I love hip hop. Actually, let me qualify that – I like hip hop that tells a story, preferably with a heavy slice of social commentary. The best hip hop songs let us into a world that we otherwise would never see or provide some social commentary that let us see society in a different way.
Unfortunately, in the mid-90′s, hip hop became really commercially successful and instead we got mindless drivel like It’s All About The Benjamins and more recently Roll Call. These songs might get people on the dance floor, but you won’t be listening to them five years after they’re written.
In fact, the only song with any soul that might have come out this century was probably Hate It Or Love It. What’s more, is I’ve found myself wondering how we could have just gone through the worst economic crisis in generations and there hasn’t been one hip hopper who’s written a song about it. After all, this was originally protest music, and there’s a lot to protest these days!
Thankfully, there’s finally a hip hop song that captures all the confusion of these past few years. Unfortunately, the original version is almost unlistenable – despite it’s great lyrics – but a few weeks ago it was repackaged in a fantastic form.
What song am I talking about? Dizzee Rascal’s Dirtee Cash performed as a mash-up with Florence + The Machine’s You’ve Got The Love at the 2010 Brit Awards:
The lyrics to this song are awesome. Dizzee spits them so fast that you might not notice them at first, so give them a read here – especially verse 3 – and reflect on why no one else is singing about this today:
[Dizzee Rascal]
Let’s go
Everybody wants to be famous,
Nobody wants to be nameless, aimless,
People act shameless
Tryna live like entertainers,
Want a fat crib with the acres,
So they spend money that they ain’t made yet,
Got a Benz on tik that they ain’t paid yet,
Spend their pay cheque
In the West End on the weekend
Got no money by the end of the weekend.
But they don’t care cause their life is a movie,
Starring Louis V, paid for by yours truly,
Truthfully, it’s a joke, like a bad episode of Hollyoaks,
Can’t keep up with the cover notes,
So they got bad credit livin’ on direct debit in debt
they still don’t get
Cause they too busy livin’ the high life, the night life
Huggin’ the high when livin’ it large
And they all say
[Florence]
Sometimes it seems that the going is just too rough
And things go wrong no matter what I do
Now and then it seems that life is just too much
But you’ve got the love I need to see me through
[Dizzee Rascal - Verse 2]
Let me take you down to London city
Where the attitude’s bad and the weather is shitty
Everybody’s on a paper chase
It’s one big rat race
Everybody’s got a screw face
So many 2 face,
Checkin their high just like their ready to ride
I’m on the inside looking at the outside
So it’s an accurate reflection
City wide, north, east, west and the southside
Everywhere I go there’s a goon on the corner
Guns and drugs cause the city’s like a sauna
And it’s getting warmer, and out of order
Tryna put a struggling mother to a mourner
Mr politician can you tell me the solution
What’s the answer, what’s the conclusion
Is it an illusion, is it a mirage
I see young’n’s die because they tryna live large
And they all say
[Florence]
Sometimes I feel like throwing my hands up in the air
I know I can count on all of you
Sometimes I feel like saying “Lord I just don’t care”
But you’ve got the love I need to see me through
(Check it, check it, come on, come on)
[Chorus]
You got the love
(Who’s got the love)
You got the love
(Who’s got the love)
You got the love
(That’s right, thats right, thats right)
You got the love
You got the love
You got the love
[Dizzee Rascal - Verse 3]
We are living in the days of the credit crunch
Give me the dough
I’m tryna have a bunch
But I cant have rice for lunch
Its not there ain’t enough to share
It ain’t fair never dreamed that he could be rare
Who cares who dares to make a change
Everybody in the club trying to make it rain
But not for famine just for the sake of having
15 minutes of fame and everywhere’s the same
Again and again I see the same thing
Everybody acting like they their plane sailin’
I see rough seas ahead maybe a recession
And then a depression in whatever professon
This is my confession I can’t front I’m in the forefront
Living for money ready to start like a bungee jump
With no rope but I ain’t trying to see the bottom
Because thats where I came from, I ain’t forgotten,
[Chorus]
[End]
So in a few months I’ll be moving to Canada. And renting. For a long time. Possibly until I’m 40. And I’m not ashamed of it.
Given that so many people consider owning a house a measure of their identity and worth, why am I not interested in buying one?
Basically I think Canada’s real estate market is in a bubble and I don’t know how long I’ll be in Canada (at least five years, but past that, who knows) nor do I know when the market will burst. So, I won’t be buying.
Over the course of the weekend I did a whirlwind trip to Montreal with my buddy Rich as he’d never been. 14 hours of driving for 26 hours in the city. It was a gluttonous affair: poutine, ridiculous meat at Au Pied de Cochon, smoked meat at Schwartz’s and too much coffee. Here are some photos:
I’ve never been a big fan of Donald Rumsfeld, but way back in 2002 he had a killer quote that expressed a great idea:
There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. These are things we do not know we don’t know.
I love this quote but have always been frustrated by it. The ex-consultant in me thinks “you’ve only described three quadrants of a 2×2 matrix!” After all, what is an “unknown known”?
John’s hypothesis is that we’re at the end of 60 year debt supercycle (1950-2010; preceded by 1880-1933) and it’s going to be a vicious delevering that’s going to reshape the world.
The interesting point in the graph below is where the kink upwards started: 1980, just a couple of years after I was born. Moreover, the damn line’s been going up pretty much ever since I’ve started thinking about things more complex than what to do after the school day ended.
And this brings me back to the unknown known. If John is correct (and I think he is), then everything I know about the world is tinged with the fact that I learned it going through the biggest credit bubble anyone alive has seen. A lot of the ‘facts’ I learned growing up (you’ll always be wealthier than your parents, social programs can be paid for, etc.) are going to be challenged over the next 30 years and I’m going to have to unlearn what I knew. My pattern recognition is going to be skewed because it was trained on a pretty crappy underlying dataset.
It won’t be easy, but now I think I finally know what a unknown known might be…
Last night Wen, Rich and I went and listened to Nassim Nicholas Taleb be interviewed at the powerHouse Arena. I’ve been a big fan of his books for years, but this was the first time I’d seen him speak. The interview started on a couple of false notes (he spent a few minutes telling us that they’d all just been out for drinks; the interviewer apologized for her French-accented English), but he had a couple of quotable points:
The difference between a fool and a saint is timing
If a problem is too hard to compute, the outcome is essentially random
Black swans are not black swans for everyone: only for ‘suckers’. To be crass, the 9/11 terrorist attacks were a black swan for Americans; for the terrorists were exactly what they were expecting
Debt levels map one-to-one with forecasting overconfidence
If I told you that you have a 3.4% chance of losing everything on a trade, you probably wouldn’t take it. If I told you that a catastrophic failure only occurs every 30 years, you would
Religion is not about beliefs, it’s about creating heuristics for people who otherwise couldn’t think them up themselves
The best science is done by independents (Einstein, Darwin), not by people associated with institutions – those people try to please the tenure committee. There probably isn’t a perfect institution for creating better science, but abolishing tenure is likely a good start. (This feels very akin to how innovation in business occurs)
‘Forecast’ is ‘prophesize’ in Arabic – but how would you feel about next year’s business ‘prophecy’?
Basically, everything he said could boil down to the following:
Almost everything that’s interesting in the world is nonlinear
And no one really understands how nonlinear dynamics work
So if anyone tells you they do, don’t believe them
Instead, always compute the likelihood that something will happen…
…and make sure that you’re never the ‘sucker’ based on those probabilities
He closed with an interesting comment that he wants to move from a world of true/false to sucker/non-sucker. An interesting thought; if you get a chance to see him speak, do so.
I just finished reading William Gibson‘s Pattern Recognition. (As with all things Gibsonian, I highly recommend it). One of the concepts that comes up throughout it is apophenia. For those unfamiliar with the term, here’s the Wikipedia definition (with examples):
Apophenia is the experience of seeing patterns or connections in random or meaningless data.
This made it all the more ironic for me when I read this sentence in the book this morning, pertaining to an email where a character talks about a plane he has found during a dig on the steppes outside Stalingrad/Volgograd:
It’s a whole plane and for some fucking reason it wound up under four feet of muck, but this Guru character knew where it was. He claims its dreams and visions but I think he walks around in the winter with a metal detector. So he’d said here, this plane is here, dig, and before we came back to London they’d sunk a trench and hit it. But bribery and threats prevailed, at least till we got back with the extra cameras and crew, because I wanted this plane emerging to be the climax of the film. No idea it would be a Stuka; blew me away; it’s just this most Nazi-looking aircraft, amazing. Dive-bomber, they used them on the Spanish, Guernica and that.
Now, pivot to a New York Times article I’m reading just a few minutes later, recommended by someone I follow on Twitter:
Grab a timer and set it for one minute. Now list as many creative uses for a brick as you can imagine. Go.
The question is part of a classic test for creativity, a quality that scientists are trying for the first time to track in the brain.
They hope to figure out precisely which biochemicals, electrical impulses and regions were used when, say, Picasso painted “Guernica,” or Louise Nevelson assembled her wooden sculptures.
I love it. Teach a man to fish and he’ll eat for his life. Teach a man about apophenia and he’ll see meaningless connections everywhere.
So, unless you live under a rock, you heard that yesterday, at 2:45 pm, the stock market dropped like a rock:
We don’t know why this yet happened, but there are two likely culprits – and neither should make you happy.
The first hypothesis is that this mini-crash was caused by ‘fat fingers’ – an errant trader entered $16 billion instead of million (this trader needs a dialing wand). Pause for a moment and think about that. Is this even possible? A trader can place a trade for $16 billion – larger than the GDP of 81 countries – without someone checking it? If this is even possible, then risk management is a joke and it’s time to shut down some of these trading companies.
The other hypothesis is based on programmed trading. Massive automated trading means that Wall Street 2010 is part Skynet, where the machines are in control. It’s possible that yesterday’s downward spike was caused by a computer-controlled model gone wrong. It interpreted some combination of signals as meaning that the market was turning and it started to sell. Hard.
This sell order was then picked up by other machines who then started to sell too. And the feedback loop began, rocketing prices downwards.
At this point the sell orders come in faster than a human can make sense of them and you get panic on the exchange. Moreover, no market maker is able to stabilize the market because the trades are coming in faster than they can interpret them.
The irony is that another batch of computers are looking at the market and see this as a buying opportunity. Proctor and Gamble is down by 30%. A computer buys it because it knows that, due to mean reversion, it’s unlikely that P&G will not gain back part of that loss very soon. And now the feedback loop kicks back in the opposite direction.
And the market stabilizes again, albeit down a few percentage points (which is a big deal).
If this turns out to be the reason for the spike, it’s very disheartening. These programmed trading models are proprietary and we have no idea what they interpret as sell signals. It could be some combination of statistics and trading data; it could be as esoteric as reading blogs for sentiment. Moreover, even if 99% of models are ‘correct’, the 1% that wrong can potentially set off a cascade.
Moreover, the fact that the NASDAQ has cancelled all the wild trades yesterday reduces some of the incentive to fix the system. Don’t get me wrong-whoever’s system set this off is working the weekend to figure out what happened. But, a lot of people lost a lot of money yesterday (and some made a fortune too) and having those trades cancelled sends a signal that market owners are going to smooth these things over. If you get carried away, they’ll just hit a big “undo” button (I wish I got this at my job).
The real reason this scares the living hell out of me, is that unpredictable volatility like this is typically a sign of a major instability in a complex system. Our financial system is a terribly complex system. When you see a major change like this, it’s a sign that your models of the system are wrong and you’re now flying the plane without a captain. I’m going on record as saying that no one on Wall Street really understands how the entire system works; the proof is in a thousand point decline -and 700 point rebound – in the span of 15 minutes. Statistically, this should never happen.
So what’s going to happen? I’m putting my money on a huge increase in volatility over the coming months and, unless there’s a change in the regulatory system (more disclosure of modeling, caps on trading limits or sudden price changes), increasingly shorter cycles of stability/volatility. It’s going to be an interesting ride; hold on.
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We don’t know why this yet happened, but there are two likely culprits – and neither should make you happy.
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