On Marni Cordell and New Matilda

Veteran independent publisher, editor and journalist Marni Cordell has penned her final editorial for Australia’s New Matilda publication.


Cordell has been NM‘s editor for seven years, publisher for four years, and has done important reportage on West Papua, Timor-Leste, and social justice issues. She has supported coauthor and collaborator Ben Eltham’s national affairs reportage.


In her final editorial Cordell thanked NM‘s team, contributors, and readers. I would also like to thank Cordell: being an editor and publisher is a rewarding yet demanding job that requires significant behind-the-scenes investment of expertise, time, money, mentoring, and risk-taking. Each editor brings their own unique style and vision to the publication they edit – Cordell has strengthened Australian independent journalism.


Cordell announced NM‘s new editor is journalist Chris Graham. Cordell joins Australia’s Crikey as an editor.

21st September 2012: Paper Abstracts for International Studies Association’s Annual Convention 2013

Coauthor Ben Eltham (a PhD candidate at University of Western Sydney and rising star in Australian national affairs journalism for Crikey and New Matilda) and I have two papers accepted for the International Studies Association‘s annual convention in San Francisco in 2013:


Australia’s Strategic Culture and Constraints in Defense and National Security Policymaking


Scholars have advanced different conceptualizations of Australia’s strategic culture. Collectively, this work contends Australia is a ‘middle power’ nation with a realist defense policy, elite discourse, entrenched military services, and a regional focus. This paper contends that Australia’s strategic culture has unresolved tensions due to the lack of an overarching national security framework, and policymaking constraints at two interlocking levels: cultural worldviews and institutional design that affects strategy formulation and resource allocation. The cultural constraints include confusion over national security policy, the prevalence of neorealist strategic studies, the Defence Department’s dominant role in formulating strategic doctrines, and problematic experiences with Asian ‘regional engagement’ and the Pacific Islands. The institutional constraints include resourcing, inter-departmental coordination, a narrow approach to government white papers, and barriers to long-term strategic planning. In this paper, we examine possibilities for continuity and change, including the Gillard Government’s forthcoming ‘Asian Century’ whitepaper and 2013 defense whitepaper.


(Thanks to Wooster College’s Jeff Lantis for coordinating the Strategic Culture panel that this paper is on.)


Complexity, Model Risk, and International Security


International security thinking has evolved beyond initial research in the early-to-mid using the chaos and complexity sciences. Firms including Kissinger & Associates, Pimco, The Prediction Company (now part of UBS), Roubini Global Economics and Stratfor have created new models to understand catastrophic/tail risks, and to profit from geopolitical flashpoints such as the current speculative bubble in rare earths, China’s growth in the Asia-Pacific region, and the greater involvement of multi-national corporations in the international political economy. This paper builds on the work of scholars in international security and the sociology of economics and finance, journalists, and hedge fund and risk management practitioners, to address how these new models have diffused into hybrid academic-commercial environments, how they construct new social realities, and ‘model risk’. We focus on structural micro-foundations: to what degrees and under what conditions do the assumptions underlying these new risk models correspond to real-world phenomena like geopolitical flashpoints? Are these phenomena measurable? Are the relationships between them robust? We examine as a case study the Anonymous hack of Stratfor in December 2011, Stratfor’s planned hedge fund StratCap, and Stratfor’s reaction including its hiring in March 2012 of Atlantic Monthly journalist Robert D. Kaplan.

2nd February 2012: Gina Rinehart’s FXJ Move

On 31st January 2012, mining magnate Gina Rinehart bought nearly 8% of Fairfax (FXJ) through Morgan Stanley.


New Matilda‘s Ben Eltham observed:


Precisely why Gina Rinehart is buying a stake in Fairfax remains a mystery. Neither Rinehart nor her company, Hancock Prospecting, have issued any comment on the move. Rinehart simply issued instructions to her broker, and bought up stock worth about $180 million. . . . It’s simply not necessary to buy a stake in a media company to get your message across.


Eltham and Jason Wilson each suggest Rinehart’s bid is to gain control of Fairfax and to promote her political views.


Examining the pattern of FXJ trading suggests other possibilities. FXJ jumped from $0.74 close on 2nd February to open at $0.82 on 3rd February. There were major sell-offs that day: during a 14-minute rally period from the market open 10:04am (4.27 million shares), 10:16am (1977.69k shares), to 10:18am (1523.01k shares); during the trader lunch period at 1:22pm (2779.19k shares); at 2:24pm (2185.33k shares); and an end of day sell-off (5.25 million shares) which ensured FXJ shares would open lower the following day.


The sell-offs fit a well-known strategy used amongst institutional trading desks: the ‘market squeeze’ trade. In late 2011, I watched J.P. Morgan and Japan’s Mitsubishi UFJ bank use this strategy with several other Australian shares. I found out the details from two sources: ASX regulatory filings made on behalf of offshore hedge funds, and from ThomsonReuters’ SIRCA database which has tick data of individual trades.


Here’s one way how the ‘market squeeze’ trade works:


1. The trading desk buys up huge amounts of a target share: enough to move the share price. This creates a volume spike that will initially move the share upwards: a stochastic market dynamic used in jump diffusion models of mathematics and option pricing.


2. The volume spike creates a red alert which attracts other, different traders. Day traders who use technical analysis, charting, or momentum/rally signals now focus on the share. Exchange trade funds and institutional money managers who must rebalance their portfolios are now also interested. This creates a market for the trading desk to sell to. The share also shows up on the daily volume indicators of the major share trading platforms. The financial media becomes interested.


3. The trading desk then dumps a large volume of the share at strategic times during the day. This locks-in a short-term or daily profit for the trading desk. It also influences the upper and lower bounds of the share price. Monte Carlo Markov Chain simulation can predict the share price pathways. The trading desk can then adjust its order book and its market execution costs.


4. Meanwhile, the trading desk sells off smaller blocks of shares over a 3-4 week period. This tactic influences high-frequency trading systems. It usually means that the share price trends downward as the trading desk has market-maker control — or several trading desks at different firms create a market equilibrium.


5. The trading desk can make profits in several ways. It can dump a large amount of shares at the market open which usually means the share price will fall during the day. This tactic will create cyclical and volume-based effects. It can force other traders to sell once their stop-loss levels are breached. Finally, it can sell shares at the peak of a volatility spike and then buy them back at a much cheaper price when the market trends lower. The trading desk’s volume, its order size, and its lower execution and transaction costs means that it can make a profit from spreads of several cents.


FXJ’s trading after Rinehart fits the ‘market squeeze’ pattern. It’s possible that Rinehart will pursue the ownership agenda that Eltham and Wilson emphasise: Michael Milken financed Sir James Goldsmith and others to do so in the 1980s era of leveraged buyout deals. But it’s also possible that Rinehart is using value investment criteria to make a quick profit from market volatility. Or, that Rinehart’s announcement enabled Morgan Stanley and/or other trading desks to use a combination of long/short, paired, and event arbitrage strategies. Someone made a killing on trading FXJ on 1st February 2012.


Eltham is right: you don’t need an ownership stake for a media company . . . if you pursue other agendas.

16th January 2012: Australia’s Car Industry & Lost Lean Opportunities

New Matilda’s Ben Eltham writes about Australia’s car industry:


All this sounds like a hymn to the efficiency of the open market, and to some extent it is. There is an unavoidably difficult truth to face when we discuss local manufacturing, which is that the high Australian dollar and the small size of our local market makes many aspects of Australian manufacturing uncompetitive. Fairfax’s Ian Verrender outlined the uncomfortable verities last week when he pointed out the obvious: making cars in Australia was never particularly sustainable, and has only been so in the long-term with massive government subsidies. “While we’re at it,” Verrender continued, “let’s be brutally honest. There is no such thing as an Australian car industry. It is an American and Japanese car industry with a couple of plants here.”


In the early, 1990s, the International Motor Vehicle Program (IMVP) at the Massachusetts Institute of Technology reached a similar conclusion on Australia’s car industry and the trade-offs of the ‘make or buy’ decision. In their book The Machine That Changed The World: The Story of Lean Production (New York: HarperPerenniel, 1991), authors James Womack, Daniel Jones and Daniel Roos examined Australia’s car industry (pp. 270-272): the role of foreign producers, the $US/$A currency cross-rates, attempts to follow South Korea’s manufacturing model, and an export focus on North America and Europe.


Womack, Jones and Roos suggested that Australia’s car industry follow a different strategy:


The logical path for Australia would be to reorient its industry toward the Oceanic regional market including Indonesia, Singapore, and the Philippines. Each country within this region might balance its motor-vehicle trade, but, collectively, by permitting cross-shipment of finished units and parts, they could gain the scale needed to reduce costs and let lean production flourish. Australia, as the most advanced country in the region, presumably could concentrate its own production on complex luxury vehicles, while Indonesia at the other extreme, would make cheap, entry-level products. (p. 271).


Womack, Jones and Roos observed that this realignment was unlikely for Australia due to two reasons: (1) its focus on northern hemisphere export markets; and (2) cultural and foreign policy barriers to greater involvement in the Association of Southeast Asian Nations (ASEAN).


Eltham notes that Australia’s tariffs policy has played a detrimental role in preventing the transition to a lean industry:


You need not be a rabid libertarian to note the negative economic impacts associated with car industry assistance. Tariffs are a device to transfer wealth from consumers, who pay more, to producers, who receive direct and indirect subsidies. Those subsidies support local jobs in the manufacturing industry, but at a price. The Productivity Commission estimates the total subsidy is something like $23,500 per worker. Yes, you can take issue with modelling and the econometrics and quibble with the numbers and so on. But there’s no doubt that, in the end, we all pay for the pleasure of sustaining a local car industry.


University of Wollongong’s Henry Ergas observes in The Conversation:


This is an industry that was born from very high levels of protection and has depended throughout its existence on the continuation of high levels of assistance. None of that makes me hopeful for the long-term prospects of the industry.


What lean manufacturing opportunities have Australian policymakers missed? For several decades the GM/Toyota joint collaboration New United Motor Manufacturing, Inc (NUMMI) was highlighted as a success story of United States-led lean manufacturing. But NUMMI closed in 2010. Tesla Motors reopened the former NUMMI factory in 2011 as the Tesla Factory to manufacture the Tesla S sedan car. Meanwhile, Honda plans to increase its United States production. Once again, Australia’s policies on car industry assistance appear to leave it behind global innovation and lean manufacturing.

5th December 2011: Buy Ben Eltham Lunch

Ben Eltham (New Matilda; Crikey)

Ben Eltham is a prolific Australian writer and commentator on national affairs, arts and politics for New Matilda, Crikeyand other online publications.

You can support Eltham’s writing here — I urge you to do so.

Eltham and I have co-written a number of academic journal articles and conference papers, on Twitter and Iran’s 2009 election (PDF and presentation PDF); Australia’s Film Finance corporation and international tax arbitrage (PDF); and on the 2009 Victorian bushfires and journalism (PDF). Our joint paper on Twitter and Iran remains our most academically cited article. Along with his New Matilda and Crikey work, this should convey Eltham’s talent.

Twitterati can follow Eltham here whilst his Google Scholar profile is here.