URSABLOG: Brain Waves


I have two types of recurring dreams when I am stressed out. One is when I am taking my final exams at college and I realise I don’t know anything. This isn’t so much a dream as a suppressed memory; it actually happened. The other is when I am playing football for Liverpool. Everything is ok: I come on the pitch with the rest of the players in the sparkling all red strip, I acknowledge the applause of the crowd, and start playing. After a while however someone shouts out:


“Look! He can’t play! He’s useless!” Suddenly the rest of the crowd joins in, the other players won’t pass the ball to me, so I am taken off the pitch in disgrace five minutes later. Depending on how stressed I am, I am playing in midfield, defence (more stressed) or in goal (most stressed). Never, funnily enough, as a striker. This is a classic “fear of being found out” dream, where the subject, me in this case, is found out to be pretending he or she is something they are not. Apparently this is quite common, but nevertheless it is unnerving when it happens to me.


I had that dream earlier this week, but there was a novel variation to it. I was put in goal half way through the first half, and was naturally terrible, but as the game went on, I got used to it, and gained in confidence.


The stress is of course related to the capricious nature of the shipping gods which is making the life of my clients, and by extension mine, challenging at present. So I have been trying to find some relief in looking at the nature of cycles, trying to find some solace in economic karma, you know, what goes around comes around etc.


I started by reminding myself of Kondratieff: he was not however interested in cycles, but waves, and his long wave theory has become a mainstay of economic history. He discovered that there werelong wave cycles of economic activity, lasting 45-60 years. This theory is still a mainstay of economic theory, I guess because it is nice and neat. But it was not meant as a predictive tool, and in any case did not mention anything about the great innovations of the 18thand 19thcenturies: the steam engine, iron and steel, railways, electricity, and chemical technology.


The main problem with his theory was that even though he was a communist, living in the Soviet Union, his theories did not support the hope that the capitalist system would collapse die to the great depression of 1929 onwards. Further he advocated the retention of some market oriented structures in the face of massive and recurring famines in the Soviet Union, caused, depending on who you read, on communist and collectivist policies, revenge on Ukraine, natural disaster or good old fashioned incompetence. Either way, Stalin was not, as you may imagine, receptive to his views and Kondratieff was sent to Siberia for anti-communist agitation in 1930 and sentenced to death and executed on the same day: 17thSeptember 1938.


Kondratieff was not the first to look at why crises (and booms) happen. In 1871 William Stanley Jevons, the father of Neo-Classical Economics, published hisTheory of Political Economy, a quantitative analysis of the feelings of pleasure and pain. Jevons was comfortable with numbers; started his studies at University College London with pure sciences and mathematics. His book, a manifesto against of the classical school of economics of Adam Smith and David Ricardo, caused a complete re-evaluation of economic theory.


Like many people at home with mathematics, he felt that numbers could explain everything, and decided to focus on were the recurrences of economic crises. If economics could not explain crises, and then detect and predict them, it was not a complete theory, and therefore not a science. He came up with a theory: sunspots. He became determined to link periods of sunspot activity with economic crises, and started computing statistics to prove this. Unfortunately the numbers refused to match his theory, so he widened the data base wider and wider, firstly to the whole of Britain, then to the British Empire, and elsewhere. Still it would not match. So in the end, rather than accept that his theory was rubbish, he decided that it was down to observational error.


This is where things started going a bit weird. As well as calling for direct observation of the sun, he called for a study of the planets:


If the planets govern the sun, and the sun governs the vintages and the harvests, and thus the prices of food and raw materials and the state of the money market, it follows that the configurations of the planets may prove to be the remote causes of the greatest commercial disasters.


Well, you may as well just call your local astrologer and be done with it. If anyone’s interested, I’m a Cancer by the way.


Astronomers, the scientific side of star gazing, were for a long time tried to work outthe three-body problem. This involved taking a data set (position, masses, velocities) of three bodies, say the Moon, the Earth, and the Sun, and then determining their motions. Newton, who discovered gravity, couldn’t work it out, and so it remained unsolved until quantum mechanics came along. If we can’t plot the likely courses of planets, which are pretty solid and stable things, how can we plot the economic interactions of human beings and their role in economic crises?


This is not to say that we should therefore dismiss the concept of cycles altogether, especially in shipping. They are absolutely necessary for the market to work, to co-ordinate supply and demand which are always looking for a (no cost and therefore no-profit) equilibrium. And as Martin Stopford points out in his essentialMaritime Economics, cycles look like waves, with their peaks and troughs. The different stages of these waves are episodic, and there are no rules about the timing or length of them. No-one knows what will happen.


I know people who have readMaritime Economics(analysts mainly) who have then taken his idea of a seven (or is it four?) year shipping cycle as a template to predict the future. Leaving aside the impossibility of trying to reconcile fundamental supply and demand of commodities with the supply of the fleet, and all the attendant risks of time and geography that go with it, as Stopford says, the template doesn’t fit anyway. We should listen to him.


I am currently reading a brilliant book calledThe End of Theoryby Richard Bookstaber, discussing the human reasons behind economic crises. I have not finished it yet, and no doubt will be mentioning it again in the future. But in discussing problems of computational irreducibility (i.e. things that cannot be predicted through mathematics), he says “the world cannot be solved; it has to be lived”. I found some comfort in this assertion for my personal life too.


We say markets sometimes act irrationally, usually when other people act differently to how we would, or frustrate what we are trying to do. We can only judge whether any of our actions is unwise in retrospect. Even though we should know that alternating whisky and tequila shots will not end well, we will still say it seemed a good idea at the time. We have to live through it to truly know.


I think the half open window for investment in the dry bulk market I have been discussing here recently is now closing rapidly. Perhaps the reason why this week was frustrating and unsuccessful for me was because I know I am living through my own predictions. The freight market could rise again, which would justify values, and cause further increases. I don’t know, but chasing prices ever higher just to get a deal done seems in some way to me irresponsible. Maybe I’m too sensitive; I am a Cancer after all.


I’m still not entirely sure what my dream earlier in the week means. Maybe I have come to see stress as more positive than destructive; it can lead to self-improvement rather than despair. The fear of being found out is being replaced by the confidence to act. I suspect my subconscious is trying to tell me that I should trust my instincts. However I don’t think thatFreudian Shipping Investment: Interpreting Dreams in the Sale and Purchase Marketwould shoot to the top of the Best Seller lists, and rightly so.


Shipping cycles cannot be predicted, but they do have to be lived through.  Investments at any stage require different balances risk and caution. I am more “risk off” now than I have been for some time, but I am just the broker. But just as I managed to stay on the pitch in my dream, I will keep playing the S&P game. After all, it’s not over until the final whistle.


Simon Ward