Posted by Adam Gordon on Jan 16, 2012 in 2025, all, economy & finance, strategic foresight, technology change
Financial markets are delicately poised at the start of the year, to say the least. A steady low-bubbling stock rise – what the FT calls a “stealth” rally – has left the S&P 500 index at a five-month high and the Dow up 10% in 6 weeks, flying in the face of the 2012 analyst outlook which is on-the-whole bearish amid Eurozone debt and global growth concerns.
Bears are in a surprise squeeze. Not so long ago it was rebound-optimist Jon Corzine of MF Global publicly taking the hit that many others were privately taking too.
It’s certainly not news that markets don’t behave as expected, nor that emotion drives decisions, but Joan Foltz, author of Market Whipped: And Not By Choice (Alsek, 2012) suggests something further: that we are going through a basic shift in how markets work and therefore how to succeed in them.
She says the financial markets have become a MMORPG, that is, a “massive multiplayer online role-playing game.” In gamer world, a MMORPG is a vast virtual world where an effectively unlimited number of players assume characters and interact with each other in a persistent and ever-evolving “reality.”
The same computation and virtualization platform technologies that have produced game worlds also underpin financial markets, and are therefore unsurprisingly producing similar effects.
Buy a stock and you have entered a virtual arena of realms and battles, with characters taking roles in stories that play out over a known (to insiders) time period. There are masters and magicians and druids and emporers, and who knows what else, all gaming for your money. Play the game right, and you win theirs.
Says Foltz: “Keep the market in mind as you go through this list of features:
Who are the characters in the game? High-frequency traders, hedge funds, corporations, pension funds, celebrity investors, the media, the government, to name just the obvious ones.
Into this world walk investors who think the markets are what they used to be, and work how they used to work – that they are understandable through due-diligence in research, and winnable by well-considered valuations or by technical analysis. No surprise that they find themselves surprised. In gamer world, nothing is as it appears and nothing works out as expected.
Game on
Foltz’s argument is that traders of all stripes improve their results by acknowledging market MMORPG and thinking like a gamer. That is, seeking to understand where the battle is at any time; recognizing who battles whom, under what conditions, and for how long; knowing who the strongmen are in their realm and what story is playing out.
Investors should know their own token in the game, its attributes and ammunition, as well as its limitations. This will improve judgment of where to be, when to come and go (market timing), and encourage quick exits from realms that are best left to more powerful, and perhaps, darker forces.
The book itself has a chaotic, breathless, aspect, and is marred by a tendency to conspiracy theory. But it does provide a productive analogy that sheds light on unchartered territory. In other words, it does what “futurists” should do when they do their job right: identify and illuminate a change in the world, and describe why assumptions and practices that worked in the past may fail going forward.
Posted by Adam Gordon on Dec 6, 2011 in all, economy & finance, foresight tools & methods, scenario planning
Herman Kahn
Interesting times we live in, when most of the world’s business media has a front-page tab on their Web sites that says something like “Euro Crisis – Live – Follow Here” as if there was a hostage drama or bank heist on the go.
Perhaps it is a bank heist of sorts, in the frantic run up this week and next to the Brussels summit in on 8-9 December, where the 27 Eurozone leaders are expected to make some binding, if not bold, decisions.
There has been short-term market relief following the US and China’s undertakings to make dollars more easily available into the European banking system. But everyone knows that liquidity, while a problem in itself, is a symptom of the larger problem of sovereign debt. And sovereign debt is only a problem when lenders don’t see future growth such that loan capital looks safe at less than, say, 7%.
In the world of foresight we talk about the need to “think the unthinkable,” a phrase coined about Herman Kahn in the 1960s when he was making scenarios about the road to US-Soviet thermonuclear war. So I was curious to see this exact phrase pop up in various media analyses where implications of Euro-demise, such as redenomination risk, cross-border contract liability, and so on are getting a thinking through, at least in the media, for example here in the WSJ.
Adaptive Measures
This is scenario planning “lite”: thinking down the path to, and implications of, a plausible operating environment — even if it is highly unlikely — and determining best responses, necessary hedges, and other adaptive measures. (Non-lite would be to do the background work, not just the journalistic summary.)
As the unthinkable forces itself to be thought, even the Corporate Executive Board was motivated to put the injunction to their executive partners as follows: ”As the threat of a potential euro zone breakup looms, we strongly advise companies to enhance their scenario planning disciplines. Leading companies in our network begin by documenting project assumptions and building scenarios off of those variables to test profitability under a range of outcomes before committing capital.”
But to this they add the intelligent real-world rider, often missed by scenario-ists: ”Don’t make the mistake of assuming that entire projects, P&L’s, or budgets need to be reconfigured under volatile outcomes. Instead, build your contingency plans around critical, controllable line items.”
Posted by Adam Gordon on Apr 8, 2011 in 2025, all, economy & finance, leadership, policy, politics of the future
The new axis in world diplomacy and global leadership flexes its muscles next week on Hainan Island – the southernmost tip of China – with the BRICS summit on April 14 in Sanya, and the Boao Forum the following day.
BRICS (Brazil, Russia, India, China, and South Africa) is already something of a “G5” of non-Western nations. Next week its leaders (China’s Hu Jintao, Brazil’s Dilma Rousseff, Russia’s Dmitry Medvedev, India’s Manmohan Singh, and South Africa’s Jacob Zuma) will set themselves to discuss their joint concerns in international affairs, economics, development, trade, security, etc.
More than anything, the event signals growing intention to coordinate views and act in closer alignment, and press towards future empowerment and responsibility of non-Western world leaders. Political clout has always gone with economic clout, and in this respect the future can be depended on to “rhyme” with the past.
BRICS countries already account for 40% of global population and 20% of global GDP – and they are the nations expected to grow most rapidly in GDP terms in the next decade and beyond, and to provide primary succor to neighbors in their regions.
Hainan 2011 is the third summit of the BRIC countries. The acronym BRIC was coined by Goldman Sachs (NYSE: GS) in 2001 in a chicken-and-egg prophesy: causing Russia, China, Brazil and India to see their interests as potentially aligned, and politically worth aligning. South Africa was accepted into the group in February.
Without stopping for breath, the diplomatic caravan moves 125 miles overnight up the coast of Hainan Island to Boao, where President Hu will give the keynote address the next day at the annual Boao Forum for Asia (BFA).
Boao is an undisguised knock-off of the World Economic Forum in Davos (with skiing replaced by snorkeling perhaps): a high-level gathering for policy and business influencers, with a similar nudge-and-influence mandate, here with an Asian focus. In attendence, in addition the the BRICS representatives, will be by Korea’s Kim Hwang-Sik, Spain’s Jose Luis Rodriguez Zapatero, Ukrainian’s Mikola Azarov, and New Zealand’s Bill English.
Posted by Adam Gordon on Sep 7, 2010 in all, economy & finance, failed predictions, forecast filtering, strategic foresight
Here’s a video of Arthur C. Clark in 1964, remarkably predicting that in 50 years we would be able to communicate equally from anywhere on the planet, and so work from Tahiti or Bali equally well as from London. He predicts brain surgeons in Edinburgh operating on patients in New Zealand as technology collapses distance. Fabulous foresight? To a point, yes. This has all become possible, and in the time frame specified.
But, making one of the classic mistakes of technology-driven futures thinking, Clarke lets his technological imagination blur basic insight into human nature and social service/product adoption. Specifically, he goes on to say that because of communications technology advances, “the city of 2000 may not even exist at all. The traditional role of the city as meeting place for a man will cease to make any sense.”
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Note the gender paradigm blinkers. But anyway – the end of cities? Fat chance. One of the defining issues of the early 21st century is urban growth and the emergence of 10+ million-population mega-cities. And across the world, a higher proportion of the human population live in cities than at any point in history (and that proportion has just crossed 50% making humans for the first time a primarily urban species.) Hello? Arthur?
Urban concentrations 2007. Source: The Guardian
Why the miscue? First Clarke makes the classic error of holding key variables still while running technology forward. The key variable here is population growth. The number of people on the planet has doubled, at least, since 1964.
But that population could all be comfortably telecommuting from rural idylls, so there is another problem. Clarke fails to factor in social and economic pressures which sometimes run counter to technology advancement or, as in this case, merely absorb technology shift with no change. No matter how good communications get, nothing in the information-communications revolution has changed the age-old social truth that proximity matters. It matters to community welfare. It matters to social opportunities. It matters to career advancement, and so on. It mattered in the past. It will matter in the future. That’s why people are in jam-packed into into Los Angeles and São Paulo and Johannesburg and Seoul, etc., but not Tahiti.
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Posted by Adam Gordon on Jul 22, 2010 in all, decision-making, economy & finance, management, risk management, scenario planning
Preliminary results of the European banking stress test are to be published by the Committee of European Banking Supervisors tomorrow (July 23.) Although the exact nature of the tests have remained under wraps — not without controversy — the essence is clear. Regulators are simulating various forms of adverse financial conditions (GNP performances, interest rates, currency values and flows, and other money metrics) to see if important banks have the resources to withstand these conditions.
Controversy has resulted from lack of transparency in the tests, leading to speculation that they are designed to have most banks “pass” in order to boost confidence — as clear an example of mixing up judgment and advocacy as one is likely to get.
The key measure for determining which of the 91 banks fail the test — and need to raise capital — is whether their Tier 1 capital ratio would fall below 6% under the “loss assumptions” imposed by the test. This is the same level that was required in the stress tests of U.S. banks in its similar May 2010 test.
Model worlds
Anyhow, what is particularly interesting to this author is that the concept “scenario planning” has not been used through the bank test process, but these tests are fundamentally future scenarios, this is what scenarios are all about: creating model future worlds that express the evolution of important uncertainties towards somewhere at the limits (but not beyond) of plausibility, with the specific intent to use these worlds to stress test current decisions as to what a company is and does — from its business model to its resource base to product line to marketing, and so on.
If the organization’s key decisions would hold up (produce profitability or however success is defined) in different, alternative tests, this tells managers theirs are probably good decisions for the future. If they would flop in any test, this points to what needs to be urgently addressed. In this way an organization explores and becomes robust to its unknowable and unpredictable future.
Notably, it is precisely the stress-test purpose of scenarios that stops this foresight technique becoming (as it does all-too-often in the wrong hands) a “wishing well” for better times. When scenarios cease to be direct stress tests of present decisions, they become floaty indeed.
Full scenarios
Having said all this, the difference between the US and European banking stress tests and full scenario work is the bank tests are considering only economic factors, only adverse (risk) conditions, and only “known unknowns.” Full scenarios would include the full range of important drivers of change — and potential surprises — outside of economics or finance in their construction. In operating as stress tests, they would look at threats to the status quo as the bank tests do, but also provide a testbed for exploring opportunities in change.
read morePosted by Adam Gordon on May 18, 2010 in all, economy & finance, foresight tools & methods, leadership, policy, scenario planning, strategic foresight, systems dynamics
The short-term future in South Africa is the Fifa Soccer World Cup, and at the moment it is really hard to get anyone to see or think beyond it. Football is life. Nevertheless a few hundred intrepid thinkers gathered in Cape Town earlier this month to consider South Africa in 2030, under the auspices of the World Future Society, South Africa Chapter, and its very capable leader Mike Lee.
I was lucky enough to be asked to do the opening address at the conference, and even luckier in that this Web site: South Africa – The Good News summarized some of what I and others said:
“Adam Gordon, Foresight Project Director and author of “Future Savvy” gave us some pointers:
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“The ‘BIG’ question he asks is ‘when do we influence the future and when do we adapt?’ There are big predictable forces out there (like population growth / the diminishing availability of oil etc), and there are big unpredictable forces out there (ja, well no fine!). Importantly, we can design our ability to influence and we can design the way we adapt. It is critical that we are able to do both.
“But managing the future is more than just about scenario planning, it is also about the implementation of the plan. It is about developing a methodology that prioritises, engages with stakeholders, and enables proactive actions on the ground.
So how?
Some important considerations (from various speakers):
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“What is critical is the foresight process, it must be well-informed so that the implementation strategies that follow have buy-in, are doable, are relevant and far-reaching. There is a very real danger of visions being disconnected, unachievable and, at the end of the day, a pipe-dream.”
Dr Elizabeth Dostal talked of a stakeholder democracy in which she promoted the design of a matrix that recognised different stakeholder levels on the vertical axis and different environmental dimensions on the horizontal axis. A multi-level, multi-dimensional model.
“Imagine” she said, “putting four Nobel Peace laureates together and asking them what the causes of global conflict are. One may argue poverty, another ideology, another resources, and another greed. In no time, they would all be in different silo’s defending their view, in one sense they are all right, but in another sense they have not looked at the whole picture. A multi-level, multi-dimensional model would reveal this, the gaps in their logic, and the opportunities for agreement.”
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