Special Order 937

Special Order 937 from Alien (1979)

Special Order 937 from Alien (1979)

 

In organisational strategic subcultures the decision elite / leadership may have different ranked grand preferences to its followers. Ridley Scott’s film Alien (1979) dramatises this two-level game of principal-agent and moral hazard risks in the revelation that the Weyland-Yutani Corporation’s priority is to retrieve the alien xenomorph for its weapons division, and the USCSS Nostromo crew are considered expendable.

 

The Nostromo crew evoke the MacLeod-Gervais-Rao-Church model of role power dynamics in organisations. Parker (Yaphet Kotto) and Brett (Harry Dean Stanton) are Losers: low-level employees who argue with other crew members about bonuses. The rest of the crew are largely Clueless: Kane (John Hurt) puts the crew at risk when he ventures into a derelict alien spacecraft; navigator Lambert (Veronica Cartwright) is a dedicated worker who becomes emotionally unstable; and captain Dallas (Tom Skerritt) makes bad risk management decisions. Science officer Ash (Ian Holm) is a Sociopath who is aware of Special Order 937 and hides this agenda until Ripley (Sigourney Weaver) discovers it. Ripley transforms from Clueless to possible Sociopath near Alien‘s end and becomes a Sociopath in James Cameron’s sequel Aliens (1986).

 

Special Order 937 is a powerful narrative-like metaphor that has wider applicability. It depicts the potential breakdown or fraying of employer-employee relations in circumstances of disruptive industry change, distressed debt, and organisational restructures. The MacLeod-Gervais-Rao-Church model predicts that Sociopaths will externally transfer the negative risks to Clueless and Loser employees – whilst simultaneously covering this up through selective framing / interpretation of facts, policies, and procedures.

 

Awareness of Special Order 937 gives Clueless employees the opportunity to see the underlying Reality of the organisational strategic culture from the decision elite / leadership’s perspective (and perhaps from a whole-systems viewpoint). This provides some optionality and the potential to become more than Sociopath: a fully sovereign actor who is anti-fragile (Nassim Nicholas Taleb).

Dissecting Steve A. Cohen’s Edge

One of my discarded PhD chapter outlines was on the hedge fund SAC Capital and the insider trading case involving former SAC trader Matthew J. Martoma and the firms Elan and Wyeth. I had hypothesised that SAC founder Steve A. Cohen had developed a specific organisational strategic subculture. Recently, I read and analysed Cohen’s legal defence. Now, The New Yorker‘s Patrick Radden Keefe has written a lengthy article on SAC, Cohen, Martoma, and the insider case’s legal outcomes. I reflected on how Cohen developed his edge:

 

1. Cohen had ignition experiences early on in his career. Keefe and the PBS Frontline ’To Catch A Trader‘ point to Cohen’s formative trading experiences with the investment bank Gruntal & Company as a likely first encounter with insider trading. Possibly more important to Cohen’s creative psychobiography are his early experiences in learning to perceive fluctuations in stockmarket prices, as told to Jack Schwager. This tape-reading ability has been part of trading education since Jesse Livermore and is echoed in the Market Wizards series interviews that Jack Schwager did with Michael Marcus and Paul Tudor Jones II. Cohen’s early experiences also parallel the role of ignition experiences in the literature on genius and creativity. They also meant that Cohen did not adopt the dominant approaches of fundamental and technical analysis. Instead, he anticipated behavioural finance in looking for catalysts that moved stocks and that led to rational herding and overconfidence behaviours he could trade against.

 

2. Cohen hired a performance psychologist. Keefe mentions but does not name the late Ari Kiev as the performance psychologist who Cohen hired to mentor his traders. Kiev’s books notably The Mental Strategies of Top Traders (Hoboken, NJ: John Wiley & Sons, 2009) draw on his SAC experiences and detail his personal synthesis of elite sports training, game theory, portfolio management, and leadership frameworks. Kiev foreshadowed other performance psychologists such as Brett N. Steenbarger who have worked with hedge funds. In doing so, Kiev and Steenbarger became de facto strategic foresight practitioners, albeit with a different knowledge base to futures studies.

 

3. Cohen created a specific organisational strategic culture. Keefe and PBS Frontline‘s narratives focus on SAC’s competitive culture between rival portfolio managers; the inside discussion of “black edge” as material non-public information; how Cohen ran his trading floor; and how Cohen got the best trading ideas from portfolio managers whilst also insulating himself from their information sources. There are observations here worthy of the third generation literature on strategic culture, and how specific organisations have developed ways to hedge risk and volatility. If Keefe had been familiar with the sociology of finance literature then he might have focused on this more. Now that SAC has transformed into Point 72 Asset Management – to manage Cohen’s estimated $9 billion wealth – we may never really know what went on inside SAC, unless there is further operational disclosure in civil cases, or in trader memoirs.

 

4. Cohen was pro anti-fragile. Keefe tells an anecdote about how Cohen would ask job applicants: “Tell me some of the riskiest things you’ve ever done in your life.” Keefe segues from this into an anecdote about insider trader Richard Lee. But there are several other possible ways to interpret Cohen’s question and why he would pose it to SAC job applicants. Cohen may have wanted to assess how the job applicant conceptualised risk; how they made decisions; and what specific decisions they made when faced by risk. As Kiev identified these are crucial aspects to successful trading. The anecdote also suggests to me that Cohen was pro anti-fragile: options trader and philosopher Nassim Nicholas Taleb’s term for phenomena that become stronger due to volatility exposure. Being pro anti-fragile – and taking considered risks – was in part how Cohen turned an initial $US25 million in the early 1990s into his fortune – as a possible successful example also of the Kelly Criterion risk management strategy.

 

5. Cohen factored in transaction and execution costs. Keefe alludes in passing to how SAC used dark pools – private exchanges that hedge funds use to trade their positions – in order to exit Martoma’s Elan and Wyeth trades. Kiev’s game theoretic reasoning about catalysts and other market participants provided one rationale that was influential in SAC’s organisational strategic subculture. Awareness of transaction and execution costs – and their impact on a trade’s profitability – provide another rationale. In one of the few public statements by SAC staff, Neil Chriss emphasised the importance of considering transaction and execution costs in his introduction to Robert Kissell and Morton Glantz’s book Optimal Trading Strategies (New York: AMACOM, 2003), pp. viii – x. Chriss suggested there was “an efficient frontier of trading strategies . . . Each strategy has a certain transaction cost and a certain risk” (emphasis original) (p. x). He then stated: “no institutional manager can afford not to understand transaction costs” (emphasis original) (p. x). In doing so Cohen anticipated the impact that dark pools, and algorithmic / high frequency trading have had on contemporary market microstructure.

 

There is thus far more to Cohen’s hedge fund success with SAC Capital – his sustained edge over two decades – than what the Martoma insider trading case has revealed to-date. Keefe’s New Yorker profile reveals aspects – but more trading knowledge is needed to piece together Cohen’s secrets from public information sources.

Wealth Secrets of Financial Elites

How do financial elites gain effortful power? What are their wealth management secrets?

 

Chrystia Freeland’s book Plutocrats: The Rise of the New Global Super-Rich (New York: Penguin Group, 2012) suggests three factors:

 

1. Anti-fragility or positive growth from the interaction of volatility and time. Freeland focuses on forces like entrepreneurship, globalisation, technology and political change. The “anti-fragility premia” is perhaps best discussed in Nassim Nicholas Taleb’s options trading and philosophy work.

 

2. Capital Accumulation as inter-generational wealth creation. Pick a famous dynastic family like the Carnegies or the Rothschilds. Capital Accumulation can be expressed as the positive growth of wealth over time expressed as a Present Value to Future Value cashflow. This process can also be considered in terms of the financial decisions that we make over our lifespan: decisions today set-up the potential favourable conditions for tomorrow. Warren Buffett’s official biographer came up with a memorable image to describe this process: The Snowball.

 

3. Rent-Seeking: Rent-seeking is control of financial / real assets that allow for Capital Accumulation to occur (as an extraction premia). Gordon Gekko exemplifies this in the Oliver Stone film Wall Street. Rent-seeking may be done via entity structures (such as a pass-through vehicle like a limited liability partnership) and through wealth management strategies (such as funds management and legal tax minimisation).

 

Freeland and others suggest that Superstars are able to use these three factors to gain cumulative career and financial advantages.

 

This leads to the following equation for elites: rent-seeking control of PV and FV cashflows + anti-fragility + volatility (where the first two are stronger than volatility, which in the case of events like the 2007-09 global financial crisis, can still lead to significant drawdowns).

 

An example from my own life: the 1998-2008 period of work with The Disinformation Company Ltd (now TDC Entertainment):

 

1. Pick an anti-fragile trend – such as pre-millennialist conspiracy theories in the mid-late 1990s and a web portal platform during the 1995-2000 dotcom speculative bubble.

 

2. Set-up a structure for capital accumulation: TDC as a Delaware-registered company that engaged in book, television, DVD, web, and conference projects and that built an audience.

 

3. Rent-seeking over time via the free cash-flows from the project portfolio.

 

You can find and understand examples from your own life.

New Academic CV and Publications Track Record

I have a new Academic CV and Publications track record (PDF).

 

The document integrates for the first time my academic research; PhD and Masters studies; Disinformation website work (mainly from my first editorial and writing tenure in 1998-2003); journalism; and subculture research. There are some known gaps in the publications history – notably the Black Box magazine project in 2002, two small REVelation excerpts in 1996-97, and many more Rabelais student journalism articles / reviews from 1994. It’s as near complete a list that I’m likely to get – unless I do further archival work. Many of the Disinformation articles in 1998-2003 are available at Archive.org. Much of the academic research is available from this website or in the specific academic journals.

 

A personal reflection:

 

I spent much of my first decade of public writing as a freelance journalist, subcultural researcher, website editor / writer during the end of the dotcom speculative bubble, and then in the Swinburne University Masters program in strategic foresight. This period covered several phases: (1) a 1994-95 period of primarily New Journalism experimentation; (2) a 1996-97 period of immersive subculture research and magazine articles which largely ended in March 1998; (3) a 19998-2003 period of my first Disinformation editorial tenure; and (4) my 2002-04 Masters studies which were largely a reflection cycle on the prior periods and the lessons I had learned. This period transitioned when I joined the Smart Internet Technology CRC research consortium in December 2003.

 

I spent my second decade as a researcher; pivoted into research management; did Masters and early PhD work on counterterrorism and political science; and then collaborated with others on academic research. This period covered several phases: (1) a 2003-2007 period of Smart Internet Technology CRC research in which I also pivoted out of doing magazine research due to employment contract restrictions; (2) a 2007-09 pivot period of moving into research management and transitioning my academic research career into political science; (3) a 2010-14 period of collaborative research articles; and (4) a 2009-present period of focus on PhD research about pattern languages and strategic culture, and applied research on hedge funds / terrorist organisations as strategic subcultures.

 

Collectively, I put in 10,000 hours of deliberate practice over the 20-year period in journalism and research. The 1994-95 period of New Journalism was skills acquisition and experimentation. The 1996-97 period of subculture research benefited from close work with several talented magazine editors, and led to new insights during the 2003-07 period at the Smart Internet Technology CRC. This was a period in which I enjoyed a brief publicly visible profile as an editor and writer. The 1998-2003 period at Disinformation led to a renewed focus in 2009 on event arbitrage and understanding hedge fund strategies. I experienced personal crises in 1997 and in 2006-07 over financial and ‘decision to publish’ issues that led to life-changing pivots. The 2002-04 and 2007-09 periods were active reflection cycles on these pivots. In Spiral Dynamics terms, the 20-year timeframe of writing involved several sequences of skills cultivation (Alpha new state), rapid growth (Delta surge), life crisis (Gamma Trap problems), and pivot to new opportunities (alternation of Beta questioning and new Delta surge).

 

This 20-year writing arc has led to a current personal synthesis: (1) PhD and recent academic publications as a new phase of skills building; (2) applied research as a strategy to address the life circumstances of the 1997 and 2006-07 crises; and (3) this blog as a way to capture and communicate some of these ideas to a public audience. My writing is more focused and often more private. I publish more slowly in academic journals than in past internet and magazine work. I work with a smaller group of collaborators. I have a more sustainable daily routine.

 

I’m grateful for the past experiences. I’m looking forward to sharing new writings in the future with you.

ISA 2015 Pitch Postmortem

Two paper proposals I pitched missed out on the first round of the International Studies Association’s next annual convention in New Orleans, February 2015. I’m on the waiting list.

 

I’m taking this as useful feedback. Here’s some things I’ll keep in mind for ISA 2016 in Atlanta, Georgia:

 

  • Spend more time in advance to craft and distill the papers to fit the ISA annual convention’s yearly theme.
  • Pitch individual panels on different streams / topics rather than two papers on variations of the one topic.
  • If possible make contacts in advance to be on panel and roundtable discussions.
  • Use the annual convention as a development tool for progressing the write-up of scholarly journal publications.
  • Keep online visibility tools – academic CV, Google Scholar, Academic.edu profile – up-to-date.

 

I’ll be working on all of these in the coming months to prepare for future academic conferences.

Reading Steve A. Cohen’s White Paper in the SAC Insider Trading Case

I’ve followed hedge funds – pooled fund structures that engage in active management often uncorrelated with financial markets – for about a decade.

 

Almost 12 years ago I wrote a Masters paper on Long-Term Capital Management (PDF) in Swinburne University’s Strategic Foresight program. I read Sebastian Mallaby’s history More Money Than God (PDF) and MIT’s Andrew Lo. Hedge funds appeared to be exemplars of Richard Slaughter‘s Institutes of Foresight thesis. More recently, I have thought of hedge funds as possible examples of meso-level, organisational strategic subcultures.

 

Today, I re-watched the PBS Frontline documentary ‘To Catch A Trader‘ (2014) and read the white paper (PDF) from SAC founder Steve A. Cohen’s lawyers in the now-notorious Elan and Wyeth insider trading case. Cohen’s portfolio manager Matthew Martoma was convicted of insider trading and sentenced to jail. Cohen’s SAC was fined millions and is now basically a family office.

 

I’ve had the white paper for over a year but only today got a chance to have a close read of it with an eye on how Cohen’s lawyers describe his trading strategies. I learned to do this when studying strategic foresight methodologies.

 

Some of my summary notes from the white paper:

  • Back of envelope estimate of Steve Cohen’s trading portfolio size in July 2013: $US1,253,000,000.
  • Cohen trades over 80 individual securities a day.
  • Algorithms, direct market access, and dark pools are routinely used for trade execution.
  • The PBS Frontline documentary describes Edge as an informational advantage about market activity.
  • The white paper describes the following as Events: (1) corporate access (competitor announcements; adverse developments); (2) market moving (catalysts, technical analysis); (3) analyst convergence (broker-deal reports; ratings such as downgrades); and (4) market rumours (false market).
  • SAC portfolio managers develop a Company Investment Thesis. This may involve: (1) trimming positions whilst going into earnings announcements; (2) using option hedges to offset long/short positions using a market neutral strategy; (3) anticipating slippage: incremental shifts in share prices due to the timing of executed trades; and (4) responding to risk reviews of large positions.
  • Market price-psychology patterns that Cohen has identified: (1) increases in individual share prices versus S&P 500 declines (deteriorating market) over specific time periods; (2) tests of if positive market reaction is sustainable (possible mean reversion); (3) company news that is ambiguous or less-than-spectacular information that will trigger a decline; and (4) rapid stock appreciation that creates high expectations and the probability of a price decline.

 

The Steve A. Cohen white paper illustrates how to potentially reverse engineer a hedge fund’s trading strategy – as a strategic foresight example – and to not be a Muppet-like naive retail trader.

U2′s Songs of Innocence

U2 released its thirteenth album Songs of Innocence for free on Apple’s iTunes service today.

 

U2′s decision echoes the free digital download strategy used previously by Nine Inch Nails (The Slip) and Radiohead (In Rainbows). My 2008 conference paper and presentation slides found that each band adopted the strategy during a period of heightened conflict with their labels, and leveraged their audiences to negotiate better contracts.

 

U2′s espoused reason for the strategy is to raise global awareness of specific charities. Other reasons may emerge . . . (One of them being a surge in back catalogue sales.)

Monash SPS Symposium: Aum Shinrikyo’s Failed Strategic Subculture

Each year I do a 20-minute presentation to the SPS Symposium in Monash University’s School of Political and Social Inquiry on my in-progress PhD research. Below is the outline for this year’s proposed presentation due to occur in October:

 

Aum Shinrikyo’s Failed Strategic Subculture

Alex Burns (alex@alexburns.net)

 

Key Words: Aum Shinrikyo; strategic culture; terrorist groups

 

In 1977, RAND’s Jack Snyder proposed strategic subcultures as a unit of analysis to understand distinct beliefs, analytical traditions, institutions, and socialisation norms in a strategic community. Recently, the so-called fourth generation of strategic culture scholarship has – via Alan Bloomfield, David Haglund, Jeffrey Lantis, and others – applied Snyder’s unit of analysis to examine new foreign policy actors. This presentation applies Snyder’s strategic subcultures to advance a new understanding of the militant Japanese religious sect Aum Shinrikyo, and its 1995 sarin gas attack on Tokyo’s subway system. I use narrative analysis and qualitative thematic coding to re-examine two theory-building explanations about Aum Shinrikyo’s decision-making: Robert Jay Lifton’s psychohistory (Destroying the World to Save It) and Haruki Murakami’s oral history interviews (Underground). I also develop a new strategic subculture explanation of Aum Shinrikyo’s failure that builds on Frederick M. Smith’s research into South Asian deity and spirit possession experiences (The Self Possessed).

 

Paper Type: Full Paper

Working Title: Terrorist Groups as Strategic Subcultures

Degree: PhD

Supervisor: Luke Howie

Recent Advances in PTSD Treatment

I’m working on integrating some different streams in my personal research program. One deals with the clinical treatment of complex PTSD. Today, I looked at 15 years of published books on PTSD treatment. What I found:

 

  • In the past five years there is much greater integration with neuroscience models and research, particularly for comorbid disorders.
  • There are now evidence-based, lifespan targeted interventions for children and adolescents who have PTSD symptoms.
  • Complex trauma, post-traumatic growth, and resilience are new specialist niches of PTSD research.
  • There is a heavy emphasis on Cognitive Behavioural Therapy models for the clinical treatment of PTSD.
  • Bereavement, grieving, culture, memory, empathy, and body/sensorimotor-oriented therapies are specialist topics in the recent literature, notably as guidance for new therapists and for trans-cultural researchers.
  • There appears to be a convergence to Trauma-Focused CBT and EMDR as evidence-based treatments in which meta-analysis and randomised controlled trials have been done.

 

There are specialist publishers including Guilford Press for therapist training and the Routledge Psychosocial Stress series (Routledge appears to have published a lot of overview books for clinical researchers).

 

I’m looking forward to adding academic books like The Oxford Handbook of Traumatic Stress Disorders (New York: Oxford University Press, 2012) to my long-term research library. There are also interesting specialist titles like The Alchemy of Wolves and Sheep: A Relational Approach to Internalized Perpetration in Complex Trauma Survivors (New York: Routledge, 2013), on child soldiers.

New Books on Al Qaeda’s Strategic Culture

In 2011, my PhD supervisors asked me about a planned case study on Al Qaeda’s strategic culture. Now, there are two books out that address this issue:

 

  • Michael W.S. Ryan’s Decoding Al Qaeda’s Strategy: The Deep Battle Against America (New York: Columbia University Press, 2013).
  • Donald Holbrook’s The Al-Qaeda Doctrine: The Framing and Evolution of the Leadership’s Public Discourse (New York: Bloomsbury Press, 2014).

 

There are now some case studies and further analysis to answer this initial query.

 

Alastair Iain Johnston’s third generation of strategic culture focused on organisational studies. A relevant book that may link this third generation to the study of terrorist organisations is Vahid Brown and Don Rassler’s Fountainhead of Jihad: The Haqqani Nexus, 1973-2012 (New York: Oxford University Press, 2013).

 

I’m also looking at Peter Bergen’s reportage on Al Qaeda – so his forthcoming book United States of Jihad: The Untold Story of Al-Qaeda in America (New York: Crown, 2015) may also be relevant.