Eugene Linden
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Trump, the Toxic Legacy of the Financial Crisis

Today, the Lost Angeles TIMES published my oped as part of a a package on the first anniversary to Trump's election. Space was limited, so I tho...

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Musings

November 5, 2017

Trump, the Toxic Legacy of the Financial Crisis

Today, the Lost Angeles TIMES published my oped as part of a a package on the first anniversary to Trump's election. Space was limited, so I thought I'd put up the more fleshed out version here: Ten years have passed since the beginning of th... Read More
June 15, 2017

Tiny Country That Tells a Big Story

This oped is something I've been working on for a long time! ... Read More
August 19, 2016

THE OZONE CHRONICLES; HISTORY REPEATING AS TRAGEDY

Joe Farnam, the dogged, data-driven discoverer of the ozone hole, died in 2013, three years before publication of findings showing that the ozone layer, which protects life on earth from UV radiation, has finally started to recover. This nascent recovery ... Read More
November 30, 2015

I'm Not Hopeful About COP21 in Paris

[A version of this appeared Nov. 29 in Yale Climate Connections]     Starting November 30, some 45,000-plus interested parties converge in Paris to try to influence the final form of what is supposed to be a universal agreement among na... Read More
September 22, 2015

Pope Francis in the Lion's Den

Pope Francis will be the first leader of the Catholic Church to address a joint session of Congress.  Take out the name “Francis”, and that sentence would be the subject of universal rejoicing among Catholics. Instead we get this: &ldqu... Read More
July 5, 2015

The Pope Moves the Church

[This essay appeared in the Financial Times on July 3, 2015]   Free market conservatives hate it, it fails to address the threat of overpopulation, and it dismisses carbon credits as a way to combat global warming. Nonetheless Pope Francis’... Read More
May 22, 2015

Everyone Saw This Coming

Twenty-seven years ago, when the world briefly awoke to the threats of global warming and tropical deforestation, scientists could only speculate on what changes might come in the future. Now, one need only look and observe. Nineteen years ago, I went ... Read More
April 8, 2015

PRESENTING THE QUANTUM PANDER

In recent days, Mike Pence, the governor of Indiana has given us a political analogy to Erwin Schrodinger's famous thought experiment in which he posited that there were situations in quantum mechanics where a cat could simultaneously be both alive an... Read More
February 1, 2015

Maybe American Sniper Really is Anti-war

I like a good action movie and I like Clint Eastwood movies and so I went to see American Sniper. I also had a personal interest: decades earlier in Vietnam, I'd interviewed America's top sniper -- a dead-eyed killer nicknamed Papa Leech -- when I... Read More
August 28, 2014

Time Warp on Climate Change

  In yesterday's New York Times, there were two articles on climate change. The first was a front page piece about how President Obama will try to end-run Congressional paralysis on dealing with climate change by seeking to update the exis... Read More
June 20, 2014

Insurers: We're Not Picking Up the Tab for Climate Change

[Note: A version of this musing first appeared in the Los Angeles Times] Well, that took longer than I expected! Twenty years ago, I interviewed Frank Nutter, then and now president of the Reinsurance Assn. of America, on the threat climate change ... Read More
April 10, 2014

VITAMIN C FOR OUR FEEBLE RECOVERY

[THIS ESSAY ORIGINALLY APPEARED IN QUARTZ] As our feeble recovery shambles on, the question arises as to whether the United States economy is being dragged down by forces, some decades in the making, beyond the power of central banks and policymake... Read More
February 15, 2014

BUSINESS DISCOVERS THE COSTS OF EXTREME WEATHER -- THAT'S GOOD NEWS!

        The weather has become the go-to excuse for economists and businessmen who want to explain poor performance. “Unusually, disruptive weather across large stretches of the country kept people indoors,&rdqu... Read More
February 3, 2014

America's Game

Note: I published the following some years back, but every Super Bowl I can't help but wonder what a Martian anthropologist might make of our annual ritual of ceremonial warfare.    As we make fateful decisions during the coming w... Read More
April 12, 2013

Climate Change is Here, Ready or Not. So What Now? Part 2

 So how should we respond? Most obviously, we should stop making things worse. Tax penalties, tax credits, and import tariffs can nudge consumers, producers, and exporters towards reducing emissions without wasting more years on fruitless internat... Read More
April 9, 2013

Climate Change is Here, Ready or Not. So What Now?

Welcome to a warmer, wilder world! We need to stop debating and start accepting that climate change is happening. Eugene Linden on how adaptation and market forces (hint: insurance companies) might temper the coming catastrophe.  This musing ran... Read More
November 30, 2012

SANDY AND THE WINDS OF CHANGE: You don't need a climate scientist to see which way the wind blows

  by EUGENE LINDEN   Even as Sandy underwent its bizarre metamorphosis from hurricane to winter storm, the question arose in many inquiring minds (at least those not beholden to a solemn oath of climate-change denial): Was this hi... Read More
September 17, 2012

IN A WORLD OF UNDERPRICED RISK, WHAT COULD POSSIBLY GO WRONG?

  EUGENE LINDEN   On a recent conference call, the strategist of a major international bank (it was an off-the-record call for clients only) laid out the bare bones of what he called the world’s “giant experiment&rdquo... Read More
October 26, 2011

OCCUPY WALL STREET IS THE TIP OF THE ICEBERG

EUGENE LINDEN           But for the housing bubble that temporarily camouflaged our “winner take all” economy, the resentments that produced Occupy Wall Street might have bubbled to the surface m... Read More
September 9, 2011

Betting the farm against climate change

Global warming is extracting real costs, even in states where the governors are in denial. Footprints mark the bank of a partially dried-up pond near downtown Dallas, Texas August 1. Scorchi... Read More
August 30, 2011

IS OUR BRAND OF CAPITALISM MAKING US STUPID

  Eugene Linden            How can a society that contains so much individual brilliance act so collectively dumb? Does it matter that we know that there is a cliff ahead if we still go... Read More
March 8, 2011

THE BAY OF PIGS: DISASTER AND TRIUMPH

  Eugene Linden   At first I thought it was a version of the granfalloon, the term Kurt Vonnegut invented to describe a striking but meaningless encounter: my brother-in-law, Jim Rasenberger and I both have books coming out withi... Read More
February 3, 2011

THE MATRIX MARKET

Eugene Linden   A well-trodden meme of TV and cinema has been the plot in which someone or something uses tantalizing illusions to sap humans of their will to resist while simultaneously pursing hostile ends. In The Martian Chronicles, the subt... Read More
July 29, 2010

How to Reconcile Julyís Rising Markets with Julyís Dismal Economic News

-Eugene Linden The question has been posed many times recently: Why are the markets rising when the economy seems to be heading back into the tank. Simple, the markets have been going up in part because the economy is going back into the tank. One majo... Read More
February 21, 2010

INSIDE THE MIND OF A CLIMATE CHANGE DENIER

-EUGENE LINDEN     THE SCENE: THE WASHINGTON MALL ON A SNOWY FEBRUARY DAY. BOB AND JOE ARE STANDING IN FRONT OF AN IGLOO CONSTRUCTED BY THE GRANDCHILDREN OF SENATOR JIM INHOFE (R-OK).  IN FRONT OF THE IGLOO IS A SIGN THAT READS: ... Read More
December 4, 2009

THE DECADE IN ONE PAGE

Eugene Linden ē STOLEN PRESIDENTIAL ELECTION! (DEFINITELY Ė FLORIDA!) ē TECH BUBBLE BURSTS, CREDIT BUBBLE BEGINS ē 9/11 ē INVADE WRONG COUNTRY, FAIL TO CATCH/KILL PERPETRATORS OF 9/11, SPEND $1-2 TRILLION WE DONíT HAVE, AMERICANS URGED TO FI... Read More
April 19, 2009

ITíS NOT OVER Ė HEREíS WHY (NO NUMBERS NEEDED)

Eugene Linden THE U.S. CONSUMER IS STILL DROWNING IN DEBT: Job prospects are dire. Households canít pay existing debt, much less get credit. IT WILL GET WORSE: Alt- A/Option Arm resets are just hitting. Commercial Real ... Read More
January 28, 2009

RIP Credit as Money

by Eugene Linden The drumbeat about the Obama administration’s plans to fix the banking crisis has reached fever pitch. Over the past week, what appears to be a carefully choreographed series of leaks has raised expectations that the administrati... Read More
January 16, 2009

COMMON SENSE AT LAST!

We are in the beginnings of the collapse of a fiat currency. Actually, it's the collapse of a type of credit that has been treated as though it was currency, but it's rise and fall closely mimics the natural history of fiat currencies. Back in the 19th ce... Read More
November 8, 2008

PRESIDENTS OBAMA AND PALMER

By EUGENE LINDEN If ever there was a year for a Democratic president to be elected, this was it - a war without end, imploding economy, the most unpopular incumbent in living memory, etc. --but a black Democrat? Even given the revulsion over the mess ... Read More
August 27, 2008

THE SPEECH I'D LIKE TO HEAR ON CLIMATE CHANGE

-EUGENE LINDEN As the presidential campaign enters its final months, here's an unsolicited suggestion: ďAs I stand here today on the shore of Lake Lanier in Georgia, Iím sure that many of you are wondering why Iíve chosen to talk about climate change wh... Read More
June 14, 2008

WHAT HAPPENED TO WHAT HAPPENED

-EUGENE LINDEN Former colleagues and friends hint that Scott McClellan's White House tell-all book, What Happened, reflects the influence of liberals during the editing process. "Something changed," said Ari Fleischer on NPR on May 28, "...parts of the... Read More
January 24, 2008

A REPUBLIC OF BIRDS: THOUGHTS FROM MIDWAY ATOLL

EUGENE LINDEN Iíve been to a number of places where wild animals are trusting of humans, but perhaps none so unlikely as Midway Atoll, smack in the middle of the Pacific Ocean. After more than a century of abuse at the hands of man -- first being slaught... Read More
October 27, 2007

THE ECOLOGY OF TOXIC MORTGAGES

EUGENE LINDEN [This musing ran in July on Huffington Post, but it's quite relevant today as the credit crisis continues to spread] I lead two lives. Three days a week, I'm employed as chief investment strategist for a hedge fund that specializes in di... Read More
June 16, 2007

PEAK OIL AND GLOBAL WARMING

[This is a slightly longer version of an essay that first appeared in Business Week]Eugene LindenWith global oil production basically stalled for the past two years, the controversial prediction that the world is fast approaching maximum oil output is loo... Read More
November 23, 2006

WHAT IF THE CLIMATE SKEPTICS ARE RIGHT? THEN WE ARE REALLY IN TROUBLE!

Faced with overwhelming evidence that climate is changing at an accelerating rate, the naysayers seem to be regrouping around a new meme: yes earth is warming, but humanity is not the cause. One champion of this position is Senator James Inhofe of Oklahom... Read More
September 15, 2006

HE WAS LOST AND NOW HE IS FOUND.

HE WAS LOST AND NOW HE IS FOUND. On Saturday, August 12, we were having a family barbecue in Pelham New York, having just moved up from Washington, DC a week earlier. It was just my wife and our two kids and her brother, his wife and their twins. The ev... Read More
August 9, 2006

Global Warming Slips on Its Ski Mask

Climate change is going to creep up on us. The assault might have started already. By Eugene Linden (7/30/06) I've written a good deal about global warming over the years, but like most people, I still have a hard time envisioning how we will know w... Read More
June 23, 2006

THE LAWS OF PHYSICS FOR BABIES

[Since a number of friends have had babies in recent months, I thought I resurrect this musing on the unique physics of the baby world] THE LAWS OF PHYSICS FOR BABIES Close observation of babies has led me to believe that the infant universe is cha... Read More
April 10, 2006

5 Things To Expect Dick Cheney To Do As Global Warming Intensifies

[Adapted from my contribution to Duck!, a new humorous anthology of advice for Dick Cheney] If climate turns out to be the weapon of mass destruction Vice President Cheney should have been worrying about, he has a problem. Let’s say in the near futu... Read More
March 29, 2006

A climate change of heart

Even Bush's business allies have seen the light on global warming. But he's dug in. A BELEAGUERED president stubbornly insists on staying the course even as his staunchest allies abandon him. I'm not talking about Iraq, but global warming. Here's a c... Read More
March 7, 2006

Bush, Saddam and Climate Change

[I thought I would re-run this from 2003 because it is still appropriate today.] Bush, Saddam and Climate Change: What Might Have Been Wednesday, Jul. 16, 2003 As the hunt for Saddam's WMD begins to look as promising as OJ's search for the real kille... Read More
January 9, 2006

[Itís probably dumb to try and put a humorous spin on the abortion issue and the Alito hearings, but here goes anyway.] -- Eugene Linden Pro-Life group says fire NASA chief By Lamatty HurstwhistleSentinel and Post Staff Writer CAPE CANAVERAL... Read More

Why Corporations Will Soon Embrace Kyoto

This ran in TIME.com a while back under the headline, "Who's Going to Pay for Climate Change." The essay has renewed salience as concerns about changing climate surface once again. By EUGENE LINDEN The Bush administration, so warlike in r... Read More

PLEASE TREAD ON ME (Updated)

A few weeks back, President Bush signed a budget measure that would effectively cut environmental protection spending by the EPA over the next year by about six percent. Score another win for the corporate Browns in their long-standing rivalry with the... Read More

ECONOMIC APARTHEID? Updated

Wall Street is the undertaker beetle of statistics: the markets voraciously consume, digest and then forget the numbers churned out by the keepers of vital economic statistics each week. Every now and then, however, a statistic pops up that g... Read More

HOUSTON, WE HAVE A PROBLEM

Erectile dysfunction is ascendant, so to speak. The Super Bowl displayed a trifecta of impotence potions as the makers of the three main drugs Ė- Levitra, Cialis, and Viagra-- all ponied up millions to advertise. Obscured by the debate about some of the c... Read More

America's Game

Eugene Linden †† As we make fateful decisions during the coming weeks (no, I'm not talking about the Democratic Primaries, but whether to mute the ads or the game during the Super Bowl), we might take a moment to ponder the ways in which football really ... Read More

Bush, Saddam and Climate Change

Bush, Saddam and Climate Change: What Might Have Been Wednesday, Jul. 16, 2003 As the hunt for Saddam's WMD begins to look as promising as OJ's search for the real killers, it becomes tempting to think about what might have been. If only, for instance, ... Read More

Forget SARS. What About the Weather?

Global climate change could have a far greater impact than worries about terrorism or disease Friday, May. 02, 2003 When it comes to evaluating risks, both ordinary people and policymakers tend to be wildly inefficient. Remember that in the 1970s, int... Read More

Iraqu

Deserts briefly bloom...Hungrily, newborn monstersClaw towards the light by Eugene Linden... Read More

BRING BACK THE DRAFT -- BUT MAKE IT EQUITABLE

by Eugene Linden There is one sure-fire way to bring an eerily disengaged American public into the debate about whether to invade Iraq: bring back the draft. In 1971, even though I opposed the Vietnam War and received an honorable discharge from the ... Read More

THE LAWS OF PHYSICS FOR BABIES

Eugene Linden Close observation of babies has led me to believe that the infant universe is characterized by its own physics, quite distinct from particle physics or the Newtonian laws of motion. I welcome and will periodically post suggestions ab... Read More

Now Let Us Praise Fat!

This article ran in Forbes FYI a few years ago. It seems timely again with the ongoing debate about wether fat is good or bad. Let Us Now Praise Fat Historically, there are some good reasons why humans crave a fatty diet by Eugene Linden It is... Read More

Don't Bother Me Honey, I'm Working!

Don't Bother Me Honey, I'm Working! by Eugene Linden It used to be so easy for a husband to justify his working life. He went off in the morning and then returned that evening. What he did during the day constituted "work." While wives, who too... Read More

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Short Take

I’ve just read Black Edge, by Sheelah Kolhatkar, which is about the huge insider trading scam that characterized Steve Cohen’s SAC Capital at the height of its power. I’m going to offer the thoughts it prompted in two parts. The first will delve into the trade itself, and the second will explore the fallout from this insider trading scandal and subsequent events in the market.

Part One:

A good part of Black Edge focuses on one specific instance of insider trading at SAC Capital: Mathew Martoma’s quest for advance knowledge of the results of trials on the efficacy of Elan Pharmaceutical’s experimental drug to halt Alzheimer’s disease. The drug, bapineuzumab, was designed to attack the amyloid plaques that Elan’s scientists viewed as the cause of cognitive decline. In his quest for “black edge” (illegal inside information) Martoma and his compatriots compromised the integrity of the procedures for drug trials and ruined the life and reputation of a distinguished scientist.  Even that wasn’t enough for them. SAC also had access to vast amounts of biotech expertise, both from PhDs on their payroll, and the expert networks they paid handsomely to give them access to researchers with direct access to the studies and trials.

 

In the short run, this inside information paid off for SAC as Martoma’s advance knowledge of the results allowed the hedge fund to reverse a billion dollar position and make a profit of over $180 million versus certain losses of hundreds of millions had they not gotten advance information on a disappointing field trial. In the long run, while Steve Cohen skated, the insider cases led to $1.8 billion in fines, the dissolution of SAC, and jail time for Martoma.

 

In retrospect, it was all so stupid. SAC could have come to the conclusion that Elan’s drug was not going to work without resorting to anything illegal.

 

Instead of deploying all this massive intellectual firepower on getting advance word on the results of the trials, the analysts might have started by asking how solid were the assumptions on which the therapy was based: namely, whether attacking the plaques would halt or reverse the progress of the disease.

 

Even in 2008 and 2009, there were a number of researchers at distinguished universities who questioned that basic assumption. The alternate theory was that the plaques were not the cause of the disease, but rather an analogue of scabbing, the result of the body’s attempt to protect the brain from infection.

 

 In subsequent years, this alternate view has gained some traction, with some now arguing that Alzheimer’s is akin to an autoimmune disease in the sense that as the environment in developed countries has become more antiseptic, protective devices in the brain have turned on the brain itself as the infections they evolved to fight have disappeared. In any events a drumbeat of failed trials with drugs attacking amyloids has discredited this approach. As Tara Spires-Jones, of Edinburgh University’s Centre for Cognitive and Neural Systems put it in an interview with Britain’s Independent, “Most of the trials have been based on the assumption that amyloid is important in causing Alzherimer’s diseas, as opposed to something that happens alongside it. That assumption, I think, is probably wrong…”

 

Even in 2007, SAC’s analysts should have known that many attempts to fight Alzheimer’s by fighting the formation of plaques had failed. Given all the time the fund spent analyzing the drug and trials it must occurred to someone to ask whether Elan was barking up the wrong tree. Maybe someone there did just that, but there’s no indication that the decision makers ever questioned the assumptions upon which the drug was built.

 

Maybe that wouldn’t have mattered. SAC wanted certainty. Clearly, detailed advance knowledge of the results of a field trial is more compelling than a dissenting theory on the nature of the disease. Had SAC questioned the assumptions of the study, they never would have amassed a position in Elan, and they probably wouldn’t have had sufficient certainty to short the stock prior to the results being announced.

 

What can be drawn from this? There are implications about the pressures of the markets – SAC employees felt that had to cheat to maintain performance – but there are also implications about the culture of world of investing.  Alzheimer’s is a horrifying disease, but the book makes a strong case that neither Cohen, nor anyone else at SAC, gave a rat’s ass whether the drug worked or not; they only cared about knowing the results before anyone else and about how other traders would view the data when it came out.  The same probably applied to every other fund playing Elan.

 

It isn’t news that the markets are amoral, but this amorality has real world consequences. The punishment the market meted out to Elan (and other companies with failed trials) makes all but the largest companies risk averse about investing in therapies for difficult diseases. There is a short-term logic to this from an investor’s point of view, but, increasingly, the market sets research priorities, and the market’s priorities – controlling costs and maximizing short-term profits – may not serve the needs of society. Researchers know that breakthroughs often come from learning from failed previous attempts.  So where will breakthroughs come from as fewer and fewer companies risk failure?

 

Part Two:

 

Further thoughts on Black Edge by Sheelah Kolhatkar

The insider trading scandal at SAC confirmed a widely held suspicion among ordinary investors that Wall Street is a rigged game where powerful players can cheat with impunity.  Regardless of the truth of that suspicion, the widely held perception that this is the case has had its own reverberations. In a delicious irony, one of the derivative effects of the market crash and subsequent insider trading scandals has been to make more likely a future in which black edge is less useful.

 

Bear with me.

 

What happened with Elan revealed a contradiction at the heart of the markets. SAC was driven to seeking black edge by the ruthless competition of the markets. In the minds of their analysts and portfolio managers, access to publicly available information wasn’t enough because competing funds had their own PhDs pouring over the same information. Moreover, competing funds also had access to the same expert networks (which might be viewed as “grey edge”) as did SAC.

 

In such a situation, we’d expect that different analysts would take different perspectives on the prospects of the drug and the trials. I would have expected that at least some analysts would question whether the assumptions behind the drug were correct. The market says that wasn’t the case. Rather the hedge fund world was massively longs before the release of the trial results, and Elan’s subsequent 66% price drop suggests that the herd mentality applied on the way down too.

 

So market efficiency drove SAC and some others to seek black edge, while the subsequent drop exposed a herd mentality and deep inefficiency that made the market anything but a black box that continuously adjusts prices for all information.

 

The result for the markets is analogous to the evolutionary theory of punctuated equilibrium: markets will proceed smoothly until some event produces rapid change. Because, as the crash of 2008 demonstrated, the big price-change inducing event can come from any number of directions inside or outside the economy, many investors are giving up on analysis of individual stocks and moving to passive investment funds and ETFs. The size of this shift is staggering. The amount of managed money in passive strategies has risen from an estimated 6% in 2006 to as much as 40% today (these figures vary depending on definitions of what a constitutes passive strategy).

 

That latter figure may be larger given the relationship between value investing and money moved by algorithms and quantitative strategies.

 

Quantitative types try to beat their peers by focusing on changes in pricing or volatility, and/or seeking an edge through speed and data crunching, rapidly identifying anomalies, and then trading at warp speed. Many hundreds of billions of dollars now take this route into the markets. And results have proven that this approach can work; some of these funds have done fabulously well.

 

So, stepping back, it becomes clear that the trillions of dollars invested through passive strategies and ETFs basically piggybacks on the decisions of active managers relying on traditional analysis of individual companies and sectors. Moreover, the hundreds of billions of dollars of money invested in quantitative, momentum, derivative, and volatility strategies, also piggybacks and even amplifies, the decisions made by traditional investors as those decisions become evident in price movements.

 

So the response to the pain inflicted by past booms and busts and insider trading scandals has created a situation today where the huge amounts of money moves in sync with an ever smaller base of active managers. Value investing based on analysis of individual companies has become an ever-smaller tail wagging an ever larger dog.

 

Perversely, this, in turn, has created a situation where in the next crash, Steve Cohen, the quant and momentum funds, and even the Warren Buffets will ultimately have no edge. All it will take to set the next crash in motion is for a fair number of investors to say, “gee I think I should shift more to cash.” Then the passive investment funds will be forced to sell, and they will sell regardless of the merits of any individual stock. This will cause volatility to rise and the billions of dollars of investments tied to volatility will also start selling, and as this is happening, the algorithmic traders, the momo guys and the others looking for direction to exploit will jump in juicing the sell off.  The trigger might be some external event, or something as banal as a simple change in mood, but no insider will have any better insight as to when this occurs than anyone with access to a newspaper.

 

As a coda, it’s worth noting that Steve Cohen has now been cleared to manage other people’s money. At the end of Black Edge the author quotes a savvy market player as saying that the day Cohen could do that, money would come pouring in. Well, according to the New York Times, that day is here and money is not pouring in. Maybe this is because his fees are too high, or because the insider trading scandal has made him tainted goods. Or maybe, it’s because investors doubt that he can achieve his former results without black edge.



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