Tuesday, October 31, 2006

News Notes

The cover page is a picture of bodies at a religious school in Pakistan. Not that we were winning any hearts and minds but more on the fence will be pushed the other way.

Presidential Candidates

John Edwards is still trying. He might have been a good country lawyer but he has still got a lot more polishing to do before he has a foreign policy resume. He spoke about his trip to China in front of the Asia Society of New York today. The speech might have worked well in front of a rural audience but not in front of China experts.

His US centric world view was on display in comment after comment. How does Chinese support for "rogue regimes" in Sudan and Venezuela differ from US support of Saudi and Nigeria? Does the world really crave for US leadership? Does the world need US morals as defined by the Christian right? Might the only real benefit of the war in Iraq be the loss of the America's stature as the world's only hyper power.

He did not study China much before or after his trip. He forgot the names of the agencies that he meet with. He was surprised that all of the Chinese cared about the Taiwan issue.

Some of the speech sounded like the same platitudes spoken about Japan: "the single most bilateral relationship in the world today".

News Notes

Larry Summers begins his career as a journalist with a lot of questions about what is wrong with the new style of growth: the very rich, the owners of assets, gain and the very poor, new workers in India and China, gain, but the middle is squeezed. He does not come up with any answers.

Political Fundraiser

I attended my first political fundraiser last night. Andrew Cuomo, running for NY Attorney general, had former President Bill Clinton for support. The crowd was full of rich looking New Yorker Democrats. I have never been to a Republican fundraiser but I cannot imagine that the crowd would look any different. There were lots of suits and very few people of color. Cuomo served in various roles in HUD for the entire Clinton term. He has never won a major office. He spoke smoothly but not quite convincingly. Clinton was clearly the draw. From his speech you would think that Cuomo was running to replace some right wing Republican and not Elliot Spitzer. Clinton feels that because the direction of the country has gone so far off, the Democrats will take significant seats in this election. He stated that most of the Democrats running in Kansas are former Republicans. He did not state how this will impact the direction of the Democratic party.

Friday, October 27, 2006

News Roundup

No one ever makes money underestimating the America consumer. While the GDP growth rate slide to 1.6% (before numerous revisions), personal consumption grew by 3.2% versus a prior 2.6%. University of Michigan consumer survey rose to 93.6 for September. Consumption depends on jobs and job prospects, not housing prices or sales. Residential investment dropped by 17%.

Bill Miller's quarterly letter is a good read. There are three edges in investing; informational, analytical and behavioral. I agree with the first two. Private equity and venture can exploit the first but public market traders legally cannot. Quants exploit the second. I wonder if the third describes the fact the money managers and hedge funds take advantage of investor gullibility to raise money based on psychology of investors. Miller ends the letter with reading suggestions on the study of beliefs.

He is very very bullish.

Wednesday, October 25, 2006

Operation Dreamland

Operation Dreamland depicts life in Iraq in the good old days of January 2004. The war is not yet a year old. The film could not even be made now. Iraq is not that safe any more. The soldiers are bored and cynical. Even the most optimistic of them do not believe that there is much they can do positive in Iraq. Their only job is protecting themselves. These guys, some just out of high school, proved to be more prescient than their leaders. The locals are idle men harassed day and night by US forces. Or scared women and children. The film is even more powerful two years later. What will we say in 2008?

News Roundup

Private equity is growing in Japan. In 2006 there have been 53 deals worth 3.3 billion. Carlyle has raised $1.9 billion to invest. The biggest was Skylark at 2.3 billion.

The God Delusion

"The God of the Old Testament is arguably the most unpleasant character in all fiction: jealous and proud of it; a petty unjust, unforgiving control freak; a vindictive, blood thirsty ethnic cleanser; a misogynistic, homophobic, racist, infanticidal, genocidal, filicidal, pestilential, megalomanical, sadomasochistic, capriciously malevolent bully." And then Dawkins states that region gets an abnormal amount of respect? Well if Dawkins wrote this book to persuade, he just lost his audience with that opening line. All who remain to read the book are those in agreement. Dawkins is at his best when he sticks to the science aspect and especially when he stays close to home on evolutionary theory.

The book inspired a number of debate opportunities for Dawkins. One debate with Francis Collins shows how intractable both positions really are. There is no way for proof of either opionion. As one reviewer stated "it is poignant that the believers in God will never know if they are wrong and the disbelievers will never know if they are correct.

NY Times Review


Feeling a little bit like Claudia and Jamie from the Mixed up Files of Mrs. Basil E. Frankweiler, I headed to the audience hall of Ashurnasirpal II in the Sackler Gallery of the Metropolitan Museum last night. Allan Greenspan, our modern day oracle spoke. He gave what I imagine is his stump speech, a modest review of his achievements and an optimistic outlook for the US and world economy.


The economic implications of political events are often not understood until later. Greenspan stated that the fall of the Berlin Wall, which led to the abandonment of the concept of command economies was the most significant contributor to growth.

Current State of Economy
The current situation is good driven by positive demand, capital investment and exports. Homebuilding and inventories are keeping a lid on the economy.

There are two imbalances; the current account imbalance and the deficit. The current account balance is an economic number. Despite years of deficits, the last quarter was the first quarter where US paid out more interest than it received on foreign investments. The rates of return on foreign investments are higher than we are paying foreigners. So why do foreigners keep investing here? The stability and the protections provided by the constitution. The current account deficit has been occurring for years. Division of labor means that there is a constant growth in the deficit. Think of the deficit across other entity boundaries; cities, counties and states and it will become clear that the division of labor is an irresistible force. It only becomes noticeable when national boundaries are breached. The only risk is protectionism.

The Fed did a lot of research using much more information than available to private investors to try to forecast exchange rates. His conclusion was that "long term rates cannot be predicted better than a coin toss". The way that banks and financial institutions make money in fx is by taking the other side of the trade of the "garment business".

The other imbalance is the budget deficit. Excepting for Medicare this is a political problem. We can forecast the number of recipients of Medicare but not the outlay per recipient. It seems that the current promises cannot be fulfilled. The program will end up paying for only those in need.

On Bubbles
He was modest about the powers of his office. "It don't work" he says about attempts to address asset prices. There was much talk in the Fed about how to defuse bubbles. Bubbles can only be crushed, not slowly deflated. Maybe 1000 bps of fed funds increases might have worked to end the 90's bubble. Rather than attempt to end things this way, Greenspan felt it would be easier to deal with the stock market bubble's aftermath and address the downside. But even this might not be a lesson for future bubbles.

The housing bubble primarily impacts consumption thru the wealth effect. Even the amount of this on the upside and the downside is not clear. Mortgage equity withdrawals have been cut in half and consumption is still level. At any rate, most of the worst of the housing slump might be over. The stock market is a more potent force by its impact on capital, goods and people.

The commodity bubble in base metals is a passing one. As China develops it will follow the path of the US and move from a real to a conceptual economy. Use of steel and commodities per GDP will decline. The energy problem is more serious.

Tuesday, October 24, 2006

News Roundup

The deathknells for Netflix sounded too soon. It is okay to be the best manufacturer of buggywhips. The number of subscribers grew to 5.6 million and quarterly revenue to $250.

News Notes

Iraq dominates the NYT editorial page. The five point "Containing the Disaster" editorial is probably a digest of the post election Baker report. Not in order of importance are; fire Rumsfeld, hold local and regional talks, stabilize Baghdad and lastly acknowledge reality. I do not think that Bush reads the NYT any more than he listens to Countdown. We can only expect more of the same.

China's impact on economic growth in developing nations might prove to be more important than all the foreign aid ever given. China's African summit
should not be "watched warily" but embraced. China can export growth in a way which more advanced economies cannot. Human resource development and training and investment will be more suitable to developing economies.

Wednesday, October 18, 2006

News Notes

Is Iraq a lost cause? Thomas Friedman, an early believer is losing faith. Yesterday 10 soldiers deaths were announced in Iraq. October is on track to be one of the worst months of the war.

Healthcare might be almost as decisive a topic as Iraq. David Leonhardt looks at why US healthcare does not seem to get as high a return on investment as other countries. It all depends on how you measure. US consumers want to pay more because they can. Another view is that too much money is spent in the wrong places by Boudreaux.

I have been watching a lot of Countdown, O'Reilly Report, Jon Stewart and Colbert. This New Yorker cartoon expresses the result of it all.

Tuesday, October 17, 2006

News Roundup

The most effective type of foreign aid is economic growth. Despite the recent Nobel to Muhammed does WalMart do more for developed countries. I think that although is doesn't feel right, it might be so.

Monday, October 16, 2006

News Roundup

CEO William McGuire to leave UnitedHealth. He will also reprice the options that he received from the low price of the year to the high of the year, forcing him to return hundreds of millions in paper profits. Whether this will allow him to repurchase his honor and avoid jail time is not yet answered.

Hedge funds might resort to insider trading. Many hedge funds are privy to insider information if they are lenders or are on creditor committees. They are responsible for maintaining Chinese walls in house. Many do not have trained compliance and disregard this rule and other rules as well.

Single country hedge funds are increasing in Asia. There were 225 in Japan at the end of 2005.

Recent economic numbers reduce the chances of an interest rate decrease in early 2007.

A good article by Muhammad Yunus, the recent recipient of the Noble Peace Prize.

Sunday, October 15, 2006

Ryoma's Wife, Her New Husband and Her Lover

Does the women make the man or...? This play by Mitani Koki was the first that I have seen at the Japan Society and the first time I have ever seen a play with subtitles attempted. I am glad I know some Japanese because the subtitles were set off to the side. There were some sore necks after this performance I am sure. I enjoy plays with simple set and plot. The set was the one room apartment were Oryo settled with her second husband Nishimura Matsubei. He is the most pleasant character but clearly not anything similar to Ryoma Sakamoto. Why Oryo picked him was never made clear but she makes no attempt to climb the social ladder again. Sugano Kakubei who comes to bring her back for the 13th memorial service wants her to conceal her present to honor the past of Sakamoto. In fact he will kill her if she does not return with him. There is a three way combat for Oryo Matsubei, Kakubei and the Western looking Torazo.
Sometimes the comedy degenerates into scenes that are too cute. But there is a great scene about sake fermented with spit.

Stumbling on Happiness

How to be happy? Do not read this book for the answer. Stumbling on Happiness might give you clues why your level of happiness is what it is but not how to change it. He introduces the concept of synthetic happiness which means that people have a psycological immune system. People will like what they get not what they did not get. Or don't worry be happy. And if you like the book you will enjoy the film.

Imperial Hubris

Michael Scheuer likes checkables, or as most of us would say lists. I thus submit a list of lists.

Al Qaeda is described as a determined an almost invincible enemy in Michael Scheuer's Imperial Hubris.
Bin Laden's foreign policy goals are clear and have been announced many times;
- The end of US aid to Israel and the elimination of the Jewish State
- The withdrawal of all forces from Saudi Arabia and other Muslim states.
- End of US involvement in Afghanistan and Iraq.
- End of repression of Muslims by Russia, China and others
- Restoration of energy resources to Islamic owners
- Replacement of Western leaning Islamic regimes.

Because the US stands in the way of the achievement of these goals it is hated, not misunderstood.

The questions that the US needs to answer;

- Does it serve the national interest to protect Israel?
- Is John Adams correct when he says America must be the "well wisher of freedom and independence to all but the champion and vindicator only of our own"?
- Can the United States overcome the oil lobby to become energy independent?
- Does the United States need bases on the Arabian peninsula?
- Should the United States install secular democratic systems in countries that do not ask for them?

He also questions whether anyone can rule Afghanistan.
- Pashtuns will rule. Minorities will only temporarily control Kabul.
- The Afghans who matter are Muslim tribal xenophobes.
- Afgans cannot be bought.
- Strong governments in Kabul cause war
- Pakistan must have an Islamist, Pashtun dominated regime in Kabul.

News Roundup

The NYT pans one of my better performing strategies this year. However if there is a reason to believe that the market is trending buy writes are not all bad. It is not much more conservative that buying stocks but can enhance returns. I favor using short term options to capture quick theta decay and reduce risk of opportunity cost on the upside. The story Corporate America's Pay Pal confirms that corporate CEO pay is not market based but is part of a conspiracy.

In The Line of Fire

Watching Sunday morning talk shows discuss foreign affairs resembles listening in to firemen chatting. They might disagree with one another, but their lives have basically been shaped by the same experiences. That is why it is important to read books like In the Line of Fire by Pervez Musharraf. He is a tough soldier who has survived politics and brutal enemies to rise to the leader of Pakistan. He has some of the same enemies as the United States but he knows that he has to live with them. It will not serve to kill as many as possible and then go away. Musharraf might be a dictator to some, but the army's control of Pakistan is not absolute. He needs to negotiate and compromise with local powers. While not religious, he understands the power of Islam among his nation. There is a great interview with Musharraf promoting his book with Jon Stewart.

Other reviews:

Leaving Microsoft to Change the World

" I feel lucky enough to know who I am, what I want to focus on, and the yardsticks by which I will measure myself". If you cannot say that about yourself you need to read this book. Leaving Microsoft to Change the World sets a standard for books written by the new philanthropists. They are aggressive and driven people who have been successful and made money faster than any generation before them. Some of this new money generation continue to use money as the only yardstick for success. Bill Gates and others, as John Wood notes are, as the Dalai Lama says, "lucky enough to have had a good life and recognize it as a gift and look out for others who might need help".

Not many business books have scenes which move the reader. My favorite was the one pictured on the cover; the Yak delivery of the first books to the first library greeted by the crowd of children. Equally interesting are some of the Bill and Balmer stories of Microsoft. Scheduling and scripting Gates trip to the minute including laundry delivery only to be confounded by the whims of Bill would be enough to drive most from business.

Lessons from Microsoft and business are sorely needed in many non-profits. Established foundations and charitable organizations often evolve into bureaucracies which while they continue to deliver good works are distracted by internal politics. Two of Wood's five guidelines for organizations, an intense focus on results and driven by data, might even be seen as inappropriate in some charities. How many charities, or for that matter organizations, can retain the passion once the charismatic founder departs.

For the middle aged boomer ego this book could be a dangerous read. Wood carried his success at one of the best businesses in America to the charitable world. Few can claim to have reached even the peaks that he saw in business. And those who have been successful in the commercial world are left feeling shallow in the shadow of his deeds.

"Do not try to be anything but what you are and try to be that perfectly.

Suggested books:
How to Practise: The Way to a Meaningful Life
Unfinished Presidency

Wednesday, October 11, 2006

Wedding Family

Mary, Joe Kathryn, Paul and John pose in the classic spot for the wedding day pictures. Posted by Picasa

Wedding Day

Posted by Picasa

State of Denial

Woodward's book State of Denial is certain to have an impact on the election. It is now ranked number 2 on the New York Times non-fiction best seller lists. As with all of Woodward's books State of Denial straddles the line of fiction and non-fiction. His liberal use of quotation marks and descriptions of thoughts have become trademarks of his works.

It is an easy and compelling read; I finished the book in two days. While there are snippets of new information about the role of Henry Kissinger and Prince Bandar bin Sultan as advisers to the Bush administration, much of the book confirms prior assumptions. Even Bush supporters are likely to acknowledge that he lacks intellectual curiosity and depth. Rumsfeld's arrogance and micromanagement style are well know and may even be part of his attraction to some.

Richard Armitage gives a memorable quote about leaving large organizations; "When you pull your fist out of a pail of water, remember you do not leave a hole".

Other Reviews