinating to learn about this country that’s so important in the region and the world.

 

Upcoming Schedule:

August 18, 2015: “Superpower: Three Choices for America’s Role in the World” by Ian Bremmer

*NOTE: Author Douglas Sisterson is attending the PDDARI meeting which takes place just before the book club meeting on 8/18. He will be discussing his book “How to Change Minds About Our changing climate”.

September 15, 2015: “The New Cold War? Religious Nationalism Confronts the Secular State” by Mark Juergensmeyer

October 20, 2015: “The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies” by Erik Brynjolfsson and Andrew McAfee

November 17, 2015: TBD

 

To sign up for a future book club event, please click here:

http://www.cfachicago.org/apps/eve_events.asp

CFA Society Chicago Book Club:

The Billion Dollar Mistake by Stephen Weiss

The CFA Society Chicago book club met for their monthly meeting on June 16, 2015 to discuss “The Billion Dollar Mistake” by Stephen Weiss.  Mr. Weiss brings a wealth of knowledge and experience to the table as he has spent nearly 25 years on Wall Street working at Lehman Brothers, SAC Capital, and Salomon Brothers.  Coincidentally, he was booked on Flight 93 for a 9/11/01 departure though decided to postpone the trip to focus on pressing work at Lehman.  The event was a turning point in his life where he left Wall Street to move out west and start a hedge fund.  This is where he began thinking about his next phase in life and writing this book.  At the end of the day, a mistake is a mistake, whether it is a billion dollars, a million, or a buck.  This book presents several different case studies which can help us minimize the number of our future mistakes.  The book also provides several 101 type lessons in finance to help explain the various case studies.  The case studies involve the ponzi scheme of Madoff, AIG’s deviation from its core business, Aubrey McClendon’s excessive leverage at Chesapeake Energy, and activist investor Ackman’s divergence from his investment discipline.  To sum up a few of the key takeaways, we have put together the following bullets:

  • Never let your passion override your sense of discipline.  Always perform your due diligence and remember that times, facts, and investment scenarios are constantly changing.
  • Be careful of rushing into a market that is falling fast.  Let the knife fall.  It is better to fully understand the investment rather than impulsively jumping in.
  • Insider buying and selling must be carefully analyzed.  Understand the context and motivation for the transaction.  Insider buying isn’t always a buy signal.
  • Leveraging your portfolio can enhance your returns, but never over leverage to the point where you don’t have the necessary collateral to meet your margin requirements.
  • Know the investment discipline established by your manager and ensure they stick to their mandate.  Venturing outside their area of expertise leads to style drift and potential losses.
  • Short selling can be a dangerous strategy.  Remember that the market has an upward bias and going against it is similar to trying to beat the house.
  • Rarely does a fall in stock price equal an opportunity.  Prices move in response to new information resulting in a very efficient market.
  • Beware outsized returns.  They almost always indicate excessive risk.  Be sure you are willing and able to take on the risk, otherwise stay conservative.
  • Don’t just diversify across asset classes; consider diversifying across investment managers which can lead to increased risk mitigation.

 

Upcoming Schedule:

July 21, 2015: On Saudi Arabia: Its People, Past, Religion, Fault Lines – and Future by Karen Elliott House

*(NOTE: Those who attend the July Book Club meeting will receive a free copy of “Superpower: Three Choices for America’s Role in the World” by Ian Bremmer)

August 18, 2015: Superpower: Three Choices for America’s Role in the World by Ian Bremmer

*(NOTE: Author Douglas Sisterson is attending the PDDARI meeting which takes place just before the book club meeting on 8/18. He will be discussing his book “How to Change Minds About Our Changing Climate”.

September 15, 2015: The New Cold War? Religious Nationalism Confronts the Secular State by Mark Juergensmeyer

October 20, 2015: TBD

 

To sign up for a future book club event, please click here:

http://www.cfachicago.org/apps/eve_events.asp