Picks & Pans

The Sense of Style: The Thinking Person’s Guide to Writing in the 21st Century by Steven Pinker (New York: Allen Lane, 2014). (TS-3). Steven Pinker is a cognitive scientist and psycholinguist who is Johnstone Family Professor in the Department of Psychology at Harvard University. In The Sense of Style, Pinker defends classic style as an metacommunication strategy for writers to communicate effectively with different audiences. He explains how grammar and syntax work as language structures. One of Pinker’s major contributions is a chapter on the ‘arcs of coherence’ – structural forms of paragraphs, sections, and chapters – that writers use. This book will help you to write more efficiently and effectively.

 

DBT Skills Training Manual (2nd edition) by Marsha M. Linehan (New York: The Guilford Press, 2015). (TS-4). In the early 1990s, Lineham developed Dialectical Behavioral Therapy (DBT) as a specific form of Cognitive Behavioral Therapy to deal with Borderline Personality Disorder and suicidality. This training manual and the accompanying DBT Skills Training Handouts and Worksheets manual (2nd edition) explain the major DBT frameworks and skills-building exercises, which are influenced by Platonic dianoia (reasoning) strategies to deal with eikasia (imagination) and pistis (emotion).

 

The Nature of Value: How to Invest in the Adaptive Economy by Nick Gogerty (New York: Columbia University Press, 2014). (TS-3) (MAM-3). After the 2007-09 global financial crisis, companies and governments have reacted to the post-bubble draw-down with austerity budgets and ‘efficiency dividends’ (meaning: redundancies and restructures). The language used to defend such decisions is ‘value add’ or ‘value creation’ – taken from General Electric’s former chief executive officer Jack Welch who influenced the operational models used in asset management and private equity firms. Yet on a closer examination this ‘value add’ rhetoric is more often about balanced budgets. Gogerty’s book will equip you with a solid framework for how ‘value creation’ works – drawing in part on the Santa Fe Institute’s frameworks for complex adaptive systems. The Nature of Value also offers insights into the economic models used by the hedge fund Bridgewater. Gogerty builds on the earlier conceptual frameworks in Eric D. Beinhocker’s The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics (New York: Random House, 2006) (TS-4). Gogerty’s adaptive economy framework may also help you to understand how complex adaptive systems might work in macroeconomic contexts.

 

Zero to One: Notes on Startups, or How to Build the Future by Peter Thiel with Blake Masters (London: Virgin Books, 2014). (TS-3) (MAM-1). Thiel co-founded the internet firms PayPal and Palantir, was the first outside investor in Facebook, and has funded LinkedIn and Elon Musk’s SpaceX venture. ‘Vertical or intensive progress means doing new things—going from 0 to 1’ (p. 6), Thiel writes, which he equates with technological change. This book distils Thiel’s insights on entrepreneurship and innovation from a Stanford course that co-author Blake Masters took. It deals with the unfolding process of seeking after mysteries – and offers a methodology on how to create more Liberty in the world. Potential Gandalfs and Hari Seldons, take note.

 

The Yellow Peril: Dr Fu Manchu and the Rise of Chinaphobia by Christopher Frayling (London: Thames & Hudson, 2014). (TS-4). Frayling is a cultural historian who has written the probably definitive historical and literary analysis of Sax Rohmer’s Dr Fu Manchu novels. Fraying locates the Yellow Peril fears about China in an historical context that includes the British-China opium wars and treaties; racialist stereotyping; and popular culture manifestations. The Yellow Peril can be read illustratively as a case study on the intersection of magic and politics, and operatively as a primer on how societies create villains as Evil, and why.

On Minyanville’s Pivot

This week I’m reading Josh Brown and Jeff Macke’s Clash of the Financial Pundits (New York: McGraw-Hill, 2014) during my work commute. Brown and Macke interview financial media pundits and bloggers. Minyanville’s Todd Harrison has overshadowed the book’s release in announcing that the popular financial news site will pivot to financial services:

 

Our current business model does not extend to financial services, and that’s OK — it’s broken anyway. I do, however, believe that what we’ve built is extremely valuable to a broker-dealer looking to leverage a fertile audience, acquire new customers, optimize the social sphere, turn clients into community, market through new channels, engage next-generation investors, and build a lifetime relationship.

This, in my view, can be accomplished by attaching Minyanville to an existing financial services firm as an incubation lab and allocating our assets and abilities across their business model. There are several reasons this makes sense — among them, education, credible content, and creativity are rare commodities on Wall Street.

Financial institutions have been reticent to embrace the online world given regulatory and reputational concerns; they now understand the digital realm isn’t going away and the millennial generation — along with a massive transfer of wealth — is quickly approaching. If they don’t incubate the human capital and creative elements necessary to service the entire vertical across multiple channels, they will be left behind.

Minyanville provides a plug-and-play, end-to-end solution that delivers smart market commentary with editorial rigor through a FINRA- and SEC-compliant mechanism. This is not traditional research; content is the best online currency — engage the audience in a daily dialogue with one foot inside the firewall (give them a reason to stay in the walled garden) and the other foot outside the firewall (broaden the brand shadow and more effectively target the marketing spend).

 

Over 14 years ago when Richard Metzger and Gary Baddeley hired me to edit the Disinformation website they were pivoting to television production, publishing, DVD, and video-on-demand interests. Stratfor’s George Friedman planned the StratCap hedge fund before Anonymous hacked his geopolitical intelligence website.

 

Behind all of these moves are two strategic realities: (1) most web content generates zero income – a painful truth for editors and writers; and (2) value creation often lies in tailored products and services for a website’s audience. Minyanville’s version of (2) was a subscription service for premium content. Disinformation’s version was book, DVD and video-on-demand projects — the site became mostly user-generated content from March 2008. This was all prior to Henry Blodget’s career ‘second act’ with BusinessInsider.

 

I made a series of decisions about these shifts over the past decade. After undergraduate and postgraduate school I pursued a university-based research career from 2004 whilst doing a second editorial stint with Disinformation. I stopped freelancing for magazines during this period due to publishing embargoes that the research consortium I worked for placed on my research. After leaving TDC Entertainment on 29th February 2008, I turned down several offers to edit websites or to be involved in publishing projects. After March 2007, I self-funded my academic research. Today, I blog – as Josh Brown does – primarily for self-education.

 

On the surface Harrison’s pivot decision for Minyanville to partner with financial services as an “incubation lab” looks like an entrepreneurial venture. I’m a little skeptical:

 

(1) As Brown and Macke show in their new book, most financial commentary is noise that is unhelpful to traders. Twitter, Andrew Ross Sorkin’s Dealbook section in The New York Times, and a Bloomberg or Wall Street Journal subscription provides most of the major financial news and the major newswire services.

 

(2) Harrison omits that most website content is usually either for subscription traffic, or is a loss leader.

 

(3) I read Fundamentals of Stream Processing (New York: Cambridge University Press, 2014) and it confirmed that the real alpha is already in complex event processing, machine learning algorithms, news analytics, and high-frequency trading algorithms. This area is at least 4 to 5 years old in quantitative finance already. It may continue to disrupt the broker service model that Harrison has in mind. How many of Minyanville’s customers really have the financial assets to become high net worth customers for a broker?

 

(4) Harrison looks to the Millennials as the new investor class – but most of them can save money and time by paying US$1 for William Bernstein’s monograph If You Can: How Millennials Can Get Rich Slowly; investing in a low-cost index fund like Fidelity or Vanguard; and reading free web commentary for self-education. More Millennials are likely to use mobile services than subscription-based websites.

 

(5) As George Friedman found with his StratCap venture, developing alpha/edge in investment and trading is a very different skillset to financial news or commentary. My experience from several different contexts over a 10-year period is that news arbitrage strategies are hyped by journalists and editors — but have significant alpha decay for traders — particularly in a market dominated by high-frequency trading algorithms and low-latency arbitrage. Brown and Macke confirm that this is the case for retail traders who try to trade the news on Bloomberg or CNBC – and that the major news outlets are set-up with availability and disposition biases in mind.

 

(6) Thomas Frank’s One Market Under God: Extreme Capitalism, Market Populism, and the End of Economic Democracy (New York: Doubleday, 2000), Thomas Schuster’s The Markets and the Media: Business News and Stock Market Movements (Lanham, MD: Lexington Books, 2006), and Dean Starkman’s The Watchdog That Didn’t Bark: The Financial Crisis and the Disappearance of Financial Journalism (New York: Columbia University Press, 2014) show that the financial media-retail trader nexus has been a problem noted in the 1995-2000 dotcom and 2003-07 real estate speculative bubbles, and also in the 2007-09 global financial crisis.

 

I will keep an eye on what Harrison’s Minyanville evolves into and what it incubates. However, Harrison’s pivot decision looks like an exit.