Review on: Marin Katusa: “The Colder War”

Arthur2014
By Arthur2014 on Sun, Feb 8, 2015 - 7:10pm

Review on:  Marin Katusa: “The Colder War” (2014)

 

Transparent fiction, December 25, 2014

By  Aaron C. Brown

This review is from: The Colder War: How the Global Energy Trade Slipped from America's Grasp (Hardcover)

The trouble with this book begins with the author's incredible biography. He's a mathematics professor who left academia to use his mathematical models for a fund--he doesn't identify this fund--which over the last five years has outperformed the TSX-V by 600% after costs and fees. It's odd that he was a professor since he has only an undergraduate degree--and not in mathematics--and that he doesn't mention his university. He's involved in every energy or mining deal in the world, knows everyone else involved and "knows exactly how to play it." He founded "one of the only companies that ever went from private to public." He regularly rubs "elbows with energy ministers, generals, oligarchs and billionaires all over the world." It goes on like this for quite a while.

Aside from the extreme boastful tone, there are issues with the story. Registered investment advisers and fund managers are not allowed to make wild claims about their success, they must specify the precise fund, time period and other data, with strict rules about format and additional information. The TSX-V is a stock exchange, not an index, it's like claiming you outperformed the New York Stock Exchange, or London Metals Exchange; and it's the successor to the scandal-plagued Vancouver Stock Exchange where most of the microcap mining companies were either total failures or frauds. Lots of companies go from private to public, it's called an IPO. The author is constantly touting stocks on line, but he never discloses any positions in them, which is very odd for a fund manager; also all but two of the recommendations I found went way down after he picked them, so if he made 600% for his fund he's not being fair with his readers.

I found lots more wild stories he tells about himself with an Internet search. Sometimes his fund used advanced mathematical models to trade real estate, other times it funded start-up companies, other times it invested in microcap mining and energy companies. The one constant, over different investment styles and time periods, is they all outperformed some index (or something he thought was an index) by exactly 600%. He never had a 599% or a 601%. Yet for all this varied and spectacular success, he seems to have escaped any registration of any type, at least that I can find; with one exception. The public energy company he was involved with disclosed to the Securities and Exchange Commission all of his material business interests since he graduated from college. No mathematics professorship. No fund management. No deal-making with billionaires and energy ministers. Just two jobs, working with learning-disabled children in Vancouver and editing an investment newsletter. There weren't even employment gaps that could have been used for his university mathematics teaching or fund management or deal-making.

Given the author's confusion about his own background, the book is better than you might expect. The writing is engaging and he does a good job simplifying some complex material. This seems to support the official version of his biography with experience in editing a newsletter and working in childhood education. Unfortunately the content of his book has some major issues.

A big one is he's a nut-job conspiracy addict. He thinks Vladimir Putin ordered the bombings of apartment houses in Russia to justify the second Chechen War; and that the US hired snipers to kill people on both sides of Ukrainian demonstrations to fan the conflict. The US invaded Iraq in 2003, and caused Qaddafi's fall in Libya, because Saddam Hussein tried to sell oil for Euros, and Qaddafi tried to sell it for gold-backed dinars. Pretty much everyone in Europe with a Russian name who died since 1999 was assassinated by the secret remnants of the KGB under Putin's orders.

It's not believing these things that make the author a nut-job. There are murky aspects to all these events and thorough investigations would probably turn up some embarrassing details for some prominent people. But one problem is the author believes them with no evidence at all. He just says them, or attributes them to unidentified parties, or speculates that they seem likely. Another problem is there's no middle ground, no chain of events with misunderstandings and free-agent intermediaries who exceed orders; just massive straight-from-the-top conspiracies that would require hundreds of people to be masterful liars without shreds of conscience, with no hint of evidence leaking out. The biggest problem, however, is illogic. None of the conspiracies make remote sense in a risk/return sense for the participants; and if the instigators really were ruthless and competent enough to do this kind of thing; there are far more logical targets for their Hollywood villainy.

A related problem is a tendency to see monolithic forces. "Washington and the US media" is practically a catch phrase, as if the US media speaks with one voice or always writes what officials want (or, for that matter, that officials are united). Even in Russia, with far more State control, it's not all Putin and puppets. The book is filled with outrageous exaggerations like the US media portrays Putin as a clown and a criminal or all Americans think the Ukrainian opposition are liberal democrats yearning to be free. The author's black-and-white assessments are not even consistent. In WWII, we learn, Ukrainians who sided with the Germans did so out of hatred of Russia only; but today, 20% of Ukrainian-speakers are neo-Nazis (lumping together lots of groups including real Nazis, nationalists, socialists, anti-communists, anti-immigrationists; and more important; hard-core dangerous fanatics with regular people who are annoyed that they're unemployed and their favorite beer hall got replaced with a Halal butcher). The book uses the word "oligarch" for any wealthy person in the former Soviet Union which confuses honest businesspeople with pure cronies and crooks.

Then there is the unabashed Putin-worship. The author's account draws uncritically from Putin's autobiography (really an edited series of interviews given one day in 1999), and ignores far more solid research such as work by Masha Gessen. Yeltsin is portrayed as an ineffectual coward for standing on a tank in 1991, while Putin is a courageous hero for sending troops to scorch the earth 2,000 miles away. In fact, Yeltsin took over a total disaster and engineered a painful but necessary shock therapy, which began paying off after Putin took over. Putin did some good things and some bad things (a lot of the good had been already planned under Yeltsin) and enjoyed the strong growth that resulted from starting from a very low base, having all of the hard structural reforms already done, having old debt written off and some luck with the international economic environment. The growth kept Putin secure and powerful.

When things turned bad in 2008, Putin doubled bets. He pushed huge infrastructure projects that kept employment and reported growth high. The dangers are that he created a lot of leverage, and was forced into some risky international maneuvers. If his projects all pay off, then the leverage is manageable, and he can no doubt sooth international irritation. But if his huge bets fail, the picture is grim. The historical record on this kind of thing is not cheerful.

For example, the author regards building a $100 billion pipeline to another country as giving Putin a "stranglehold" on that country. But it doesn't work that way. In order to recoup the construction cost, you need to pump a lot through the pipeline and charge a high price. But the high price encourages the country to conserve or find alternatives, and it hurts their economy so demand falls. It can even lead to bankruptcy or deposing of the entities you've signed contracts with. You can threaten to turn off the flow, but that renders your pipeline worthless. Even threats make the pipeline less attractive and speed the search for alternatives. It's a double stranglehold. It can be managed, of course, some people have done very well with this kind of investment. But it often fails as well. And Putin is betting on a lot of economically weak countries and insecure authoritarian regimes. And he's betting against technological progress and demographic shifts. Kind of like the old Soviet Union.

I don't mean that Putin is stupid or that Russia's strategy is sure to fail. Massive national investment projects can work, and Putin and others in Russia have learned from history. As the author correctly observes, this scheme has many threads and subtleties. But blind faith in Putin uber alles is not wise for investment analysis.

There is one more major confusion in the book among reserve currency (a foreign currency central banks hold to stabilize their domestic currency), invoice currency (a currency used in international transactions that is not the domestic currency of either the importer or the exporter) and petrodollars (money from energy sales recycled by the international banking system). The author has a wildly exaggerated idea of the importance of a reserve currency, and does not appreciate the difficulties of replacing one. The dollar's role in all three concepts has been declining for some time for long-term reasons of history and technology (with brief reversals during crises), not primarily due to US economic miscalculation. However it seems highly unlikely that any currency, or gold, or cryptocurrencies, will replace the dollar. The author correctly points out reasons why the decline will continue, but attaches far too much importance to that fact.

This author is much better suited to writing fiction than non-fiction, in fact, he seems incapable of the latter. With a little work, this book could be a first-rate geopolitical and economic thriller. In that case, I would praise it for its insight and accuracy. As history, however, or investment advice, it's a one-star book.

 

http://www.amazon.com/review/R34YUNMMH864FL/ref=cm_cr_quotes_dprb_2?ie=U...

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I’m very thankful for this meticulous review by Aaron Brown because Marin Katusa’s book was recommended here in the peakprosperity forum.

(http://www.peakprosperity.com/search/apachesolr_search/Katusa )

At least in contemporary Western societies there seems to remain exactly one cherished stance commanding respect --  namely the critical stance. The critical stance stands for mental maturity, for a mature citizen, for an enlightened person, for critical thinking and so on.

There is absolutely nothing wrong with the critical stance. On the contrary, but a veritable critical stance requires some basic knowledge in logic, a methodology to assess empirical claims (confirming or falsifying a specific claim), and standards for argumentation.

Otherwise people who would like to take the critical stance and who sincerely think they are doing so fall victim to charlatans, confidence trickster, universal conspiracy theories and so on.

Lacking such a methodology and being misled by an universal, unqualified distrust towards science, academia, official sources, mainstream media and so on they unconsciously fall back to credulity. They begin to believe anything as long as it is directed against mainstream.

 

Best regards

Arthur

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