Purple Haze

Janet Elder's piece in the New York Times today about the "middle" of the US electorate incites thought. The theme is that the US is really not as politically divided as the popular "red-state-blue-state" model would lead one to believe. I do have to confess to falling into the trap of envisioning the country as two couple hundred mile-wide "blue" strips along the west coast and the northeast coast, with the rest of the country essentially being "red". But Janet says that it ain't really so - that US voters are all much closer than that on issues that matter, and presidential candidates would do well to recognize the similarities.

I wonder though. I have been in red and blue states a good bit over the past several years, and I have had occasion to discuss what I would consider to be important issues in both places. During my conversations, I am usually quite struck by differences that seem to me to be almost cultural, they are so stark. I can reflect on discussions with folks whose stomachs turn at the thought of the US activities in Iraq since 2003. And I can think of discussions with folks who think that the Iraqi operation is a laudable and altruistic attempt to export the American way of life to people who desperately need it. I remember discussions with businessmen who think of China as the next great frontier and as a country we should engage adroitly and from commercial strength. And I can remember discussions with businessmen who see China, and ongoing Asian and other immigration, as the greatest threat to US jobs and commerce in recent memory.

I can think of people who are awake nights worrying about what we are doing to the planet and whether it will be inhabitable for our kids' kids. And I can think of people who consider global warming to be a political ploy, only harmful to US commercial interests. I can think of conversations in which people were persuaded in their bones that Clinton should have been impeached for all of the shame that he brought on the White House and the USA with "that woman". And I can think of conversations in which people scream that Bush's pattern of perpetual blunders - linguistic or military - are cause for his impeachment. In each of these conversations, my counterparties were persuaded that the President in question is among the greatest national embarrassments in the history of the country.

I could go on and on. The differences appear to me to run the gamut of local to global, commercial to social, critical to mundane. And the differences appear to be wide indeed. And my perception is that the red/blue model is indicative and somewhat helpful, if not perfect. Janet, on the other hand, thinks this perception is distorted. To make her case, she focuses on polls (admittedly better than my anecdotal evidence, of course), and she focuses on issues like abortion, environment, and immigration. Really, she just discusses abortion; perhaps she has actually been having the same discussions I have on the subject of the environment and immigration. She suggests that folks in red and blue states are not as far apart as we might think.

I would agree that the American political spectrum is rather narrow - there are many globally important issues that Americans do not discuss. In that way, from a global standpoint, there may be merit to seeing US voters' attitudes as more similar than different, even if the issues I have observed are hotly debated within the US. Within that American landscape, however, I find Janet's assertion to be less than persuasive, though I admit I do not discuss abortion all that often. But one thing is for sure: I would love to be at the cocktail parties Janet attends. Kumbaya.

Let's get this bubble started

China is investing $3 billion in Blackstone's IPO. What do we make of that? Well, the US media is intrigued by what the deal signals about the power of Blackstone's game plan. And, of course, tremendous amounts of ink have been dedicated to whether the development means China plans to take over the US, just as the US feared about Japan in the 1980s. I wonder, though, whether the US media ought to get out of its usual, parochial rut, and consider whether the development signals something much more important (and less paranoid).

Something about global liquidity. Global financial players have been commenting on global liquidity excesses and potential asset bubbles for the past several years. I have yet to hear any rational, defensible explanation for all this liquidity. Where is it coming from, and why? Is it connected to a glut of savings from the about-to-retire baby boomers? Is it connected to huge hard currency reserves in oil producing nations and elsewhere? Is it connected to China's protection against a precipitous rise in its currency's value? This novice couldn't begin to explain the liquidity excess, but nobody has been arguing that it isn't there and growing.

Among the recited ramifications of all the liquidity have been (a) increases in housing prices, (b) inflated share markets, (c) booming corporate debt issuances, (d) red-hot private equity / M&A markets, and (e) extremely low corporate default rates. In the markets that the Western financial media follows, the past years have been a wide-spread asset boom that would have been hard to imagine beforehand. Investors have been chasing yield in an increasingly crowded and competitive marketplace. (Never mind that huge swaths of the earth's population continue to live in abject - and often worsening - poverty. And never mind that the liquidity glut will almost certainly not be used to address their plight in any meaningful way. That subject will have to be another post's.)

A debate my friends and colleagues often engage in these days is what might burst this liquidity bubble, and, of course, when. People who well understand finance and global markets argue forcefully from experience that what goes up must come down. These people recite the irrationally high P/E ratios on which shares trade and the incredible EBITDA multiples that companies can finance these days. The argument is that these levels are not sustainable, and a melt down is nigh. Since mid-2003, in my experience, this meltdown has constantly been stated to be six-nine months away.

Perhaps. The arguments certainly are sensible, and they are rooted in historical trends that surely teach us much. But is the China/Blackstone deal perhaps meaningful in this discussion as well? I think it is, and it is huge. For months, the Chinese have been quietly (and occasionally openly) considering how to deploy their $1.2 trillion in hard currency reserves in assets that are higher-yielding than the US T-bills which they buy in bulk.

Imagine the effect on today's asset bubbles of the addition of that much money to the yield-chasing investor pool. While nothing is certain, and unpredictable events can cause markets to tumble precipitously, it seems to me likely that China's investment diversification will only expand and extend current trends. Mark my words, the Blackstone deal is only the tip of the iceberg. Don't be surprised to see China and Singapore team up as investors, to see India and oil producing countries' more openly and frequently investing hard currency reserves into private markets, to see Chavez' Bank of the South take off and become a player, and to see other non-US pools of funds collaborating in the same spaces. And don't be surprised if the six-nine month window extends to several more years. Plan and hedge accordingly.

Google ain't seen nothing universal yet

So Google's search engine will now produce a wider variety of results than before in response to a simple query. No longer any need to search separately for text, photos, video, etc. For those of us who no longer have much patience for the video format - too much waiting around for somebody else's views, largely at their speed - the development doesn't necessarily sound all that helpful. (I assume that Google will not slow down production of faster search results while slower videos load - a technology that I am certain is easy.) But this development is headline news today.

Makes me wonder though. My view of the future of the web is so much farther afield, that I must work to restrain a yawn today. Ready? Here goes. All the mobile tech folks will inevitably spend years and huge sums trying to perfect the mobile device that works best for humankind. None of them, so far as I know however, have focused on the most obvious mobile device of all - the human body.

No, I am not some Luddite who advocates that we drop the tech madness and allow our natural abilities to flourish and be challenged again. Heavens no. Though I do blame the advent of technology for my increasingly lazy and incapable memory - it can't be my advancing age. No no, go the other direction. Within our lifetime, there will be surgery that will install the machinery for web surfing right into our flesh. If virtual reality games are as advanced as they are today, and if we can train fighter pilots to operate their aircraft and weaponry with eye muscle movements, this day is not far off.

Think about the utility. Every day, I tap the web for knowledge - things I once knew and have forgotten as well as things I never knew. Things that people mention to me over the phone, which I can search and appear quickly to understand, if only in a rudimentary way at first. The only reason I don't do the same in person is because it is rude. Imagine though, if that pensive look during a conversation were also an opportunity to locate relevant contextual data on the internet, as projected clandestinely onto your retina?

Now that could be universal, and it would certainly make the headlines. Mark my words, we will get there. You saw it here first.

Four score and seven years, the Cheney version

"There's a lot going on. This is a very important time. There's a lot to talk about."

Stirring words indeed from VP Cheney during his surprise visit to Iraq today, as quoted on Yahoo! News at least. I need help, as I have a terrible middle-aged memory. So for those of you with more retained perspective: is it me, or has the quality of folks who are attracted to the leadership of the United States of America (the most powerful sovereign nation on the planet) fallen off the cliff somewhere?

I have this fanciful notion that the nation once attracted people worthy of deep respect, in many dimensions. People who could incite a revolution, including by drafting an amazing declaration of independence - read it again some time when you have a few minutes. People who could lead resolution of a huge civil war. People who spoke with dignity and sincere emotion about times of world wars. People who had a clear plan for dragging a country out of deep economic depression. People who called upon citizens' innate desire to serve. People who were eloquent about the equal rights of all humans.

Then I think about people like Mr. Cheney, Messrs Bush, the Bush cabinet, Mr. Kerry, and the gaggle of candidates now campaigning for the Presidency. In the estimation of thinkers, who among these is even in the same universe as those who went before? Can we just stop and be candid for a minute - would you want any of these people teaching your children, or managing your business, or serving your legal needs? Would you trust their instincts and effectiveness?

I am hoping here that at least some of you are answering "yes, we would". But I am not. I have such (silly?) hopes for my kids and their future, that these people can't even make it to the testing table, much less pass. On the other hand, I meet people regularly in my daily life and affairs who I would gladly trust in this way. Elementary school teachers, economists, hedge fund managers, lawyers, heck even diplomats and bureaucrats. People who are passionate about their goals, who are persuasively articulate, and who exude competence. People whom you would want by your side if you were starting a business or lost in the desert.

What do we make of all this? Could it be that the rewards of leading the USA are so diminished that quality people just do other things? Could it be that the post-Nixon White House is so sullied that we should generally expect buffoons "to lead" us? Am I perhaps just unable to preserve perspective in the shadow of the current administration's shocking incompetence and lunacy? I really need some help. Because Cheney's dolt-like remarks remind me that I once thought the US Government could be a force for powerful benefits in this world. I suppose I still want to believe that, notwithstanding the general tone of this weblog. But thankfully Dick is constantly there to prod me to my senses.

Technology of Sovereignty

Everything changes, nothing can remain the same for long if it is to succeed for any extended period. Today, I was in Philadelphia's museum dedicated to the Constitution of the United States. The Queen of England was a few hundred miles away, visiting Jamestown, the first English colony in North America. Seems like the day might expose something about how sovereignty has been evolving and succeeding near the North Atlantic ocean in the past few hundred years.

Well, in Philly, I was reminded of the roots of American independence - largely in the goal of the inhabitants of the colonies to keep more of the monetary fruits of their labors onshore, as opposed to sending them to the English Crown. I was reminded of the honorable goal of establishing a new continental government whose powers minimally trampled on the fundamental human rights of the governed, instead of taxing them without regard to taxpayer views. The technology of sovereignty was seen as advancing in the name of that goal, through a careful separation of sovereign powers so as to minimize the concentration and potential abuse of such power by one mind or one political party.

Those developments of course succeeded only in spite of powerful and fiery opposition from England. But the Queen today reaffirmed the close kinship and mutual respect that subsists between England and the United States. The US Vice President wholeheartedly agreed. Against the trappings of apparently deep policy and military cooperation between the two sovereigns today, the platitudes do not seem worth much ink.

But are we missing something, both in the development of sovereignty as well as in how that development is perceived and reported? Could it be that England's 18th century (and current?) over-stretched view of the extent of its sovereignty has become the current bad habit of the US Government? Not that the US is "taxing without representation" in the same way. But could the US be assuming, even when it might be incorrect, that its means, power, and influence are always beneficial for foreign lands?

Those who were present with the Queen today refrained from using the word "celebration" in order to respect the sorrow of the lost lives of the native Americans whose fate was controlled by the commercial and political machinations of the (largely) English settlers. Today's event was therefore instead termed a "commemoration", and I do not think the Vice President's office protested this nomenclature. But I remain discouraged. I doubt the Vice President (or others in his administration) truly appreciates that the US is now widely seen as the globe's current abuser of sovereign power. That revolutionary forces are arrayed against the US, and its Boston Tea Party mythology. And that the pride amongst those so arrayed runs as deep as it did among the colonials who defeated the English in North America after declaring independence.

I'd like to think that these tensions will be ancient history several hundred years hence, when there could be a Jamestown-style back-patting session amongst former enemies. But there may have to be another US Constitution-style upheaval in the management and constraint of sovereign power if the road to that session is to be paved.

Spectator Sports

April 2007 has been the month of lucky number 13,* at least for New York City. The Yankees' A-Rod (whose jersey is #13) has been the hottest thing they have, with more than 13 home runs already and hits in most every game this season, while all else about the team is seemingly going to seed. And the Dow Jones Industrial Average has finally hit 13,000. Wow, amazing stuff.

For those in the game. I have never understood people's patience - neigh lust - for following the victories, trials, and tribuations of others' sporting efforts. Think about the amount of content in the US media dedicated to sports and to the results of folks gambling in the financial markets. That stuff truly sells, pretty much as well as any other soap opera. Then consider how much of your friends' and colleagues' idle banter relates to the same subjects.

I am lost in this universe. I absolutely love playing sports (baseball, football, tiddlywinks, etc.), and I follow my investments more closely than any rational being should follow anything. But I have never much enjoyed following or discussing the similar efforts of the rich and famous, unless there is something to learn that I can actually use.

I really do not like being this out of touch with most folks' delights, however. I have $13 for the person who can enlighten me and interest me in the New York Daily News.


* 4 + 2 + 0 + 0 + 7 = 13. Coincidence? I think not.

"Corrupt" - "Altered from the Model" or "Morally Depraved"?

Caution: if you believe that Western means of government are the best, you will likely find this post patronizing.

China is often said to be corrupt. It is widely agreed that unpublished and therefore unpredictable fees - bribes - must often be paid to government officials if businesses wish to obtain results (e.g., licences, concessions, approvals, etc.). There are laws against this kind of behavior, within China, in the USA, and elsewhere. And violation of these laws in practice is certainly an alteration from the model.

But is it morally depraved? And could the answer to the latter question depend on the culture from which one comes? If one is willing to consider that sovereignty is a commercial enterprise, then how could one consider that a government official - say, one in charge of a particular agency whose approval is needed - should not be able to charge whatever price for the requested approval that the prevalent conditions will bear? In fact, that is just how things have long been viewed and worked in many parts of the world.

But, Western minds generally consider that sovereignty is not a commercial enterprise (query what it is then), and they elevate governments to a different plane. A plane where it is somehow morally depraved to demand a market-clearing price for a requested approval or other service. The best argument that occurs to me for this position is that the government has a kind of monopoly - it sets the requirements and also administers them, and it should not be able to command such concentrated power without published constraint. It is for this reason that no self-respecting Western society would countenance anything close to such a concentration of power in commercial markets, aside perhaps from the odd minor exception like the energy industry or the defense industry.

When the WTO joined the PRC, it took on a cultural integration project, and mutual understanding of longstanding business and bureaucratic attitudes and practices is critical - in both directions - if the team-up is going to work. The PRC states that it wants to tackle "corruption" in the Western sense, though I doubt the Chinese have attributed a "morally depraved" aspect to their definition. As we should well understand by now, that tackling process will evolve very slowly, growing out of the previous system. To expect sudden change to the Western model is silly. And to label thousands of years of customs as "morally depraved" is not constructive.

Caveat Emptor

Very interesting letter to The Economist from James Hutchin published in the April 14th-20th 2007 volume. Mr. Hutchin asks if it is rational for US taxpayers to support a further investment in the Iraq war, an enterprise "without a business plan, and with no targets and deadlines". How many folks think of their tax payments to the goverment in the same way they think of their other large investments? But why should things not be as he articulates them? Would you spend 15, 20, 30% or more of your gross income on anything else without critical study of what the investment was getting you? Think how carefully you track your home's value, your 401(k) plan's returns, or just your houshold budget for most folks.

Most people seem to send checks to their government - not without complaint often, mind you, but without requesting any direct accountability. The most folks might do is tune in to the public debate on the media-selected "political" issues of the day and consider which side of those force-fed issues they take. Usually the talking heads present two of the many possible views as the two "sides". That way, we barely have to think. To appear knowledgeable and interested in a government's activities to our similarly-behaving friends and family, all we have to do is know and chat about what's on the front page of our newspaper or in the lead stories on the national TV network news program.

Here's an idea. Challenge yourself to track your investment in your government as closely as you track your other large investments. Investigate how much gets spent on what, and how successful the effort is. Focus on the subjects that concern you the most, regardless of what the media has decided is hot. And understand how other governments are dealing with the same issues. For US taxpayers, the OMB publishes these charts, which make for a fascinating start.

Bush's accelerated Iraq pullout

Don't believe what the White House says. Not only is the White House unopposed to a scheduled withdrawal from Iraq. In fact, the US has effectively already withdrawn. As it stands today, a major Baghdad bridge over the Tigris can be brought down and a suicide bomb set off in the heavily-protected Parliament building (killing legislators) within hours of each other. And these things can be done with all the force and surge of the US military seeking to prevent them from happening.

In what sense, then, is the US "there"? To the distant observer, only two sad answers appear. First and foremost, US children are putting their lives at risk, and they are dying "there". Second, the US is seen throughout the world as the military force that is unable to control security "there" in any real way.

Acknowledging that these are HUGE ways to be "there", I am unwilling to consider that these are the goals of the Bushies in their stated opposition to scheduled withdrawal. So perhaps the latest events will persuade the Bushies that we have already withdrawn under the current strategy. If not, the world should give up any remaining hope that the reality of the at-risk kids (US and Iraqi) can ever match the Bushies' reckless and inexplicable fantasies.

Connect the China Dots

The Economist ran a special report on China last week. A couple articles buried separately toward the back of the issue were as helpful as the report itself. These articles alone would tell a very useful story were somebody to connect them. The first article asks whether multinational corporations are really investing as much in China as one would expect given all the hype about China's increasing commercial importance. The article states that multinationals' revenues and especially business growth potential in China far outstrip their infrastructure and human resources in China.

The second article points out how corporate borrowers globally these days command ever more leverage in negotiating debt terms with their lenders. The article describes the evolution of the world's commercial lender base from multinational banks to multinational funds of various stripes, and it points out that fewer lenders seem to be bothered with loan terms that regulate borrowers' business activities in any way at all.

Spot the connection? Neither did The Economist. A very real and important story here, though, is how much money is flowing into China (and elsewhere) on the kinds of terms that have proven so dangerous in the past - institutionally and anonymously, without regard for investor-investee (eg, lender-borrower) relationships or commercial leverage points. Post-Asian currency crisis, it should be clear that the first kind of investor to be forgotten in a time of stress is the anonymous investor who has nothing further to offer a struggling business - and no ability to hurt it. On the other hand, that business' critical and ongoing commercial/trading relationships are treated better longer. But these relationships require resources "on the ground".

Multinationals are over-weighting the known-to-be dangerous kinds of investment in China and under-weighting the more secure. And they likely haven't done enough homework even to notice. But Chinese business owners must be delighted.

Oh Dick

So Dick Cheney remains a dog with a bone. Saddam was cooperating with Al-Qaeda, no really. Really, he was.

This latest pronunciation comes on the heels of yet more DoD evidence that Saddam was in fact not cooperating with Al-Qaeda. Dick, that's your own DoD. If you ain't got them, who have you got? And what is the limit on your perception of the stupidity of the US voters?

That Dick could engage in this 1984-speak, without material consequence - other than appearing utterly out of touch to anybody who is thinking (a trivial loss) - is just amazing. That he would choose to pursue the subject some three-four years after the idea was discredited wholesale is also pretty amazing. There must be something for Dick to gain from the step. Who among us knows what it is?

Let the People Divide Themselves

Everybody except maybe the Bush administration is drowning in the seemingly endless deluge of stories about death and destruction in Iraq. (Fortunately for Bush, there is Justice to worry about.) But when does it become acceptable for those in power to ask if we have been looking at the problem the wrong way? The US Government and the US media clearly define success by whether there is peace within the post-colonial borders. "Can we avoid all-out civil war?"

When do we consider, however, that the West's historical division of the region by borders drawn on a map may have been at the root of the current issues? The West wants folks the world over to be excited by, and loyal to, a map and a flag (and a finance ministry and a UN seat), just the way the West has been since Westphalia. Is it possible, however, that other regions of the world may naturally prefer to divide themselves differently? That there may be other measures - say religious, business, or familial - that other people prefer to consider in determining who is "one of us"?

By introducing wealth along with its means for dividing, the West has enticed people everywhere to adopt, or at least to appear to adopt, the legitimacy of the Western style of division. But how many deaths will it take before we consider that the world may not yet have truly bought the West's global map? That systems empowered by Western wealth will break down, and when that happens, people's innate means for division will re-awaken, often wreaking havoc after having been suppressed and supplanted? I say until we wrestle thoroughly with this possibility, we will never even understand the problems, much less commence a successful solution in Iraq.