Eugene Linden
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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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The Ragged Edge of the World
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Winds of Change
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Afterword to the softbound edition.


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The Winds of Change

Climate, Weather, and the Destruction of Civilizations Buy from Amazon “In this articulate polemic…Linden draws his conclusion from millennia of historical evidence….The authors passion for the world to comprehend a coming catastrophe helps propel his alarming narrative.” --Publishers Weekly “Relatively restrained in tone, and consequently more persuasive by its sobriety, Linden’s presentation of scientists’ theories on historical climate change will provoke readers concerned about the implications of global warming for modern civilization.” --Booklist “Linden lays out the evidence that climate change is the culprit behind the demise of civilizations….The effect of climate fluctuation on the planet is a hot topic….This text provides a sound orientation to a controversial subject.” --Kirkus Reviews “Hurricanes, floods, droughts, melting ice caps—Nature’s serving them up at what seems like an ever-increasing clip. Which makes this compelling account of the weather’s impact on civilization the book of the moment for all of us. Eugene Linden elegantly weaves history, science, and narrative into a must-read tale of the earth’s most powerful forces.” --Susan Casey, author of The Devil’s Teeth “The Winds of Change is fascinating—a tour de force. Linden has accumulated a greater comprehension of paleo-climatic and oceanographic issues than all but a very few scientists. I have nothing but admiration for this book, which is just what we need right now.” --George Woodwell, founder of the Woods Hole Research Center and former president of the Ecological Society of America “Eugene Linden’s drama is profoundly disturbing, yet strangely enthralling in its grand sweep across human history. He recounts the life and death of civilizations across millennia when the ‘angry beast’ of nature suddenly turned on people and destroyed their settled ways. We are now flirting with our uniquely man-made catastrophe. The danger seems more plausible (and scary) once you learn the true story science has uncovered about the past.” --William Greider, The Soul of Capitalism The possibility of drastic climate change as a result of human activity has been a fiercely debated subject since the 1970s. The science of climate change is still evolving, and its connection to particular weather events is difficult to establish. Yet the enormous damage inflicted on New Orleans and the Gulf Coast by Hurricane Katrina has alerted the public to the dangers of extreme weather as never before. Nevertheless, most Americans assume that if any fundamental change in the climate actually occurs, it will be gradual enough that our society and economy will be able to absorb the impact without any long-term disruption. Eugene Linden, a veteran writer on science and the environment, shakes such complacency to its core in THE WINDS OF CHANGE: Climate, Weather, and the Destruction of Civilizations (Simon & Schuster; February 13, 2006; $26.00). Linden, the author of numerous Time magazine cover stories and acclaimed books including The Future in Plain Sight, contends that climate change is a “serial killer” that has destroyed or at least been a major accomplice in the fall of many civilizations, including the Akkadians of the ancient Middle East; the Assyrians and Minoans of 700 B.C.; the Byzantine, Peruvian, and Mayan empires; and the Vikings of Greenland in the fourteenth century A.D. His investigation of the human consequences of climate change has become possible only in the past few years, as reliable and highly precise data from new scientific techniques has been made available. In his vivid and engaging narrative, Linden presents compelling evidence of specific ways in which a changing climate may have disrupted agriculture, fostered the spread of disease, prompted migrations, devastated economies, undermined the legitimacy of rulers, and started wars. Against this backdrop of the havoc climate has caused in the past, Linden looks at the present and then the future, posing a series of questions. Is climate changing? What might those changes bring? Are we any better equipped than past civilizations to deal with dramatic climate change? WINDS OF CHANGE offers perhaps the most specific evocation yet of the ways individuals, businesses, economies and nations might be buffeted by a climate gone haywire. There is no longer any doubt that the climate is changing. Nearly all the warmest years of the last 120 years since modern records began have taken place since 1980, and the pace of warming only increased during the 1990s and the early years of the twenty-first century. In addition, over the past decade scientists have discovered that previous climate changes were often abrupt and catastrophically severe, rather than incremental, as had been previously thought. In other words, while we have comforted ourselves in the past by thinking that climate change is like gradually turning a dial, the reality is that shifts in climate are more like flipping an on-off switch. Yet scientists’ warnings about the potential perils of climate change have largely gone unheeded, a phenomenon that Linden explores. In part, the answer is that modern humans have had the good fortune to prosper and multiply during one of the most benign climate periods ever recorded. This makes it very difficult for anyone living today to imagine a climate that we could not cope with, since our reference point for climate change can only be the minor variations that have occurred in the near past. But as Linden shows, there is a limit to how many shocks on the order of Katrina, the killer heat wave of 2003 in Europe, or the floods of the 1990s in the American Midwest that even a rich and technologically advanced society can absorb before it spirals into precipitous decline. In December 2004, tourists stood on a Thai beach, gawking at an oncoming tsunami simply because they had never seen anything like it. Similarly, we may be making an equally fateful misjudgment by refusing to react to the coming wave of climate change with any sense of urgency. As a segue between ancient and future climate change, Linden looks at El Niño, a now-familiar event that is not nearly as disruptive as other climate events. Nonetheless, it has had huge impacts on humanity at various times by altering global storm tracks and rainfall patterns. Indeed, some historians argue that a series of El Niños in the late nineteenth century killed more people through droughts and famines than the two world wars of the twentieth century combined. The El Niño of 1997-1998 did more than $100 billion worth of damage to the global economy and killed tens of thousands of people. But when compared with the major climate changes that may be looming in the future, even the most severe El Niño would barely register. After exploring the bizarre politics swirling around the science of climate change, Linden looks forward, and offers one of the most detailed and well-founded analyses of what we may face in the future because of a changing climate. For example, even a moderate climate change – what one scientist calls a “best-case scenario” based on current trends – could reduce available water in the Los Angeles area by 50 percent by 2050. The winter snowpack would be smaller and melt earlier, causing the region to dry up prematurely each year. Eighty-eight percent of the water in California currently goes to agriculture, but some of that would have to be diverted to immediate human needs. Trees killed by drought and insects would become tinder for wildfires like the ones that destroyed hundreds of homes in Southern California in 2003. Diseases liberated by the changing weather could afflict crops, livestock, and even humans, as was the case when El Niños led to outbreaks of the deadly Hanta virus in the Southwest in the 1990s. Linden writes: “Having proven through history that extreme climate shifts are costly if not fatal for past civilizations, our species is busily pushing the climate towards producing extremes never before experienced during modern times. Instead of preparing or trying to avert climate change, people are dismantling natural protections against climate extremes and making changes that will likely amplify the events themselves. The explanation is a combination of a collective failure of the imagination, and belief in the godlike power of markets and progress.” But we have a crucial advantage over past civilizations that were blindsided by climate change, Linden assures us – we can learn from their misfortunes. Like Jared Diamond’s Collapse, Bill Bryson’s A Short History of Nearly Everything, and Malcolm Gladwell’s The Tipping Point, Eugene Linden’s THE WINDS OF CHANGE offers an intriguing history of some of the most calamitous events in history – this time through the lens of climate change. With new evidence of a changing climate emerging almost on a daily basis, and with the advent of cutting-edge technologies that can predict these occurrences and repercussions, Linden takes a hard and timely look at climate’s role in past disasters that will help us understand, anticipate, and avoid coming threats. ABOUT THE AUTHOR: Eugene Linden writes about the environment, nature, science, and technology. He has written for Time, including many cover stories, for almost twenty years, and has contributed articles and essays to Atlantic, National Geographic, The New York Times Magazine, Foreign Affairs, Condé Nast Traveler, The New York Times, The Wall Street Journal, The Los Angeles Times, Fortune, and Slate. He is the author of seven books, including The Octopus and the Orangutan: More Tales of Animal Intrigue, Intelligence, and Ingenuity; The Parrot’s Lament: And Other True Tales of Animal Intrigue, Intelligence, and Ingenuity; and The Future in Plain Sight, which the Rocky Mountain News called “the most important book of the decade.” Linden speaks frequently about nature and the environment and is the recipient of numerous journalism awards. He lives in Washington, D.C. ABOUT THE BOOK: THE WINDS OF CHANGE: Climate, Weather, and the Destruction of Civilizations By Eugene Linden Published by Simon & Schuster February 13, 2006 0-684-86352-9 www.simonandschuster.com Buy from Amazon

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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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