Category Archives: Uncategorized

Travel and horizons

I don’t know if this is a function of ubiquitous IP geolocation or some metaphysical reward for travel, but I’ve been discussing some unfamiliar music and artists in multiple ways during this trip.

I know some of you will be amused at me “discovering” these artists only now.

Moneybox, a Slate blog I still read from time to time, had an interesting off-the-wall story about Sweden’s new postage stamps. Apparently there is an artist called Robyn. Also, “brev” means letter in Swedish which sounds much like “brief” to me, so perhaps Afrikaans has some value outside South Africa after all.

i didn’t think any more until I found another “first play” album on iTunes Radio (this is not a paid ad for Apple, promise) by a band called “Royksopp”.  Enjoying the album, electronic music across a wide range of underlying genres. Turns out Royksopp and Robyn have performed together and produced music together.

Binary vs “vanilla” bets and hedging

Nassim Taleb, an author who usually inspires (except in his second book, Black Swans) has co-authored a paper with a long-tailed title “On the Difference between Binary Prediction and True Exposure with Implications for Forecasting Tournaments and Decision Making Research”.

The paper isn’t paygated so check it out – it’s only 6 pages so definitely accessible. Don’t worry about the couple of typos in the paper, bizarre as it may be to find them in a paper that presumably was reviewed, the ideas are still good.

The key idea is that prediction markets usually focus on binary events. Will Person Y win the election? Will China invade Taiwan? These outcomes are relatively easy to predict and circumvent important challenges of extreme outcomes and Taleb’s Black Swans.

A quote from the paper, itself quoting Taleb’s book, Fooled By Randomness, sums up the problem of trying to live in. Binary world when the real world has a wide range of outcomes.

In Fooled by Randomness, the narrator is asked “do you predict that the market is going up or down?” “Up”, he said, with confidence. Then the questioner got angry when he discovered that the narrator was short the market, i.e., would benefit from the market going down. The trader had a difficulty conveying the idea that someone could hold the belief that the market had a higher probability of going up, but that, should it go down, it would go down a lot. So the rational response was to be short.

Drones, inequality and the end of the Age of the Gun

Here’s a mind-tickling quasi science fiction story about a future world of plenty derived from cheap autonomous robots. Well, plenty for some and medieval peasanthood for most.

I was having a discussion with a bright young colleague about the Venus Project, whether as a planet we have sufficient resources, capital and technology to meet all our needs. The conversation quickly flowed to income inequality, the increased value of scarce goods and the remaining challenges to lowering costs of production.

The linked article takes a different view – with the potential for massive military power controlled only through capital and technology without a need for tens of thousands of gun-toting supporters, the 1% could potentially achieve complete hegemony and control. With robots making more, better robots, guarding and controlling the other factors of production, what role is left for poor, especially robot-poor peasants?

It has probably been said before, but if feels to me that our generation may live through fundamental societal changes from autonomous robots, cars and drones.

Zim cash shortages

Zimbabwe seems to be experiencing some isolated (for now) cash shortages.

This was a concern around election time. There was a risk that citizens, fearing uncertainty around the reintroduction of the Zim Dollar might have withdrawn their deposits and borrowed as many dollars as they could. There has been limited talk of the reintroduction of the Zim Dollar, but I hadn’t expected these scenarios just yet.

Hopefully this is just a logistics issue ahead of Christmas shopping and year-end pay.

How to force a conclusion from a study [updated]

So a study commissioned by the alcohol industry demonstrates that banning alcohol adverts will be a bad thing.  Consider me unsurprised and cynical.

I don’t know that the impact would necessarily be positive. I don’t know how much of an impact banning ads will have on consumption, but it does seem that the alcohol industry lobby, cunningly called the “Industry Association for Responsible Alcohol Use”, which is a bit of ridiculous PR spin, doesn’t seem shy to manipulate each part of the debate in their favour.

From the article:

“Qualitative and quantitative research by Econometrix shows that alcohol advertising is not a significant factor in determining consumption and has little or no effect on alcohol consumption per capita in South Africa,” said Jeffrey at the press briefing.

And then, some harder stats on the economic impact

  • Gross domestic product: An estimated reduction of 0.28% of GDP was to be expected.

  • Employment: 11 954 jobs was estimated to be cut.

  • Fiscus: Total tax income will decrease by R1 783-million; and

  • Trade: Exports would decrease by R225-million and imports would decrease by R304-million.”

There’s almost certainly an inconsistency here.  Let’s take that third bullet first. How is tax income decreasing? Since there is “no impact” on alcohol consumption from advertising, there will be no lower volumes of booze sold and therefore no loss of sin taxes. Ceteris paribus, alcohol industry companies will make higher profit, resulting in higher income taxes. Nowhere is there mention of higher profits to shareholders, greater returns on investment or reduction in prices. So I don’t see how the quantitative work here talks to the earlier conclusion that there won’t be a reduction in volumes consumed.

Again, it’s not that I alone possess perfect knowledge of what will happen to alcohol consumption, but it’s disingenuous to claim that it won’t lower consumption but then model the impact of lower consumption!

The other bullets are also interesting. Lower GDP and lower employment says something important and subtle or important and wrong about our economy. If consumers simply spend less, their savings will naturally increase and imports will decrease (based on the mix of imported versus locally produced alcohol). An enhanced savings rate is a key ambition of National Treasury. It’s not clear that this scenario is based for our economy at all. We haven’t yet talked to the higher profits to shareholders and investors, or more likely, price reductions in booze, resulting in an off-setting increase in consumption but possibly even greater savings, depending on the price elasticity of booze. Again, potentially further good.

Now in reality, it’s very likely that consumers will substitute at least a portion of their alcohol consumption with consumption of other goods and services. And what we’re saying is that whatever these things are, they will employ fewer people and contribute less to the economy that the production of alcohol. This just seems a stretch that really needs to be justified.

It’s also fairly clear that the analysis has not considered an increase in labour productivity through lower alcohol consumption, which will increase GDP.  Additionally, I see no analysis of the possible savings in healthcare costs associated with alcohol consumption (both medical things like heart disease and accidental death and injury).

The thing is, until the report is released in detail, all we have is an attention grabbing headline with no way of evaluating whether it’s actually carefully thought through and objectively evaluated, or whether it’s just massively disappointing work.

Update: Full report is available here

While the report is quite extensive and covers some of the points I’ve raised, it reads clearly as a piece of propaganda rather than objective research.

Link shortening madness

URL shorteners are handy when space is limited, but each one adds another fatal point of failure. To make the point, if I want you to read about New Business Margin on Revenue. And by the way you should because it’s an important newish concept, the link will work provided your internet connection is working, the relevant DNS is working and my server is running.

Let’s look at an extreme alternative:

  • First shorten link at gets to
  • Then take and shorten at to get
  • Then gets
  • Then TinyURL gets

Interestingly, didn’t want to shorten the link. TinyURL has a longish URK, but does have the awesome ability to provide your own shortened URL like

I’m not provide embedded links for all of those because it’s a bit silly. But you can see when you click on the last link as it backtracks through each of the shorteners before arriving at the destination. Each step is the chance for catastrophic failure.

So please don’t use link shorteners in ordinary web content. It’s not necessary and makes the internet increasingly fragile.

SAM Update on ORSA, Internal Models and Business Impact

I’m giving another SAM presentation at an Aon Client Day in a couple of hours. I only have 40 minutes so will be cramming in some big ideas into a short space.

Some key messages:

  • Internal Models are becoming more problematic and less attractive in the UK as well as SA. Good reasons remain for using them, and some of the work will be required for the ORSA regardless of whether you gave the IM route or not. Overall, the expensive is only justified for those would be using an IM themselves anyway. Reduction in SCR usually a poor reason to go the IM route.
  • Many insurers are miles behind on where they need to be to have a quality, compliant ORSA in place in time. This is one of the most valuable parts of SAM yet often the most neglected. You need to start now if you haven’t already. Even a bad start will help, but no start is guaranteed failure.
  • SAM will have an impact on insurers, but arguably less so than any of :
    • Tax changes
    • Treating Customers Fairly
    • Binder Regulations

Check it out here -> Aon Client Day SAM update – David Kirk – KPMG – September 2012 (pdf) or see the presentations resource page for this and other presentations.