Monthly Archives: October 2007

Hitchens, words and consequences

Baruch, we here on this blog make no secret of our fascination with Christopher Hitchens, whom we previously disinherited for his flawed casus belli re the Iraq war but admitted back into the fold on the literary qualities of his “God is not Great”.

Now Hitchens tries to come to terms with a rather harrowing affirmation of how words can have consequences. Read his article in Vanity Fair about how a young man, Mark Daily, was moved by Hitchens’s writings to enlist, and then to die in Iraq when an IED explode under his vehicle.

In the end, I think Hitchens comes out short. Like some of our friends, he still insist that he is disappointed by how the war was conducted, but does not admit that he was wrong in his initial argumentation for waging the war in the first place. I think I can speak for the both of us that Hitchens and our friends remain in denial. To spell it out:

1. The unintended consequences of war, good or bad, are invariable larger than the intended consequences. Therefore war should only ever be a last, desperate resort.

2. The opportunity cost of a war is invariably wasteful. Containing Iraq and leaving Saddam to kill his own citizens recklessly but spending the USD$ 1 trillion on building hospitals and schools in Afghanistan and Pakistan or eliminating a whole host of diseases in Africa would have saved millions of lives and brought millions of people around to the idea that the US is fundamentally good. All at the cost of 10,000 or so Iraqis per year continuing to be killed by their own regime. it’s a somewhat distasteful moral calculation, but I didn’t make it first; Bush did when he went to war.

3. Even if the US’s intentions in Iraq are motivated by altruism, the broad perception of the US in the Middle East as a result of its historical actions (a perception that is not necessarily accurate or well informed) makes it impossible for the US to fulfill its goals here simply because of whose goals they are. I knew this in a profound way when I first heard of the rumors the US would wage a war of choice back in 2002, and was incredulous that people such as Wolfowitz would not know this. This is why I thought the Bush government’s signals that it was considering war, and even Powell’s UN presentation, was all a bluff to get Saddam Hussein to concede to a new containment regime. I thought this all the way to the end, until the invasion actually began.

In the end, Hitchens doesn’t bring himself to admit that the writings that influenced Mark Daily were wrong. He was made blind to the opportunity cost of waging this war because he had Kurdish friends for whom the outcome of the removal of Saddam Hussein would undoubtedly be a good thing. Hitchens lost the big picture view.

Buttonwood prays for war

The Economist is really too much this week. Our regular reader will know that I, Baruch, would find their mock-rational stopped-clock bearishness amusing, were it not for the fact that otherwise smart people with scant knowledge of financial markets like my own dear, silent, Bento (wherefore art thou, Bento?) seem to take what they write as gospel.

How has the Economist done so far this year? Well in many ways they were early on subprime; in March Eeyore Buttonwood was warning that risk in equities was rising as subprime debt was beginning its collapse. However, in stockmarket terms “early” is another word for “wrong”. Buttonwood more or less capitulated in June and July, suggesting sometimes the press can be too bearish. In retrospect, this was clearly a signal to sell; the major indices proceeded to drop 10-15% in July-August, partly because subprime chickens came home to roost, also because of a crisis in the crowded trade of Quant investing (more on that later), and also because, well, it was time for something like that to happen.

However you look at it, this bearishness has been disastrously wrong; subprime or no, stockmarkets have been pretty good this year, the S&P500 +10% and at an all-time-high, and NASDAQ +13%, with big moves in big, popular individual stocks. US indices have broken through technical resistance and look like carrying on up for a while. I would bet on 15%-20% returns in these indices this year, if not more. My fund is already up 30% YTD, but of course, I am a genius. Continue reading

Gee Nee Ussssss

My long RIMM short AAPL trade is doing very well, up almost 20%. Admittedly it is more being long RIMM than being short AAPL (which was the point of the original post) which has made me the money, and if I had not been short AAPL but just naked long RIMM I’d be up 36%. I hate paired trades, think they are a useless hedge fund conceit. Still, one in the eye for Felix, I suppose, serves him right for not including Ultimi Barbarorum in his much-linked-to pantheon of “econoblogs”. What is an econoblog anyway? Silly idea. Had there been a category for “pseudo-philosophical claptrap which increasingly meanders into pointless discourses about markets and stuff”, we would have been mentioned for sure.

I have been stuck writing an over-long, over-involved blog post all week, inspired by Zubin Jelveh’s fascinating post on a thought experiment to describe how the Quant hedge fund guys all blew up in August. It opens up so many thoughts, avenues of enquiry and theories on the market that I just got lost; I feel I need to write a book on it or something. I’ll try and get a shorter version out this weekend.