Specious Argument

A month ago, I forecasted West Texas Intermediate (WTI) to range between $72.50 and $82.50 per barrel for January. WTI has exceeded the upper end of my range for a substantial part of January. So for February, I am increasing my forecast by ten dollars per barrel to range between $82.50 to $92.50 per barrel.

Oil inventories remain tight and OPEC+ has not been keeping up with its pledges of 400 thousand barrel per day increases every month. As the northern hemisphere swings toward spring and summer, I expect even more pressure on oil.

As mentioned last month, Omicron is still an issue but appears to be a fading issue, and it is not likely a significant factor in looking at oil prices for next month. The Ukraine situation is a significant factor, though. I suspect that some portion of increased oil prices is the result of increased geopolitical tensions. If tensions escalate further, I expect oil prices to either remain stable or go higher. And if there is an invasion of Ukraine, I expect oil prices to rise significantly higher, perhaps to $100 per barrel. Of course, I hope an invasion does not happen. Aside from direct human suffering, there are more than enough domestic and global challenges that need to be addressed by all of us without having more divisions and distrust.

On the flip side, Iran negotiations are heating up. Should the US and Iran reach an agreement allowing Iran to export its oil, that would negatively affect oil prices, at least in the short term. Many suspect that all along Iran has been exporting significant amounts of oil to China. It is difficult to predict how much additional Iranian oil would be exported, how much the additional volumes would affect oil prices, and for how long.

In last month’s post, I mentioned that all negotiations are fraught with high degrees of uncertainty. Although many pundits opine with great certainty, I am not one of them. I do not have sufficient historical and detailed knowledge of the issues. Although I have my own personal thoughts and opinions, even I do not place much weight on them and am willing to radically revise my thoughts and opinions in a heartbeat.

I am surprised by the market turbulence apparently caused by the upcoming Fed rate increases. While I expected some movement, I thought the market would absorb the news with less volatility.

My forecasted range of $82.50 to $92.50 per barrel is premised on maintaining the status quo. If the Iranian negotiations are fruitful or Ukraine is invaded or a political compromise is reached, then my forecasted range is no longer applicable. Like everyone else, I am watching and reading as much as possible.

I recommend Steven Pinker’s book (Amazon affiliate link) Rationality: What It Is, Why It Seems Scarce, Why It Matters and give it a five-star rating.

I am going to create a fictional medical situation and ask you to estimate the odds of a person being truly sick.

Let us assume for a moment that there is a new disease where 0.5 percent of the population is afflicted with the disease. If a random person not exhibiting any symptoms tested positive using a blood test, what are the odds that that person is truly sick knowing that the blood test has the following attributes:

• 98 percent of the sick people being identified as sick (true positive reading)
• 2 percent of the sick are falsely identified as okay (false negative reading)
• 95 percent of the healthy people identified as healthy (true negative reading)
• 5 percent of the healthy people being identified as sick (false positive reading)

Remember, this test is 98 percent accurate in identifying those that are sick as being sick. The answer of how many are truly sick may surprise you: it is about 9 percent.

To determine the 9 percent answer, we need to calculate the true positive readings and the total number of positive readings, which is false positive plus true positive readings.

For illustrative purposes, let us assume a total sample population of a million people.

False positive readings are calculated as follows: total sample population times percent healthy times false positive readings or 1,000,000 times 0.995 times 0.05 = 49,750 people.

Similarly, true positive readings are calculated as follows: total sample population times percent sick times true positive reading or 1,000,000 times 0.005 times 0.98 = 4,900 people.

Total positive reading = 4,900 + 49,750 = 54,650 readings.

Then, true positive readings are divided by total positive readings or 4,900 / 54,650 to get about 9 percent.

Figure 1: Probability Tree

Please see figure 1. To enlarge the figure, click on it.

If this Bayesian theory example piqued your interest, then Rationality will be an interesting book for you to read. It discusses Bayesian theory and other similar statistical topics.

At the end of the book, Steven Pinker tells us why rationality matters. In short, if we want to progress as a society, we need to make rational choices.

I have always enjoyed these types of topics and therefore enjoyed this book and recommend it to those of you who enjoy similar topics.

As an aside, on his blog, David Epstein wrote an excellent article “Here’s How to Understand What a ‘95% Accurate’ Test Is Actually Telling You.” There, he references two good sources: one, the New York Times article “When They Warn of Rare Disorders, These Prenatal Tests Are Usually Wrong”; and two, JAMA Internal Medicine article “Medicine’s Uncomfortable Relationship With Math: Calculating Positive Predictive Value.” What is surprising is that the medical field itself has challenges with understanding Bayesian theory.

Books written about our brains tend to be complex and hard to understand. The Molecule of More: How a Single Chemical in Your Brain Drives Love, Sex, and Creativity–and Will Determine the Fate of the Human Race is different. It is easy to understand, entertaining, and informative. Those two qualities make this book (Amazon affiliate link) an outstanding read.

The main focus of the book is on one of the brain’s chemicals: dopamine.

Dopamine is a chemical that our brain uses when we want more of something now or focus more on abstract goals, needs, wants, or desires in the future.

As soon as we want something, our dopamine brain circuit kicks in and starts pumping dopamine, a feel-good drug. Dopamine remains as long as we are in pursuit of that something, but once we have obtained our goal, dopamine drops off and we need find something new to pursue to keep that dopamine high. If we are fortunate, though, our brains transition from dopamine to the Here and Now molecules.

Dopamine is one of the instigators of love, the source of the spark that sets off all that follows. But for love to continue beyond that stage, the nature of the love relationship has to change because the chemical symphony behind it changes. Dopamine isn’t the pleasure molecule, after all. It’s the anticipation molecule. To enjoy the things we have, as opposed to the things that are only possible, our brains must transition from future-oriented dopamine to present-oriented chemicals, a collection of neurotransmitters we call the Here and Now molecules, or the H&Ns. Most people have heard of the H&Ns. They include serotonin, oxytocin, endorphins (your brain’s version of morphine), and a class of chemicals called endocannabinoids (your brain’s version of marijuana). As opposed to the pleasure of anticipation via dopamine, these chemicals give us pleasure from sensation and emotion. In fact, one of the endocannabinoid molecules is called anandamide, named after a Sanskrit word that means joy, bliss, and delight.

According to anthropologist Helen Fisher, early or “passionate” love lasts only twelve to eighteen months. After that, for a couple to remain attached to one another, they need to develop a different sort of love called companionate love. Companionate love is mediated by the H&Ns because it involves experiences that are happening right here, right now—you’re with the one you love, so enjoy it.¹

Addictions, such as alcohol and drugs, trigger a dopamine release. The faster dopamine release, the more addictive the drug. Different drugs, of course, have different strengths and absorption rates. The addiction is caused by a chemical cultivation of desire or wanting. Whether this wanting is good or bad is irrelevant. And addiction should not be viewed through a moral lens of weak character or lack of willpower. Instead, it is a chemical addiction that is difficult from which to break.

Dopamine can make people act in strange ways. For example, although dopamine causes people to want more of everything, including power and domination, people can put aside their immediate desires for longer-range goals. By being more pleasant, people can often get more cooperation and work from others over the longer term.

Creative and mental illness often require abstract ideas, needs, wants, or goals. Dopamine figures prominently in both. And not surprising, mental illness afflicts a high percent of creative people compared to the general population. Various medications for mental illness seek to control the way dopamine works within the brain.

Scientists and artists have more in common than many believe.

The fine arts and the hard sciences have more in common than most people believe, because both are driven by dopamine. The poet composing lines about a hopeless lover is not so different from the physicist scribbling formulas about excited electrons. They both require the ability to look beyond the world of the senses into a deeper, more profound world of abstract ideas. Elite societies of scientists are filled with artistic souls. Members of the U.S. National Academy of Sciences are one and a half times more likely to have an artistic hobby compared to the rest of us. Members of the U.K. Royal Society are about twice as likely, and Nobel Prize winners are almost three times as likely. The better you are at managing the most complex, abstract ideas, the more likely you are to be an artist.²

I found the discussion on politics interesting and complex, but I will let you, my kind reader, find out for yourself.

Not surprisingly, dopamine is also helpful for adventurers because they are not satisfied with the status quo of their current environment. The authors discuss how people migrated from Africa to across the globe and what role dopamine played.

In the last chapter, we learn that to be happy, people need to focus on the here and now, not the future. Therefore, to lead a happier life, we need to temper our insatiable hunger for more and learn to appreciate what we have now. In reality, we need both the drive and ambition that comes from dopamine to make progress, and we need to enjoy and appreciate what we have accomplished.

To reiterate, I thoroughly enjoyed this book and highly recommend it.

One of my goals for the New Year is to read at least thirty books and write a brief book review afterward.

My reviews will typically only be a paragraph or two. To write longer, a more detailed book review requires a lot more effort. Once I have finished a book, I want to move on to the next one, not spend several hours writing a review.

Furthermore, I expect most of my ratings will be five stars. When reading, I am not looking for perfection or riveting information on every page. Instead, if I can come away with one good idea, something that I never knew before, or am forced to reevaluate a current belief or bias, then I will consider my time reading well spent. I got this idea of what constitutes success from Alex Honnold in a Harvard Business Review article “Life’s Work: An Interview with Alex Honnold.” Alex Honnold is the free solo climber who conquered the 3,000-foot ascent of El Capitan, in Yosemite National Park.

Is the way you train—memorizing and rehearsing your plan—typical?

Visualizing how you’re going to navigate a difficult section is pretty common. Where are my hands going to go? Where should I place my foot? Even recreational climbers in gyms make plans for themselves before they leave the ground. With free soloing, you’re both remembering or anticipating how to do certain climbs and trying to imagine the emotional component. What will it feel like to be up high in a crazy, contorted position without protection during a difficult stretch? When I’m not climbing, I spend most of my time reading books about training, psychology, and performance. If I get one good idea from one book, that’s a success.

As an aside, nonsubscribers to Harvard Business Review can read three articles, I believe, per month free of charge. So if Honnold’s interview piques your interest, head over to HBR to enjoy the article.

Also, sometimes when I read a book, I realize that I am not in the target audience. Even so, I keep reading because I might learn something interesting or helpful. And to penalize an author’s work by not giving a five-star rating just because I am not part of his target audience seems unfair.

My book reviews on my blog will be very similar, if not identical, to my reviews on Goodreads.