The age of the unthinkable

Tim Price

“I saw an interesting thing today. A man was being arrested by the military police; probably an urban guerrilla. Rather than be taken alive, he exploded a grenade hidden in his jacket, taking the command vehicle with him.”

The various men look up as Michael eats his cake, wondering what the point of it is.

 “It occurred to me: the police are paid to fight, and the rebels are not.”

– Michael Corleone (Al Pacino) in The Godfather Part II; screenplay by Mario Puzo and Francis Ford Coppola.

At first sight, the title looks melodramatic; then you remember what we’ve actually lived through. Lehman Brothers, the global financial crisis, perma-QE, zero (and now negative interest rates), the most challenging investment market that anyone has ever seen. In that context, Joshua Ramo’s book “The age of the unthinkable” is aptly labelled.

There are many intriguing concepts in Unthinkable, but that of Deutschlands Geisteshelden is one of the best: a 200 square foot canvas by Anselm Kiefer to which the web is unlikely to do much justice:

“The canvas shows the most typical of German architectural constructions, a Lutheran meeting hall made all of wood. In the perspective of the painting, the lines of the floorboard lead away from the viewer like railway tracks. All along the walls, carefully spaced, are burning oil lamps. Near the base of each, Kiefer has inked the name of a German hero the lamp has been lit to honour. What gives the painting a particularly disturbing tension is what has not yet started but that we sense is inevitable, what you can feel as your eyes lead you along the walls of the monumental hall, from flame to wooden beam and back again: the strange foolishness of so much fire around so much wood. This is a building on the verge of combustion.”

Ramo’s conclusion? This was how:

“The fierce artistic heat of Richard Wagner’s operas transposed so easily into World War 1 Krupp cannon fire. It was the tale buried in the lives of Friedrich Nietzsche’s philosophical überman Zarathustra, Thomas Mann’s soul-peddling Doktor Faustus, and Hitler’s architect Albert Speer, all of whom pursued incandescent greatness without seeming to mind at all what else was singed in the process.”

The heart of Unthinkable is about the value of forcing yourself to try and see the world in a different way. Another key citing has Gertrude Stein and Pablo Picasso in Paris walking home from dinner just after the start of World War 1. A French military convoy rolls past them. But this one looks different – it is splotched unevenly with different colours of paint. Stein wrote later,

“I very well remember being with Picasso on the Boulevard Raspail when the first camouflaged truck passed. It was at night, we had heard of camouflage but we had not yet seen it and Picasso amazed looked at it and then cried out: yes it is we who made it – that is Cubism!”

The first time I read this, I thought: yes, another ludicrously vain self-obsessed artist

with messianic delusions of relevance. But Ramo goes on to point out that Lucien-Victor Guirand de Scévola (imagine the Scrabble score if the game permitted proper names), the inventor of camouflage, really did credit its origins to the likes of Picasso:

“In order to deform objects, I employed the means Cubists used to represent them – later this permitted me to hire for my camouflage section some painters who, because of their very special vision, had an aptitude for decomposing any kind of form whatsoever.”

The oriental perspective on the world is acknowledged as being fundamentally different from that in Europe and the West – see, for example, the infamous response attributed to Zhou Enlai, first premier of the People’s Republic of China in the 1950s, when asked about the impact of the French Revolution: “It’s too early to tell”. Ramo even suggests that Westerners literally look at things in a different way from Asians. Experimental psychologist Richard Nisbett in 2004 performed an experiment with 50 graduate students in which they looked at a sequence of images while an eye-tracker recorded where they looked and for how long. American students typically looked at objects in the foreground: horses, tigers and such. They then spent the bulk of their time concentrating on those foreground images.

The Chinese, on the other hand, usually looked at the environment around the main object first, probing a “realistic complex background” of forest or field, before looking at the focal object. To an extent, Americans were focusing on specific objects to the exclusion of everything else; the Chinese were taking in a much broader picture. Nisbett suggested that

“East Asians live in relatively complex social networks with prescribed role relations. Attention to context is, therefore, important for effective functioning.. Westerners live in less constraining social worlds that stress independence and allow them to pay less attention to context.”

Ramo also suggests that this policy of specific focus ignores much broader and deeper and probably more important constructs – the financial sector bailouts thus far have lavished altogether more attention and capital on failed banks than they have on much more innocent savers and businesses swept up by the carnage of the  Global Financial Crisis.

Not all of Joshua Ramo’s observations are new. Mark Buchanan back in 2000 (Ubiquity) cited the experiments of Per Bak, Chao Tang and Kurt Weisenfeld when they simulated the dropping of sand grains, one by one, onto a table top:

“As the pile grows, its sides become steeper, and it becomes more likely that the next falling grain will trigger an avalanche.. (but) what is the typical size of an avalanche ? …there was no result, for there simply was no “typical” avalanche. Some involved a single grain; others ten, a hundred or a thousand. Still others were pile-wide cataclysms involving millions that brought nearly the whole mountain tumbling down. At any time, literally anything, it seemed, might be just about to happen.”

Sand piles have something in common with forest fires, earthquakes and, for that matter, the stockmarket: they are all connected by what physicists call “power laws”. Throughout nature, systems self-organise to a hypersensitive “critical state”.

The myth, given what we have all lived through since the dawning of the new millennium, is that economies and markets tend toward stability. Rather, we are always and without notice at risk of a sudden and devastating shock to the system. Hyman Minsky is now mentioned almost as frequently as Keynes.

Ramo, somewhat unfairly, equates hedge fund managers with terrorists in this regard. It would be fairer to point the finger either at cynical and rapacious investment bankers, or at the morally bankrupt central bankers who have chosen to keep them in business at our expense. But this is a minor cavil, because The Age of the Unthinkable is a well-written and deeply thought-provoking book.

Perhaps the worst advice I ever received (from a former manager at Merrill Lynch, and both it and him I was happy to ignore) was to specialise. The path of the disciplined generalist is probably easier to follow, less detrimental to career longevity, and certainly more interesting. Perhaps the biggest danger in investing is to focus acutely on the very specific, not least since true certainty is impossible to come by.

To put it another way, it is surely better to be roughly right in general (in matters of investment: asset allocation) than it is to be precisely wrong in the specific (for example: stock picking).

Ramo is right: we do live in a new world order, and it is constantly surprising. Since we are living through a time when the game has utterly changed, it makes sense to play by, or at least to recognise the existence of, new rules. The Age of the Unthinkable acts as a useful primer for those new rules: for politics, for the economy, for investing, and much else besides.

Tim Price is Director of Investment at PFP Wealth Management, runs the VT Price Value Portfolio and writes the London Investment Alert.

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