Self-absorption and the vaccination deniers

The refusal of service by doctors to people who refuse vaccinations for themselves and their families is a serious wake-up call. Trying not to exaggerate, it is an equivalent to reminding people that you have freedoms, but you cannot yell ‘fire’ in a crowded theater. I will also avoid a joke about the price of going to Disneyworld, because I really believe it is a moment to realize just how dominate self absorption has become in our popular culture.

No longer psychobabble, the self-absorption phenomina are regularly reinforced as public personalities and private conversations gravitate to those narratives and view which only reflect their own. It comes directly in conflict with a simple notion of what is right and what is wrong.  Ironically, the first thrust in the revolt of the rational came not for humans but for pets.  Vets now refuse admission of pets who have not been vaccinated.

It took so long for humans to establish equivalency for reasons we can only speculate, but it is time for a full scale revolt of the sensible. I hope everyone can do a Howard Beale, and I have a list:

• Drivers who never dim their (high power) headlamps
• The legions who cough and sneeze and refuse to wear a mask in public
• The yardbirds who burn stuff they shouldn’t and let the smoke drift around the neighborhood
• The grocery shoppers who religiously refuse to put their carts back (and leave them roll)
• Any activity for adults where some insist on including their kids

But the worst still remains the geniuses who insist they are able to drive home when impaired.  I had a conversation yesterday with a vaccine denier, proudly quoting the 23% effective rate on flu shots as brilliant proof that nobody should get their flu shots.  Supper finished, and after a few glasses of wine, this person insisted on driving home (spouse was available) despite slurring of words, etc.  We see it all the time. Why do they do it?  I have concluded that they want to make an impression with Jodi Foster.

Banks Strategic Risk -- Everyone is in agreement

Should we be concerned when the strategic path for financial institutions is agreed by all of the leading thought leaders (see below)?  They also agree, fortunately, that implementing, adapting, and integrating that pathway will be the challenge. However they also agree that legacy strategies will no longer suffice.

Financial service providers designed and developed products and services which kept margins high and customer loyalty stable through crisis and boom; and unless a bank created a self-inflicted wound the momentum of past businesses begat future revenues in an annuity model.  Of course the problem was the multitude of self-inflicted gaffs; from too much growth to too little proper underwriting; and we now have companies devoting enormous energies (and cash) to legacy regulatory and cost issues.

While every banker devotes increasing efforts to the past, the customers transform. Although the legacy customer base moves slowly, it does indeed change, and the adaptation of technology by customers and an army of new competitors has left the banks slow to begin their own transformation.

The first risk must be considered to be inertia.  I had a recent advisory project for a Board, where a dashboard complete with colors and arrows included ‘strategic risk’ and was negative and red from the outset.  It took the Board several quarters to recognize the importance of strategic risk, but not until the lending pipeline evaporated and the customer share of wallet plunged. Senior managers get comfort from dealing with credit and market risk, not strategy.

But if our experts are even partially correct, there is a lot of work to be done in the transformation of strategy while preserving the sentiment of integrity and confidence required to retain customer groups. Banks have begun to move – to test strategies in isolated segments, or launch a separate brand linked to technology, or create entire new brands to participate in the ‘used to be sleepy’ payments competition.  Old line bankers now talk about being ‘top of wallet’ as much as share of wallet.

And how do risk analysts evaluate the strategic risk associated with these transformations? In theory, some metrics must be available. We can look at news articles for innovative activity, but many of those are purchased placements.  We can track market share data, but the frameworks and for traditional business lines. I suggest that new frameworks (yes, scorecards) will be required across selected strategic dimensions.  Using the Deloitte framework:

Balance Sheet Efficiency –

M&A

            Growth

            Payments Transformation

            Compliance and Risk management

            Data Management

            Cybersecurity

 

Do these risk criteria supplant or replace the weighting of traditional risk criteria? The financial accounting criteria, if the accounting rules are transparent, should no longer show the volatility of the past ten years; so I would offer the suggestion that ‘core risk analysis’ comprised of traditional variables will have a reduced ‘share of voice’ in risk analysis of financial institutions.

Strategic Risk, Market Risk in the context of new volatility, and Operational Risk including the adaptation and transformation of new tactics will take a greater influence in risk analysis.  High levels of risk impede a bank from gaining new high margin business and erode traditional legacy annuity flows. The time frame for these risks is focused on current phenomena, whereas traditional risk analysis flows from the historical base.

A selection of experts in the consensus:

Banks struggle to find the right business model   http://www.euromoney.com/Article/3412974/Banks-struggle-to-find-the-right-business-model.html   

Banking 2016 - Accenture http://www.accenture.com/sitecollectiondocuments/pdf/financialservices/accenture-banking-2016.pdf

The bank of the future  McKinsey  http://www.mckinsey.com/insights/financial_services/the_bank_of_the_future

Transforming banking: Global Banking Outlook 2015  E&Y

2015 Banking Outlook  Boosting profitability amidst new challenges

http://www2.deloitte.com/global/en/pages/financial-services/articles/2015-banking-outlook.html

Retail Banking: Winning Strategies and Business Models ...

https://www.bcg.com/documents/file37897.pdf

 

 

Walking Backwards

The technique of choice around here on extreme icy conditions is to walk backwards when possible.  My ex-girlfriend taught me that many years ago when I asked how she was able to carry water buckets to the horses when there was so much ice (and I inevitably fall on my butt).  Walking backwards has a positional advantage – you are always leaning forward so the chances of floundering onto body parts that are less friendly to ice is diminished.

Walking backwards, particularly on hills or icy steps also slows you down and doubles your number of observations.  Sounds like a metaphor.  When things get risky we all should have more observations and move a little slower.  Preparing to fall in the best possible way extends the analogy, but sometimes there is no good way to fall.

Of course we watch the youth plow forward at breakneck speed, with their observations on small screens.  A neuroscientist was on the radio yesterday explaining that the human brain does not fully develop (connections to frontal cortex) until late 20’s or early thirties.  That explains everything…these whippersnappers are all brain underdeveloped!!!!

Maybe they should try walking backwards.

Innumeracy

The failure to grasp things numeric – figures, forecasts, comparisons, estimates, and transactions – continues unabated among Americans young and old.  Could be the weather, or the news, or ecclesiastical arguments about the age of the world; but time and time again the majority seems to be misled or shocked when the result does not correspond to their expectations.

Innumeracy is to understanding phenomena as literacy is to understanding words, but there is no bridge for jargon like the one that slang fills for conversation. If you do not pay attention to the numbers you just do not care. Popular pundits carp about science and math deficiencies in our schools, but I believe it is everywhere. The popularity of short form narratives, which prevent diving deep into the basis for arguments, leads everyone to exploit exaggeration opportunities.  Nearly every example can have a range of 15%-25% (population percentages which  blah blah blah) and the speaker or writer is allowed to pretend it is significant. Racial and ethnic groups are significant.  Percentage of people in rehab is significant. Gender groups are significant. Illness categories are significant.  But they all have different statistical basis, so an argument can be made that none is statistically more important than another unless you explore further.  Weather forecasts, our recent friend or foe depending on where you live, have enormous margins of errors but few people read that far. Nor do they want to.

People who concentrate on the numbers are no longer merely nerds, they call themselves data ferrets.  The image is accurate if not too attractive. They are easy to find if you want to read their views. Some progress has been made by technology, where FRED gives anyone the skill to do economics numbers; or sports enthusiasts can find readymade statistics websites.  Local governments now post their budgets in clear terms, so a bit of numeric transparency has begun.  We have to get everyone to use it.

The numbers and their origin do indeed matter, but in our country it feels like a general phobia for numbers, and few seem to want to chase the wonks for their opinions – giving a pass to the outspoken and usually inaccurate bloviators. The result, as I step back today, is that almost every headline is exaggerated if you dig deeper into the statistics in the background. How do we get even a few more people to dig deeper?

There are places in the world, by the way, where innumeracy is not the norm.  Singapore is small, but like the Scandinavian countries the educational system has the younger generation fully acclimated to dealing with numbers and forecasts and statistics.  This is not merely for business, but also for philosophy and the transactions of everyday life. I believe the older generations will not change, but a bit of focus is surely in order for the younger groups.  Maybe there is an app for that.

What to read during a snowstorm

In the old days I kept a list of things I would read if I had the time, but the internet led to the list exploding beyond anyone’s ability (I then called it ‘if I ever break a leg’ list).But now, with a tablet, and a fire in the fireplace, and music and beverage set of for the entire day.  There are some priorities I am happy to share.  I cannot go anywhere, not because of the snow, but because Zeke is sleeping on my feet.

Major magazines now have super visual internet versions, and not totally in a paywall.  The Atlantic, the New Yorker, and Rolling Stone all top my list.  Foreign press, like The Independent, Le Mondo in English, or the special issues of The Economist, and the internet version of BBC stories are next for me.  Videos usually accompany the articles, so the tablet will come in handy; but You Tube has a lot of bits and pieces that are more fun than trolling Netflix and the ads are less obtrusive. Comedy in particular, should get some attention.  I forgot how funny The Onion can be, and believe it or not Mad Magazine is still published.  My own penchant for cartoons leads me to a newspaper called Funny Times, or the website political cartoons.com.

Book publishers now have all moved into the tablet world. You can get a Kindle version of everything, and a couple of chapters free.  I am drawn to BookBub, which offers extraordinary e-books for 99 cents. I never have time for the New York Review of Books, which is a good read by itself.

All of this excludes music and videos and local newspapers; but if you want to take a nap you can always read my commentary.

Me and my phone -- who cares?

This may well be an extension of my desire for a website called ‘www.mindyourowndamnbusiness.com’ as I read that Monday is ‘keep your phone in your pocket’ day, Tuesday is ‘do not take any pictures day’, Wednesday is ‘play no games day’  and so forth as the addiction to phone usage surpasses on average 3 hours per day. I feel left out.  I use my phone for phone calls and utilitarian messages (not conversations), and I also use my computer for computer applications not my phone.

After years of taking some pride in keeping up with tech advances (I can web crawl), now I fear that I am on the wrong side of the digital divide. Twitter seems stupid to me.  Selfies are very contrived, and sports are beautiful on large screens not small. Recently my obviously Luddite tendencies are beginning to cost.  I cannot send a wireless signal from my phone (and Netflix) to my TV, but others my age can. I embrace anti-social media since I still send and expect emails to exchange thoughts.  I even prefer a long form Skype conversation to a text message exchange. I can connect my phone to Bluetooth devices (like the earpiece) but I choose not to since driving and talking makes no sense from a safety perspective. I still own and use a flip phone, but use my very large tablet all the time.  Tablets will never fit in pocket.

Now the new white board products, and the hologram headsets really seem attractive, and the experts point to the new trends in media as an ‘enabler of awareness’.  Great.  Now I am not just old, but stressed by social media all around me, and unawares. I connect no emotions to technological toys. I don’t need the latest fastest phone or app.  Can fossilization be next?

A late new year’s resolution will be selectively studying and learning some of these tech wonders (the Microsoft surface whiteboard looks like a winner) but it will not be social media related. I embrace my lack of too much awareness.

In praise of the cool house

Feeling righteous and now not unique at all.  This week’s NYTimes has an opinion piece and the fellow followed up on his blog with statistics supporting his argument that heating a large cavernous house is simply silly.  He makes all the right arguments, sometimes in excess, for a prudent use of energy.  Now that fuel is cheaper (but firewood is $250 plus per cord) the argument is still valid but ignored.

We, Zeke and I, live in a similarly cavernous house as the author, and the thermostats bottoms out at 45⁰ so we heat the room we are in, and when necessary keep the fireplace roaring and the house gets towards 60⁰ but mostly you layer up -- nothing cumbersome but reminiscent of ski vacations in mountain climates where ‘scantily clothed’ was not an option no matter how much you dreamed.  Living in a cool environment is not bad, and never a burden if you concentrate on moisture and not heat. You (and the dog) should avoid getting wet; and the dew point in the house cannot get too high; but this is not anywhere close to the “I have to have the house at 70⁰” mentality we hear to this day.

The argument that attracts my attention is related to health. I have personally avoided colds and flu for many ears and I particularly attribute this to living in a cool house.  I cannot find statistics, but some of the other benefits are enjoyable.  All houseflies perish, and your selection of cool hardy houseplants thrive (keep them away from cold spots). Room temperature beer or wine is really at the proper temperature. Most of all the energy bills are dramatically lower by volume and cost. It makes sense.

A bonus comes if you choose to get a workout at the YMCA, which always feels like a giant smelly sauna without going into the sauna. At the ‘Y’ you sweat when you are supposed to, and if you cool down before going out into the cold it seems to enhance the experience. Likewise a giant fire in the fireplace becomes a double treat -- with the atmosphere equal to the warmth. Only trouble involves getting close to the fireplace because I have to step over the dog.

 

Eight Track Tapes

Picture your favorite watering hole or bistro, performing a renovation and installing an eight track tape player while publishing an invitation for customers to bring in their musical artifacts for public play.  I would add the rear end (including back seat) of a vintage convertible (maybe more the one) to sit in whilst reminiscing and exaggerating with tales of goings on fifty years ago.  Automatic smile.

This is more than syrupy nostalgia.  The twittermania social media universe is a serious challenge to us older folks.  The first part of the challenge is why? The level of self-absorption and/or feeling of isolation that drives the younger generations to need to tweet all the time is beyond me and most of my compatriots.  Not that we don’t like technology, but Pandora and email is just fine, and don’t require fixing old eyes on small screens.  Eight track tapes, on the other hand, bring back a simpler era.  Smile.

News providers in VN need an upgrade and training and orientation to the 21st century

I have been following locally sourced news from VN for more than a decade; often with a filter or lens that takes account of the flaws that afflict news sources all around the world, but moreso in Vietnam:

              There is a push for an attention grabbing headlines first and foremost

              The facts in news stories are mostly very short term or even speculative with context

              Like international TV news or tabloid press, there is an acceptance of extreme views

              Unlike contemporary international news, there are rarely links

              Converting from a controlled economy, the VN news still believes planned targets are law

              There is confusion that business is a horserace or sports event where we see ‘winning’

              There is a mix of rumor and news, particularly when personalities are involved

              You can perceive a connection between news items and short term trading impulses

No implication that the facts presented are wrong, but just not in sufficient context (and not improving over time).  I personally feel that there is circularity – the more the news sources fail to offer context and perspective, the more the consumers expect this of the news. The more they expound on speculation, the more readers follow the speculation instead of searching for the background.

Surely the international news scene has similar short term popular news providers everywhere, but they now get caught out by internet based fact checkers, and of course long form editors.  For VN there are always the international sources that do similar long form essays, but not as many as for other similar countries. I try to read as much as I can about the region, and this malaise shows for neighbors as well.

I offer, as an example, the reporting on the VN economy.  Every economy has positives and negatives, but the articles that appear in the press usually take an either all positive attitude or an all negative attitude, rarely with counter arguments or links to data. Someone appears to be feeding trading mentality – short term at every turn. Getting the headlines without the context.

We the readers may be a fault for not calling them out, but I prefer to blame the editors. Coming off decade of censorship, I am going to guess that they are older and do not want to take any risks.

Pulse checks are phooey (technical term)

Sometimes called ‘instant insight’, or ‘polling’, or ‘twitter feedback’ these short term opinion tallies are of almost no validity and little use beyond entertainment; but they are proliferating. Why do I get the feeling that this is an extension of the self-absorption phenomenon? A person has to take the time to respond, so that the information is already biased towards those with an interest.

At the extreme, maybe all the ‘popular’ issues are only important to a very small and very forceful group. Racial issues are only of interest to those with an interest (in the 2008 elections they were called ‘those who do race for a living’); gender issues are for those who have, well , gender issues; and business ‘hot buttons’ are only of interest to specific special interests. But they have captured ‘share of voice’

Backing up a bit, there is an emphasis in our culture n marketing (and sales). Whether a product or idea, if you cannot get it distributed it cannot be a success. So every aspect of our culture has embraced the marketing experts; and these experts push for more and more ‘share of voice’.  The old saw is that if you increase your share of voice you will increase share of market for products and opinion for ideas.

Old school survey research is complex and tedious, with designed and tested instruments and carefully crafted samples.  Lots of testing – granular results (that take time to explain).  Contemporary pulse checks are the opposite – fast quick and (very) dirty.  Such and such percent of those who responded thought that an idea was good.  Who cares?

I have switched off anytime there is a pulse check.  I obviously do not watch TV news anymore.  There seems to be a connection between those who take quick pulse check polls and those who conflate correlation with causality (and then rant about it). Sounds like a news model for Fox and MSNBC.

Black Ice Risk

The Black Swans carry the literature – those major events not in our control with enormous consequences for many.  But society can and has dealt with the Black Swans to various degrees of success and the effects are so sublime that I have come to believe that if the earthquake hits it is beyond my ability to prepare (we have no earthquakes here).

Black Ice is a better analogy. Events or occurrences that are possibly avoidable if only we had paid attention. Life’s pitfalls, business hazards, interpersonal disasters are often composed of these black ice events, and they often are not for the general public – they are yours alone to deal with.

A restructured framework for Market Risk

I seldom focus on Market Risk, often thinking that the systems and analysts and long (back) tested methodologies will suffice.  However, in a month where a major central bank precipitates a one day 41% move in a major currency, an aggressive trading group with a name that includes ‘chaos’ dramatically moves copper, a major bank is (again) fined for behavior in dark pools, and oil and the dollar continue moves testing our calculations of standard deviation it may well be time to take a fresh look.

Full disclosure:  for a profession that enthusiastically supports as much volatility as possible (to create trading opportunities) the market(s) participants can claim victory this month. I claim ‘foul’ without specific detail – just the general feeling that there are a whole lot of boys and girls in the FICC world who just posted a bad earnings year and need volatility to assure future bonuses.  Call me cynical and naïve, but I believe the markets as we knew them are (technical term) boluxed.

Even if my proposition is shaky on the issue of rigor, there is something very different about how global markets are behaving.  There has been a foundational structural change, and I suspect that the way we view market risk will have to change as well.

Stress Test performance evaluation time

We have a perfect environment to ask if you and your colleagues did a sufficient job constructing alternative scenarios and then stress tests and if you were really good installing mitigating mechanisms.

We have been pitching stress testing for a long time.  Look at the batting order:

              Wildly volatile commodity prices, within historical boundaries, but over more than five months

              Currency fluctuations, again within norms but compounding commodity prices

              Global energy restructuring, anticipated but arriving very fast

              All market volatility compounded by publicized trading scandals from the ‘fix’ to black pools

              Huge regulatory fines for legacy major movers that do not seem to stop

              Changing government policies, compounded by changing multinational policies (accounting)

              Multiple forces moving sentiment, starting with geopolitics

Most companies and institutions anticipated perturbations across these domains, but was the test sufficient?  Did the order of magnitude of the tests include the combined effects? Can you do your own performance evaluation, as well as build lessons learned?

I am not concerned about the professional planners (and economists from time to time) since this is not new.  I am surprised by the companies (some very large) who were either 100% ignorant, or ignored the obvious.  Leading the pack are the forex trading firms that continue with 50 to 1 margin requirements, and the governments who kept their budgets based upon $100 oil.

 It means we still have evangelical work to do.

Sports

It comes up often, the time consumption of sports in our lives and ‘does it really matter?’.  I had a good experience many years ago with Bob Keidel and his book which successfully made the case for business analogies.  We know, however, that sport is not just for alpha males but has become a family affair.

I had the pleasure of attending and NHL game last night, and was distracted from the sport by the people.  Entire families clad in overpriced merchandise, consuming over industrialized food, flooded with over amplified sound experienced a cultural event, not a sport.  These families – all ages all backgrounds – have invested and are invested in the importance of sport in the fabric of their lives.

So……(remember always start an opinion with ‘so’)  if we add politics, which clearly mimics SEC sports, and you have a majority of the American landscape covered with potential analogies to sports. Winning is the only thing ---  always spout your teams’ narratives --- share of voice is all that matters-- external image trumps introspection every time; these tautologies work for so many so often.

What about those of us who like to read, or garden, or take an interest in science and technology, or belong to the tribe that calls themselves ‘motor heads’ (I have a lot of friends, male and female, who invest time and treasure in vehicles), or even the greens – they don’t have a sports analogy!  I have yet to see a fantasy gardening league.  While the legions park in front of their televisions this weekend glued to the march to the superbowl, there will be others basking in the glow of the newly arrived seed catalogs. Winning isn’t the only thing….doing it right counts, too.

 

Is a Requiem for Core Income in Financial Institutions simply recognition of more risk?

In the US, not unlike motherhood and apple pie, understanding core income was a foundation stone for the analysis of F.I.’s for many of my generation. We even look outside the traditional big US institutions and try to apply a deep dive on past, future, and comparable core income drivers with comfort.  The past years’ flow of reserve releases, we thought, was an anomaly surely to fade.  Now we look at 2014 published results.  Consider (try reading aloud) these two recent (DB excerpt) paragraphs from early analysis:

WFC had $250m of LLR release, $235m of net MSR hedge gains, $217m related to the sale of gov’t guaranteed student loans, $186m of securities gains, and $39m mortgage repurchase reserve release. There were also some tax credits. On the flip side, some lumpy expenses—although most seemed more seasonal vs. one off. Legal costs weren’t disclosed, but we estimate them to be about $150m higher than normal (operating losses declined $100m q/q and $250m accruals last qtr).

JPM reported EPS included a number of items (most notably $1b of after tax legal costs and a $500m tax credit) and there were several modest reclasses in business segments—which combined make it tricky to compare to estimates. Adjusted EPS of $1.33), but this still includes some lumpy items (such as mortgage repurchase reversals, MSR losses, reserve release in the corporate book, other CVA etc).

 

Far from diminishing reliance on (often netting) lumpy items, banks seems to post results where these special items are on the increase both in frequency and magnitude. Sum-of-the-parts, comparables, peer comparisons, and other tools that sought an understanding of core income are frustrated at best.

 

The legions of managers devoted to creation and utilization of this accounting mechanism have succeeded in imbedding them into the fabric of their companies. I offer the view that without a clear view of core income, that we can link to business models, it is necessary to attribute large amounts of (hard to mitigate) risk.

 

Seasonal Psychobabble

Long month, that January.  Long in every way from how long until you have to fill up the fuel tank(blessedly cheaper this year) to how long the dark skies encroach on outdoor activity, to how long until all the holiday bills and the tax forms come in the mail – but we know they are coming.  All the good movies have come and gone, and the exciting sports are almost all over.

Why, we have to ask, do so many people go off their personal deep ends at this time of year?  Relationship breakups (personal and business), abandonment of friends and family, emotional outbursts in public and private.  You would think that since it happens every year we would expect winter craziness and learn to deal with it. Personally, I do not have the tools, the stomach (I turn off the radio when Dan Gottlieb comes on), or the desire to help friends and colleagues with emotional rollercoasters.

Of course the pop literature tells us about seasonal affective disorder (ironically called S.A.D.).  And I am sure the taverns (and breweries) are loaded with slump shouldered customers self-medicating and agreeing that it is only because of the syndrome. Not out here in the country.  There is still too much work to do. 

Finishing up the cleanup of trees from last winter’s storm.  Fixing the stuff that you never got to.  Writing the assignments that were always sent to the bottom of the pile. Even a bit of indoor painting when and if yo turn the heat up. This is what we do for our therapy. Don’t pity the humans who wallow in their own problems – feel sorry for the animals who cannot enjoy the outdoors in the severe weather.

Anyway, all the seed catalogs come this week.

Radical Extremism Finally Under Attack by the Competent Good(?) Guys

Among the news items this week is the story about the loose knit band of computer hackers collectively known as ‘anonymous’ focusing their attacks on violent radical extremist groups.  Turning away from retail hacking, or government hacking, or bank hacking; these guardians of civilization have vowed to ‘take down’ websites; expose accounts and even disrupt payments channels used by violent terrorists.

Sweet irony that one group labeled a ‘threat to national security’ can potentially be a solution to diminishing the strength of a violent threat to national security both in the US and globally. We hope that the official hackers (think NSA) have more or less the same ideas, but the internet citizenry is not encumbered by law or oversight.

Military brass, with a couple of decades of poor strategic results, are silent.  If the hackers succeed, even on the margins, we may finally ask the questions previously avoided concerning the competency of national security expert strategies for the 21^st century. They can certainly spend money, but on legacy systems and facilities that appear to have greatly diminished value. Some reform emerges (recent announcements closing 15 bases in Europe) but it will be slow; and asymmetric enemies move fast.

To be fair, if there are military equivalents to ‘ethical hack teams’ they are hopefully covert and we will not hear of them. For the anonymous hackers, they could probably launch a non trivial recruitment campaign nationwide. This will be an interesting story to watch, and eventually a great film.

Predictive and Preventative Risk Indicators

Many ideas or tools in risk are recycled – regularly and often. The development of sophisticated and accurate K.R.I.’s began with the emergence of operational risk as a discipline and many of the really good papers date from the period 1995-2005. Many concentrate on either operations or customers, as they should yet fail to emphasize the monitoring process once these tools are in place.  I always suspect that someone in the background is selling an I.T. application to do this.

This week the topic resurfaces in RISK magazine Six steps for preventive KRIs , and once again the concept of well-designed data indicators is paramount. We cannot argue against well done measurement tools, analytic or predictive, but the devil is still in the details. An example:

A couple of applications for risk oversight at the Board level came across my desk, one bank and one non bank.  The chief risk officer was swamped by data driven proposals for super systems and data mining and back testing.  Both chose a cost effective approach.  Both realized that the effort was necessary but not sufficient and asked for a dashboard for monitoring. Both used the tools (KRI’s plus dashboard) successfully as an early warning system; however one shared the dashboard with his Board and the other did not (at least in the beginning).  After a couple of years both have integrated the tools into Board education as well as staff training.  We can learn from both.

My point is a simple one.  As risk management tools increase and decline in popularity, the monitoring and communication process is still the foundation stone. If I could draw cartoons, I would have a Cro-Magnon man looking at a rock while holding a stone hammer (labeled KRI) over his head.

No need for sweet

At first I thought it was the January effect. Short days, cold weather, dismantling the holidays’ good spirit, and the detail documented in Seasonal Affective Disorder . No, I am not referring to all the sugar-loaded goodies that our morbidly obese population ingests; I am referring to attitudes to counteract all the grumpiness.  Everyone seems to gravitate to feel-good stories and uplifting speeches, and the films that resonate cheery times that we are clearly not living in. Saccharin sweet – leaves a bad taste.

How refreshing to watch the French mobilize a national emotion that is not sugar coated or excessively promoting their personal politics (and their personal politics are just as strong as ours). The victims were wonderful scoundrels – older humorists who have thumbed their noses at every manner of institution as if they were Doonesbury with censorship. And the people did not respond with rage against whatever they wanted to rage against, nor did they see a sugar-coated solution.

Here is the US we keep looking at the endless television commercials of bright, cheery, never obese images of citizens usually with a dog making everything not only better but wonderful. Non stop grumbling and complaining still dominates conversations, but you would never know if from the media. We seem to have a need to build the foundation of our information on sweetness and not satire. The economy may be booming, but let us complain about income inequality. The politics of the country are even more dysfunctional (if that is possible) but let us grumble about the weather. And at the end of the day so many people turn to marginal (at best) medication solutions.

Every once in a while, briefly, satirists or at least songwriters surface; but between. I confess I make every contribution I can in print and in comment, but I am drowning in the Tsunami of phony good spirits.  It is as if the spirituality crowd got together with the mindfulness gang.

Then when a potential (perceived) crisis erupts we overreact every time.  What about that Ebola scare? Why are we still taking shoes off at airports? Do police have to turn off the Go-pro in the lavatory?

How about restoring the dosage of sarcasm.  I understand that an entire segment of the country tunes into John Stewart, but where are the cartoonists? (Southpark is an acquired taste). I have a vision.  Our lame duck President could become ‘sarcastic commentator in chief’. And local institutional leaders could take the lead of the Jesuit in Rome and actually avoid hypocrisy instead of supporting it.

Never will it happen.  Paranoia continues to give us a Patriot Act, and Homeland Security, and at the end of the day an urge for sweetness (and unnecessary medication).. I even think Vanna White is still on broadcast television.

Technical note on the oil price and the VN economy

Technical comment (very wonky) for those interested. from LinkedIn VN

There are three predominant forces that have become volatile: commodity prices, foreign exchange rates, and government(s) policy AND any discussion of the effects of one element has to be presented in multiple time periods (intertemporal). Mr. Pham laid the foundation for the discussion of oil price fluctuation with (http://www.eia.gov/countries/country-data.cfm?fips=vm). However at this moment the dollar strength, and government (and Central Bank) policies worldwide are also taking dramatic movements.

The original question, I remind you, is about VN so the oil price and VND rates are mixed with government policies (subsidies, investments, taxes, and spending) as well as international government policies (the coming TPP, or agricultural exports).

For those of you who are studying this (beyond students) it is a great multidimensional case study. For those with a specific interest please remember there is no simple answer.
The discussion is compounded by the lags in decisions all around the world, few move fast when these elements change. In VN there is a special category of 'slow movement and change' but change there will have to be. If you are a businessman, you have to build a multiperiod matrix. If you are just curious, ask yourself 'what else should be included'?

My opinion, BTW, in the face of this year's (coming slowly) data on VN exports and inward remittances (all dollar denominated) is that the VN economy will ride the benefit of most of these volatile effects unless government gets in the way.

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The audacity of ‘Skip your annual physical’

Todays NYTimes opinion piece by Dr Emmanual quite calmly suggests that the long term data on the benefits of an annual physical (in and of itself) do not justify the time and expense.  He does not exaggerate, nor rule out the need for flu shots and regular important examinations – just the ritual raindance of having an annual physical and the (almost always) additional tests or x-rays that ensue.

How dare he challenge one of the core (insurance subsidized) entertainment events for so many health obsessed Americans?  In an age where conversations seem dominated with health discussions, television advertisements seem overwhelmed with medical devices and procedures, and roadside billboards have been taken over by physician ads; the notion of taking away a cornerstone in this health obsessed subculture is pure blasphemy.

I believe what he is saying is that physician examinations should be focused on those who really need it, not just want it. He is breaking the link between consumer behavior and medical needs. Health care, in our convoluted system, is more often than not a consumer choice. Part of ‘feeling better’ has become separated from ‘being better’.  It is early, but the forces of medical expenditure will be fighting back.

Multipliers

Some events appear serious, yet are really trivial.  The popular press and social media seem to concentrate on easy-to-report yet eventually irrelevant activities. And of course there are other events or activities that develop and evolve and go almost unnoticed until the effect on the rest of the world disrupts life as we know it, with a multiplier effect.

Top of my list is the issue of refugees and quasi refugees around the world and their misery and discontent (as well as their ambitions). I have read estimates that start at 30 million, but do not include the ‘resident’ refugees in Europe or Africa or North America. These individuals and families, on the positive side, often display the characteristics everyone admires from strong families to an incredible work ethic.  Their fate is usually no fault of their own. It then comes as a surprise when the US or French realize that they are integrated and a powerful potential political force in their societies.

Today it is the negative that is in the headlines.  The disenfranchised and frustrated, easily manipulated sociopaths arising out of displaced communities.  Their numbers swell, and casual observers avoid discussing the cost of doing nothing.  Those ‘cost of doing nothing’ started in the past year with the rapid spread of Ebola (no health infrastructure), proliferation of extreme terrorism, the catastrophic burden on some governments (Jordan and Lebanon), and the conflict of immigrant floods of children across the US border.

Still reminds me of the police officer in Casablanca.  We should not be shocked at the results of our inattention, but prepare for the next shock. These shocks have a multiplier effect on society.  There will be an overreaction.  Too bad, since some thought and planning is the solution.  We are all Charlie.

Too Old, or Merely Stale (a qualitative risk variable)

What is the risk associated with so many leaders over 70 years old (even over 80) in both politics and institutions. This is not the era of Reagan, when that job allowed obligatory naps and delegation to staff. This is the era of layer upon layer of data and risk assessment and multiple stakeholders demanding clear thinking and very long tedious hours.

Public and social media treat it with a light hand out of respect (even Jon Stewart) that may or may not be due. Arguments in the UK (too young) and India (too old) miss the point; because chronological age has too many variable components. We can all agree that seasoning and reason are admirable attributes that hopefully come with experience.  Birth date, although easily benchmarked, is not the issue.

Searching for a different concept, I add the rigors of the hours without a break, the physical requirements of travel when necessary, the decision skills to sort information flows, and of course the acuity factors.  Leaders have to work hard and think well.  They need a level of toughness and rusticité (as in the ability to withstand all of the elements) that, IMHO, appear to diminish among many with chronological age.

Citing individual examples merely demonstrates the heterogeneity of humans.  For every Zuckerberg there is a Bloomberg.  For every Lagarde there is a Mayer. For every inexperienced firebrand politician we could cite Pope Francis. It is not the age but the characteristics leading to the judgements of the decision maker that matters.  It seems organic…..the seasoning and continuous refreshing of an intellect until time leaves it stale. Stale, in thought and in action, can be a characteristic of an individual no matter what their age. So the risk question is ‘Is there evidence that leadership has become stale?’

Looking at stale leadership (what an offensive criteria) is the recognition of mostly ideas and actions we have seen (many times) before; but more importantly the lack of evidence of new ideas.  The very stale fail to even exhibit a desire to refresh their information or their views. Shame that many are just too old.

Insider trading and (probably) how to get away with it

The year 2014 had events that somehow registered but did not stick.  The December court decision in NY  reversing the conviction Todd Newman and Anthony Chiasson, essentially transformed the meaning of insider trading. (see below)

EXAGGERATION ALERT: The Newman decision could be for insider trading; an equivalent to the Citizen’s United decision for campaign contribution.

But first a word for our politically connected industry. The easiest way to do insider trading is to work with and for people around government .  The STOCK act provisions in 2012-2013 did indeed declare insider trading by congressional members and staff illegal, but hard to enforce.  And the rest of the industry (read lobbyists) is not included.

What do these two events have in common?  Under both situations, for professional traders and for professional politicians and lobbyists, if one person has insider information but instead of trading for themselves they pass the information to a third party (who trades) this is not considered insider trading. In a moment of poor humor it is reminiscent of elementary school ‘who pushed in the drinking fountain line’ arguments.  The benefit to the trading party (and the public cost) is generated by another.

No wonder there are calls for the legalization of insider trading.  Among those knowledgeable, and aided by technology, the possibility to trade efficiently on insider knowledge at the highest levels is already in place.  Aside from the ’60 minutes’ piece in 2012, nobody cares.

Momentum -- unmeasured and perhaps considered immeasurable

Unimpressed with the view that quantitative analysis, granular and systematic, explains or predicts almost everything; we are searching for the elements of qualitative analysis that seem to direct influence and predict results.  Earlier comments have highlighted ‘sentiment’, and we spent years elaborating the analysis of management and decision making, but in 2015 there appears another force in the mix that is seriously difficult to measure, but is everywhere – momentum.

Volatility has returned (did it ever leave) for countries, companies, institutions, and individuals; and there appear obvious opportunities and threats from the flux in economics and geopolitics and technology; yet a great deal of the explanation of the separation between the winners and losers is not in the statistics.  How do some countries continue stability despite overleveraged economics?  How to companies persist in the global marketplace when their products and services are better offered by disruptive newcomers (while others wilt)? How do some individuals and families emerge from stagnation and others regress economically in the face of similar circumstances?

For all of modern time we rely on the models of the economic man who takes available information and makes rational decisions based on some qualitative version of enlightened self-interest. Yet reviewing forensic cases tells us that there is an increasing amount of unexplainable outcomes each year since the financial crisis.  Often the underlying phenomena give ‘net effects’ so the isolation of causality is tedious.

I gave up scrubbing the quantitative numbers.  I have become firmly committed to qualitative analysis and the challenge appears in the detail – how to conduct this analysis in an efficient and systematic way? Not only the net effects, but also the noise of data that leads and lags gets me away for the numbers to the text.  Do our current web crawlers give hope?  Can we consolidate news and press and commentary to find leading and lagging indicators? Probably do not have the patience anymore to bang on the data for months or years; so my AADD (analysts’ attention deficit disorder) just says no.

The qualitative driver, under my working hypotheses, is momentum.  Over time, short of long, and company or country or individual builds (or does not build) directional momentum.  The successes feed on successes and the failures erode future successes.  Where does this judgment come from?  Yes, Virginia, I am getting back to the smell test – that famous variable that those of us who might be fossils still believe is at the heart of good analysis.

This is a lobbying effort to add momentum as a variable among many in the analysis and commentary.  The weight one gives this qualitative judgment clearly is at the hands of the smeller.

Cumulative Marginal Advantages

A universal framework, as we read the gurus’ views on what matters both in the past year and the coming decade trumpets the success of those who strive for cumulative marginal advantages.  From sports to politics to business to technology; individuals and organizations appear to devote their focus on the gaining of, sometimes small, marginal advantages to advance their mission or personal goals.

Strategy, and hence risk, becomes operational when the focus is so tight.  Missing are the concepts of sustainability, or appropriateness (sorry to mention UDAAP), or long term, or economic considerations.  We find institutions and companies and individuals pursuing small marginal advantage simply for the sake of attaining that advantage no matter what or oblivious to the long term cost.

The conclusion that the tide has shifted to short term attainment of cumulative marginal comparative advantage derives from stories and articles and even research across all sorts of information sources.  Media can and does focus on the short term, and on the ‘winners’ no matter how small or pyrrhic the victory. Negative results, even many years later, are often attributed to events in a different time frame.  The costs or the consequences are seldom associated with the successes.

How did this operational/competitive focus emerge? I believe information speed combined with the talents of those well-schooled in marketing have been the leading light.  Add the prevalence of short termism or diminution of long term accountability and the picture becomes a bit clearer. The public view of everything seems short term, and the long form recedes.

This framework – identifying a concentration on cumulative marginal advantages – works for many analytic tasks.  Strategists can rejoice in short term gains.  Risk managers can watch their statistics improve.  Sports figures can achieve single year triumphs. Politicians in the US can win primaries. All we have to do is find a constituency not satisfied with the short term.

Tribalism in the 21st century

Reviewing the year end summaries and predictions, there is a missing theme that I have followed for quite a while – a tendency for individuals and groups to revert to tribal groupings, behaviors, and attitudes. Full disclosure – I began a quest to reduce or eliminate tribal behavior in 1967 with the Peace Corpse, which (sorry Albert Memmi) appears to have failed universally.

Large recognized ethnic groups, think middle east, have all erased the European political boundaries and cluster their societies according to tribal origins whether we want to recognize it or not.  In each country, voting blocs or party affiliations follow what many term as ‘ethnic and religious’ affinities, but are actually reversion to age-old tribes.  There is a long term comfort in the security of your tribe.

In the US, we too have tribes, but they are defined in an American context.  .  Long standing groups united by geography or dogma exhibit tribal behavior.  Dissect the news; there are ‘true believers’ on every subject, from fire arms to immigration to (horrors) Keynesian economics.  They fortify their narratives together and repeat and refer to each other. There appears no potential for debate or discussion whether in the local tavern or the halls of Congress..

Some tribalism, (think of the positive side of the French or Italian family groupings), prove stabilizing influences.  Many of the Asian societal foundation are comforting and mitigate modern volatility (think of the royal family in Thailand). But even the normally solid religious foundations around the world are susceptible to extreme and radical misuse.  Tribalism becomes a vehicle for exclusion and repression.

And everyone appears to be looking for their proper tribe, but they would not call it that.  It would be a peer group, or fellow travelers, or kindred spirits; but at the end of the day the use of the group looks like tribal behavior.  They simply do not trust anyone not in their group. I understand; it is easier and less frustrating to revert to mean (sorry for the pun) and avoid discussion, conversation, or compromise.

Never mind that almost every incidence of man’s inhumanity to fellow man can be blamed on tribalism (even more than just religion). So…..I look for glimmers of hope.  That Jesuit in the Vatican offers promise, but so did the man without tribe from Hawaii and look what they did to him! Sooner or later the old guard in the Vatican will undermine his efforts. 

Perhaps the internet is the hero of rational (not tribal) behavior.  Transparent information seems to be working on climate deniers, or whatever happened to the birthers, or just what eventually came of the Ebola scare in the US?

Still, when push comes to shove I anticipate that individuals and groups will revert to tribe when frustration or crisis demands.  Prove me wrong. Or perhaps I am reverting to the skeptical tribe.

Reviewing those irritating reviews

Hard to avoid the annual summary of events, or the year-end review of risks, or the New Year forecast of things that should not be forecast that saturate the print and digital publishing this time of year.  I personally suspect that they are written well in advance so the authors can take holiday in December, but here are my conclusions, organized by the things I care about:

I seriously do not like war and its consequences, and it appears that we continue at protracted war. Others continue at war, and there are threats of war all around the globe with the concomitant destruction of both of infrastructure and societies. As Pete Seeger told us…….

Politics is universally terrible, and there appears to be little or no reform in progress either in the US or in any place in the globe. The despots are still in place, and the popular movements are despotic.

Heath concerns and the paranoia about health foolishly occupy irrational levels of concern all around the world, but a few glimmers of hope appear in the form of global charitable investment (not governments) and the global response to Ebola (actually, governments did well so far). Everyone still talks about health too much, with few facts and little modifications of their activities.  Are they fools?  Well, IMHOP if you are worried about illness but refused vaccination that pretty much qualifies you as a fool.

Economic growth and sustainable development continue dramatically in the US, but rarely in the rest of the world.  The headline concern for inequality is not new news, but it should be noted that little is offered as a solution. This is of course very much related to politics and health, particularly in Africa.

It is encouraging to see some worthwhile efforts rewarded with success, ad some appropriate failures. The data finally indicates that clean energy economics are competitive with legacy dirty energy.  The leading wealthy individuals and organizations are making regular inroads in areas where needed. Technology and information transparency are transforming how many people behave, at least publically. And one simple Jesuit is rapidly reforming the Catholic Church.

Some bad companies are facing punishment (fines). Some industries are suffering appropriately (the weight loss purveyors). Some broad societal misbehavior is getting the public attention it needs (battery).And the public opinion of politicians continues to be so low that it may well be transformative (we shall see).

For the near future predictions there is little optimism but an occasional glimmer of hope. Individuals continue their slide into self-absorption.  Companies, in the majority, are slow to transform to new realities.  Governments are far behind in the basic investments required, and carrying legacy burdens that make no sense. The older generations are convinced that the younger generations are still slackers. Wasn’t it in Bye Bye Birdie that she sang ‘Why can’t they be like we were, perfect in every way’.

So…..I still look to see if anyone is learning anything from the past year or years.  All the real data and evidence is there.  We just must get everyone to read it, or hear it, and offer nuanced responses and not blunt narratives. Happy New Year.