Hidden Forces

In Episode 73 of Hidden Forces, Demetri Kofinas speaks with Daniel Peris, a Senior Portfolio Manager at Federated Investors in Pittsburgh where he oversees the firm's dividend-focused products. He is the author of three books on investing, most recently: "Getting Back to Business: Why Modern Portfolio Theory Fails Investors, and How You Can Bring Common Sense to Your Portfolio." Before transitioning into asset management, Peris was a historian focused on modern Russian history. He is the author of a book and several articles on the Soviet Union in the 1920s and 1930s. Today's conversation is about the evolution of financial theory, beginning with the rough and tumble world of 19th century finance with its stock syndicates, market corners, and curb exchanges. Where big personalities like Daniel Drew, James Fisk, and Jay Gould conspired and fought to take from Joe Public, and from each other, the riches afforded to them by laissez-faire capitalism and the industrial revolution. The discussion is broken into two parts. The first deals with the world as it was before 1929 with its unregulated, unstructured, and highly inefficient markets. The second part explores the world after the Great Crash, where a confluence of forces – economic, demographic, institutional, and intellectual – supported the procurement and distribution of a new set of financial theories that promised to explain away uncertainty and guide the allocation of risk in the pursuit of profits. As inheritors of this new world, we cannot help but function under the fallacies of its paradigms. One of these fallacies is the notion that economies are independent phenomena that operate, by and large, according to a certain set of physical laws. Most people will acknowledge that our economic and financial models are imperfect, but most people also think of them as being somewhat analogous to models developed in the natural sciences. Because of this false comparison to physics (equilibrium) and nature (normal distributions), people often remain unaware of the centrality of politics in theories of the economy. Economies are not independent phenomena that answer only to the laws of nature. They are political and social phenomena that exist within a political system. Theories of the economy that do not take into account the system within which they operate are flawed...in some cases, significantly so. Austrian theories of money and credit, for example, are better at describing how the banking system operates in a laissez-faire society, whereas Modern Monetary Theory is better at describing how it works in our current, fiat-based system of unrestrained credit growth. What often happens is that devotees of these different schools are actually advocating for a specific set of policies, under the pretense that their views are scientific and that their policies derive logically from some objective view of how an ideal economy operates, when in fact, they are based on political values and societal ideals. The MMT school is full of progressive social-democrats who want governments to play a larger role in the economy, whereas the Austrian school is full of conservative libertarians who want less government. This sorting along political lines is not a coincidence. Investment theories operate rather differently than theories about the economy, in that there is no argument in the investment world about what matters most. It's profits. In light of this fact, the discrepancies between various investment theories require alternative explanations that do not rely on political ideology or moral sentiment. It would seem sufficient to declare that the widespread adoption of theories like Modern Portfolio Theory (MPT), the Efficient Market Hypothesis (EMH), Capital Asset Pricing Model (CAPM), etc., was enabled by the growth of a large middle class with excess income available for investment that had not directly experienced the boom and bust of the Roaring 20's and accelerated by the Employee Retirement Income Security Act (ERISA) of 1974. Entrepreneurially minded financial industry professionals saw an opportunity, but this opportunity required a more streamlined approach to investing and one that would put themselves, and their clients, at ease. The need to bring order to the chaotic world of prices has encouraged the adoptions of systematic investment strategies that claimed the ability to quantify risk. When it comes to investing other people's money, having a more coherent, easy-to-understand theory that provides the illusion of control is a very valuable tool. From an evolutionary point of view, it is no wonder how theories purporting to quantify risk and target reward proliferated so quickly. It was in everyone's interest that they do so. How these theories came together to form the dominant, ideological template of risk-adjusted-return measured against exposure to the broader market is the essence of today's episode. Its significance can be found in the implications associated with equating diversification with correlation: trading idiosyncratic risk for systemic risk and what happens when everyone is doing it. Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Join the conversation on Facebook, Instagram, and Twitter at @hiddenforcespod

In Episode 72 of Hidden Forces, Demetri Kofinas speaks with former US Senator and Governor from the great state of Nebraska, Bob Kerrey. Senator Kerrey currently serves as Managing Director at Allen & Company. He is also Executive Chairman of the Minerva Institute for Research and Scholarship. Senator Kerrey also served as one of the ten members of the 9/11 commission, tasked with investigating the terrorist attacks of September 11th, 2001. In this conversation, Senator Kerrey shares stories of his experience growing up in 1950's and early 1960's America, his service in Vietnam, and the life-altering injury that sent him down a path of service, first as Nebraska's governor and later, as its senator. We discuss both the cultural, as well as the political transformations that have overtaken American society throughout the course of his life, as well as how the media and social media have altered the political landscape and introduced new challenges to governing and elections that are altogether new. We discuss the tremendous wealth divide currently present in the country, the role of the 2008 crisis and its aftermath in furthering that divide, and the emergence of populism, both on the left and on the right, as a powerful new force that is shaping American politics in ways that we are only just begging to appreciate. We also discuss Senator Kerrey's work on the 9/11 commission, the role that the Saudi government played in orchestrating the September 11th attacks, as well as Demetri's questions about why the Bush administration and the media refused to hold the Kingdom accountable for its involvement. This part of the conversation can be accessed as part of our premium subscription, available through the episode page on our website. Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Join the conversation on Facebook, Instagram, and Twitter at @hiddenforcespod

In this Christmas Day special of Hidden Forces, Demetri Kofinas shares twenty-five minutes of never-before-heard audio from his conversation with Howard Marks, but not before announcing the long-awaited-for launch of the Hidden Forces subscription service. Subscribers can gain access to overtime segments, transcripts, and rundowns from each and every episode. Subscriptions require creating a Patreon account, but can be accessed directly through the Hidden Forces website via subscription tabs located within any particular episode Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Join the conversation on Facebook, Instagram, and Twitter at @hiddenforcespod

In Episode 71 of Hidden Forces, Demetri Kofinas speaks with James Mulvenon, Vice-President of Defense Group Inc.'s Intelligence Division and Director of DGI's Center for Intelligence Research and Analysis. Dr. Mulvenon is an expert on the Chinese military and Chinese cyber issues and has published widely on Chinese military affairs, party-army relations, C4ISR, and nuclear weapons' doctrine and organizations. He's a regular commentator on the Chinese military, cyber warfare, and Chinese industrial espionage, all of which we discuss in today's, hour-long conversation. This episode was prompted by the recent arrest of telecommunications giant Huawei's CFO Meng Wanzhou during her transit through Vancouver airport on December 1st, 2018. Meng is currently out on bail, awaiting the service of a formal extradition request from the United States on charges related to Huawei's alleged evasion of Iranian sanctions. James has been investigating and writing about Chinese commercial espionage, and in particular about Huawei, for years, which makes him the ideal person to speak to about this ongoing, diplomatic drama and its implication for US-China trade talks. Will Trump's hard-nosed, no-holds-barred negotiating style work to level the playing field between these two countries? More importantly, is it time to acknowledge that our multi-decade long effort to integrate China into the neo-liberal world order has failed and that a new strategy must be developed to deal with a more obstinate and adversarial China? Considering the important role played by information technology in the 21st century, any strategy for confronting China must also deal with the country's cyber capabilities and its use of commercial espionage in the service of champion companies like Huawei. These are just some of the topics we consider in today's conversation. Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Join the conversation on Facebook, Instagram, and Twitter at @hiddenforcespod

In Episode 70 of Hidden Forces, Demetri Kofinas speaks with Andrei Shleifer, professor of economics at Harvard University. Dr. Shleifer is the most cited economist in the world according to RePEc's database. Throughout the course of his career, Andrei Shleifer has worked in the areas of comparative corporate governance, law & finance, behavioral finance, as well as institutional economics. He has published seven books, including, A Crisis of Beliefs: Investor Psychology and Financial Fragility with his co-author Nicola Gennaioli. Demetri's conversation with Andrei centers on the subject of beliefs: how they impact markets and how economists and financial practitioners are attempting to model them using data about people's expectations, assumptions, and attitudes in order to make better-informed investment and policy decisions. The first half of the episode is devoted to exploring the mechanics of the 2007-2008 credit crisis, and the role played by structured products and derivatives, off-balance sheet vehicles, money market funds, GSE's, and a policy of ultra-low interest rates that fueled over-confidence in the power of regulators and in the sustainability of the status quo. In the second half, Dr. Shleifer provides us with a more formal approach to thinking about Hyman Minsky's instability hypothesis and how market participants can draw radically different conclusions about that same data when their beliefs about the world change dramatically. Given the destabilizing forces of populist politics, trade tensions, and changing geopolitical fault lines, the ability to draw valuable insights from data about expectations and beliefs is invaluable for any investor or policymaker looking to gain a sense of market sentiment: where it stands and where it might be going. Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Join the conversation on Facebook, Instagram, and Twitter at @hiddenforcespod

In Episode 69 of Hidden Forces, Demetri Kofinas speaks with renowned philosopher and novelist Rebecca Goldstein, about the philosophy of mattering and what makes human life worth living. The question of "what makes life worth living," is something that human beings have been grappling with since time immemorial. Perhaps, nowhere did this question pose a more existential imperative than in ancient Greece, which provides the setting for this conversations. The show begins with an anecdote from "The Histories of Herodotus," where the ancient historian recounts the story of King Croesus, the late ruler of Lydia, who governed the lands of western Anatolia in the mid-sixth century B.C. At the height of his reign, Croesus was visited by Solon, the lawgiver who had just laid the foundations for Athenian democracy. "Stranger of Athens," inquired Croesus, "we have heard much of thy wisdom and of thy travels through many lands, from love of knowledge and a wish to see the world. I am curious therefore to inquire of thee, whom, of all the men that thou hast seen, thou deemest the most happy?" Croesus, expecting to hear the sound of his own name sung from Solon's lips, was angered by the Athenian's reply. Solon proceeded to extol the virtues of otherwise "ordinary" men who lacked the trappings of wealth and power that Croesus so readily possessed. Seeing the king's dissatisfaction, Solon responded with words that would come to haunt not only Croesus but which would obsess the whole of Athenian society for decades to come: «μηδένα προ του τέλους μακάριζε». Solon's message was clear: Let me see your life's ending. Only then I can know if you lived a good and happy life. Only then I can know if you lived a life worth praising. Not long after Solon's visit, Croesus' kingdom was invaded and conquered by Cyrus the Great, ruler of the Persian Empire. Condemned to death, it is said that Croesus yelled out Solon's name three times from the flaming pyre atop which his body burned. It was not until that moment that he understood the message that Solon had so dutifully delivered. Croesus believed himself to be the happiest man, because of all the material wealth and power he had accumulated. But we cannot judge the happiness or the worth of a human life until it is over. A good life requires a good death, and learning how to live requires that we wrestle with our own mortality. The question of "what makes life worth living" therefore, was another way of asking: "what justifies life's suffering?" Unlike for the Christians who succeeded them, there was, for the Greeks, no easy answer. It's why they would congregate every spring in the amphitheater to laugh and cry and work out their grief over the pitiless predicament of human existence. 'Fairness' was as foreign a concept to the Greeks as fate is to us. The stories of Croesus, Minos, Oedipus, Agamemnon, and the like were not only reminders of how the fortunes of the fated turn; they were also evidence for the futility of relying on present circumstances for evaluating the merits of existence. It is no surprise, therefore, that this obsession with deriving meaning from one's own life independent of the whims of tempestuous Gods or of fated circumstance manifested itself in Greek philosophy. Its open-endedness posed an existential imperative then, as it does today. Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Join the conversation on Facebook, Instagram, and Twitter at @hiddenforcespod

In Episode 68 of Hidden Forces, Demetri Kofinas speaks with David Kotok, co-founder and CIO of Cumberland Advisors. David Kotok's articles and financial market commentaries have appeared in The New York Times, The Wall Street Journal, Barron's, and other publications. This is a fascinating conversation that spans a wide range of issues currently facing the global economy, as well as subjects and themes stretching as far back as 5th century Athens. Demetri asks David Kotok for his opinion on a series of topics including trade, the US Dollar, European monetary policy, as well as what markets he thinks are most at risk as the Fed continues down its path of tightening and as protectionist trade measures introduce new anomalies into the American economy. Kotok also shares his experience investing during the turbulent years of the 1970s and how the lessons he learned during that decade can be applied today. David also gives his outlook for credit markets, specifically the riskier areas of the corporate bond market that include leveraged loans and middle-market lending. Investors will find this conversation helpful, as they adjust their strategies to protect themselves against some of the non-linear impacts of government policies while still positioning themselves and their clients to profit from the rising tide of economic growth. Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Join the conversation on Facebook, Instagram, and Twitter at @hiddenforcespod

In this week's episode of Hidden Forces, Demetri Kofinas conducts an impromptu monologue after a last-minute rescheduling of his interview with a prominent, former US senator, governor, and member of the 9-11 commission. He reflects on some of the subjects he intended to cover with his guest, including the role of the Saudi government in the 9-11 attacks. He also spends a good amount of time exploring the spirit of the last 4 decades in America, as he considers what future generations will say about the new millennium. This is an unusual episode, in so far audiences get a look at Demetri's "headspace" before an interview, and how preparing for it causes him to reflect on subjects that concern all of us. Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Join the conversation on Facebook, Instagram, and Twitter at @hiddenforcespod

In Episode 67 of Hidden Forces, Demetri Kofinas speaks with Bill Janeway about capitalism in the innovation economy. Janeway is a senior advisor and managing director of Warburg Pincus, where he was responsible for building the investment firm's information technology investment practice. Bill is also a co-founder and member of the board of governors of the Institute for New Economic Thinking. In 1948, the same year in which Claude Shannon's revolutionary paper on information theory was first published in the Bell Labs Technical Journal, economist Paul Samuelson released what would become, the best-selling economics textbook of all time. Though no one can measure the creative impact of Shannon's ideas in shaping the next 70 years of innovation and progress in the information sciences, Samuelson's work is perhaps equally noteworthy for the destructive impact it had on three generations of capitalists, policy makers, and academics. The legacy of the neoclassical synthesis is one of economic theories built on models that borrowed recklessly from the physical sciences, canonized in the works of Samuelson's Economics. The failure of neoclassical economics with its dynamic stochastic equilibria and Gaussian-based models like VaR and MPT - peddling false promises of mean regression - have forced academia to rethink the entire edifice upon which our understanding of markets and the economy have been built. A new sort of political economy, driven by the disruptive forces of globalization, financialization, and the information revolution, have made ideological approaches to economic thinking obsolete. In this climate, what Bill Janeway calls "the mission-driven state," has been rendered illegitimate as an economic actor, disrupting the process of capitalism itself, as well as the credit cycle from which paradigm-shifting innovations are born. Still, ideas matter. The failure of modern macroeconomic models, to account for the Global Financial Crisis was a precondition for the type of creative destruction that we have seen applied to problems of markets and the economy in recent years. Developing a new framework for understanding the role of government, the power of markets, and the forces driving both is crucial if we hope to survive the changes of the 21st century. Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Join the conversation on Facebook, Instagram, and Twitter at @hiddenforcespod

In Episode 66 of Hidden Forces, Demetri Kofinas speaks with serial technology entrepreneur and host of the Internet History Podcast, as well as the Techmeme Ride Home, Brian McCullough. Brian is also the author of HOW THE INTERNET HAPPENED, published by Liveright, a subsidiary of W.W. Norton. In 2014 he was the co-founder of a startup human named Penelope, and in 2016 he launched Maxwell into beta. In March of 1989, CERN scientist Tim Berners-Lee wrote a proposal to develop a distributed information system for the laboratory. "Vague, but exciting," was the comment that his supervisor, Mike Sendall, wrote on the cover, and with those words, gave the green light to what would become the information revolution. Before the end of 1990, Berners-Lee would define the Web's basic concepts: the URL, http, and html, writing the first browser and server software. For the next two years the web would remain largely inaccessible to all but the most niche academics and hypertext enthusiasts. "…there was a definite element of not wanting to make it easier, of actually wanting to keep the riff raff out," recalled Marc Andreessen, founder of Netscape. His own big idea in the winter of 1992 was the let the riff-raff in. That opening came in the form of the Mosaic browser, which brought with it two key implementations: the support for images, and, more importantly, compatibility with Microsoft Windows, which at the time accounted for more than 80 percent of the world's operating systems. Shortly after Mosaic launched in January of 1993, the number of websites in existence could be measured in the hundreds. By the end of 1994, that number had surpassed tens of thousands, and Mosaic was adding as many as 600,000 new users every month. Berners-Lee may have been responsible for creating the web, but it was Marc Andreessen and his team of misfits and geeks at The University of Illinois at Urbana-Champaign, surrounded by empty pizza boxes and soda cans, that took the web mainstream.= Andreessen and his team eventually left Mosaic behind to found Netscape, taking it public in August of 1995, kicking off a 5 year mania of creative energy and enthusiasm that would see the creation of the first search engines, e-commerce platforms, and weblogs. More than seventeen million new websites were created before the end of the 20th century. In five short years, the Internet craze kicked off by the commercialization of the browser culminated in the bursting of the most spectacular stock market bubble seen since 1929. That story – one predicated on a revolutionary technology and enabled by the dreams, ambitions, and avarice of a generation unrestrained by the prudence of their parents and untouched by the failures of the past – is a history that, until this day, has remained largely untold. This week, on Hidden Forces, Brian McCullough joins us for a conversation on, search engines, e-commerce, web portals, social networks, and the history of the information revolution. Producer & Host: Demetri Kofinas Editor & Engineer: Stylianos Nicolaou Join the conversation on Facebook, Instagram, and Twitter at @hiddenforcespod