The Interactive Investor
Genesis Book I
1. In the beginning God created the heavens and the earth.
2. And the earth was waste and void; and darkness was upon
the face of the deep: and the Spirit of God moved upon the
face of the waters.
3.And God said, Let there be light: and there was light.
4. And God saw the light, and it was good: and God divided
the light from the darkness.
Genesis Book III
(But, came the serpent who said)
5. for God doth know that in the day ye eat (the forbidden fruit…), then your
eyes shall be opened, and ye shall be as God, knowing good and evil.
(And then came the angry God - before the Covenant)
19. in the sweat of thy face shalt thou eat bread…for dust thou art,
and dust shalt thou return.
The Renaissance painter Giovanni di Paolo (Sienna, 1403-1482) created an altarpiece that depicted the founding story of the Judeo-Christian tradition: the creation of the universe and the expulsion of Adam and Eve from an orderly paradise into a world of disorder. We think the Western tradition has been an endeavor to recapture this lost order; but as the theologian Reinhold Niebuhr wrote after W.W. II, some efforts at this have been premature, assuming “…an easy resolution of the tension between individual and community, or between classes, races and nations…derived from a too optimistic view of human nature.” 1 We consider politics, global economics and modern science from this perspective.
Since W.W. II, the world has been organized into border-defined nation-states. This order has more-or-less kept the overall peace. Some situations, however, are problematic. According to Professor Priva Satia of Stanford,”…while they dreamt federal dreams (then), the British practice of drawing hard lines to divide peoples acquired new force and purpose. Partition was asserted as a solution to political conflict between different groups across the empire – the division of Ireland in 1921 as the price of independence (Northern Ireland remaining within the United Kingdom) became… a similar ‘solution’ for Palestine in the 1930s. By the 1940s, partition was a standard part of Britain’s decolonization toolkit.” 2 Add to this the partition of British India into Hindu India and Moslem Pakistan, and the partition of the Pashtun tribes between Afghanistan and Pakistan, the latter seeking control of its western frontier against India…you have the origins of big problems.
In August, 2021 the U.S. withdrew all presence from Afghanistan, leaving a fractured situation consisting of tribes, the Pashtun being the majority, the Islamo-fascist movements of al-Qaeda (aligned closely with the Taliban, and the original reason for invading Afghanistan after 9/11) 3 and ISIS (the enemy of the Taliban), and the escaping inhabitants of the modern nation that the U.S. had been trying for twenty years to stand up. It is now obvious, in spite of the immense sacrifice of blood and treasure, it was impossible for the U.S. to realize a vision of a modern, integrated nation upon such a tribal and extremist base.
Many of those fleeing the Taliban are from this world, people with modern careers and professions. “Civilization: The Way We Live Now” (Ewing and Roussell, 2018) is a book of photographic images of the globalized world that exists now from New York (GMT -5) to Dubai (GMT +4). For us, the image that best captures the resulting ceaseless activity was taken at the Zurich airport.
Underlying the long supply chains and just-in-time delivery is the spread of the globalized market system and the mobility of capital. The owner of capital gets both lower labor costs and larger markets by investing in the developing world (a 2fer). But such a system favors people in the developed world only as consumers (who get lower costs) rather than as producers (they and their descendants must then move to lower productivity growth services and can experience large trade deficits). Put very simply, the U.S. is losing its comparative advantage in the manufacturing industries leveraged to the progress in science and technology.
This shift to services emphasizes another trend, urbanization. Cities are where new ideas and services incubate. The Civilization book notes, “At the simplest level…civilization means living in cities. And living in cities means a people having achieved a mastery over their environment that permits them to do so - i.e. with most inhabitants freed from making food and therefore available for other specialized tasks, the undertaking of which propels the civilization to more complexity and more mastery in a virtuous cycle – were it not for the inevitable overreach…4 “For better or worse, cities are our collective future. The 21st century has seen the long history of rural dominance come to a definitive end. For the first time in millions of years of human existence, more people now live in urban centres than outside them. The city is literally and figuratively a machine for manufacturing social complexity. The ever-vaster urban organisms we see now in the world are not only passive hives of comfortable living, but also active hives of learning, producing and thinking.” 5
In the developed world, particularly in the U.S., this affects income distribution (guess where all the income growth is) and the politics (the predominantly rural Republicans are now trying to lock in their demographically diminishing political power by changing the electoral system). The world had seen a comparable combination of national political gridlock and grass-roots discontent, emanating from W.W. I, in Germany’s Weimar Republic (1918-1933).
The traditional U.S. response to the excessive concentration of power has been government-sponsored diversification, spreading the wealth around, as with antitrust policy or the establishment of the land-grant colleges to develop the states even during the Civil War. Except when a common peril exists, diversification is a good idea. But the scope for this is decreasing with common threats of climate change and plague, affecting all, and ideological polarization, with the state used by some to realize values more appropriate in a theocracy.
The culture of the Weimar Republic contributed nothing to political theory; but did contribute much to science, quantum mechanics. As opposed to the world of Newtonian classical certainty, quantum physics (proceeding out of that uncertain world) has resulted in modern communication systems (and your iPhone). Quantum mechanics is a real challenge to everyday logic and challenges all to explain the real nature of the world.
Science is the exact opposite of pure mathematics. Pure mathematics is deductive; science is inductive, proceeding from the world as determined by experiment to some more general truth, with randomness the alternative hypothesis. In the physical sciences there are three basic and contradictory theories. These theories contradict, but they are not at the same level; context really matters:
The Very Big General Relativity – Einstein. Describes gravity as a
property of the curvature of a single variable, spacetime.
Theory was confirmed when Sir Arthur Eddington
measured the deflection of starlight due to the
gravitational field of the sun, during a total eclipse in
1919. The theory was further confirmed by radio
telescope measurements in the late 1960s. 6
The Ordinary World Classical Physics – Newton. Forces result in motion.
The second laws states that F=ma. This law is confirmed
every day by countless simple physics lab experiments and
many engineering projects.
The Very Small Quantum Physics – Planck et al. The fundamental
properties of small particles such as energy and spin
are restricted to discrete values. These assumptions
(and some others) result in solid state electronic devices.
The Bell Theorem holds there are no classical alternatives
to quantum theory at this scale. In particular, related
(entangled) electrons (later light photons) arbitrary
distances apart will have instantaneous correlated spins
predicted by quantum mechanics. This theorem was later
verified by experiment at UC Berkeley and at cosmological
scale by a team from the University of Vienna. 7
Although the quest for a theory of everything continues, these examples illustrate that even in science, you have to choose the appropriate analytic tool appropriate to the situation – considering the context of the problem. No one is trying to design an iPhone according to Newtonian physics. This applies to any human endeavor, and it ought to apply to U.S. politics when public health, safety and future are demonstrably placed at risk by untested beliefs and inapplicable cultural ideologies. Obviously, the Covid-Delta variant doesn’t care about anyone’s culture.
There is, finally, the applicability of quantum mechanics to the even much more complex biological sciences. In “Life on the Edge, the Coming of Age of Quantum Biology,” McFadden and Al-Khalili (2014) of the University of Sussex significantly note that scientists can only create life from other life, and attempts to create life directly from inert materials (by electric sparks, in an atmosphere rich in organic chemicals) fails. What the experiment produced, however, was only “…blackish-brown gunk…any specific chemical, such as an amino acid (a constituent of proteins), tends to react with so many other different compounds that it then gets lost in a forest of inconsequential chemical reactions.” 8
It would therefore be surprising if some life processes did not also take advantage of efficient quantum physics, since it is available. The authors envision three levels of reality: the layer of Newtonian mechanics, a thermodynamic layer of random thermodynamic jostling that keeps a cell in connection with the quantum world, that then proceeds according to its orderly rules. 9 “…life is a system dominated by order that goes all the way down, from highly organized whole organisms through the stormy thermodynamic ocean to the quantum (and efficient) bedrock below…” 10
· Enzymes speed up biological activity.
(Klinman at UC Berkeley amassed evidence that quantum tunneling
occurs at room temperatures in a long list of enzymatic reactions.) 11
(A photon of light knocks a magnesium atom’s electron out of orbit.
The electron has a limited time to reach a proper reaction
center. It therefore performs a quantum walk, a wave of probabilities
being in multiple places at the same time, to complete its journey.) 12
Quantum physics is highly nonintuitive, but it works very well.
American and the world are essentially technological civilizations, of which research into the basic sciences is key. By the end of W.W. II, the U.S. had developed the technologies of radar (later enabling a large-scale commercial airline industry), jet engines, television networks, microwave communications (and radar that melted an engineer’s chocolate bar resulting in the microwave oven), cathode ray tubes and the predecessor of solid-state computer memory that was threaded through the very expensive early electronic calculators.
But now recall economics and competitive markets, which tend to commoditize everything. “…investing in basic science – discovery for the sake of discovery – did not make sense as a private-sector priority, and there was no money in it. The private sector was very good at what it was supposed to do: making profits and investing the proceeds in developing new products that seemed likely to generate future profits….In modern America…universities (and research institutes) lead the way on basic science.” 13
In 1944, FDR (who looked ahead in such things) inquired of Vannevar Bush, then head of the wartime Office of Scientific Research and Development and former dean of MIT’s School of Engineering, of postwar science policy. In “Science the Endless Frontier,” he replied about basic research:
Basic research is performed without thought of practical ends. It results in general knowledge
and an understanding of nature and its laws. The general knowledge provides the means of
answering a large number of important practical problems, though it may not give a complete specific
answer to any one of them. The function of applied research is to provide such complete
answers. The scientist doing basic research may not be at all interested in the practical
application of his work, yet the further progress of industrial development would eventually
stagnate if basic scientific research were long neglected….Publicly and privately supported
colleges and universities and the endowed research institutes must furnish both the new
scientific knowledge and the trained research workers. 14
“Jump Starting America (2019)” cites 102 potential tech hubs around the United States tied to universities. The U.S. has dozens of cities that 1) have large and highly educated and entrepreneurial populations 2) strong educational institutions and 3) a good quality of life. 15 The authors note, “If we devote an additional half of one percentage point of GDP to research funding - roughly $100 billion per year - we would return public funding to its level in the 1980s.” 16 A venture capitalist has noted that we are, “eating our seed corn”, with our reliance on technologies developed decades earlier.
We began this essay with the expulsion of Adam and Eve from an orderly paradise into a world of disorder. However, another way to interpret this story is their expulsion into a world of freedom, where they could choose and persevere on the path to take. It is, of course, necessary to choose a path well – where context also matters.
The context for your investment philosophy is you; whether you are, by nature, an investor or a trader. An investment philosophy, in banking or otherwise, is really necessary to avoid large losses. Don’t switch signals, and beware those who are all over the place.