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Juxtapositions

Jenga “Obama has a very fine line to walk, between navigating political will, consumer angst, relying on the self-dealing breakers of the financial system to be the fixers of it, an accelerating economic slow down, bank crisis, auto crisis, Iraq and Afghanistan wars, an absence of uniformity of opinion on the “right” solution, and huge vested interests in protecting the status quo, not to mention the Byzantine complexity of the crisis’ global, interconnected and international footprint.”

JUXTAPOSE THESE MOVING PARTS; TELL ME WHAT YOU SEE:

  1. On Government Intervention:  The lessons of history are clear. In times of economic crisis, the role of government intervention in creating liquidity, stimulus and stability is paramount to catalyzing recovery.
  2. On Bipartisanship: Deeply embedded in Obama’s promise to Americans is a shift away from partisan politics as usual.  But, the moral of the story from the stimulus debate is that when you are giving away 400 billion dollars worth of tax cuts to Republicans to get them to vote on your stimulus package, and they still won’t vote for it, this does not bode well for bipartisanship. Whether Obama makes that kind of offer again in the future will be one of interesting tells of what he learned about governance from the process, especially knowing that, in theory, getting people to vote for giving away money via tax cuts and spending is the easy part; imagine when it is a topic for which there is organized opposition.
  3. On The Budget Deficit Conundrum: We are sitting at $11 trillion dollars of acknowledged debt, and under the Obama budget that grows to $20 trillion, much of it held by sovereign nations, like Saudi Arabia and China. This is seemingly at odds with our national security interests, and potentially at risk to our long-term economic stability.
  4. On Universal Health Care and the Demographic Tsunami: We have three cornerstone long-term entitlement programs – Social Security, Medicare and Medicaid.  Medicare and Medicaid alone represent ~5% of our GDP, but with the aging of baby boomers that number will grow to 20% of GDP so to those who say Obama should focus on the crisis at hand, the argument is that all of the other numbers are almost a footnote relative to getting the rate of growth associated with health care costs under control.  While the simple net-out is that service-levels either go down or taxes go up to provide universal health care, the more reasoned conclusion is that we need a systemic assessment of current health care protocols, after-care health/recovery statistics and the surrounding cost structure of same.  Viewed outside the box, what would Google do; what would Apple do if they were re-inventing health care?
  5. On Pain, Taxes and Truth: It is hard enough to sell a message of pain to the American people, inasmuch as they are generationally removed from real sacrifice. This truth is even more so when people are scared.  That said, it doesn’t take a genius to see that nothing is free, and that if we are going to get real, taxes are going to go up, not just on the wealthy few.
  6. On AIG’s Role in Derailing of the Financial System: Patient Zero of the global economic meltdown — was one Joseph Cassano, the head of a tiny, 400-person unit within the company called AIG Financial Products, or AIGFP, whose group sold over $500B worth of CDS protection.  "It's all about the regulatory environment," says a government source involved with the AIG bailout. "These guys look for holes in the system, for ways they can do trades without government interference. Whatever is unregulated, all the action is going to pile into that."  CDS’ in effect, beyond the optics of risk mitigation, had a more fundamental benefit.  Because CDS’ were blessed by the credit ratings agencies as AAA “safe” (i.e., near zero credit risk), regulated banks and financial institutions were successful in persuading regulators that they should be able to shift the risk of the CDO’s they were selling off of their balance sheet and onto AIG’s, which had the net effect of enabling these institution to exponentialize their leverage relative to capital reserves.
  7. On AIG as a Window into the Bailout: "If AIG went down," he says, "there was a good chance Goldman would not be able to collect." The AIG bailout, in effect, was Goldman (alums) bailing out Goldman.
  8. On AIG Bonus Fallout: while human nature is to throw the baby out with the bath water and paint all participants in the collapse of AIG with one broad brush stroke, Jake DeSantis' AIG resignation letter provides some gray to a black/white debate.  
  9. On Perceptions that Financial Rescue is a Doubling-Down: Nonetheless, the lion's share of the bailout money has gone to the larger, so-called "systemically important" banks. "It's like Treasury is picking winners and losers," says one state banking official who asked not to be identified. Which, of course, is exactly the opposite of what should be happening, since small, regional banks are far less guilty of the kinds of predatory lending that sank the economy. "They're not giving out subprime loans or easy credit," says Wheeless. "At the community level, it's much more bread-and-butter banking."  This itself is a hugely important political development. In essence, the bailout accelerated the decline of regional community lenders by boosting the political power of their giant national competitors. Which, when you think about it, is insane: What had brought us to the brink of collapse in the first place was this relentless instinct for building ever-larger mega-companies, passing deregulatory measures to gradually feed all the little fish in the sea to an ever-shrinking pool of Bigger Fish. To fix this problem, the government should have slowly liquidated these monster, too-big-to-fail firms and broken them down to smaller, more manageable companies. Instead, federal regulators closed ranks and used an almost completely secret bailout process to double down on the same faulty, merger-happy thinking that got us here in the first place, creating a constellation of mega-firms under government control that are even bigger, more unwieldy and more crammed to the gills with systemic risk.  One simple example is US government Repurchase Agreements, or Repos, which have gone from a $25B liquidity generating entity to a $115B  one to…zero!   How?  The reason the number has dropped to nothing is that the Fed had simply stopped using relatively transparent devices like repurchase agreements to pump its money into the hands of private companies.

(The above assertions are shaped by and excerpted from: Fred Wilson’s post (and especially the comment fodder) ‘Financial McCarthyism’ on the populist revolt against Wall Street and the financial sector; FRONTLINE’s expose on the federal deficit ‘Ten Trillion and Counting’; and Rolling Stone’s ‘The Big Takeover’ on how AIG literally grafted a hedge fund on top of a conservative insurance company, the duplicitous role of the Wall Street titans in metastasizing the AIG engine into the collapse we are now dealing with and why the end-game offers a feast for conspiracy theorists.)

Related Posts:

  1. Getting Back Our Sense of National We-Ness: On Heroic Acts, Shape Shifting and Small Business Stimulus.
  2. Getting Real: On Doomsday, the Demise of So-Called Experts and the New Arbitrage.
  3. Black Swans and Bank Runs: Why the financial crisis was predictable.

March 25, 2009 in Current Affairs, Investing, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

Crash-Proofing the Economy: On Pre-Cogs, Black Swans and Scenario Plans

Minority-report In Minority Report (an excellent Tom Cruise sci-fi thriller based on a Philip K. Dick story of the same name), crime is virtually eliminated in the future, thanks to an elite law-enforcing "Precrime" squad that uses three genetically altered humans (called "Pre-Cogs") with special powers to see into the future and predict crimes beforehand.

Now, staring at the rubble from our financial system meltdown, imagine putting the stimulus bill (or the bank rescue) through a massive computerized model of the economy to test out how the plan will play out in the future – before it hits the market, and our pocketbooks.

As Portfolio Magazine shows in ‘The Crash-Test Solution,’ mathematicians, scientists, and other experts in ecosystems and weather are at work developing such a model around the premise that the systemic equivalent of Pre-Cogs can do better than human intuition at ensuring that the boom/bust cycle of the past 25 years never happens again.

Here is an Excerpt: The idea is that by studying so-called complex systems—traffic flow, ecosystems, organisms, weather—we can begin to make sense of an increasingly unpredictable economic world. Didier Sornette, for instance, is a world expert on earthquakes. Now he’s heading up a lab in Zurich called the Financial Crisis Observatory, examining how frothy markets show the same signs of stress that the earth shows before an earthquake. Sornette’s group is trying to develop the ability to provide economic warnings, in part by monitoring the stocks of the 500 largest U.S. companies.

Two thoughts.  One is that the best laid plans of mice and men often go awry, a pithy quote perfectly underscored by Nassim Nicholas Taleb’s “black swan” construct, which is an argument that it’s not the normal, mundane “white swan” events that drive socioeconomic history, but rather the magnificent outliers, the completely unexpected “black swans.”

In other words, no model, now matter how complete or anticipatory of all of the probabilistic scenarios, can predict (and thus prevent) the unpredictable. 

To think otherwise is to ignore the lessons of history.

Two is that, regardless of the inevitability of random chaos, there is a strong case for scenario planning; namely, building up models for anticipating the “type of outcomes” that might play out and delineating their implications from a (scenario) focus perspective to drive better planning and response optimization/mitigation strategy.

For example, what if the government built up a massive database of (near) real-time fiscal scenarios, underlying assumptions, probabilities of different outcomes and impacts from same, and made that data transparent, public and extend-able.

Is it reasonable to expect that the added transparency of data and the depth of analysis available in the public domain would provide a moderating function to our financial system?

What if there was a ‘prediction market’ overlay to the system (ala Intrade Prediction Markets) to enable amateurs and professionals to transparently put their money where their mouth is?  Would the visibility of such data act as a throttle on market volatility?

Interesting stuff, as I am both an advocate of formalized scenario planning methodology (read 'The Art of the Long View' for more on this topic) and a big fan of Taleb (although 'Fooled by Randomness,' his predecessor to Black Swan, is a better read).

Related Posts:

  1. Getting Real: On Doomsday, the Demise of So-Called Experts and the New Arbitrage
  2. Black Swans and Bank Runs: Why the financial crisis was predictable
  3. Prediction Markets: Predictions, Markets and the Wisdom of Crowds

March 23, 2009 in Current Affairs, Ideation, Investing, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

MUST SEE THIS VIDEO: Stewart Skewers Cramer on The Daily Show

You may have heard the quip (delivered only partially in jest) that the only place you get real investigative journalism anymore is on a pretend news show (i.e., The Daily Show).  

EXHIBIT A: Jon Stewart delivered a searing indictment of Jim Cramer and the financial news business in general when he interviewed Cramer on The Daily Show.

See the eight minute video.  Stewart pasted Cramer as "Selling Snake Oil as Vitamin Tonic." Give Jim Cramer credit for taking it head-on.  His professional nuts are on the slab, and he acts like he knows it.

And there was no light handling from Stewart.  He was incisive, surgical and basically accused CNBC as knowing the game that was being played and negligently shirking its duties.

What can I say.  It was cathartic.  We are all in the same boat, some better, some worse.  There is something to be said for shining a light on piggish behavior, and this fits the bill.

WATCH IT (below)!  Full episode online @ The Daily Show (also, here is link to Jon Stewart's original response to CNBC/Rich Santelli Rant, which is awesome).

The Daily Show With Jon StewartM - Th 11p / 10c
Jim Cramer Pt. 2
Daily Show Full Episodes
Important Things w/ Demetri Martin
Political Humor
Jim Cramer

March 13, 2009 in Current Affairs, Investing, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

Getting Back Our Sense of National We-Ness: On Heroic Acts, Shape Shifting and Small Business Stimulus

Burning-home “Once again, its astringent distillation of life and death is desperately needed to help strip away ‘layers and layers of nonsense’ so Americans can remember who we are — and how lost we got in the boom before our bust,” channels Frank Rich of The New York Times in an Op-Ed piece allegorizing Thornton’s Wilder’s ‘Our Town’ to the present times.

Particularly poignant is a reference to a moment (in the play) where a visit to the town cemetery reveals scores of Civil War veterans who gave their lives because they “had a notion that the Union ought to be kept together, though they’d never seen more than 50 miles of it themselves. All they knew was the name — the United States of America. And they went and died about it.”

Rich notes that “It’s a trace memory of an American faith we soiled and buried with all our own nonsense in the first decade of our new century, suggesting that retrieving that faith now requires extraordinary patience and optimism, as we work our way through the aftershocks of the orgy of irresponsibility and greed that brought America to this nadir.”

I have blogged on this theme in ‘Getting Real: On Doomsday, the Demise of So-Called Experts and the New Arbitrage,’ but specifically, we shouldn’t let the opportunity pass to wonder and appreciate the strange twist (as Andy Rooney put it on ’60 Minutes’ recently) that it is in times of war (read: civilization at its supposed worst) that men/women perform more selfless acts of heroism than at any other time.  Any student of World War II can certainly attest to the efficacy of this point. 

Put another another way, if we re-framed this moment in time as the ‘Great War on our National Identity,’ what types of heroic acts might we perform as individuals, small businesses and enterprises (and as a government exercising leadership) that we otherwise wouldn’t think of doing in a time of peace?

How the Crisis Will Reshape America

Etch-sketch Along these lines, Richard Florida of The Atlantic has written a powerful piece, ‘How the Crisis Will Reshape America.’ 

It bookends some gravitational truths (certain geo segments will likely never rebound in their current form; consumption patterns will irrevocably change as we shift from a debt-reliant ‘keeping up with the Joneses’ culture to a savings-minded society) with prescriptive remedies (fund the winners, declare economic disaster areas of the geo losers and rescue/reorganize them, build urban planning policies around same) that are surprisingly fresh.

It concludes with a famous quote from Stanford economist Paul Romer, who said, “A crisis is a terrible thing to waste.”

The larger point behind the quote is that:

“…the United States, whatever its flaws, has seldom wasted its crises in the past. On the contrary, it has used them, time and again, to reinvent itself, clearing away the old and making way for the new. Throughout U.S. history, adaptability has been perhaps the best and most quintessential of American attributes. Over the course of the 19th century’s Long Depression, the country remade itself from an agricultural power into an industrial one. After the Great Depression, it discovered a new way of living, working, and producing, which contributed to an unprecedented period of mass prosperity. At critical moments, Americans have always looked forward, not back, and surprised the world with our resilience.”

Read the whole piece HERE.  Agree or disagree with the positions articulated within it, it nonetheless offers up a holistic, coherent point of view.

Where’s the Small Business Stimulus?

SMB-Engine If anything, the one piece of the recovery story that I haven’t heard anything on is where is the stimulus for small business. 

Specifically, I would love to see stimulus dollars targeted at funding small businesses that are under the radar of being VC-worthy (i.e., not $100M+ business opportunities) but have the potential to grow into real businesses ($10M+ business opportunities).

Why not focus a tranche of dollars on businesses that fit within a transparent underwriting criteria -- including fund raise size and capital efficiency -- AND which uniquely leverage specific national strategic goals as a cornerstone focus driver of their business. 

Broadband, Education, Renewable/Alternative Energy Sources, Health Care and Auto/Transportation are fairly beefy buckets that come to mind.

For those who believe that the long-term growth of the economy hinges in part on small business growth, this is a great way to both provide funding mechanisms to an under-served segment and to cultivate a bunch of entrepreneurial seedlings in sync with our national agenda.

And Now for Something Completely Ridiculous

Lest we forget, the idiocy is never far from the surface:

  1. Michael Lewis (of Moneyball fame) captures the global sublime-ness of the global financial crisis in a Vanity Fair article that looks at ‘How Iceland Went Bust’  (on the collapse of Iceland’s economy/financial centers).  His punchline is priceless: "Iceland is no longer a country. It is a hedge fund."  Read the full article HERE.
  2. You have to watch (see below) Jon Stewart’s takedown of CNBC for shamelessly plugging and hyping their favorite stocks, feeding bubble-driven irrational exuberance, and then having the chutzpah, led by Cramer and Kudlow, to assail the president as a radical saboteur of capitalism, without any irony whatsoever.

The Daily Show With Jon StewartM - Th 11p / 10c
CNBC Gives Financial Advice
Daily Show Full Episodes
Important Things With Demetri Martin
Political Humor
Joke of the Day

Related Posts
:
  1. Getting Real: On Doomsday, the Demise of So-Called Experts and the New Arbitrage.
  2. Warren Buffett for Recovery Czar: Why we need the Wizard of Omaha to step up.
  3. Early Report Cards: On Wall Street, Main Street and the White House
  4. See 'The War': Ken Burns' potent, life-affirming documentary on World War II.

March 09, 2009 in Current Affairs, Ideation, Investing, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

Early Report Cards: On Wall Street, Main Street and the White House

Wall-Street-Main-Street

"I'm not saying, 'Mr. President, go stare at the Bloomberg quote machine and come to your senses,'" said CNBC's Jim Kramer. "I just want some sign that Obama realizes the market is totally falling apart. And that his agenda has a big hand in that happening."

You have got to respect a president who, in the face of breaking glass and falling skies, nonetheless maintains the conviction to execute his master plan.  Whether it is the right plan is an entirely different matter.

Case in point, I was talking with a friend last night who wanted to get my read on the tri-fecta of stimulus, financial system rescue and the cratering economy. 

Specifically, he wondered if Obama was placing the right dollars on the right priorities and whether in such scary times, we should be spending cycles and dollars trying to re-make education, re-jigger health care and re-engineer the relationship between the federal government and its people.

Therein lies the paradox for Obama & Co.  On the one hand, if not now then when?  His political capital is as high as it may ever get, the dollars are flowing and the present time is tremendously ripe for transformative “creative destruction.” 

In other words, this might be a once in a lifetime opportunity.

The counter is that screw this up, and we end up with an agenda that (as David Brooks puts it) is unexceptional in its parts but that, when taken as a whole, represents a social-engineering experiment that is entirely new – and not necessarily in a good way.

This fork can be seen in the indigestion between Wall Street and Main Street, zero sum battles between Republicans and Democrats (and by inference, conservatives/liberals), and perhaps soon, populists versus centrists/moderates (see upcoming battles in: taxation, immigration, protectionism, gun rights, auto industry bailouts, supreme court judge nominations, etc.).

In a very provocative, but compelling, NYT op-ed, ‘A Moderate Manifesto,’ David Brooks assails the Obama budget (and his governance instincts), saying:

Those of us who consider ourselves moderates — moderate-conservative, in my case — are forced to confront the reality that Barack Obama is not who we thought he was. His words are responsible; his character is inspiring. But his actions betray a transformational liberalism that should put every centrist on notice. As Clive Crook, an Obama admirer, wrote in The Financial Times, the Obama budget “contains no trace of compromise. It makes no gesture, however small, however costless to its larger agenda, of a bipartisan approach to the great questions it addresses. It is a liberal’s dream of a new New Deal.”

Moderates now find themselves betwixt and between. On the left, there is a president who appears to be, as Crook says, “a conviction politician, a bold progressive liberal.” On the right, there are the Rush Limbaugh brigades. The only thing more scary than Obama’s experiment is the thought that it might fail and the political power will swing over to a Republican Party that is currently unfit to wield it.

Read the whole article HERE, because beyond the immediate financial crisis, which will pass, it gets to the nut of what we the people are signing up for; namely a New Deal or a variation of the Same Old Deal (i.e., party and power politics, division over unity).

Now, more than ever, details and nuance matter.

Related Posts:

  1. Getting Real: On Doomsday, the Demise of So-Called Experts and the New Arbitrage
  2. Engine Failure: When Financial Markets Fail (a good primer on the crisis)
  3. Warren Buffett for Recovery Czar: Why we need the Wizard of Omaha to step up

March 03, 2009 in Current Affairs, Investing, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

Warren Buffett for Recovery Czar

Warren_buffet Fred Wilson of A VC has written an excellent cliff notes version of The Berkshire Hathaway 2008 Annual Letter.

Warren Buffett is the gold standard for sound investing.  He’s the canary in the coalmine that tells you our system is recover-able.

In fact, with that sensibility, I am officially nominating Warren Buffett for Czar of the Recovery. 

Why? As Wilson notes, “All you have to do is read Warren's letter (or even my cliff notes version) to understand why he's the best investor of the past century. Common sense married with a native understanding of markets and value is what produces the returns at the top of this post.”

Read the whole post HERE.  It’s really strong. 

Specifically, there is a reference that Buffett makes to the CEOs of large financial organizations needing to be the Chief Risk Officer as well.  This is sound, essential, and sadly, mostly absent in this debacle.

Case in point, 60 Minutes had a great segment on the Madoff Scandal tonight: The Man Who Figured Out Madoff's Scheme. 

It paints a fully-formed picture of the absence of Chief Risk Officers across the entire scam food chain (from the perpetrators to the victims).

Does any one doubt that Buffett is the Chief Risk Officer in his companies?  Consider Buffetts prescience and understanding of endemic derivatives risk:

10) Derivatives - "Derivatives are dangerous" and "When Berkshire purchashed General Re in 1998, we knew we could not get our minds around the book of 23,218 derivative contracts, made with 884 counterparties. So we decided to close up shop. Though we were under no pressure and we operating in benign markets as we exited, it took us five years and more than $400 million in losses to largely complete the task. Upon leaving, our feelings about the business mirrored a line in a country song: "I liked you better before I got to know you so well."

For all of these reasons, and because this is a time unlike any other (but also a time of great potential for heroic change), I nominate Warren Buffett for Czar of the Recovery. 

After all, he is the gold standard.  Smart, reasoned, clear/understandable and straight.  Been there, done that (I could be wrong, but I thought he played a consultative role in the rescue of Long Term Capital Management – author Roger Lowenstein wrote books on both).

Plus, he is appropriately folksy; he could explain in plain English, be a public face and restore confidence.

Rhetoric matters in times like these.

No less, if he was a face, you bet he would be pretty inscrutable about vetting the process on the government's bailout, rescue and re-boot cycle of the financial markets.  Would you want a guy like Buffett with an official seat at the table?  I would.

Would he do it (be willing to take on the Recovery Czar role)? 

Who knows, and I know what you are thinking.  Buffett already has a full-time gig, Berkshire Hathaway. 

But there is precedent.  Steve Jobs with Pixar and Apple.  That worked out pretty well.

Related Posts:

  1. Getting Real: On Doomsday, the Demise of So-Called Experts and the New Arbitrage
  2. Engine Failure: When Financial Markets Fail (a good primer on the crisis)
  3. Rhetoric: Why it Matters

March 02, 2009 in Current Affairs, Investing, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

Crawling from the Wreckage: The Fed Actually Gets It!

Car-Wreck It is the perfect storm, a fitting end to the Bush Years, lest we soon forget.  

The Credit Bubble’s burst could have been contained, but when Lehman was allowed to fail, the financial system went into a full panic and the economy instantaneously stalled.

This became a self-fulfilling prophecy, and the global carnage still isn’t fully contained. Nor is the economy restarted yet. 

But, crazy times defy conventional wisdom, as noted in a great quote from Fed head Ben Bernanke (in an interview with the Financial Times).  

Bernanke said, “One of my conclusions from my study of the Great Depression is that people tend to think of orthodoxy as safe. But strategy should depend on the situation. In a severe crisis, orthodoxy can prove to be a very bad strategy.”

Essentially, the federal government is coming in and saying, “We are the banker of last resort and we are stepping up to create liquidity and be the safety net against systemic lending risk (Gaither specifically called it a form of insurance from the government today). 

Net-net, I expect the government to lever these two things (liquidity/safety net) to do a one-time “get out of loan free” re-finance offer on a global scale.

If you follow this logic, we see a re-doubling of commitment to diligence but at the same time, a more fluid underwriting and securitization process as potent mechanisms to re-boot the financial system.

It’s akin to de-ionization.  Moving from 'virtual' derivative (engineered asset) to ‘direct’ security (proxy) to 'real' asset forces a re-work of the model but it also gets back to basics, offering something that is tangible, transparent and understandable, which is a confidence builder.

Real assets with closer ties to owners and direct investors.

Portfolio Magazine (“Showing the Money”), which has been the single best source in analyzing the big picture of this crisis, looks at the role of monetary policy, such as creating excess liquidity in dollars injected onto the economy, in restarting this new and hopefully improved engine.

Here is an excerpt: Most of the dollars that the Fed has created during the past six months have stayed inside the financial system, where they are propping up such tottering institutions as Citigroup. The rest of the economy shows no sign of excess liquidity or incipient inflation. Current yields on Treasury Inflation Pro­tected Securities indicate that the market expects the inflation rate to be less than 1 percent 10 years from now.

I would call this piece a must read because it is highly educational, anchoring abstract concepts, like what it means to say that the government is "pumping dollars into the economy," and the related tie in with inflation.

Related Posts:

  1. Getting Real - On Doomsday, the Demise of So-Called Experts and the New Arbitrage: A post on the financial crisis, key takeaways and how to play it to your advantage.
  2. Financial Tsunamis: A post inspired by an excellent Portfolio Magazine article anticipating the crisis.
  3. Carve out an hour to watch the PBS FRONTLINE documentary, “Inside the Meltdown” (it’s online HERE).

February 26, 2009 in Current Affairs, Investing, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

Gallows Humor: The Media "Business"

Media-tombstone

A kōan (公案) is a story, dialogue, question, or statement generally containing aspects that are inaccessible to rational understanding, yet nonetheless may be accessible to intuition.

This is a kōan on the changing shape of the media business, with an emphasis on "business" (as in a content or entertainment oriented industry that exists to profitability build and monetize an audience).

Boxee, Justin.tv, KRON (San Francisco's Channel 4 TV station) and the San Francisco Chronicle are the players in today's show. 

The curtain rises...

Narrator: Rumor has it that old media just kicked Boxee in the jimmy.

Protagonist: Right back at ya in two parts! 

Part one: I was watching KRON on Sunday night when something strange happened.  In place of the normal "Sports Final" segment that usually appears on Sundays, was this pre-fab, pre-taped piece of generic sports crap ridiculously plugged in where the local sports segment used to be.

No explanation was provided by the anchors on "what is this" and "why now," but then again, none was necessary, for the economics pretty much irrevocably changed once Channel 4 ceased being an NBC affiliate. 

The outcome (unfortunately) was long a foregone conclusion.  This was simply the exclamation point.

(Actually, the real exclamation point came a day or so later when Young Broadcasting, the station's owner, filed bankruptcy).

Part two: Meanwhile, with pretty much no advanced hints of what was coming, word came out this week that the Hearst Corporation, owners of the San Francisco Chronicle, are sending out an advanced obituary that barring a turnaround/buyer, they are reserving their right to shut down the Chronicle, the lone, venerable daily of this major city. 

Put that in your pipe and smoke it Mr. The New York Times!

I am sickened by a generation that neither reads nor watches the news.  But not so sickened to prevent me from watching the Lakers game on Justin.tv.

The players take their bows, and the curtain is lowered...

The Kōan: If you can follow the bouncing ball from Boxee to KRON to SF Chronicle to Justin.tv and see them collectively as "The Questions," then what is "The Answer?"

Related Posts:

  1. What it Means to be a "Social" Media Center: Boxee, Apple TV and Square Connect
  2. Pattern Recognition: Winning Blue Prints, Moneyball (NBA-style) and Justin.tv
  3. Carve out an hour to watch the PBS FRONTLINE documentary, “Inside the Meltdown” (it’s online HERE)

February 25, 2009 in Current Affairs, Digital Media, Investing, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

Soros: A Plan for Economic Recovery

George_soros_lightbox Interesting, albeit lengthy, treatise by financier and philanthropist, George Soros, on what must be done to "re-set" the financial system.

Here is an excerpt on the relationship between monetary supply and underwriting conditions for access. 

It always surprises me how few people understand that supply and liquidity aren't one and the same:

"Credit creation and contraction are reflexive and tend to occur in initially self-reinforcing but eventually self-defeating boom-bust sequences.

Therefore it is not enough to regulate the money supply; it is also necessary to regulate credit conditions.

This involves reactivating policy tools that have fallen into disuse: variable margin and minimum capital requirements, and central bank directives on bank lending to particular sectors."

Read the whole piece.  It is pretty granular and actionable.

February 13, 2009 in Current Affairs, Investing, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

Recovery 101: Antibodies, Deep Cuts and Moving Forward

Antibodies One thing that I am realizing in watching this crisis play out is that while we all want to stop the carnage and get back to good times, many have such antibodies against embracing new/updated perspectives that they will fight tooth and nail against real change – even if the net-net is that they create a vicious cycle, and prove out the doom and gloom. 

Case in point, the other day I am standing out in front of Peet’s Coffee listening to a clear financial type dissecting the latest bank bailout plan, and defaulting to “we’re falling off a cliff by July” talk, and how Obama is clearly a one term president; he doesn’t get it; doesn’t know what he is doing, etc.

Now mind you, Obama has been president, what three weeks, and this guy is defaulting to collapse, one term.  He is clearly full of antibodies that preclude him being part of a solution, ANY solution, practicing any nuance or embracing any level of optimism that Obama is a smart guy who is reality-driven and will work through to the right answer. 

I have pontificated on the “WHY” side of this equation in my post ‘Getting Real: On Doomsday, the Demise of So-Called Experts and the New Arbitrage,’ but would also add two quickie thoughts:

  1. Remember the Warren Buffett axiom of 'being greedy when others are fearful and fearful when others are being greedy,' and act accordingly.
  2. Keep front and center the classic line from Shawshank Redemption, 'get busy living or get busy dying.' Sometimes, the difference between success and failure is the willingness to move forward.  Never forget that.

In other words, my read on a cynic and naysayer like this is “dead man walking” and “bullish indicator.”

On Deep Cuts and Moving Forward

Over the past several weeks, I have had some interesting conversations with people I really respect outside of the tech arena. 

These are folks that are in industries that are already several years down the road of the reality that it’s about cash flow stupid; they’ve not played the new metrics game nor have they benefited artificially from financial engineering (other than the rising tide lifting all boats, and vice versa) so it’s interesting to note a couple of data points they provided me.

One is that like a lot of business operators, when the storm clouds gathered, they cut fairly deep and fairly quickly within their businesses.  Again, being in the realm where cash flow is a primary driver, this was a sound and standard exercise for them in cycles like these.

Now hiring(1) What’s interesting is that a common refrain that I am hearing is, “We cut too deep on headcount reductions,” and so a few of these companies are starting the process of adding headcount back into the business. 

Mind you, this is anecdotal data from a few data sources, but as smart operators, I would put them in the bucket of positive early indicators of the beginnings of a slow thaw. 

Extrapolated out to the big picture, as some of these bodies find their way back into the workforce, they start having capital to spend, which fortifies the economic engine, which in tandem with economic stimulus, re-working of financial system, etc. starts to create a self-affirming recovery.

The other comment that really stood out for me was a friend in retail real estate, a field unquestionably hit hard by this downturn.  The friend, a shopping center developer, told me that in times like these, they materially up marketing spend and are present at their properties about 40% more than standard.

Mall-clown This is counter-intuitive but telling on a couple of levels.  One is that while logic may seem to dictate that as everyone is hurting (tenants, owners alike) by cutting spend, the penny saved is the penny earned, the counter is that while everyone else is in crash position, you can take market and mind share by being in the game, and that’s money well spent, especially when factored against a clear ROI and tangible, strategically aligned metrics.

(On a side note, these days when I walk into a half empty Whole Foods, I both wonder if they are paying the price for living a little too close to their 'whole paycheck' moniker, and then scratch my head how the same folks that made food shopping fun, with great merchandising, samples galore and demo stations, seem to have gotten away from the magic, and now just exercise the mundane.  Note to Whole Foods: get back to being Oz!)

Two is that while it may be more comfortable to avoid difficult conversations (like a tenant asking for a rent reduction), by being present at the property, my developer friend is sending a clear message to his tenants: we're keeping it real and we’re in this together.

Basic truths.  The hard part is living them.

Related Posts:

  1. Getting Real - On Doomsday, the Demise of So-Called Experts and the New Arbitrage: A post on the financial crisis, key takeaways and how to play it to your advantage.
  2. Never Let them See Oz: On showman ship and selling the magic
  3. A Mantra for a Monster 2009: Ch'i, Lean and Measure

February 12, 2009 in Coaching, Current Affairs, Investing, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

Pattern Recognition: Wall Street Fat Cats, Jeopardy and Violence, Google’s Big Idea

Disgorge, Wall Street Fat Cats
Fat-cat YOWZA!  Maureen Dowd's NYT Op-Ed on taking the hard line with the CEOs of financial institutions: “Some Obama policy makers still buy into the notion that if they’re too strict, these economic royalists, to use FDR’s epithet, might balk at the bailout, preferring perks over the prospect of their banks going belly-up…The president needs to think like Andrew Cuomo. “ ‘Performance bonus’ for many of the CEO’s is an oxymoron,” he said. “I would tell them, a) you don’t deserve a bonus, b) where are you going to go? and c) if you want to go, go.”

A Sense of Jeopardy; Of Violence
Jeopardy The other night I was watching, ‘Joe Strummer: The Future Is Unwritten,’ a beautifully told biopic about the front man of the seminal punk band, the Clash.  In one part of the movie, Bono is talking about his personal connection to that time (mid-70’s England), and they are very parallel to the present.  What Bono said really struck me. He said, “There was a sense of jeopardy; of violence.  I was terrified. I was excited.”  Yeah, me too…both terrified…and excited!  From irritation does the oyster create the pearl.

Does Google have Big Ideas?
Light-bulb Om Malik of GigaOM nails it in raising the question of whether Google is a great innovator (beyond their core bread and butter, which is pretty terrific) or a me-too company building uninspired, unfocused products.  Om’s quote is sheer poetry: “My big belief is that as we transition to an increasingly mobile world, the location beacon takes the role of TCP, and most mobile services (and applications) find their context from this location beacon.  Read: Google & The Big Ideas (don't miss the comments section).

February 05, 2009 in Current Affairs, Digital Media, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

See Waltz with Bashir: It's Escher meets Cinéma vérité

In my home office, I used to have M.C. Escher’s ‘Hand with Reflecting Sphere’ hanging on the wall.  What I liked about it was the way it played with perspective, shining a light on the general elastic nature of reality. 

I thought about this concept a bit after seeing ‘Waltz with Bashir,’ Ari Folman’s disturbing, evocative and brilliant animated documentary on the 1982 Lebanon War.

Capturing the various senses of war in vivid terms, ‘Bashir’ is one part nightmare, another part hallucination. 

Or, as A.O. Scott puts it in his excellent review in The New York Times (‘Inside a Veteran’s Nightmare’), it “…is a memoir, a history lesson, a combat picture, a piece of investigative journalism and an altogether amazing film.”

Part of what makes the film so special is that the director is a central character in his own movie; so the story is intensely personal and real. 

Following a conversation with a friend who is haunted by a recurring nightmare related to his own experiences as a member of the Israeli Defense Forces in 1982, Folman realizes that he cannot recall any of his own experiences (as a 19 year old, Folman was a member of the IDF units that went into Lebanon).

This realization leads Folman on a journey that (re) captures his personal truth in a manner that is unflinching, and beautifully rendered, without editorial or justification.

The fulcrum in the story, and where the nightmares and horrors unfortunately become unmistakably real is the notorious occasion in September, 1982 when Christian Phalangists, ostensibly driven to avenge the death of Bashir Gemayel, Lebanon’s newly elected president (who had been assassinated a few days before), entered the Sabra and Shatila refugee camps in West Beirut (whose entry points were controlled by the IDF) and massacred as many as 3,000 civilians.

I won't say more than that, as the movie is best experienced with the beginner's mind, the less details, the better. 

If ‘Apocalypse Now’ moved you, as it did me, then 'Waltz with Bashir' is a film that you just have to see, as it is a cinematic kindred spirit, albeit a completely original animal in its own right.

Other movies have captured the horror of war, the sense of abandonment, the automaton-like adherence to duty as a cog in the war machine and the grizzly state where life (seemingly) has no meaning.

But few films truly enrich AND complicate our understanding of real-world events, and do so with the courage to NOT attempt to resolve awful riddles for which there are no easy answers.

Be forewarned, though.  The ending is very powerful, a body blow that brought tears to my eyes.

Related Posts:

  1. Slumdog Millionaire: See this Movie

January 19, 2009 in Current Affairs, Film, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

The End: A George W. Bush Cartoon

Very funny...and says it all in two words (from Sunday's SF Chonicle)

Tom-meyer-the-end 

(Tom Meyer)

January 19, 2009 in Current Affairs, Humor, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

Book of the Year: Read 'The Angler'

The Angler

You know the axiom about not wanting to see how sausage is made.  Well, before the final credits roll on the Bush Presidency, it is instructive to look at how our country came to be put through the meat grinder that is Iraq, Katrina and the worst financial crisis since The Depression.  How did such a poisonous political culture foment, and was it born of ignorance, arrogance, ideology, greed, evil, or something else?

If the answer to this question is even remotely of interest (lest we repeat the same mistakes in our generation), read ‘The Angler’ by Barton Gellman, a brilliant, exhaustively researched, powerful tome on the Cheney Vice Presidency.  It is arguably the book of the year.

While I think that in the abstract, most of us “get” how government works, i.e., the three branches of government – Executive, Legislative and Judicial – when taken out of the petri dish and applied to the handling of real world events, the people involved, how they rise to the occasion (or don’t) and the protocols that drive those outcomes, the specifics are illuminating and instructive.

In The Angler, we really see how government works, or at least did in this administration.  We see how Cheney drove the Executive branch to reclaim power that was lost post-Nixon. 

While it is trite and easy (for some) to paint Cheney as an evil Darth Vader, in truth, the key takeaway is that he was a true believer and an arrogant son of a bitch who was playing chess to everyone else’s checkers game. 

Cheney's depth of detailed knowledge on everything - policy, law, protocol, people and process - is scarily impressive.

He had a clear game plan and a president who, while ultimately the final decision maker, was highly manageable, allergic to detail and stubborn to the point of blindness.

The book raises all sorts of questions on the delineation between Cheney and Bush, and how that defines culpability.

It provides rich detail behind the scenes on key events in a manner that is not partisan, preachy or editorializing, but at the same time, it offers very strong analysis and an excellent narrative from many of the key players.

As a book of fiction, it would be gripping.  As a book of truth, it is a searing, essential read, especially if you like the game politic.

In the interim, here is a tantalizing snippet from ‘Farewell to All That: An Oral History of the Bush White House’ in the February edition of Vanity Fair:

from Lawrence Wilkerson, top aide and later chief of staff to Secretary of State Colin Powell:
(On the culture of wiretapping/snooping): The Cheney team had, for example, technological supremacy over the National Security Council staff. That is to say, they could read their e-mails. I remember one particular member of the N.S.C. staff wouldn’t use e-mail because he knew they were reading it. He did a test case, kind of like the Midway battle, when we’d broken the Japanese code. He thought he’d broken the code, so he sent a test e-mail out that he knew would rile Scooter [Libby], and within an hour Scooter was in his office.

(On Cheney’s management of Bush): As my boss [Colin Powell] once said, Bush had a lot of .45-caliber instincts, cowboy instincts. Cheney knew exactly how to polish him and rub him. He knew exactly when to give him a memo or when to do this or when to do that and exactly the word choice to use to get him really excited.

As they say, truth is stranger than fiction.

Related Posts:

  1. Obama’s First Cuts: On Administration Team Building
  2. Course Correction: What Obama's Victory Says About Us
  3. Why Experience Matters: On Palin, Putin and Prudence

January 15, 2009 in Current Affairs, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

Asymmetries: On Free Markets and Financial Predators

Price-of-Oil Dictionary: asymmetry (ā-sĭm'ĭ-trē); noun.

Any absence of balance or equivalence between two things that are otherwise comparable.

When does a meme become a virus?

Last night, 60 Minutes ran an excellent expose called ‘The Price of Oil.’ It traced oil’s rise in a year’s time from $69 a barrel to $150, and subsequent collapse in a little over three months to under $40. 

Somehow, a commodity that is theoretically priced according to supply and demand ignored a simultaneous increase in worldwide supply and a drop in global demand (according to US Department of Energy statistics) to nonetheless register the single largest price increase in history. 

But there is an explanation, of course. While real demand for actual ‘physical’ oil was dropping relative to supply, investor demand for the virtual crude oil ‘asset class’ was off the charts. 

In other words, just as stocks, credit swaps and other derivatives became completely unhinged from the real value of the underlying asset, so too was the case with oil. 

In fact, 60 Minutes’ expose shows that this unhinging was so resplendent that 27 barrels of crude oil were trading on the commodities market for every one barrel of physical crude that was actually consumed, the very fingerprint of rampant speculation. 

As should be no surprise, with high rates of flipping come increased volatility levels, and an offspring of Enron, whose sole purpose is to corner the market and control/manipulate the price, the needs of the general consumer be damned (remember the never before seen, and never since seen, rolling blackouts?).

Now I don’t know about you, but when I net out that the predominant reason that $2 gas was replaced by $4 gas was that the major investment banks, hedge funds and other speculators were playing the free market game in a manner that unquestionably comes out of the hides of many to enrich the pockets of a few, something feels terribly wrong with this picture.

Specifically, cast in doubt should be our unconditional worship of the god of free markets, our blind faith in its systemic efficiency and lamb-like trust in the immutability of the laws of supply and demand.

Enough! Quit Enabling Financial Predation

The Crude Oil Bubble that predates the Credit Bubble, which follows in the footsteps of Enron, the Internet Bubble, fall of Long Term Capital Management and the S&L Crisis before that is just the latest example of how our financial system seems tilted more towards enabling the predator than protecting the prey.

Put another way, while we as consumers may not like getting gamed an extra $2 a gallon, seeing our 401Ks wiped out and the equity in our homes vaporize, understand that this is a feature of the system, not a bug.  And as they say, doing the same thing over and over, and expecting a different outcome is tantamount to insanity.

So where do we go from here?  In year’s past, we turned away from allowing the robber barons to run completely unfettered; we moved instead towards embracing a public, political, proactive role for government; as the gatekeeper, the maintainer of the delicate balance between the laissez faire free market engine that we hold dear and the regulatory cop that controls, curbs and breaks up large concentrations of power when extreme imbalances occur.

How to Repair a Broken Financial World

In ‘The End of the Financial World as We Know It’ and its companion ‘How to Repair a Broken Financial World,’ author Michael Lewis and hedge fund manager David Einhorn do a really good job of spotlighting the asymmetries that currently exist within our financial system, noting that “the fixable problem isn’t the greed of the few but the misaligned interests of the many…and the lack of checks and balances to discourage it.”

As they note, the market only cares about short-term performance, and ruthlessly penalizes those who forget its eminence.

Even worse, as Lewis/Einhorn note, “The tyranny of the short term has extended itself with frightening ease into the entities that were meant to, one way or another, discipline Wall Street, and force it to consider its enlightened self-interest.”

Some examples:

  1. Imagine the financial services CEO who failed to jump on the derivatives bandwagon, or worse, was the whistle blower for the industry.  If politics didn’t result in his/her dismissal, then a couple of quarters of under-performance relative to his more aggressive industry peers would.
  2. The annual bonus structure that is central to the financial services industry cares not one iota about long-term performance.  Specifically, there are no bonus holdbacks or repayment mechanisms to entice rainmakers to take the long view.
  3. The credit ratings agencies whose job was to expose and quantify financial risk, instead systematically disguised it.
  4. The SEC has become so emasculated that a culture of avoiding short-term political heat and a culture that discourages active governance became institutionalized.  No less of a motivator to not making waves is the knowledge that SEC personnel can look forward to high paying jobs in the private sector if they play their cards right.

While we can’t and shouldn’t try to legislate greed, we can and should kick the credit agencies to the curb; we need to regulate exotic financial instruments like credit default swaps, setting stringent capital and disclosure requirements; we need to set limits on the ability of SEC personnel to work in the same industries that they are trusted to govern (but encourage private know how to move the other direction into the public sector); we need to balance our knee jerk instincts to fund trickle-down rescues (i.e., protect the AIGs of the world) with an embrace of bottom up direct relief to homeowners (haven't we been told ad infinitum that as the consumer goes, so does our economy?).

Netting it Out

Unsurprisingly, much of this is fairly intuitive. Reward the behavior that you want to encourage.  Penalize the behavior you want to discourage.  Never trust the foxes to watch the hen house.  Avoid obvious conflicts of interest.  Set stringent, transparent capital requirements to ensure that participants in the financial marketplace can meet their commitments.  And never, EVER, be afraid to use a big stick when talking softly fails to yield the desired results.

Related Posts
:

  1. Capitalism 2.0: TED Spreads and Lessons from Japan’s Lost Decade.
  2. Engine Failure - When Financial Markets Fail: an analysis of the current financial crisis.
  3. Black Swans and Bank Runs: on why this crisis was predictable.
  4. Financial Tsunamis: connecting the dots in the sub-prime mess.

January 13, 2009 in Current Affairs, Investing, Streams and Nuggets | Permalink | 0 Comments | TrackBack (0)

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