I have a shelf of international security books I acquired in 2005-11 as I was developing possible PhD topics. When the Egyptian Army deposed President Morsi this week I thought of my secondhand copy of John Samuel Fitch’s The Military Coup d’etat As Political Process: Ecuador, 1948-1966 (Baltimore, MD: John Hopkins University Press, 1977). I thought about a Political Islam course I took with Shahram Akbarzadeh in 2006, and the military’s role in Egypt’s history. Then I looked at the financial markets for event arbitrage opportunities I had missed. Two weeks ago, the Market Vectors Egypt Index ETF (NYSEARCA: EGPT) had predicted a political change, and then rallied after news of the coup d’etat, in a trend-following pattern. The Dow Jones Egypt Total Stock Market Index (EGP) had risen, whilst the Egyptian pound $EGP had fallen against the $US dollar. Someone has read Andrew Busch’s World Event Trading: How to Analyze and Profit from Today’s Headlines (Hoboken, NJ: John Wiley & Sons, 2007) and ‘shorted’ Egypt’s currency cross-rates. Alternatively, this might all be a case of Nassim Nicholas Taleb’s narrative fallacy.
Below is one proposal I have submitted for consideration by the International Political Economy and International Security sections:
Geopolitical Flashpoints, Systemic Risk & Distal-Influenced Spatiality
Abstract: Geopolitical flashpoints and systemic risk are now global arbitrage opportunities for hedge funds and political risk firms. Bridgewater (Ray Dalio), AQR Capital Management (Aaron C. Brown), PIMCO (Bill Gross & Mohamed El-Erian), Roubini Global Economics (Nouriel Roubini), and Stratfor (George Friedman & Robert D. Kaplan) have each contributed to media, policy, and practitioner debates about the 2008-10 rare earths bubble, the United States pivot toward Asia, and Iran-Syria-Russia oil speculation. This paper uses develops a Bayesian inference framework which emphasizes distal (far away) and spatial cause-effect relationships, in order to explain how hedge funds and political risk firms as non-state actors can enact global arbitrage and actively influence/shape public debates. I integrate analytical research from the sociology of finance (Donald MacKenzie), international security (Stephen G. Brooks), critical world security (Michael T. Klare & Naomi Klein), intelligence studies (Amy B. Zegart, Robert Jervis, & Gregory Treverton), hedge funds (Andrew Busch & Andrew Lo), and fictional speculation (Richard K. Morgan), to develop a new, inductive theory-building alternative to current explanations that emphasize proximate (near) and temporal causes. This paper advances new understanding about ‘casino capitalism’ (Susan Strange), expert networks, hedge fund activism, and political risk arbitrage.