The King is Dead, Long Live The King!

This is a brief post to mark the passing of the Efficient Market Hypothesis (or EMH), to track my personal exposure to the EMH over the last 30 years, and to wonder how we are going to replace the hoary old liar…


pic1 Our Finance lecturer was very keen on the Efficient Market Hypothesis.  Time and again he would intone that ‘all the information was known,’  that ‘all salient facts had already been impacted into the price of a stock,’ and that ‘if a stock was temporarily mis-priced then clever speculators would buy it, sell it, or short it and make a killing; thereby rapidly returning the stock to it’s true value.’ 

He must have wondered at the looks of disbelief and passing irritation on our faces.  Which only caused him to redouble his efforts at repeating the theory to us.

Our Financial Accounting lecturer was a frequently-imbibing Bulgarian  with tenure and only a couple of years left until retirement.  So he was not particularly interested in anything very much, but simply pointed to a local producer of woolen goods that had been trading at ten times the nett asset backing on the day that it declared bankruptcy.

So that was one nail in the coffin for the EMH.  In this case, all the information was not known.  Senior management of the company had clearly been lying to the market and, as it turned out, seriously overvaluing their warehouses full of greasy-wool mittens, which they clearly had had very little chance of selling at any price!

1987: Black Monday

Secondly, in actual fact, clever speculators probably would not act in the way that the EMH expects them too.  The theory would only work if everyone believed in it, and really not many people do.

As early as 1987 I was buying and selling shares with a bunch of other young yuppies that I worked with.  We all knew that the market was a runaway bull at the time.  We all knew that everything was overpriced, and we all knew that it would crash one day.  In fact opposition MPs would come on the news and tell everyone just that.  But our thinking was not “We should sell short on those overpriced stocks in accordance with the EMH.”  It was more “Let’s see how long it will run,” “Lets see how high it will go,” and “We can be in and out with a tidy profit before the crash comes.”   So that is nail number two in the coffin.  Investors recognise asset bubbles and don’t necessarily think that they are a bad thing that they should act against.

In fact, on the day of the big crash on October 1987, I heard the news from New York on the morning news, and rang my broker as soon as they opened, saying “Sell everything.”  The broker, thinking that my voice sounded quite young, said to me, “I should say that your downside risk is less now that it used to be.”  Nail number three is that brokers are often disingenuous rogues who try to manipulate the market to get their commissions and don’t necessarily have the client’s best interests at heart (they are legally supposed to, it is called a fiduciary obligation).

Finally, every schoolboy knows that the market is based on sentiment.  Greed and fear.  On the up people just pile into a good thing on the basis of ‘me too.’  On the down there is a rush for the door and good stocks with nothing wrong with them get hammered along with everything else.

1992: The Lloyds Names Fiasco

Lloyds I had just arrived in Britain in time for this.  It was essentially a pyramid-game (ponzi-scheme?) between all of the syndicates of Lloyds underwriters, where one syndicate packages up a bit of risk as a security and on-sells it to another syndicate who might do something similar.  At the end of the day the original risk of a ship sailing into the Bermuda triangle or a building project hitting labour-action, was lost sight of in all of the financial instruments and fun and games.


1997: LTCM

You probably think I am stating the bleeding obvious at this point.  The trouble is that the assumption that ‘The price is correct’  is built into all the spreadsheets and models that banks, fund managers, economists and various Treasuries and Federal Reserves use to predict the future.  You can’t really build a model that will accurately predict wild emotion-driven booms and busts.

LTCM It gets worse:  Jumping ahead now to 1997 when  two guys who had won the Nobel Prize for economics, Myron Scholes (of the Black-Scholes option-pricing model) and Robert Merton, formed a hedge-fund company called Long-Term Capital Management (LTCM).  This company basically invested your money in derivates for you, and was driven by a hedging computer model that had buried in it somewhere the Value At Risk assumption.

All of portfolio theory is built on the assumption of the correlation, or co-variance of two stocks.  You will have heard people talk about counter-cyclical stocks.  I don’t really believe that there are such things as counter-cyclical stocks, except maybe publicly-listed companies of receivers.  It is often said that newspapers do well in times of depression.  But that was in the 1930s before television, the internet etc.  They might not do so well in the current depression.

Anyhow, LTCM’s model told them that two counter-cyclical or uncorrelated stocks, if held together, would tend to cancel one-another out and give constant returns no-matter what happened (an excellent defensive position).   In risk-management terms LTCM could hold the same financial cushion in cash for both stocks, since they would never drop together.  The trouble was that things started to unwind all over the world, starting with the Russian rouble, spreading to become the Asian crisis, and surprise surprise, everything went down.  So much for co-variance and portfolio theory.  LTCM was hugely exposed and crashed very messily. 

2001: Enron

enron These guys, the so-called ‘Smartest Guys in the Room’ employed something called Mark-To-Market accounting.  Simply stated the argument goes like this:  “How much do you think that a kilowatt-hour of electricity will be worth in San Diego in September of next year?  I say it will be worth $10.75.  Who says it won’t?  I’ll write that valuation into the balance sheet!”  Anyone see anything wrong with this idea?  Efficient markets not looking so cool as an idea now.



Behavioural Economics: The New King is Only a Child

predictably irrational There is a new branch of economics called Behavioural Economics.  It has a theory called the ‘Adaptive Markets Hypothesis’ which is open to the possibility that a individual investor’s behaviour might be influenced by what he thinks that other investors around him are doing, rather than just a slavish adherence to a model.

Well that is very interesting, but how is anyone going to use a theory like that to price a security, or value a business or a portfolio?  Before you can say that a theory is dead you have to have something to replace it with. 

I hate to say it, but bankers and fund managers are still using the same models that they used to use, because there is currently no useful replacement.  Scary? You bet!

warren Probably the last word deserves to go to Warren Buffet, who famously said, “I’d be a bum on the street with a tin cup if markets were efficient.”

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Watch Real Tough-Guys

Foreign_Singapore_200805160752388902_afp  This was the slogan that Robbie McEwen used to advertise last year’s Tour de France on Australian television.  His point was, instead of a passionate devotion to football players of all codes, Australians should realise that professional cyclists, though small and puny in their upper bodies, are far superior athletes than any AFL or Rugby player, and  spend some time watching the Tour de France.

Certainly the year that they wore heart-rate monitors, the cyclists turned in some amazing results.  Drug-assisted or not, they were reporting heart-rates of 120 – 150 b.p.m. consistently for four or five hours. 

I seem to remember that Robbie went on to crash into a fence-post on a mountain-descent stage, breaking a number of ribs, sternum, and collar-bone, and puncturing a lung.  That’s pretty tough alright!




A migrant worker takes a shower in his quarters.

However this post is not about professional cyclists.  It is about an even tougher breed of tough-guy called the Singaporean migrant labourer.  In fact all foreign-labour-force indentured labour anywhere on the planet.  But especially here in Asia and in the Middle East.

Just for some perspective: Two hours on my bike in this climate and I have consumed a litre of water and am starting to show signs of heat-exhaustion (cramping, nausea, headaches…)  I find it hard to imagine how I might spend eight hours a day outside doing construction work with only a bottle of cordial to sustain me.

 Almost all of the labourers here are imported from Indonesia or India.  The employer holds their work-permits, and if things don’t work out, or the boss doesn’t like them for some reason then they get sent home.  Most families seem to have a Filipina maid that does the housework under a similar arrangement.  Mostly these workers can’t speak Mandarin or English.  Usually just sufficient to understand the orders.  So, for example, they can’t speak to the end-customer.

Construction usually proceeds around-the-clock in Singapore.  They install halogen lamps on the site and work through the night as well.  If, for some reason work cannot proceed on the site, then the labourers just find a bit of shade under a tree and go straight to sleep.  They must be permanently knackered.  There are reports (and pictures) of unsafe practices and squalid conditions.  I have observed similar arrangements in the Middle East.

Tired workers sleep around the site whenever there is a break. 

Not that anyone is complaining.  The workers are grateful for the opportunity to make money and send it home to their families.  They keep their heads down and get on with it.  Real tough guys.

I would have to say that cheap labour is one of the key components of the economic  miracles occurring in these countries.  A Western democracy could not show the amazing growth figures of a Singapore, a China, or a Dubai since labour is so expensive there.

Or is it?  I have had a couple of reports recently from people in London to say that all of the service staff there these days seem to come from Estonia, Latvia. Lithuania or other Eastern members of the E.U.  One friend could not find anyone in his hotel that spoke English.  He said that they just say ‘Yes’ randomly when they think that you have asked them a question.  Britain finally got a minimum wage in 1999.  Tony Blair brought it in as a part of the requirements of the European Union Commission on Human Rights.  And of course the US has their Mexican workers.

WorkplaceMishapsThe antipodean countries of Australia and New Zealand are known as some of the most fiercely egalitarian cultures in the world.  The belief that ‘Jack is as good as his master’ is a matter of fierce pride in these countries.

NZ has taken a bit of a battering in this regard since the Employment Contracts Act in 1991, and since the Chinese take-over of Hong Kong caused a surge of migration into New Zealand in the late ‘90s.  There has been a subtle long-run ‘down-pricing’ of labour over the years.  But at the heart of the ECA is the requirement for “good faith bargaining”  so any unfair or predatory award-circumventing practices are hammered pretty hard by the Employment Court.

Australia is by far the most admirable bastion of egalitarianism.  Politicians of all persuasions often say that their bedrock value is “A fair go for all.”  This can lead to some odd circumstances where politicians try to be tough on illegal immigration, but soft on boat-people, for example.  There is a large percentage of the electorate that believe that a ‘fair go for all’ should extend to any refugee who happens to wash up on Australian shores. 

a In Australia there was never a Thatcherite breaking of the unions.  Labour and construction are still heavily unionised and there is an award and practices for almost everything.  For this reason service jobs are still done by Australians in Australia, and they are paid award wages for their efforts.

But Australia pays for its principles with low rates of growth in GDP (0% projected for 2009) and can only afford to live by its principles because of huge resources of mineral wealth.  The nations around it are surging ahead on the back of cheap labour (among other things, low corporate taxation rates and strong foreign direct investment also help).

In the 21st century, egalitarianism might prove to be a very expensive principle to hold dear.  And that scares me a bit.  This approach to migrant labour is almost slavery.  It certainly creates a layer of second-class non-citizen in society, and fits quite naturally into the high-power-distance cultures of developing nations around the globe.  It worked for Ancient Egypt and Ancient Rome, but haven’t we moved on since then?

Posted in culture, travel, macroeconomics, globalisation, politics and philosophy | Leave a comment

Q409 now in the public domain

Yesterday I rolled out Q409 of Dolphin. 
It was (as usual) on time, under budget,  and high quality.
This version has a CMS, a crowdsourcing survey engine, and some permission-based marketing features (ie, the ability to send newsletters to subscribers via a bulk e-mailer).
The next version is in January and will support a social-networking style forum/ bulletin-board module among others.
There are some screenshots showing in the photo panel of this blog.  And you can check the sofware out here.
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More Good Men

In June I attended the 50th reunion of my old high-school.  Expecting just a lot of drinking with old schoolmates, I glimpsed instead a story that was historic in some ways, geo-political in others and certainly all about lives, values, character and choices.

dad The story begins in 1959 when the school was opened.  It is a Catholic school, and the De La Salle order of brothers had recently agreed to staff it.  I was born in 1959 and my father, a young Irish labourer, doubtless very proud of his new son, went up to the college to watch the opening, listen to the speech by the new principal, and drink a cup of tea.  He would have been thinking to himself, “I shall send my sons to this school.”

What the thinking of the Order was at the time is harder to fathom.  Why choose the small provincial town of New Plymouth, in the rural, isolated and windswept agricultural province of Taranaki, I cannot say.  The ‘50s was a different time in so many ways, but I understand that the Catholic population of Taranaki had been petitioning for a boys school for some time, and had managed to raise sufficient funding for the purchase of the grounds and construction of purpose-built classrooms, gymnasium etc.


The great value of a labour force of De La Salle brothers as teachers is that they have dedicated their lives to teaching, are a bright, motivated, highly educated and committed workforce.  And (having taken a vow of poverty), they are very cheap to run.

And so, in due course, in the early 1970’s I did make my way to that school where I continued as a student for seven years.

The De La Salle order was far more established in Australia, and so we had the fairly unique experience of being educated in rural Taranaki by recently-arrived Australian teachers (with a small leaven of kiwis).

a I have to say that it was a privilege to have been educated by these young  energetic, enthusiastic and idealistic men.  It was a fine education that we received, by men for whom it was not just a job, but a “vocation.”

 I did not have much on-going contact with the school or the Brothers until I returned for the 50th reunion in 2009. 

 A number of impressions were immediately apparent.  A lot of them were not there, or not mentioned.  Those remaining were no-longer the energetic and passionate young men that I remembered and there are pictures of them scattered around this blog posting.  Also conspicuous by its absence was the presence of any young Brothers.  I had been alerted in advance by a couple of references to the fact that there were no longer very many Brothers teaching at the school, that most teachers now were “lay-teachers” as they are called (laymen and lay-women).

The story unfolded some more when I met the new college Principal.  He is the first Principal not to be a Brother, and he said that this was the third school where he had presided over the transition.  It was announced at the end of the reunion that, after fifty years exactly of excellent service to the people of Taranaki, the Brothers were leaving the school.  They are now too scarce and too old to continue.  A number of the oldest are heading off to a De La Salle retirement community in Queensland, for a life of continued spirituality and contemplation.

letter Some weeks later the attached letter came out from the Brothers’ Trust Board, formalising the withdrawal.


What we are witnessing is the result of a demographic change in society that occurred across the Western world between the 1950s, through the 1970s and now into the early 2000s.  Those ‘vocations’ stopped coming.  Those idealistic and energetic young men were the last of their type.  Almost the last of the Mohicans.  As a member of the generation that I am talking about, I find it hard to say exactly what it was.  In the same way that young men would not now queue up to volunteer to go to war as they did in 1939, the spirit of the age (the zeigest) has become cynical and independent. 

declan I remember someone saying in the early ‘80s, that, “There are still young men enrolling for the priesthood, but very few of them are palangis.”  The implication being that most were Pacific Islanders.  This demographic change is limited to the scions of the West.  Different cultures are experiencing their own different demographic changes.  Pacific Islanders are still a committed, faithful and religious people.

Lest there still be doubt that this is just a localised phenomenon on which I am hanging too much grand theory, the final confirmation came recently when I was reading the school’s latest ERO Report (from the Education Review Office of the Ministry of Education).  One sentence pointed out that the school was having trouble finding sufficient students in the intake, as one of their criteria is that the boy must identify as Catholic.  I guess that is the logical conclusion of the trend.  Not only a lack of vocation, now a lack of suitable school-age boys as well.

denis loft The ERO report also stated that the school is a ‘decile 8’ school (this is a measure of the socio-economic level of the families in the area), but usually out-performs other schools in the decile 8 to 10 range (Auckland Grammar would be a decile 10 school).  It out-performs them on almost all indicators (academic, sporting, social development, independent decision-making abilities of students…)

I asked one of them about the possibility of ‘reverse mission’ as it is called; ie, having Brothers from the Pacific Islands, South America, Africa or The Philippines teaching in Western De La Salle schools, but the problem there is that their qualifications are not recognised by Western governments.  And anyhow the real need for superior education is in the Third World, not over here.

And so the strategy of the De La Salle order is to go to the third world.  Where the need is.  And where the vocations still are.  The official language of the order was originally French (The founder, St. Jean Baptiste de La Salle was French).  At some point in the distant past the language of the order was changed to English, and quite recently it has been changed to Spanish, a reflection of the first language of so many of them now.

But what of all of those fine young men from the ‘70s?  Are they disillusioned and going quietly into that good night?  Do they think, “Well we did our best, but everything that we stand for is pretty much in retreat these days?”

Hell No!  Listing just some of my old teachers:

bill firmin and denis loft Bro. Bill and Bro Denis are heading to a town called Malakal in Southern Sudan.  There they will head up a teachers’ college and set up and run a distance-learning programme.  The Southern Sudanese are primarily Christian and oppressed by the Muslim North and the government in Khartoum, with Darfur in the middle of the country.  The UN recently named the President of that country as a war criminal.


peter brayBro. Peter is the Vice Chancellor of Bethlehem University in  Gaza.  An ‘unapologetically Catholic’ university in a Muslim country that has just been invaded by Israel and that is run by Hamas, a terrorist organisation turned government.


  • jack iremonger Bro. Jack told me a story about his school in Port Moresby in Papua New Guinea.  Apparently all the schools in Moresby hold their selection/ enrollment weeks in the same week.  Brother Jack holds his the week after.  So all the boys who do not get into the other schools come to them the following week.  This year they had 400 applications for 250 places.  But Jack said to me, “You just get sick of saying ‘Sorry no education for your son.’ to poor Papuans.”  So this year he took all 400 of them!  Not quite sure how that is going to work out.

 Bro. Pascal works in a half-way-home for broken families in outer Sydney, doing excellent work at the bottom end of his own society. pascal heggarty


I should also mention the excellent record of the school at Balgo Hills, on the outskirts of the Simpson Desert, educating Aboriginal youth.  The consistent contribution over decades has meant that the elders in the town recognise the stability that the school has brought to their area and to their people, and they now include the Brothers in their decision-making, as wise counsel and as good men.

They are all, by now, over the age of 60 and they are for the most part going into the middle of some of the most unstable political regimes in the world.  Older and bolder.  Rage against the night. 

As one of them said to me, “Logic is our second recourse.”  I am assuming that Faith, with a capital ‘F’ is their first recourse.  To be so committed, so intelligent, dripping with resources, some of the best and most idealistic that we breed, to see all that you stand for and have worked for in retreat, to have to live with the (in their cases unwarranted) stigma of paedophilia.  And yet to carry on leading by example, having forsaken wealth, marriage, independence and status.  Now that takes a special sort of man.

Dangerous men.  You only have to spend a couple of hours in their company and they challenge your thinking once again.

So that’s how I spent Queen’s Birthday weekend.  And it was perhaps the best-spent few days in a good many years.  In between all of this I drank some beers with some of my old classmates. e

There are still good men out there, but you have to look for them.  The world of business is full of bad men pretending to be good men.  And quite a few who have abandoned the pretence.  I like Lord Acton’s dictum about “Power corrupts etc.“  The third line is, “Great men are nearly always bad men.”

The views expressed are my own and the unauthorised version.

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Being Green on the 26th Floor

Is the Kyoto Protocol nothing more than wishful thinking, in practical terms?

In suburban Melbourne I lived a quiet and (although I didn’t think too much about it), very green lifestyle.

I cycled everywhere or else too public transport.  Melbourne is very good for cycleways traversing the city.  And its public transport system of trams and trains is world-renowned.  At one point I used to traverse the city of four million people each morning and evening without seeing a traffic light or a car by following the cycle trail along the side of the Yarra river.

I also ate a lot of fruit and yoghurt, with the occasional pie or beer or meal out at a cafe, and on reflection all of these products were grown and/ or produced in Victoria.  So I was eating locally, food with a small carbon-footprint attached to its transportation.

And finally, my back yard sported a grove of banana trees doing service fixing CO2 out of the atmosphere and a couple of compost bins that turned all my food-scraps into a mulch to retain moisture around the roots of the trees.

Melbourne has an active recycling programme, and almost all of my rubbish was marked with the recycle symbol and went in the yellow bin.  In fact the non-recyclable and non-bio-degradable rubbish generally amounted to less than half of a shopping bag per week.

Without really thinking too much about it, and without much personal privation, I was as green as they come and I imagine that this is true for many a Melburnian, almost effortlessly.  My power generator even offered the option of ‘green power’ to its consumers.

Now contrast that state of affairs with my new life in Singapore.

Here almost every item of food is imported.  It comes a long way to get here.  A lot from Australia, Malaysia and Indonesia, but also quite a lot from Europe and the States.  Either by tanker or by air-freight, all food comes with an associated carbon footprint.  It also comes with a price-tag that is two or three times the price in Melbourne, to cover the transportation and handling along the way.  And generally it comes wrapped in a big PVC casing and then a non-recyclable plastic bag.

Since there is no recycling programme, all of our un-sorted garbage gets wrapped in a shopping bag and thrown down the garbage chute, at the rate of two or three bags-full a day.  There are 30 floors of people using this chute, and on a regular basis carriers come to fumigate it and then take it all away.  Singapore burns its rubbish and then spreads it all on a landfill on Semakau Island.


Add to this the fact that we have the air-conditioner on 24×7 wherever we are, as do most Singaporeans.  And that whenever we want to go somewhere, it is a taxi-ride (they are cheap, government subsidised, to discourage car ownership).  Cycling is far too dangerous, it seems to me.

I estimate that I would need about five of the ‘old’ me, following my old, green, lifestyle, to offset one of the ‘new’ me following my new lifestyle.

I heard recently that there was a watershed point in 2008 when the number of people on the earth living in urban settings surpassed the number of people on the earth living in rural settings.  So  these big cities are the future, and the concentration of population into cities will only accelerate with each passing year.

It seems to me that all that effort living simply and greenly is more-or-less wasted in the face of the bigger problem.  Of course every little bit helps. 

But I suddenly have a lot of sympathy for the people arguing that "We won’t honour our Kyoto Protocol commitments unless China and India do-so first.’ 

There hardly seems to be much of a point otherwise.

Posted in lifestyle | 4 Comments

Q309 Release of Dolphin: On Time, On Budget, No Bugs.

Announcing the third release of our software.  Slated for Q3, and released, on schedule, on the last day of July.
We consider this release to be light-years ahead of the previous release in terms of features, and maintaining our uncompromising high quality. 
It is, however, light years behind the next release (Q409).  Hexagon is on an agressive feature-development arc at the moment.
The main points of interest in this release are:
  1. The Product Road map feature.  This allows our customers to see what is coming down the pike from our development facility.  It also, imporatantly, allows users and customers to enter wishes and ideas for new product directions and offerings.  We see product strategy as arising out of a conversation with our customers and users.
  2. IE8 compatibility.  This actually took quite a long time to achieve, and is not a trivial exercise.  Now that IE has adopted ‘standards,’ we hope that this will help with some of the cross-browser issues going forward.   A quick look at the website in firefox identified a couple of ‘funnies’ but nothing serious.  Shortly the website will be ported to Silverlight, and all cross-browser issues will be addressed by the platform.
  3. Enhancement to the RSS Feed Client to allow the user to expand the page that he/ she is reading, and then shrink it and put it away afterwards.

Those are the main points of interest.  All pages have been given a refresh. 

At  the time of release, Hexagon has no recorded open bugs, as per our quality policy.

At the same time as doing all this.  Hexagon relocated its Head office to Singapore.  There are approximately 500 man-hours in this release, underlying the fact that it is a solid step forward on the road to our goal of delivering good products cheaply.

 Check it out here:


Next Release: Q409

The big push with Q409 will be:

  • To add modern website support features such as a content management system, a user forum, newsletter capability, opinion polls, etc.
  • TheStockPicker application.  This does technical analysis and charting on the daily closing prices for all stocks on the ASX and NZSX.

We have given the development team some big targets for the next quarter.

‘Tusker’ Ryan

Managing Director



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Upcoming Release of JpegSizer 7 from TangoTools

 I’ve just been beta-testing the soon-to-be-released version 7 of this product.

The feature I was looking for was the ability to be able to run all my images through it, changing nothing except the dpi weight.

Doing this I managed to take images in a variety of formats from various sources (including a hi-res camera) and create a stream of Jpegs all at 105 dots per inch, and sharpened up a bit too.

The end result was an Images folder that came down from 30MB to 6MB, and an appreciable uptick in image rendering speeds.

Hexagon Global includes this step as standard in its rollout process.

TangoTools, in Seattle, WA is a small ISV that produces useful tools, (JpegSizer does much more than this).  They offer good value, and have a human face.

Look out for JpegSizer v.7.0 when it is released.

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