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.

Australia’s Strategic Culture

Deakin University’s Ben Eltham and I have a new paper out in Contemporary Security Policy journal that draws on my PhD research. Taylor & Francis has the electronic copy available online now to journal and institutional subscribers; the print version is due out 23rd July.


Here’s the article’s abstract:


This article draws on fourth generation strategic culture debates to show the gap between the rhetoric of Australian defence and the more modest reality. Our analysis shows that these limits derive from tensions between national strategic culture and organizational strategic subcultures. There are serious debates in the nation regarding the preferred course of the Australian military and security policy. This article frames these debates by examining the ‘keepers’ of Australia’s national strategic culture, the existence of several competing strategic subcultures, and the importance of norm entrepreneurs in changing defence and national security thinking. Strategic subcultures foster compartmentalization, constraints, and bureaucratic silos that narrow national conceptions of security threats and opportunities, and impinge on the formation of coherent foreign and defence policy in relation to the Asia-Pacific region. This analysis shows that a distinct national strategic culture and organizational strategic subcultures endure beyond individual governments, placing potential limits on Australia’s interface with other Asia-Pacific strategic cultures in the future.


My thanks to Wooster College’s Jeffrey Lantis for organising the CSP special issue on strategic culture; the three anonymous and extremely helpful reviewers; and CSP‘s editorial and production staff.

Nowhere Place

Richard Cooke in Australia’s Monthly magazine:


In the United States, what you might call the “bore in the bar” theory of democracy – that it’s all bullshit – is starting to look more persuasive. In academia, it’s called the “Economic Elite Domination” model: the unhappy idea that democracies are oligarchies in drag. This theory was once unpopular but is now resurging, partly on the back of disquieting research by two American political scientists, Martin Gilens and Benjamin Page. After an analysis of 1779 legislative outcomes over a 20-year period, the researchers determined that “economic elites and organised groups representing business interests have substantial independent impacts on US government policy, while mass-based interest groups and average citizens have little or no independent influence”.

Little or no independent influence. Stew on that for a moment. [emphasis added]


Several years ago I read Jeffrey A. Winters‘ book Oligarchy (New York: Cambridge University Press, 2011). For Winters, economic elites rely on “wealth defense” via finance and tax advisers who establish low-tax, offshore structures to circumvent national tax codes. The United States and Australia are examples of Winters’ civil oligarchies in which a surface layer of democratic rhetoric hides the “wealth defense” reality. In some ways Winters updates arguments that I read two decades ago in the left-wing writings of Bertram Gross and Noam Chomsky.


Cooke acknowledges that news polls of politicians now rarely work. The asylum seeker / refugees issue is used by the major parties as wedge politics, and by the Greens as an identity-defining cause. Privatisation is opposed in news polls but remains popular when political advisers learn from asset management firms. Social issues such as gay marriage and voluntary euthanasia have undergone a progressive shift. Cooke notes that Australia is now caught in a temporal weirdness like Picnic At Hanging Rock:


It’s a strange contradiction. In economic terms, most of us value a vision of an Australia from the past, protected from the uncertainties of deregulation, more closed to immigration, and with the government more heavily involved in the economy. On the social side, our vision seems decades into the future. Taken together, they describe a place that’s nowhere to be seen. [emphasis added]



This “nowhere place” is a flux of different beliefs, values systems, and visions of preferred national futures.


Cooke finds a source of political renewal in independent candidates and the micro-parties. This appears reassuring but viewed through Winters’ analysis it is largely noise. One of the underlying reasons — and why Thomas Piketty’s Capital in the Twenty-First Century (Boston, MA: Harvard University Press, 2014) is a global bestseller — is that there is a growing wealth inequality between the political class and the Australian electorate that they represent. Cooke ends his piece noting the mutual derision that elite politicians and the general public hold each-other in. There’s no way out: it’s a closed system with little prospect of real change. In Winters’ world the oligarchs simply buy out or play off the independent candidates and micro-parties whilst retaining control of the real power and resources.


The potential way out of this is not necessarily what Cooke advocates but rather a Nineteen Eighty-Four Matrix / Zizek-ian awakening from these fantasies into the Real. Cooke’s Australians have a protectionist vision because economic growth for many has been based on speculative asset bubbles, and consumer debt that hedges low wage growth and rising inflation on food and living costs. In other words, as Winters would predict, the economic gains of the oligarchical class have not translated to the general populace in terms of owing wealth-generating assets with high return compositions (a useful primer on asset class returns). Cooke’s Australians rely on taxable salaries; the oligarchical class relies on capital gains income and legal tax minimisation structures.


Cooke would do his Monthly readers a greater service if he explained the oligarchs’ strategies and how the legal tax minimisation strategies worked. For that, there’s always the annual CCH Australian Master Tax Guide and Tax Institute membership. The rest of us can start to cultivate greater financial sovereignty through tracking what we spend our money on, and what wealth-creating assets we create or can invest in.

Joining the Secret Club That Runs the World


In my finance sociology research I’m interested in the life transition that some people make into trading and funds management. Kate Kelly’s new book The Secret Club That Runs The World: Inside the Fraternity of Commodities Traders (New York: Portfolio, 2014) features a narrative about the formative years of BlueGold Capital Management’s chief investment officer Pierre Andurand.


Andurand’s background features the kind of background noted in Ari Kiev, Brett N. Steenbarger, Doug Hirschorn, and Mike Bellafiore’s analysis of proprietary and hedge fund traders. Andurand was a champion local swimmer who joined France’s Institut National des Sciences Appliquees in Tolouse (p. 21). During the early dotcom speculative bubble Andurand studied “both market psychology and quantitative skills” (p. 23). Then, Andurand translated this skills-set into a series of jobs with Goldman Sachs, the Bank of America, and Vitol (pp. 26-30). On the surface this is a story about mental toughness, the ability to read markets, and finding your right organisational niche as a trader.


Kelly’s reportage also suggests other reasons for Andurand’s success. Andurand benefited from Goldman Sachs’ hiring practices to screen individuals and interview questions (pp. 24-25); Bank of America’s bonus culture (p. 27), and the lack of clawback provisions for when Andurand lost $US40 million due to the SARS outbreak in 2003-04 (p. 28). Whilst at Vitol, Andurand benefited from the firm’s data collection and market intelligence about commodities trade flows (pp. 30 and 33).  Andurand’s career coincided with a secular bull cycle in commodities (p. 32). Andurand left Vitol in May 2007 and founded BlueGold Capital Management in February 2008 (pp. 34-35).


There are thus two different narratives about Andurand’s life transition:


(1) The first narrative emphasises preparation and skills cultivation as the way to get selected into a hedge fund elite. This is the narrative found in most popular trading books that are aimed at retail traders. Kelly’s reportage reveals that Andurand benefited also from institutional capabilities, luck, and the right choices made relatively early on in his trading career.


(2) The second narrative emphasises the fit within the trader niche and the commodities supercycle that was underway during Andurand’s early career. Andurand again benefited from institutional capabilities, luck, and a decision pathway that led him eventually to found BlueGold Capital Management.


There are some commonalities in both narratives:


  • Making a series of decisions that have an edge / positive expectancy, and that compound over an extended time period (at least 8-10 years).
  • Harnessing institutional capabilities to gain asymmetric information and to create a sustainable niche in a competitive ecosystem.
  • Chance and luck emerging from financial markets as complex adaptive systems (in which funds and traders make decisions that interact across specific asset classes).
  • The role of allies in removing barriers and opening doorways.


That’s in part how elites sustain themselves: how to join the secret club that runs the world.

Martin Zweig’s Foresight on the 1987 Stockmarket Crash


This past week I read Josh Brown and Jeff Macke’s new book Clash of the Financial Pundits (New York: McGraw-Hill, 2014).


One of the most interesting chapters was about when investment manager Martin Zweig appeared on Louis Rukseyser’s Wall Street Week on Friday, 16th October 1987, and predicted a stockmarket crash. You can see Zweig’s prediction in the above clip, 6:38 to 8:36 minutes. In the clip Zweig uses a combination of analogical reasoning about past market crashes, and observational studies on current market events and money flows.


Black Monday occurred on Monday, 19th October 1987.


Zweig was a PhD graduate and econometrics expert who also influenced the trend-following trading subculture. Zweig coined two phrases — “Don’t fight the Fed” (Federal Reserve) and “The trend is your friend” — which influenced momentum and trend-followers. George Soros trader Victor Sperandeo adopted the first phrase; popular trading culture adopted the second phrase — often without original attribution. This is how rumours work through virality and social contagion.


The difference is that Zweig had expertise and skills that set him apart from retail traders, and from momentum / trend-followers.


A few years ago I found a copy of Zweig’s book Winning on Wall Street (New York: Grand Central, 1986 / 1990). It’s an interesting artifact from the Masters of the Universe period (Tom Wolfe) of 1980s Wall Street. I rank it alongside George Soros (The Alchemy of Finance) and Peter Lynch (One Up on Wall Street) as a personal theory of financial markets and a codified trading methodology.

Speculative Bias: Young, Male, Poor, Overconfident

Since 2012, whilst holidaying overseas, I visit the finance / investment section of bookstores as a barometer on their business climate. This year in Toronto, Canada, I visited Indigo Books in Fairview Mall. It had a number of books on technical analysis: reading price / volume charts to make investment and trading decisions.


TA was popular from the mid-1970s until the 1987 stockmarket crash and regained popularity during the 1995-2000 dotcom crash. Since about 2003 it’s been a dead methodology — at least in its vanilla, popular treatments — due to high-frequency trading. TA books however continue to sell to uninformed retail investors.


Arvid O.I. Hoffmann and Hersh Shefrin’s new study of 5,500 trader accounts at a Dutch discount brokerage between 2000 and 2006 has some sobering insights on TA and retail traders:


  • The study period coincides with the 2000-01 dotcom crash and the mark-up period of the 2003-07 speculative bubble in real estate.
  • TA appeals to young, male, poor, overconfident traders who want to speculate or who treat trading as a hobby.
  • TA traders had more concentrated portfolios than those who used fundamental analysis or professional advice.
  • TA traders had higher turnover; personal ambition; a short-term timeframe; and often did not consider transaction costs or taxation implications.
  • The average portfolio size in this study was $60,589 and the median age of traders was 49.79 years of age.
  • The 95th percentile included traders aged 70; who turned over their portfolios 98.19% per month; who did 43.06 trades per year (mean of 10.66 trades per year); who had 72 months experience or 6 years experience (mean of 40.21 months experience or 3.35 years); and whose portfolio was valued at EUR166,840 compared with a median of EUR15,234 and a mean of EUR45,915.


Hoffmann and Shefrin’s study suggests several things to me:


  • There are at least two identifiable sub-populations: (1) young traders who try to compound their risk capital to get rich; and (2) older investors using savings and retirement money.
  • Most traders last less than 3 years. Many over-trade or blow-up their accounts within 10-to-15 trades – in part due to very small trading accounts.
  • TA appeals to new retail traders who are really trading on rumours that can be traced back to Martin Zweig (“The trend is your friend”), Jesse Livermore, and the Edwards / Magee school of TA.
  • Interest in trading occurs at distinctive life stages: early twenties (get rich); late forties (save for retirement); and post-retirement (create a financial buffer for future spending).
  • Some trader success is due to the hot hand effect of winning streaks – which may in a social network influence a new cohort of traders – for what was more luck than skill.
  • TA traders attempt to mix indicators / signals and psychology (state management). Yet the real gap for retail traders is an understanding of transaction / execution costs.


Hoffmann and Shefrin’s study suggests several things to me about myself:


  • I’m in what Paul Fussell calls the High-Proletarian level of the middle class: university educated; but without the financial security of Fussell’s Upper Middle class.
  • I had encounters with financial markets from my early teens to my early twenties, but was not an investor in early life due in part to the adverse experiences of recessions and stockmarket crashes.
  • My serious interest in financial markets emerged after formative experiences around the 1995-2000 dotcom crash; the 1998 collapse of Long-Term Capital Management; and an encounter with Sir James Goldsmith’s life philosophy in 1995, re-explored in 2010.
  • I began research in 2009 and first traded on 5th August 2011 – days after a ratings agency downgrade in United States sovereign debt and into a Eurozone financial crisis.
  • I started with an account size in the 25th-30th percentile of the study – about $A5,600 to trade. I soon ran into psychological barriers about getting out of trades in a deteriorating market situation where I had hoped a market retracement might occur. I continued to hold positions despite passing my stop-loss limit.
  • This loss aversion led me later to more closely study the research on behavioural finance. I found that my initial trading hypothesis was correct — but the reason why was that it was also being ‘gamed by convertible arbitrageurs, prop desk traders, and high-frequency trading firms. I lost several thousand dollars before I exited the trade. In October 2011, whilst in Tokyo, Japan, I put the pieces together involving a series of trades by the Mitsubishi UFJ Bank which was warehousing trades for foreign hedge funds. This involved a Gurdjieffian shock – I knew what to do but emotionally I was unable to Act at the appropriate time to exit the trades. I sat in the Starbucks above the Shibuya Crossing and considered the implications.
  • This initial experience in live trading led me to pull back and examine what I knew about financial markets; what algorithmic and high-frequency trading was; why retail traders fail; and how professional traders work.
  • From 2011 to 2013, I bought most of the core literature on finance, wealth management, funds management, trading, behavioural finance, and market psychology to fill in some major knowledge gaps. This led to what will possibly be a post-PhD strand in my research program on the sociology of finance, and hedge funds / private equity funds as strategic subcultures.
  • From 2011 to 2014, I made a series of personal oath-promises to myself about personal self-sufficiency (Nihonbashi), long-run gains (Long Gamma), and shifting from a naive retail trader to understanding the institutional mindset (Toronto-Dominion).
  • Rather than trade I dealt with saving for retirement via employer defined contribution plans, employer co-payments, and legal tax minimisation strategies.
  • Rather than TA signals I began to study market microstructure (the study of price dynamics in order book flows) and money market flows between funds. Recently, I have downloaded several Springer books on high-frequency econometrics from a university database.
  • I found the major lesson about trading was about the psychology of decision-making and money management. These are skills I Needed to learn yet lacked.


In conclusion I fit one of Hoffmann and Shefrin’s sub-populations and past trading strategies. Reading their study is an important ‘reality check’ that helps me to identify what I can change to build a more resilient financial future. At least, I didn’t lose a million dollars.

A PhD Write-Up Update

From an email to my PhD Supervisor about what I’m working on:


  • A revised Chapter 1 on strategic culture will now include a new conceptual framework that examines and integrates the SC literature on two dimensions: theory-building and foreign policy analysis. For now, I have dubbed this a ‘spectrum framework’. It incorporates feedback from the ISA panelists, and from Jeffrey Lantis on recent theory-building / research design debates in the so-called fourth generation (post-2000) of strategic culture. I will contrast the proposed new framework with Alastair Iain Johnston’s generations framework (from his PhD and book Cultural Realism, and from the 1995 International Security article ‘Thinking About Strategic Culture’).


  • A revised Chapter 2 will include a formal model of strategic culture / subcultures in terrorist organisations. Jacob Shapiro’s recent book The Terrorist’s Dilemma: Managing Violent Covert Organizations (Princeton, NJ: Princeton University Press, 2013) is directly relevant, and may answer some of the concerns you initially raised about how to study terrorist organisations from an organisational perspective. For the chapter format I am using as a ‘writing model’ example Chapter 2 from Michael C. Horowitz’s PhD and subsequent book The Diffusion of Military Power: Causes and Consequences for International Politics (Princeton, NJ: Princeton University Press, 2010) in which Horowitz presents his Adoption-Capacity Theory.


  • Rather than a separate methodology chapter I am thinking of integrating this into methodology sections in the two case study chapters. The methods to be used are: causal / decision / process tracing of the Peter Bergen / Steve Coll / Michael Scheuer / Lawrence Wright investigative journalism  (Al Qaeda chapter), and interpretivist / qualitative / thematic text coding of Robert Jay Lifton / Haruki Marukami interviews (Aum Shinrikyo chapter). Two of the key methods books I am using are Derek Beach and Rasmus Brun Pedersen’s Process-Tracing: Foundations and Guidelines (University of Michigan Press, 2013), which I picked up at ISA, and Greg Guest, Kathleen MacQueen, and Emily E. Namey’s Applied Thematic Analysis (Thousand Oaks, CA: Sage, 2012). I attended a couple of ISA panels with Patrick Thaddeus Jackson (The Conduct of Inquiry in International Relations) that were helpful to think through methodological issues.


  • I have some material for Chapter 5 on Conclusions / Further Research.


  • I have started to scope some material that might inform future journal articles beyond the PhD, such as the use of knowledge representation / microfoundations for the underlying logics, and computational cultural psychology as one of several new methodologies for future case studies. I also found this week a parallel approach to my case studies in the new book Global Shell Games: Experiments in Transnational Relations, Crime, and Terrorism (Cambridge University Press, 2014) which uses an experimental political science approach to study organisations, and which has Jason Sharman (Griffith University) as a book co-author. So, more for post-PhD work, I am also considering experimental research methods as a possible avenue.

Out of the Kitchen

MasterChef Australia is a reality television phenomenon. Yet reality TV shows spread Zizek-like fantasies of life-changing success in what are really winner-takes-all markets: the losers are discarded and quickly forgotten. Australian Story‘s episode ‘Out of the Kitchen‘ chronicles the rise-fall-recovery of contestant Jules Allen who endured competition, high-pressure, isolation, small group conflict; and the psychological reintegration into everyday life. For Age entertainment reporter Michael Lallo, there are cautionary lessons about signing contracts, goal-setting traps, and survivorship and self-selection biases. Allen subsequently discovered purpose through work with Hagar International which does after-agency care in Cambodia, Afghanistan, and Vietnam. Allen’s journey is a metaphor for broader social changes underway in Australia.