Moving House

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CUMaS Freshers' Banquet

I was jetsetting to KL again despite being back in Kuching from KL just over a week ago: the CUMaS Freshers' Banquet 2010 passed yesterday night, with much success I would say (the success of the event, not some other meaning of success the third-year guys are referring to!). Our new freshers are a rather dynamic bunch and plenty of academic disciplines are covered, but again there seems to be a heavy tilt towards medicine.

The banquet attendees:


They're already tagged on Facebook, so i'll spare myself a lot of effort here.

The undergraduates are:
Tan Kee Chong (Caius)
Lee Kin Wai (Emmanuel)
Stephanie Poo (Newnham)
Ho Gen Nen (Robinson)
Farid Nazer (Homerton)
Iskandar Mohamed (Churchill)
Ian Beh (Girton)
Sin Fang Yen (Fitzwilliam)
Nathaniel Jinho Clement (Corpus Christi)
Nicole Soh (Magdelene)
Latifah Hamzah (Peterhouse)
Haw Sue Hern (Peterhouse)
Zerline Lim (Fitzwilliam)
Amanda Chong (New Hall)
Arsha Kaur (New Hall)

Two postgraduates attended: Tan Chin Kiat and Isaac Yong (both Hughes Hall). I may have omitted some names or forgotten some, but there's ample time to update this post later.. One of the reasons for posting this list of names is, in good spirit, to see which of the freshers google the names of other freshers and end up here!

They deserve another round of congratulations for making it into Cambridge, and I'm quite sure most of them will do well academically.

The affair was quite informal (with a formal dress code though - I made sure to wear proper shoes, not sneakers, to escape the wrath of the President), with good food at Renaissance Hotel. Unfortunately I didn't bring my camera, but Elyse brought her DSLR and most of the shots are on Facebook. Had quite some fun chatting with the freshers and building up some "family ties" before we all move on to Cambridge. Here's my family:

Left to right: Stephanie Poo (stepdaughter), Haw Sue Hern (college daughter), myself, Parisut Kimkool (wife), Melissa Kong (not part of the Cambridge family), See Tian Feng (course daughter), and Tee Sui Poh (Parisut's dad?)

I guess we will do a family formal in Peterhouse, as I suggested.

And the news has been out for some time, but I should mention again that we are proud of Dhruva Murugasu for topping the economics faculty in Part IA of the Economics Tripos at Cambridge! Our very own sponsorship officer sets the bar high for all of us. Needless to say he has many claims to fame already during 'A' Levels, as a simple Google search will reveal (this is how I get information about several distinctive personages, which includes some of the aforementioned freshers - a Khazanah superior told me that google searches on people before you meet them are important). Fortunately, he doesn't read this blog.

As an aside: I discarded my suit soon after the event started because Nassim Taleb said that most "experts" who offer financial advice and perform no better than the market wear suits and ties. At least I'm minus the suit. (It is hard to quit idolizing the guy.)

Thanks again to Elyse for letting me bunk over at her place! She also says that Kuching kolo mee is very nice - tribute to Kuching! And now I'm back here to soak of more of this laid-back hometown of mine, and to enjoy some good local food. Cheers!

F**k you money

Sound bite:

"This is sometimes called "f*** you money," which, in spite of its coarseness, means that it allows you to act like a Victorian gentleman, free from slavery. It is a psychological buffer: the capital is not so large as to make you spoiled-rich, but large enough to give you the freedom to choose a new occupation without excessive consideration of the financial rewards. It shields you from prostituting your mind and frees you from outside authority—any outside authority. (Independence is person-specific: I have always been taken aback at the high number of people in whom an astonishingly high income led to additional sycophancy as they became more dependent on their clients and employers and more addicted to making even more money.) While not substantial by some standards, it literally cured me of all financial ambition—it made me feel ashamed whenever I diverted time away from study for the pursuit of material wealth. Note that the designation "f**k you" corresponds to the exhilarating ability to pronounce that compact phrase before hanging up the phone." - Nassim Taleb

Hence the need for me to have some money squirreled away by the time I graduate, that allows me to sneer at sycophants who need to do lots of sucking up in careers they don't like. You see, we need to live lives instead of earning livings. Thinking and reading is a good lifestyle - although in order to be a fully functional member of society I think one must also perform some charitable works. And reduce excess, spending on expensive goods that one doesn't need, etc.

However, a colleague has pointed out that I have taken idolizing to a whole new level by quoting Taleb all too frequently (and rarely, on occasions where there is no link). At this juncture, I emphasize that I also read Nouriel Roubini, George Soros, Benoit Mandelbrot, Arnold Toynbee, Niall Ferguson, and a range of other historians, economists, and philosophers to maintain a "balanced" (that is, my notion of balance) of these soft sciences.

Much more reading to be done!

Quotes from Dr Doom

Nouriel Roubini is a good friend of Nassim Taleb and one of the only economist who predicted the financial crisis of 2008 (before the crisis, he was labelled "Dr Doom" and a naysayer). Some sound bites from him:

“Anything that makes your attempt to buy an asset more risky can have a material effect on the amount of investment we get. These days, we'd be lucky if we get lots of foreign direct investment. We should not restrict it. We should make it easier.”

"I am not going to say I told you so, but I did."

“There is definitely a big split in Europe at the moment. Europe is getting leaner and meaner, but that causes nervousness at the household level.”

“Global imbalances are growing, cross-border financing needs are increasing and a smooth-functioning financial system is now essential for this.”

"This consensus optimism is, I believe, not supported by the facts.At some point Investors will realize that bank losses are massive , and that some banks are insolvent . Deleveraging by highly leveraged firms - such as hedge funds - will lead them to sell illiquid assets in illiquid markets . and some emerging market economies - despite massive IMF support - will 3experience a severe financial crisis with contagious effects on other economies . So while this latest bear - market rally may continue for a bit longer , renewed downward pressure on stocks and other risky assets is inevitable "

"The likely scenario for advanced economies is a mediocre U-shaped recovery, even if we avoid a W-shaped double dip. In the US, annual growth was already below trend in the first half of 2010 (2.7% in the first quarter and estimated at a mediocre 2.2% in April-June). Growth is set to slow further, to 1.5% in the second half of this year and into 2011.Whatever letter of the alphabet US economic performance ultimately resembles, what is coming will feel like a recession."

"The challenge we face is how to integrate the Muslim world into the global economy. Asia has become part of it, but not Africa or the Middle East.One could realistically think about a Marshall Plan with respect to this part of the world, to succeed in integrating the Muslim and Arab world into the global economy as we did in Europe after World War II. For example, we’ve wasted hundreds of billions of dollars on the Iraq war. Had we taken a third of this money and invested it into a Marshall Plan for the Middle East, the benefits would have been ten times more than wasting it on a war."

"The Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the US taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets that are now close to a systemic meltdown."

Robustness and Fragility: The Black Swan

I just finished reading the second edition of The Black Swan: The Impact of the Highly Improbable. It contains an additional essay on Robustness and Fragility. Again Nassim Taleb doesn't hesitate to take a swipe or two at bankers and executives with sentences such as "We have two eyes, two lungs, two kidneys, even two brains (with the possible exception
of corporate executives)". Previously it was "we humans have the largest cortex, followed by bank executives, dolphins, and our cousins the apes." That guy sure deserves a pat on the back - after re-reading this book I don't see myself going into banking, finance, or consultancies, for various reasons. There are further signs of humour from him in that last section, such as:

"I tell everyone to avoid attending (orthodox) economics classes and say that economics will fail us and blow us up (and, as we will see, we have proofs that it failed us; but, as I kept saying in the original text, we did not need them; all we needed was to look at the lack of scientific rigor—and of ethics). The reason is the following: It is largely based on notions of naïve optimization, mathematized (poorly) by Paul Samuelson—and this mathematics contributed massively to the construction of an error-prone society. An economist would find it inefficient to maintain two lungs and two kidneys: consider the costs involved in transporting these heavy items across the savannah.

Such optimization would, eventually, kill you, after the first accident, the first “outlier.” Also, consider that if we gave Mother Nature to economists, it would dispense with individual kidneys: since we do not need them all the time, it would be more “efficient” if we sold ours and used a central kidney on a time-share basis. You could also lend your eyes at night since you do not need them to dream."

Somewhere it was also mentioned that econometrics as a field shouldn't exist - it rubbishes mathematics by applying it to the most insular of fields, that of economics (the field which quotes the least from outside itself).

Perhaps the most useful thing to glean from this section are these 10 principles:


1. What is fragile should break early while it is still small. Nothing should ever become too big to fail. Evolution in economic life helps those with the maximum amount of hidden risks – and hence the most fragile – become the biggest.

2. No socialisation of losses and privatisation of gains. Whatever may need to be bailed out should be nationalised; whatever does not need a bail-out should be free, small and riskbearing. We have managed to combine the worst of capitalism and socialism. In France in the 1980s, the socialists took over the banks. In the US in the 2000s, the banks took over the
government. This is surreal.

3. People who were driving a school bus blindfolded (and crashed it) should never be given a new bus. The economics establishment (universities, regulators, central bankers, government officials, various organisations staffed with economists) lost its legitimacy with the failure of the system. It is irresponsible and foolish to put our trust in the ability of such experts to get us out of this mess. Instead, find the smart people whose hands are clean.

4. Do not let someone making an “incentive” bonus manage a nuclear plant – or your financial risks. Odds are he would cut every corner on safety to show “profits” while claiming to be “conservative”. Bonuses do not accommodate the hidden risks of blow-ups. It is the asymmetry of the bonus system that got us here. No incentives without disincentives: capitalism is about rewards and punishments, not just rewards.

5. Counter-balance complexity with simplicity. Complexity from globalisation and highly networked economic life needs to be countered by simplicity in financial products. The complex economy is already a form of leverage: the leverage of efficiency. Such systems survive thanks to slack and redundancy; adding debt produces wild and dangerous gyrations and leaves no room for error. Capitalism cannot avoid fads and bubbles: equity bubbles (as in 2000) have
proved to be mild; debt bubbles are vicious.

6. Do not give children sticks of dynamite, even if they come with a warning. Complex derivatives need to be banned because nobody understands them and few are rational enough to know it. Citizens must be protected from themselves, from bankers selling them “hedging” products, and from gullible regulators who listen to economic theorists.

7. Only Ponzi schemes should depend on confidence. Governments should never need to “restore confidence”. Cascading rumours are a product of complex systems. Governments cannot stop the rumours. Simply, we need to be in a position to shrug off rumours, be robust in the face of them.

8. Do not give an addict more drugs if he has withdrawal pains. Using leverage to cure the problems of too much leverage is not homeopathy, it is denial. The debt crisis is not a temporary problem, it is a structural one. We need rehab.

9. Citizens should not depend on financial assets or fallible “expert” advice for their retirement. Economic life should be definancialised. We should learn not to use markets as storehouses of value: they do not harbour the certainties that normal citizens require. Citizens should experience anxiety about their own businesses (which they control), not their investments (which they do not control).

10. Make an omelette with the broken eggs. Finally, this crisis cannot be fixed with makeshift repairs, no more than a boat with a rotten hull can be fixed with ad-hoc patches. We need to rebuild the hull with new (stronger) materials; we will have to remake the system before it does so itself. Let us move voluntarily into Capitalism 2.0 by helping what needs to be broken break on its own, converting debt into equity, marginalising the economics and business school establishments, shutting down the “Nobel” in economics, banning leveraged buyouts, putting bankers where they belong, clawing back the bonuses of those who got us here, and teaching people to navigate a world with fewer certainties.

In short, high finance is overrated and largely filled with charlatans - men in suits and ties who dispense advice when in fact they don't know better (they caused the crisis). Perhaps then it is true that we need more real engineering and less financial engineering, but unfortunately our best and brightest are motivated to go for finance because of the rewards and excessive bonuses it pays. Much better to go for a career that provides real economic value (and by that I mean something that really sustainably increases the long-term well being of society or the person paying for your service). Maybe I should be a teacher or engineer - but then Khazanah Nasional will not condone it; I am much more likely to be some sort of analyst using Sharpe ratios, debt-equity ratios, and so on. As long as I heed Taleb's teachings I should be in good stead.. or so I hope!

More on the real message behind the book another time!

Yayasan Khazanah Annual Dinner 2010

Yesterday marked the Yayasan Khazanah Annual Dinner 2010 - held to celebrate scholars and offer a chance for company executives and Khazanah trustees to mingle together and network/talk about interesting issues. Parents of new scholars, of which the number was 47(?) this year, were also invited. The family has expanded quite aggressively from last year and we "upgraded" from Sheraton Imperial to Mandarin Oriental this year, in the word of Dato' Mustapa, our Yayasan Khazanah chairman.

It was good to catch up with the other scholars over this buka puasa dinner and exchange snippets on life in universities, working in Khazanah under various departments, books, academia, and so on. My current bosses under the Khazanah internship, Mr Farouk Mohamed and Ms Aileen Buang were also at the dinner, as were my YK superiors, Puan Suhayati, Mr Hafiz, Ms Noorlida, etc. To have everyone in one place can sometimes be too much of a good thing - there wasn't enough time to talk to everyone! Add to that, the fact that some of Malaysia's brightest minds were present last night (I further add that the brightest can be brighter - frequent use of superlatives should be discouraged). A further shock came in the form of the discovery that some parents and scholars there actually read this blog - I should start some form of monitoring visits here, but I'm just too lazy.

An aside: Many people monitor traffic to their blogs because there is a psychological benefit from doing so - we like to believe what we have written is important and the illusion of progress gained from seeing a lot of comments and visits is endearing. I try to ignore such human sentiments and forcefully make myself more rational.

'To 'Pa, as some of us call Dato' Mustapa, reiterated that the Khazanah scholarship is the premier scholarship in Malaysia - that only the best and brightest fill Khazanah's ranks. Again we were reminded of the need to build up human capital in Malaysia, or be stuck in the middle income trap between highly innovative economies and low-cost base economies.

7 of the scholars also did extremely well in the CIE 'A' Level examinations this year - results were out yesterday morning. Farid Nazer and Low Wen Zhen (among the star performers) will be my juniors in Cambridge. I must say it's a pleasure to see our scholars doing well - my hope is not to disappoint the organisation next year!

I was hoping to ask a couple of questions to Tan Sri Azman, our Managing Director of Khazanah, but there wasn't a Q&A session this year:

1. Is there a possibility of creating an online library or some shared system of books for Khazanah scholars that promote multidisciplinary perspectives (e.g. economics, finance, psychology, self-help)? Could we submit claims to Khazanah if these books are deemed beneficial by Yayasan Khazanah?
2. Would scholars be allowed to engage in start-ups with the backing of Khazanah instead of directly working for Khazanah Nasional or other subsidiary companies during the scholarship bond?
3. Would Khazanah/Ministry of Finance ever consider carving out or spinning off a separate wealth fund to manage surpluses from currency reserves or commodities like Norway’s SWF or Singapore’s GIC? Why not have a separate entity investing in Asia-Pacific ex-Malaysia to capitalize on growth and know-how in other countries in Asia?
4. Which nationals would you encourage Khazanah scholars to build networks with (e.g. nationals from UAE, Jordan, Germany) for the future benefit of Malaysia in an era of economic interdependence and globalization?
5. How important is a culture of intellectual curiosity to Khazanah and how can we encourage and incentivise scholars to read more and practice “scholarship with erudition”?

I am, in particular, passionate about the idea of the online library - my reading list will run into thousands of ringgit as it is (although I doubt I have the time to read all of them, optimism is good - that's the Upside of Irrationality for you). Also, all this reading should be done in the next 5 years because our gray matter simply loses most of it's absorptive capabilities by that time. Thus, time to cut down on computer games (although Starcraft 2 deserves a lot of plaudits - it is definitely a cut above Command & Conquer 4) and other forms of "noise" and concentrate on the real stuff of life, or "music".

Instead, some scholars including Yvonne Lim were coaxed into giving speeches on stage about their opinions of the scholarship.. and given the opportunity to ask the next scholar to speak. Needless to say, I made myself a little more invisible while she was up on the podium.

In a weeks' time, I also end my internship - it will have been my 6th week at the MDO's office at Khazanah Nasional by then. The experience has been enjoyable (nice colleagues, good coffee, free Starbucks!, fast internet, engaging although sometimes clerical work which increases at an exponential pace, and a good view of Kuala Lumpur/Klang Valley).

What awaits me the week after is a planning of what needs to be done next year in Cambridge - housekeeping and business before leisure, I would say. Have to get started on some Cambridge Math Tripos Part IB courses including Optimization, Quantum Mechanics, Markov Chains, and Linear Algebra (let me not be too ambitious for now - there's still the reading list mentioned above. For the record, the reading list includes, among others:

Crisis Economics - Nouriel Roubini
Fault Lines - Raghuram Rajan
168 Hours - Laura Vanderkam
The 4-Hour Workweek - Timothy Ferriss
The Sages - Charles Morris
The Upside of Irrationality - Dan Ariely
Empire - Niall Ferguson
Colossus - Niall Ferguson
The Cash Nexus - Niall Ferguson
The House of Rothschild - Niall Ferguson
The War of the World - Niall Ferguson
The Wisdom of Bees - Michael O'Malley
What The Dog Saw - Malcolm Gladwell
The Tipping Point - Malcolm Gladwell
The Raffles Conversations 2008/2009
Chasing Goldman Sachs - Susan McGee
13 Bankers - Simon Johnson and James Kwak
EConned - Yves Smith
The Big Short - Michael Lewis
Too Big to Fail - Andrew Ross Sorkin
The Plundered Planet - Paul Collier
Irrational Exuberance - Robert Shiller
The Subprime Solution - Robert Shiller
Animal Spirits - George Akerlof and Robert Shiller
Identity Economics - George Akerlof
The (Mis)behavior of Markets - Benoit Mandelbrot
The Fractal Geometry of Nature - Benoit Mandelbrot
Superfreakonomics - Stephen Dubner
This Time is Different - Carmen Reinhart

Quite a long list, but the journey of a thousand miles begins with a single step. Also, I just re-read the Black Swan - I should post a review of that awesome book at some point.

Then I get to enjoy some Sarawak laksa (endorsed by Anthony Bourdain as, arguably, the best breakfast in the world) in peace and meditate about the workings of the world. Some topics for meditation might plausibly include the link between finance and the real economy, Inception, and what a meaningful life means (after all, you don't just want to make so much money until you're so poor that you only have money left. If it's all about the money - just sell drugs).

Finally, it's Ramadan and Hari Raya is just around the corner - guess I will be in Kuching to enjoy the fireworks!

Fooled by Randomness

In the last half-hour of my internship workday for today, I decide to blog. Shortly I have to use the Bloomberg Terminal and prepare my daily market commentary.

Today I finished the book Fooled by Randomness while at work (my supervisor's in Switzerland, so I had more leeway to do some other things, but I strongly believe I've done my fair share of work for today! Work ethics lives on). This is Nassim Taleb's second book, I believe, and he has done a great job. It's the prequel to The Black Swan, which has an updated 2010 version with a chapter on Robustness and Fragility.

The book is, simply put, about randomness disguised as determinism. An example includes certain fund managers disguising their luck in the stock markets as investing skill when his profits are attributable to noise. This noise refers to randomness.

This book is highly intellectual and borders on philosophical, which makes for good reading: some of the important things he talks about are -
1. Effect of randomness on social pecking order and jealousy.
2. Alternative histories.
3. Mathematics as a tool for thinking and meditating, not blind application. The Monte Carlo simulation.
4. How Darwinism and evolution are concepts that are poorly understood in the non-biological world.
5. The problem of induction.
6. Why the terms "bull" and "bear" have little meaning outside of zoology.
7. Why it is not scientific to take science seriously.
8. Survivorship bias.
9. Loser takes all - the nonlinearities of life.
10. Randomness and our brain - we are probability blind.
11. Why journalists who say things like "the stock market went up 1% today because of increasing confidence in the US economic recovery" are charlatans.
12. Why I am privileged to be "the fool of all fools" and to be aware of it.
13. Marrying yourself to ideas is a bad thing.

It's actually quite a profound book to me, and I'll have to reread some parts of it and corroborate it to The Black Swan. I'm happy to discuss ideas from the book. Overall, I like the book because it challenges conventional wisdom about many things, and encourages us to be Skeptics. Now I believe nearly everyone is a lucky fool.

Mr Taleb's website is also interesting and has links to interviews with him!