Warren Buffett’s worried.


Postage stamps of Weimar Germany, hyperinflati...

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How do we know? Because he’s been reading a cult book on monetary disintegration from the seventies – and telling everyone else to read it too. The book went straight to number one in the business books chart the minute it was re-released.

It’s called ‘When Money Dies.’  It was written by a Brit, Adam Fergusson (former Conservative MEP and adviser to Geoffrey Howe) and is about the economic crisis and money-printing in 1920s Germany. During the seventies people feared money printing as a way of tackling the economic crisis, and were horribly fascinated by what had happened in Weimar Germany – coincidentally a regime that Noam Chomsky recently referred to (see link below).

Today it’s the same story and that’s why the book’s top of the pops again. Read more of this post

If “Risk Leaders” don’t know…how can their bankers and insurers?


Here is the latest video offering from Ontonix, I trust that you will find it informative!

From a personal perspective communicating, to a prospective client or interested party, what “Quantitative Complexity Management” is about is a complex task in itself and I sincerely hope that this video explains the process, the valuable (previously hidden) information that can be obtained and how a business can derive enormous benefit from such insight.

The case study is an interesting and, in the current climate, a relatively unusual one. It is a successful, growing, business with a management team who, despite their obvious success, appreciate that there is more to learn about the business, They are prepared to be proactive and to seek out sources of risk. They are the type of RISK LEADERS who appreciate that ERM, Legal, Regulatory compliance can count for little if the underlying structure of the business is fragile. They are ensuring that the business is “fit for randomness”. That they are robust. To a bank or an insurer they represent an excellent risk:

financial – credit – management liability (D&O) – property – casualty

THE BURNING QUESTION REMAINS, IF INSIGHT INTO THE GENERAL HEALTH OF AN ORGANISATION CAN BE GLEANED BY ANALYSIS OF FINANCIAL INFORMATION (GENERATED BY THE DAY-TO-DAY ACTIVITIES OF A BUSINESS) WHY WOULD A BANK OR INSURER CONTENT THEMSELVES WITH RISK RATING BASED UPON INCOMPLETE & HISTORICAL STATISTICAL DATA?

“Running a company based on just the financials is like driving a car by only looking at the rear view mirror!”

With Ontospace we are able to map internal operational interdependencies and effectiveness as well as external supply chain robustness. We can provide the same in depth analysis and, if required, real-time monitoring of critical operations or processes.

COMPLEXITY is not an imaginary foe dreamt up just to make life more difficult than it already is for modern business. It is the inevitable consequence of the advancements we have made. We view a business as the dynamic (non-linear) complex “system” that it is and needs to be.

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Vaclav Smil: The (In)Accuracy of Long-Range Forecasting


I should really be grateful that I don’t need to continually build a case for Quantitative Complexity Management because many, more learned, individuals than me keep on doing it! However, the problems remain…WHAT WILL IT TAKE FOR PEOPLE OF INFLUENCE TO STOP: MAKING ASSUMPTIONS IN AN ATTEMPT TO PREDICT THE FUTURE; TALKING ABOUT THE IMPACT OF INCREASING COMPLEXITY; IGNORING THE INTERDISCIPLINARY CASE FOR CHANGE; WASTING TIME WITH AGREEMENTS AND REGULATIONS TOO COMPLEX TO EFFECTIVELY MANAGE…AND EVERY OTHER SODDIN’ THING THAT RELATES TO BUILDING A MORE STABLE AND SUSTAINABLE ECONOMIC BASIS???

Vaclav Smil profile photo

Vaclav Smil offers some thoughts on the accuracy of long-range energy forecasting. Smil is truly a goldmine of thought. The excerpts below are taken from The Perils of Long-Range Energy Forecasting: Reflections on Looking Far Ahead.

On Complexity

Greater complexity that was required to make the forecasts more realistic also necessitated the introduction of longer chains of concatenated assumptions—and this necessity was defeating the very quest for greater realism…

On the Failure of Experts

What strikes me most when looking back is the extent of individual and collective failure. Perhaps the most remarkable aspect of the lack of imagination underlying this failure—or, conversely, of exaggerated expectations, and of often surprisingly swiftly disproved quantitative predictions—is that so many erroneous forecasts have come from eminent innovators or from individuals (or, more recently, from institutions) considered to be the leading experts in their field….
Perhaps the most precious example of failed national long-range energy forecasting—remembered fondly, I am sure, by all those who have been around energy matters for some time—is the goal of U.S. energy independence charted by the Nixon administration for the 1980s. Felix thought that the self-sufficiency can be realized by the year 1985, despite the fact that his forecast called for the consumption of some 3000 Mtoe in 1985. A reality check: in 1999 the USA imported more than a fifth of its total primary energy use, which was about 2400 Mtoe, and just over half of its demand for liquid fuels! Read more of this post

“Physics Envy…” presentation by Prof Andrew Lo: Risk & Uncertainty (in financial systems)


In this entertaining presentation, Andrew Lo poses some very interesting questions and adds further fuel to the argument that a rigorous scientific approach may yet help us undo some of the ills created by man’s feeble attempts to cheat nature – dare I say, man-made complexity!?

Andrew Smithers (Smithers & Co) has drawn his conclusion – below – It wasn’t rotten maths, it was rotten epistemology. But, I’m sure he won’t be offended if I draw and justify my own conclusions as well as adding some further thoughts from Andrew Lo which would appear to support my own position. In fairness to Mr Smithers his commentary is upon the presentation. My own thoughts are more focused on the robustness [RESILIENCE] of the SYSTEM rather than that of individual companies, portfolios or strategies. I am no expert. More of an enthusiastic amateur whose personal pursuit of a means to develop financial products that delivered TRANSPARENCY, SUSTAINABILITY and CUSTOMER VALUE led me to the realisation I would be better equipped for “the journey” armed with an understanding of COMPLEXITY…something that Einstein spoke so passionately about (below). Hence my involvement with Ontonix.

I have also included, below, a link to a superb article from Fund Strategy magazine, “Back to Nature”. In it Andy Haldane (Director of Bank of England), Lo and others recognise that there is much more for economists…all of us…to learn from the study of biological systems.

If you are involved at all in investment, insurance, credit or risk management and have aspirations that you may continue to be so, then you had better make sure you get your head round this message and ensure that your boss (and their boss) understand it…or, at least, give it some thought!

If an eminent Economist and a Physicist, both with in depth knowledge of the financial markets, are warning of the dangers of making key business decisions without a thorough and inter-disciplinary (see below) approach, business leaders need to listen if some businesses – industries – are to have a future.

Will anyone be so bold as to model that!!?

Read more of this post

Andrew Lo: Crisis and CDO’s explained…


Eminently listenable Andrew Lo makes it all understandable AND, in the process highlights the impact of unmanaged complexity, “tight coupling” and human behaviour. Interesting and educational!

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