The Great "CTRL + ALT + DEL"

I'm Lovin' It 2.0

2015-08-21T07:47:00.000-04:00

I just ordered an Egg McMuffin from this friendly person. No hassles, no misunderstandings, no line...minimal banter.

The new American workforce.

No vacations, infrequent maintenance, no healthcare, no payroll taxes, no inter-office romances, no world star hip hop videos.

According to "da innernets', there are McDonald's in 118 countries and it employs over 1.7 million people. That 1.7 million is a top tick - going lower from here.

Facebook v GM

2014-01-03T16:03:00.000-05:00

Facebook has 5,000 employees and is worth $135 billion. They made $7 billion in revenue.

GM has 200,000 employees and is worth $55 billion. They made $150 billion in revenue.

I understand that people are upset about income inequality but if you can create that kind of value with the help of so few people, in such a short period of time, you are going to get massively rewarded.

We all want freedom and equality but we can't complain if the market assigns more value to a business that makes it's money when you click on pictures of your best friend's kid than the one that makes cars and trucks. If value creation is how we compensate CEO's in a free market then what are we so upset about?

If CEO's were compensated based on how many people they could employ, then the system might look different...interesting idea but tough to get shareholders and creditors behind that notion.

This is no knock on GM really...they make 30% more cars today than they did in 1979 with 66% fewer workers. That is just the results of innovation and technology.

As labor costs rise, companies are operating with less people and CEO salaries are reflecting their ability to create value for shareholders. We are all free to try and compete if we think a CEO is getting paid excessively. In our society, we can start our own company and take a smaller cut of the pay if that is what we think will drive value.

I am not sure how to make it more fair than that.

Follow the Money: Healthcare

2013-09-29T18:12:00.001-04:00

Americans spend a lot of time hating about how much other people make. Throughout the financial crisis there was considerable scrutiny on banker's pay. I get it. The word "bonus" became a 4-letter word. "How can bankers get paid so much when they ruined the economy..." - we all remember the anger.

There is a new crisis in America and its the healthcare industry. However, the tone is very different.

There are many similarities between finance and healthcare. They both require licenses, or degrees, or some form of expensive higher education. They both require a massive amount of regulation and government oversight. They create highly lucrative jobs. And my favorite: people will persistently overpay for advice, or services, related to both of them. People generally don't skimp on decent medical care or financial advice...am i right or am i right?

America loves to hate on the fat cat bankers (myself included) but as mad as everyone is about the healthcare gridlock our nation faces, you never hear about the fat cat doctors.

I was browsing the website of the BLS (Bureau of Labor Statistics), cuz that's how I roll, and came across this table on average mean wages for all occupational groups in the US and it really got me thinking.

You can view the full list here: http://www.bls.gov/oes/current/oes_nat.htm#13-0000

See any themes here? The highest paying jobs in America are healthcare jobs. Is it a coincidence that health insurance and medical care is so expensive and the people in the industry are the highest paid earners in the US? I'm no expert but I have to imagine there is a relationship there.

Here is the funny part: there isn't a finance related job in the top 25 (a "Financial Manager" was #29 on the list), though Wall St wages and bonuses are still (5 years later) volatile topics of discussion.

No one ever says "this Doctor made $X and they should have to give it back because so many patients died along the way." It's part of the job.

We are happy to blindly pay whatever cost a doctor or an insurer says because our health...our lives, our children's lives, are on the line.

Well, I think we are getting duped here. The cost of medical care in the US is many times more than anywhere else in the world. The system is riddled with middlemen and friction. Not to mention doctors have little incentive to keep people healthy. Instead we over medicate, over treat, and over charge.

I know a guy who started a consulting business to help doctors "optimize" the numerical codes they submit on insurance claim forms to earn more money. He basically finds similar procedures and treatments that the insurance company accepts to get the biggest bang for the buck. I'd like to punch this guy in the face.

The system sucks. It needs to change. Will there be a day when the doctors who have the fewest sick patients get paid the most? Maybe. i like that incentive system.

The Secret Sauce

2013-09-26T22:51:00.000-04:00

"Tell me your secret sauce" is something heard a lot in business. Most of the time, this is just another way of saying "show me how to be successful." The funny part is, knowing the secret sauce and being successful are two totally different things.

Below is the recipe for Coca-Cola from over 100 years ago.

"Holy crap!" one might think. "The formula for one of the most addictive beverages on the planet?! We are gonna print money, right?"

WRONG. Its online and anyone can have it.

Having the secret sauce gets you nothing. The question is: how are you going to execute and make it a success?

Sure, you are going to be able to make the exact same flavored brown bubbly beverage. But how are you going to make that drink into a successful business? Once you have the recipe, you need the cool logo, the stadium advertising, cool music in the commercials, a famous artist to paint people holding your product, super-models drinking it poolside, and friggin' Santa Clause!

A successful business happens when you solve a problem and make people feel good - all while marketing the hell out of it. Those ingredients had more to do with making Coca-Cola what it is today than the perfect amount of vanilla and nutmeg.

Surprisingly, cocaine was in Coca-Cola until 1903....so maybe I am totally wrong :)

Detroit v Brooklyn

2013-08-29T19:59:00.000-04:00

This could have easily been a post about why Eminem is a superior rapper to Jay-Z but I will save that for when the new Eminem album comes out and buries Jay-Z's newest tribute to his royal holiness himself.

The other night, I had dinner in NYC with some Detroiter buddies and the conversation steered toward Detroit real estate (a minor obsession of mine for the moment). I did a little search for comparable properties in Detroit and Brooklyn. Brooklyn, being the edgier crustier sister borough to Manhattan where prices have gone parabolic, had more similar characteristics to the D. I found a couple 4,000 sq ft homes and here is what came back.

I thought the crime statistics were particularly interesting. Of course there are reasons why this analysis is flawed, chiefly because Brooklyn has 2.5 million people and Detroit has 700,000. Detroit covers an area of 150 sq. miles and Brooklyn is only 90 sq mi. That is a lot of less congested space to run away from stray bullets.

Kidding aside, I did bias my search to Indian Village in Detroit and Bedford-Stuyvesant in Brooklyn so I guess this proves that the right kind of data mining can prove any thesis. My point is that even the most dangerous parts of NYC still trade at a silly premium relative to the safe parts of Detroit. I guess it all depends on how you define "value".

Hat tip to Larry Chen!

SOURCES:

BROOKLYN

http://spotcrime.com/#40.684766%2C%20-73.94201

http://streeteasy.com/nyc/sale/927343-multi-364-jefferson-ave-bedford-stuyvesant-brooklyn

DETROIT

http://spotcrime.com/#indian%20village%2C%20detroit

http://www.zillow.com/homedetails/2532-Seminole-St-Detroit-MI-48214/88291661_zpid/

Know the Downside

2013-08-08T16:36:00.000-04:00

A good friend of mine called me the other day to ask me what I thought about some mutual funds that his broker suggested he buy. The broker said the funds would return 7-8% per year and they are super safe investments with minimal volatility.

I took a quick look at the funds and all 4 had MORE volatility than the S&P 500 with LESS returns. To add insult they were all about 90% correlated to the S&P 500. So basically they were just crappier versions of the stock market.

These mutual funds were down between 20-50% in 2008. I am not sure if I would describe that kind of price movement as "safe." Besides, why invest in a mutual fund when just buying the stock market through the SPY ETF gets you better returns, less volatility, and lower fees? Brain scratch? Not really. This particular broker doesn't earn much of a fee if his clients invest in ETF's.

After seeing the funds had the potential to go down between 20-50% if another 2008 were to happen, my friend could easily identify that these kinds of investments might not be a great fit given his objectives. Of course the broker focused more on the reward rather than the risk so the potential downside was never discussed.

We can't know every risk before walking into an investment. And there is nothing to say that we are guaranteed to have another 2008, but a wise man once told me "your biggest drawdown is in front of you." This means that the next calamity will be worse than prior ones and if we invest with this in mind, we can take steps that allow us to live to invest another day.

That doesn't mean sit with cash under your mattress and go buy a bunch of guns (been there done that). It means that your EXPECTATIONS on investing should reflect a fair measure of the risk of loss in a given day, week, month, year...etc.

If you own stocks and you would be surprised if they went down 30% in one year, then you are fooling yourself. Maybe you should own less stocks. If you are ok with them falling 30% because you have a long term horizon and would welcome an opportunity to buy more should the market drop, then that sounds like a plan worth sticking to.

Expectations management and discipline separate the good from the ugly.

I put a piece together that talks about the idea of having some knowledge of the expected volatility in advance and it was recently published on the CBOE website (link). Felt like it is relevant for this blog too.

Enjoy!

What you can get in Detroit

2013-08-04T18:06:00.002-04:00

We used to live in the West Village in an apartment building called the Printing House. It was an old industrial print factory that was converted into cool loft apartments in the 70's. I recently heard the values of these apartments have gone parabolic.

According to StreetEasy, you can buy a lovely 3 bedroom apartment in the Printing House for a cool $4.25 million. This runs for about $1,700 a sq. ft. and comes fully equipped with a doorman and all the luxury a small family could ask for.

3 Br loft apartment in NYC's Printing House

That sounded like a pretty lofty price to a lay person like me. I wanted to see how far my money could go in Detroit. In keeping with the "printing house" theme, I was looking for some similar loft apartments until i came across a listing for what is effectively the entire printing INDUSTRY of Detroit: the Detroit Free Press Building.

The Detroit Free Press Building

You can own this entire historic 300,000 sq ft building for around $5 million right in the heart of downtown Detroit. They are saying it is ripe to be converted into 200 loft apartments. A sale price could come out to about $16 per sq. ft. Not a lot of downside in this compared with owning real estate priced 100X higher.

Talk about opportunity! If only the mainstream media would spend less time focusing on the disaster porn and more time on the people and businesses that are coming up with creative solutions for Detroit. There are several places in the D that have this kind of potential. Blank canvases - looking for smart and adventurous entrepreneurs who want to build something from nothing.

I'll bet you $1 million you'll live until you're 100 years old

2013-07-21T15:30:00.000-04:00

This bet is not valid for anyone who is already above the age of 60 or left-handed.

Seriously though. I will bet you a million bucks that barring you take your own life, or die in a drone strike, you will live to be 100. In case you are wondering, the current American life expectancy is 79 years -- about 76 years for men and 81 years for women. By the way, left-handed people supposedly have an average life expectancy about 9 years shorter.

Why would I make such a bet? First, I am convinced that by the time most of us are 100 years old $1 million will not be such a great sum. Extrapolating another 70 years of inflation at 5% and we get about $32,000 in today's greenbacks.

More importantly, I think life expectancy is going to shoot up. If we believe in exponential growth we cannot discredit the possibility that advancements in medicine and technology can make lifespan go parabolic.

Here is the wiki timeline of medicine and medical technology (link):

Around 1900: The X-ray gets invented as does aspirin...

50 years later we are using chemotherapy to fight cancer and curing polio...

25 years later we get insulin pumps, LASIK surgery, CT scans...

A few decades more and we have cracked DNA sequencing, created artificial muscles and today there are firms working on 3D bio-printing, which is like printing a new liver after you spend your life drinking bourbon...nice!!! (check out ticker: ONVO...the stock is up about 300% in the past 7 months)

It took us 75 years to go from X-rays to CT scans but only 10 years to go from robotic surgeries to bionic limbs controlled by brain waves.

Think about what will happen in the next 50-100 years. It is going to be bigger than we can imagine.

The aide of technology and innovation in the medical field will result in the ability to keep our bodies around a lot longer. Whether you end up looking like RoboCop or Tony Stark you better find something fun to do with all that time you have left on the clock.

"Sup, chief!"

2013-07-14T16:17:00.002-04:00

You know that annoying guy who doesn't know you that well but is trying to fast-forward the "bromance" by calling you "buddy"? Oh, you do that? Me too...It's a bad habit and I'm trying to break it.

Coming from the wrong person (for example, someone you don't know well at all) it may get interpreted as a bit annoying or even condescending. It can also be used as a filler when you forget a name and you know they remember yours.

Here is a decent list of names worth avoiding if the context isn't right (hat tip to my fazbook friends):

Big guy

Boss

Brah

Bro

Bud

Buddy

Chief

Doctor

Dude

Fella

Guy

Homes

Homey

Hoss

Jefe

Kid

Mate

Pal

Player

Scout

Sir

Son

Sport

Tough guy

The Anger Gap

2013-07-08T11:30:00.000-04:00

I feel like America is angrier than it used to be. People are upset about jobs, crony capitalism, the government, taxes, the list goes on and on. I was watching the documentary Detropia and a lot of the autoworkers were pissed at corporations for cutting pay and moving jobs to China or Mexico. I don't mean to sound heartless but what did we expect? We kicked our feet up as a nation and got out innovated and underpriced. We got our collective lunch eaten.

Speaking of lunch, a few years back I was having lunch with an uber smart guy who builds actuarial models for insurance companies. Somehow our conversation steered toward how a lot of Wall Streeters were angry their compensation dropped. The advent of technology in finance made a lot of people obsolete over the past decade.

He drew a picture on a napkin that looked something like this:

(Obviously he didn't have different color pens with him)

The thought is that when a new industry or business is discovered, it's easy to add a lot of value early on. As time passes, competition grows and folks are forced to innovate. If you aren't the one innovating you might be seeing diminishing returns given the same inputs - creating a gap between expectation and experience.

The gap between what we think should happen and what actually happens is the ANGER GAP. Trying harder or putting in more time only to get the same, or worse, results...sucks.

To shrink the gap we either need to lower our expectations, or find new ways to add-value. Neither is easy. No one likes to "CTRL + ALT + DEL" their expectations (part of the motivation to start this blog). Additionally, finding new ways of adding-value means getting out there and talking to customers, stakeholders, competitors. Figure out all the pain points in your industry and find ways to ease them through new products and services. You will be so busy doing this you won't have time to be angry.

My Brush with Charles Ponzi

2013-07-01T22:20:00.002-04:00

Everyone has heard of Bernie Madoff by now. His crime was the most heinous in the history of finance. The fact is there are still thousands of Ponzi schemes happening around us and most victims do not even know what to look for.

I was introduced to an "investment opportunity" back in 2010. A man from Detroit, living in Italy married to a famous actress, got in touch with me through some mutual acquaintances.

I took his call, partly because he was from Detroit and I like to connect with people from my hood, and partly because I like to look at all sorts of ideas. I admit I probably donate too much of my time listening to would-be entrepreneurs but occasionally I meet great people that way. Something felt off about this guy and his partners so I indicated the investment opportunity was going to have to set sail without me.

Last week, I found out that the man I spoke with was sentenced to jail for 10 years for wire fraud and stealing money from investors in a Ponzi scheme (article).

It motivated me to look back at my interactions with him to see what clues made me uncomfortable. Maybe some of these observations will help other targets avoid future Madoff-wannabees.

I have made plenty of bad investments in my life and the list will surely not be comprehensive, nor does it guarantee to be able to detect a fraud. These are just a few smell tests any fool can use to avoid parting with their money too quickly.

1) Returns are not guaranteed. Promising financial benefit is not something any professional investment manager will do. Especially in writing. He sent me this in one of his emails:

"...if we can raise more funds we can really see the financial benefits from the product. Let me know what you think..."

2.) Outsized returns are LESS guaranteed. The best and brightest in the finance space have averaged mid-single digit returns for investors over the past few years. Anyone who purports 10% returns per month should immediately get the Larry David squinty-eyed stare.

3.) Look for "intense domain expertise." This guy was raising money for investment vehicles that were going to purchase raw emeralds in Africa, invest in gold mines in Laos, trade foreign currency markets through a Swiss entity, and buy Hong Kong stocks on the cheap. Sounds exciting, right? Sounds like bullshit to me. You cannot be a jack-of-all-trades in this industry anymore.

4.) Investment managers cannot court you. Regulations prohibit investment managers from excessive spending on prospective investors. These guys offered to fly me out on a private jet to meet them in Rome or Switzerland (whichever was easier for me, of course). Come on! Even if it were legal, the amount of money in fees they were hoping to generate on my piddly investment wouldn't cover the cost of a trip to Europe.

5.) "WHY ME?" This is the most important question of all. You have to ask yourself "why is this opportunity being presented to me?" "How did I get so lucky to have stumbled across this brilliant idea that no one thought of before this shiny salesman brought it to me?" You might be hearing the pitch because you don't and won't understand the investment. It's the old "if you don't know who the sucker is, it's probably you" test.

Through all the dumb things I have done in my life, I could have saved myself a lot of dough had I simply asked "why me?" I knew little about the business or the industry I was being asked to invest in, but got involved anyway. Every time the outcome was identical: a big fat doughnut.

From I.B.G.Y.B.G. to I.B.H.Y.B.H.

2013-06-30T11:34:00.000-04:00

I was 22 years old. I had my first job on a Wall St. derivatives desk. A large client calls us to do a 5 year OTC trade (for the non-wall st folk, these were customized over-the-counter transactions that the bank had to underwrite itself). As the trader and salesperson bickered back and forth about the "right price," they finally agreed at a level after one of them joked: "I.B.G.Y.B.G.?" They shared a laughed, nodded at each other, and went back to their desks.

Being the young eager grasshopper on the team, and frequently confused by the barrage of acronyms used by my colleagues, I asked what it meant:

I'll Be Gone, You'll Be Gone.

Its common to job jump on the Street so long-dated trades had a high probability of maturing well after the salespeople and traders moved onto bigger better jobs at competing firms. The thought was why not just dump a bunch of trades onto the bank's balance sheet, collect a boatload of commissions, and let someone else figure it out later. By the time the trade had significant risk, it would be the mess of some other sorry sap.

I get the feeling the days of I.B.G.Y.B.G. are behind us. Couple reasons:

-People are just not able to jump around as they did pre-2008. Less opportunity to move means taking better care to bring quality business that won't blow up the firm.

-Wall St. compensation has shifted from less upfront cash bonuses, to more deferred stock bonuses that vest over the following 3-5 years.

-Clients are gravitating toward more transparent and liquid transactions that are NOT over-the-counter. The counterparty risk of facing a bank is higher than facing a central clearing house (like the OCC). Products that trade on exchanges are in demand as customers want to rely less on banks for liquidity and pricing. This means less room for the I.B.G.Y.B.G trades as volumes increase in the highly competitive listed products that do not require a bank.

Converting employees to think about transactions from start to finish is important to ensure long-term success of an organization. This holds true for all industries. Salespeople who just want to close crappy business to pad numbers and make the quarter have misaligned incentives with stakeholders. Employee compensation should be tied to the long-term profitability of the business motivating them to stick around.

Cheers to making business more about I.B.H.Y.B.H: I'll Be Here, You'll Be Here.

Be Prepared...but not Too Prepared

2012-01-14T09:55:00.001-05:00

Since entering the finance industry, I have heard just about every possible warning sign of what lies ahead for Americans and how to prepare for it. Selling “fear” is a multi-billion dollar industry: insurance brokers, doctors, politicians, religious zealots, financial advisors, are among the people who have direct or indirect compensation related to scaring you into taking some kind of action.

Think about it:

“You will lose your job and your house if you don’t throw that other guy out of office by voting for me.”

– handsome white-toothed smiling politician

“You must have life insurance and disability insurance and property and casualty insurance and flood insurance and renters insurance and hurricane insurance and earthquake insurance and auto insurance and travel insurance and…”

-nebishy insurance broker

“If you don’t pray 15 times a day and give all your money to the (insert religion) you are going to hell.”

-some guy on the subway

I think you get the point. In the context of the financial crisis, which is going on its 4^th year, I have found myself suggesting ways for people to prepare for an “event” that may or may not happen one day. Generally I tell people they should own some physical gold or silver (somewhere between 1 and 20% of their investable assets depending on their level of bearishness) and go out and buy a gun. Both seem reasonable enough as they will not break your bank. They are just my versions of “insurance policies” which I hope to never use, but exercise our rights as Americans to bear arms and invest in real currency.

If you listen to the interwebs you will hear suggestions of how to prepare, above and beyond the reach of the average American: farmland (I suggested this too but now I look at prices and it is way less affordable today), pvc and vacuum sealed organic seeds (I own these and it makes me laugh), 100 gallon drums of water, solar panels, bullet warehouses, foreign passports and bank accounts, bomb shelters, fuel storage, 6 months non-perishable food, off-site hard drive storage, escape routes, blah blah blah. I realize now that it is impossible to live a happy life while simultaneously consuming yourself by preparing for every possible outcome. The truth is no one really knows how and when this will all shake out if it ever does. The powers that be are called that for a reason and they control this mess…for now.

We would go broke and spend all of our waking time preparing for every possible future event given the millions of possible outcomes. So rather than prepare for them all, we should just prepare for a few of them by taking actions that are reasonably priced and take a reasonable amount of time. Everything else falls under the get educated category - heed the fact that there is some probability that anything can happen.

My business partner says that when he thinks about all the things he needs to do to protect his family, he gets on Amazon.com and starts clicking away at dry food and supplies and suddenly his cart is full of hundreds of items. Then he realizes he could never be fully prepared and he needs to get back to what would really help them today…like earning a living to put food on the table and buying some diapers.

This may sound like a 180 from my previous notions but it isn’t. There is absolutely risk out there but being surrounded by quants all day I realize there is a difference between perceived probability and actual probability. If we cannot even predict every fathomable outcome how could we possibly be expected to prepare for them? I am finding that I would rather live happily than live in fear.

I guess you could sum it up by saying “stay educated but keep on keepin’ on.” If some terrorist wants to blow up my local diner I don’t know that I can hedge this risk out of my life completely, so I am not going to let the thought of it ruin my day.

India: The Numbers

2011-05-27T12:15:00.000-04:00

I totally stole this idea from my friends Ted and Sarah, who have the best travel blog I have ever seen (LINK). Below are some of the numbers from our stay in India. India was excellent, action-packed, and provided us with a newfound perspective on South Asia. To sum up India in a couple points: 1.) You cannot generalize India, it’s too diverse 2.) India is full of both positive and negative extremes 3.) Bring your patience or just stay home.

Time spent in India = 3 months

Cities/Towns/Villages Visited = 19

Nights slept in a hospital = 2

Illnesses defeated = 4

Money raised for Shanti Bhavan with YOUR help = $11,600 (as of May)

Laptops broken and replaced = 1

Flights taken = 7

Hours spent in a hired car (excluding taxi) = 34

Hours spent on a long distance bus = 19

Hours spent on a long distance train = 51 (4 journeys)

Longest taxi ride = 3 hours to go 30 km in Mumbai

Motorcycles hit = 1

Most expensive drink = $18 – Taj West End Bangalore

Cheapest drink = $1.00 – Bar in Hosur

Cheapest hotel = $30 – Mysore

Nights slept at friend’s house = 12 (thanks to Jay Lurie, Sumit and Linda Dutta)

Business meetings attended = 26

Michigan Wolverines met = 9 (Go BLUE!)

Tigers seen in the wild = 3

Elephants ridden = 2

Meals that contained beef = 0

Days rained on the mainland = 2 out of 87

Opportunities in India = Countless

We are planning to do a Best of Pics, Best of Panoramics, and Best of Videos as soon as we get them all sorted out…Stay tuned!

Bank of America and India's Multi-Billionaire Mobster

2011-03-17T02:33:00.000-04:00

Today I woke up to the following headline and did a double take: “BofA Board Adds Billionaire Ambani, Boosting Access to India.” Mukesh Ambani? THE Mukesh-corrupt-billionaire-who-barely-escaped-jail-on-insider-trading-charges-Ambani? Wow. BofA has really stretched on this one.

Mukesh's crib

Most Americans do not know the back story on Mukesh Ambani. His family is known as the most powerful in India. The press loves to "ooh and aah" about his recently completed Mumbai home, worth an estimated $1 billion, boasting 27 stories, equipped with 3 helipads (1 is never enough) and a parking garage for 160 vehicles. His family business, a super-conglomerate empire called Reliance, was started by Ambani’s father in the 1960’s and covers the gamut as far industries go – biotechnology, infrastructure, solar power, financial services, retail, communications, blah blah blah.

The dark side of the Ambani legacy is littered with government bribes, black-money malfeasance, and a family feud that combines the tomfoolery of the Kardashians, the Sheens, the Spellings, and the Hiltons altogether (talk about a reality show). If you seek more on the topic of "Mukesh Ambani corruption" I am happy to google that for you (LINK). In Anand Giridharas' recently released book entitled "India Calling," he writes that friends of Ambani think of him as a "nonviolent Don Corleone" who trades in the currency of "tip-offs and information". Sounds like a perfect fit for the BofA Board of Directors, no? Seriously, who makes these decisions?

When I saw the headline, I immediately walked over to a handful of business students at Shanti Bhavan, to get “the Indian youth” perspective. I prompted them with the following question: “what would you say if the biggest bank in the United States invited Mukesh Ambani to join their coveted Board of Directors?” The response was...immediate laughter. One child yelled out “he is a criminal!” Another chimed in “he paid hundreds of crore (1 crore = 10 million rupees = $220,000) to stay out of jail.” They were shocked to hear that Bank of America (a firm I have shared many past experiences about) would even consider such a notion.

What ever happened to background checks and due diligence? I guess when BofA is competing to finance those high margin Indian government infrastructure projects they will pull out all the stops.

Closing the Wealth Gap: A Lesson from India

2011-02-16T03:53:00.002-05:00

Sunrise in Southern India

India is a fascinating place. I think it is really difficult to understand this country without seeing it for yourself and experiencing the culture in the first person. Though I have only been on the ground for a short period, I have witnessed enough to convince myself that I made the right decision by coming here. Before arriving, I heard varied opinions: "India is beautiful with a spiritual wonder about it;" "India is home to the poorest people in the world...it's a sh*t hole and you will go once and never go back;" "India has an entrepreneurial quality about it...there is so much opportunity...it totally works for me;" "First suggestion about India: DON'T GO (said to me by an Indian-American living in NYC)." I actually have a bet with a naysayer friend in Hong Kong about whether I will return to this country after my first visit. Nevertheless, I believe I will be back many times and he will lose the bet.

Rural village in Tamil Nadu

Some people believe India has already drowned in its own squalor and despair and will never have a meaningful voice on the world stage. They feel India's bureaucracy will further induce a snail-like climb out of poverty and the country will lag behind the widespread advancement and burgeoning growth that the rest of the emerging world is experiencing (particularly that of its neighbor China). I am beginning to take a step back from this argument. India's bureaucracy and dated ways of conducting business may prove to be its saving grace. Pardon?

To put it into perspective, India's economy (in terms of GDP) is a tad smaller than Canada's, and its GDP per capita is about the same as Iraq's. It is a country with a population that is 4 times that of the United States in a space that is one 1/3^rd the size. In today's world where economic growth is a necessity fueled by lax monetary policy and irresponsible credit expansion, India has marched to the beat of a different drum. Their Reserve Bank is far more strict and less accommodating. Their value system and work ethic is strong and they do not lean solely on exports the way the rest of Asia does. India has real domestic demand (something quite foreign to Americans)! They also have their own music (ranging from the ancient period of the Mughals to the modern age of A.R. Rahman), movie stars (Amitabh Bachchan is a combination of George Clooney and Robert De Niro…a legend here), sports teams and you can be sure that they will not be airing their own version of MTV's "Teen Mom" anytime soon.

So what is the point? Despite some of the positives I mentioned above, India is the world's poster child for economic inequity and social inequality. Some estimates state that 40% of the population falls below the poverty line (which is an income of about $1.25/day). I recently spent some time interacting with Dr. Abraham George about the dynamics of this country and it led us to the impetus behind him founding Shanti Bhavan, a school located in Tamil Nadu, India. The school aims to educate the children of India who come from the most dire conditions (these children come from the 'untouchable' caste, the lowest class of society that is highly discriminated against). His belief, which has become mine too after having spent time at his school teaching the kids, is that in order to combat the widening gap between the wealthiest whales and the poorest paupers, one must introduce quality education to those who need it most...and this is precisely what he is doing.

This school is a model that can be applied not only in India, but anywhere in the world where the concept of "the rich get richer" is becoming a tiring reality. Sound familiar? Tunisia, Egypt, Iran, Albania, Yemen, Bahrain, Jordan and eventually the United States, can all afford to take a critical look at education for the poor (and even those who are slightly above the poverty line). These countries want change right? The voice of change can be found within EDUCATION.

6:30 am: I come to class and find the 12th grade like this

Dr. George’s attempt to strike at poverty is worth exploring on a deeper level as there is something very unique about it. He begins with the poorest youths. The children are selected at the age of 4, based on their level of poverty and their intelligence quotient. They receive an education at Shanti Bhavan absolutely free of charge. There are 200 children here between ages 4 and 18 who are willingly participating in an intensive curriculum that would make most American college students blush. All the kids go to school for 6 days a week and the older students frequently attend classes from 6:30 am until midnight. The children are humble and respectful and almost all of them have career goals. They don't bully, they are well-mannered, extremely cultured and are knowledgeable about current world events (their teachers come from all over the globe).

Their fluency in English and social etiquette are head and shoulders above the children in the villages where they come from, making them celebrity equivalents back home. If their performance lacks and they do not show improved effort, the kids can be asked to leave the school. This is not a good outcome, of course, and it happens to very few of them. These kids do not have any other viable options - receiving an education at Shanti Bhavan has saved their lives. Many of them would have never been sent to school by their families who are trapped under the heavy thumb of destitution. Without this opportunity, many of the kids would have been forced into hard labor at a young age or even worse, been victims of physical abuse. Shanti Bhavan pulled them from the grasps of enduring ignorance and gave them the chance to live their lives another way - devoid of poverty, full of hope, and one step nearer to closing the gap.

For more on how you can get involved in Shanti Bhavan (they need volunteers to come out and teach everything from accounting to music) please visit their website (HERE) and read the personal statements of some of their upcoming graduating class (HERE). If you would be willing to make a donation, you can find the orange DONATE button on the left hand side of this blog. As you can see, we have had a number of donations so far and we appreciate your support...these kids appreciate it even more.

If education in Africa is also of interest, check out our friends' organization called PROJECT A.B.L.E, dedicated to promoting literacy for African youth.

(This posting has been edited by Shilpa Raj - 12th grade student at Shanti Bhavan and future author and journalist...any mistakes are Justin Golden's fault :)

A Trillion in Tuition

2011-01-18T13:12:00.001-05:00

With an overwhelming number of topics for discussion these days, I find myself running into information overload on what to write about (a form of writer's block= too much out there!). I have a new simplistic way of organizing whether an issue is newsworthy: pay attention when the number associated with the issue has a "T" next to it..."T" like TRILLION. In 2002, I worked for Deutsche Bank and I remember we celebrated being the first European bank to have assets over $1 Trillion Euros. Back then it was a huge deal.

Today, it is the prioritization "line in the sand" for politicians, economists, and journalists trying to deal with issues that matter. Numbers that have a "T" next to them include: bailouts, Federal Reserve money printing, US National Debt owned by foreigners, pension shortfalls, municipal liabilities, household debt, etc. The item I would like to discuss today, however, is college debt. This number, according to Alan Collinge from StudentLoanJustice.org, is nearing the $1 Trillion mark. While Americans have tightened their belts, reduced some frivolous spending, and gone back to school to help their candidacy for employment, college debt has surpassed credit card debt! No small feat!

I have seen tons of articles about the topic of higher education recently and wrote a little note about it a few months ago (Creative Economy). There are a couple things I would like to share about why people should be paying attention. Why is the government pushing us so hard to go to college and offering us financing at terms that appear too good to be true? Well, it is one of the ways to get people under the proverbial "thumb" of Uncle Sam. These loans do not go away, the interest rates will go up, and the government is behind 90% of them. "Take out a loan, go back to school...help our collective brain trust get smarter...lets show countries around the world that our education standards are the highest...Asians go to school 8 days a week, we have to step it up!" It seems logical to me. After the housing bust, the government needs to somewhat modify the American dream. What is the 2nd most expensive asset we buy, something we are told we cannot live without, and something the government can easily offer to us? A COLLEGE DEGREE.

The competition is fierce.

No wonder this debt is piling up and the cost of college is rising at its fastest pace ever. It is a way to balance the debtor-creditor relationship – if the students owe the government a trillion and the government owes China and Japan a trillion…hmmm. Get the students to owe us more and then our national debts will not look so bad. Follow me? Some public universities are seeing double digit increases in tuition each year (LINK). As you extrapolate those increases you will see why new parents have to start paying attention…TODAY! Here is a helpful website (College Tuition Calculator) for all of the parents out there who plan on seeing their children go to 4 year universities. If you want to be spared from doing the work, here is a theoretical scenario of a newborn:

-Current school tuition/room and board annual cost: $20,000
-Years until college: 17
-Number of years attending the university: 4
-Expected annual tuition increases over the next 17 years: 6%
-Expected annual returns on investment for savings account: 2%

TOTAL COLLEGE COST: $235,597

-Monthly savings required today in order to pay this amount once college begins: $939 (based on the 2% savings rate of return) (the math on these numbers)

Add a couple kids to the equation and you can see how this is becomes a monstrous problem quickly. The sheer notional size of the numbers is staggering; that is not the only shocking part. I found some other interesting "features" about student loans that I am willing to bet not everyone was aware of. Student loan debts are precluded from the following protections that apply to traditional consumer debt (mortgage, credit card):

1.) Bankruptcy protection (you go bankrupt and your student debts are NOT erased)
2.) The right to refinance (government loans cannot be refinanced though private loans can)
3.) Fair debt & collection practices (they can garnish disability and call you at odd hours)
4.) Adherence to usury laws (interest rates have no limit)
5.) Truth in lending requirements (disclosures can be vague)
6.) Statutes of limitations (time does not run out on how long they can come after you)

(Source: Default-Student Loan Documentary)

I was surprised to find this was the case for college loans...then I thought about it for a second… then I was not surprised. Either college will have to become more affordable or we better start saving now. Either way the government is incentivized to make college more expensive. You owe them more and they get to tip the terms on the debt in their favor. At the end of the day, we do not want every kid in America trying to become the next Lebron James. Of course bailing out on college wasn't the worst bet for Henry Ford, Michael Dell, Bill Gates, and Mark Zuckerberg, but they may be the exception. Is meritocracy and mentorship the answer? If someone can get the job done without the degree, then they should not be viewed any differently. For example, I am spending a year traveling, getting my version of a post-graduate degree in global entrepreneurship from the college of “the world.” Should that not count as legitimate education?

Livin' off the Fatta the Land

2010-12-21T11:13:00.001-05:00

If you take a look at the right hand side of this blog you will notice a few sites that I like to follow. One of them is Sovereignman.com (introduced to me by @Shamrock5000). Yesterday, Sovereignman posted a link to a Stansberry Research video that sounded like a doomsday "public service announcement." The video took about an hour to get through and contains important information about the devaluation of the dollar, piling US government debt, and a lengthy teaser advertisement for you to become a Stansberry client (boring). If you want to take an hour to watch this click here (LINK TO VIDEO), or you can just keep reading and I will sum it up for you.

The main point is that the US has no way out of its deficit spending and federal debt load - the interest payments on the debt will become too great, thus, the liabilities will grow in such a way that the only solution is for the dollar to be devalued even further (it fell 8% in 2010). What does devalued really mean? In a nutshell: your savings will be worth less because the prices of goods and services will become much much higher in the future (see my post below on "The Frog"). Stansberry suggests we can take action to protect ourselves from such events by doing some or all of the following:

-Own physical gold (buy a gold coin or buy stock in PHYS)
-Own physical silver (buy a silver coin or buy stock in PSLV)
-Have access to a rural place (call Aunt Ida on the farm and tell her you have dibs on the extra bedroom)
-Own money in a foreign currency outside the US (this is trickier)
-Own stored food in your basement (twinkies can withstand nuclear holocaust)
-Own land

I want to focus on the last one for a second. Land. Maybe Lenny and George from Of Mice and Men had the right idea? I recently contacted a land broker because I am curious about the idea of owning land as a hedge to the aforementioned travesty that some the doomsayers are predicting. The investment properties of owning land appear to be multifaceted. First, if real assets appreciate (real assets meaning things you can touch, live on, or drop on your foot and they hurt) due to inflation, then the value of the land should rise. Second, if you are growing crops on this land and the prices of those crops rise, you stand to gain by selling those crops to the people without land (this can also be achieved by leasing parts of the land to farmers). Third, you can eat the food grown on the land so the "personal survival" box is checked as well. If you think about alternative investments, few cover all of these bases. Sure you can buy food with gold and silver but what happens when you eat all your food and spend all of your gold? Land appears to be the better hedge.

Rather than go out and borrow money to buy a massive tract of land, I think the idea of a land collective makes total sense - pool a group of people together to buy a piece of land. There really is power in numbers here. If you ever NEED this land (and I say this because clearly we all see that the grocery stores are still fully functional and our money still works), you have a group of people that will be farming it with you and protecting it with you. I will take it a step further. You want land that has access to freshwater. You need water to grow food no? If you live in Michigan you are in a great position because you are surrounded by the equivalent of a fresh water ocean.

I am not saying commit your entire life savings to an idea like this but why not spend 5% of it on a share of farmland that is within 2-3 hours drive from your house. This should not break the bank. Others are jumping on the land grab as well. George Bush just bought 100k acres in South America. John Malone (telecom magnate) bought an $83million piece of land in New Mexico at around $300/acre. Bill Gates bought a 500 acre ranch in Wyoming. Of course these are not small purchases and they have the luxury of private jet escape pods to get them to wherever they need to go, but you can see that the "smart" money is involved in this.

I am curious what people think about this topic. It is seldom talked about and is clearly not as sexy as investing in AAPL or some high yield bond fund. But if you were to commit some of the money going into your IRA or 401k (which the government may have some influence on in the near future) to something like this, I think you get closer to whatever a "well rounded investment portfolio" should look like. If anyone is interested in exploring some kind of land collective/partnership/mutual fund, please let me know. We already have a few people on board. Something to ponder for 2011.

Take a Splice out of Life

2010-12-14T19:36:00.003-05:00

For nearly a decade I was a deer stuck staring into headlights, frozen by the barrage of information coming at me from every corner of Wall St (for the record: none of it was inside information). The financial software applications that occupied my desktop real estate continuously vomited mountains of information, giving me little time to learn about how the rest of the world was being launched into cyberspace. Having spent a few months away from the streaming stock quotes, bloomberg terminals, and flickering bid-offers, I have discovered just how powerful (and critical) technology has become to businesses and the everyday user.

It is shocking to see how much influence websites and apps have in changing the way we communicate, make buying decisions, entertain ourselves, educate our children, etc. Entirely new industries are emerging overnight and staying on top of the countless new outlets is an arduous task to say the least. Take Groupon for example. Today, there are apparently some 500 Groupon copycat sites globally and if you gave me a penny for every business I have heard or read about in the past month that aims to be "the Groupon of (INSERT PRODUCT OR SERVICE HERE)," I would have a dollar. The internet is growing and changing faster than we are able to process it because the content providers are no longer the cartel of tightly knit media elite...the new content providers are (get ready for it).......us!! And there are a helluva lot more of you and I than there are Rupert Murdoch, Richard Branson, Sumner Redstone et al.

"User generated content" or "consumer generated media" or whatever you want to call the process of freely posting information on the internet, is changing the way the world interacts as we speak. It seemed like everyone watched "60 Minutes" with Mark Zuckerberg a couple weeks ago but I gather that few went online to catch "60 Minutes: Overtime" when Lesley Stahl interviewed Chris Cox, Facebook's head of product development.

I thought this short interview was really thought provoking and it validates why websites like facebook, twitter, groupon, four square, quora, and kiva are in a position to give the power back to the people. Content that is created by us (particularly by those within our network...i.e. anyone's email address we have) may be richer than content provided by the experts (who we no longer trust?).

The blending of technology and user generated content will create massive opportunity to "splice": businesses must fuse themselves to the growing stream of information we (as in the collective we) are posting online. This will allow business to become more competitive, understand their customers, identify new trends early on, innovate, get instant feedback, and the list goes on and on. I am curious what people think about this short interview.

http://www.cbsnews.com/video/watch/?id=7120112n

For the Unemployed Turning Entrepreneur

2010-11-30T16:30:00.001-05:00

A good friend sent me an article he pulled out of Worth magazine the other day. The article summarized the 10 Rules of Successful Entrepreneurship from Bill Murphy Jr.'s new book The Intelligent Entrepreneur. I enjoyed the piece and thought it would be worthwhile to share. I am finding a high correlation between articles about how difficult the job market is and new startup business ventures friends and former colleagues are embarking on. In addition, there are tons of talented "out-of-work" people who are teaming up to start businesses. These folks gave up looking for the next mindless job... they are going out and creating exciting new careers.

It is great to talk with enterprising people who are optimistic about the prospects of growth both in the developed and emerging worlds. Even in Michigan (despite what you may read in the dreaded papers) at a recent entrepreneur's conference held in Dearborn, the halls were buzzing about alternative energy, life sciences, social media, mobile marketing strategies, etc. I did not even hear the word "automotive" mentioned once. Who says Detroit cannot reinvent itself?

For those of you who are considering taking the plunge into one of the many entrepreneurial ecosystems, here are the 10 rules that came from Bill Murphy's research and are flushed out in his book (which I am definitely going to buy):

1.) Successful entrepreneurs commit to entrepreneurship rather than to a specific business.

2.) Successful entrepreneurs look for market opportunities before creating business solutions.

3.) Successful entrepreneurs focus on innovation and scale.

4.) Successful entrepreneurs pick founding teams with a history of working well together.

5.) Successful entrepreneurs realize that they play the most important role.

6.) Successful entrepreneurs manage risk.

7.) Successful entrepreneurs commit themselves to learning management skills.

8.) Successful entrepreneurs learn to sell.

9.) Successful entrepreneurs redefine failure.

10.) Successful entrepreneurs aren't in it just for the money.

A Frog Inquires: "is it hot in here or is it just me?"

2010-11-08T12:06:00.001-05:00

The old adage says that if you throw a frog in boiling water he will quickly jump out. But if you place the frog in cold water and raise the heat ever so slightly to boiling, he will lay still and cook to death. Replace the frog with “the American taxpayer” and make the water temperature the “level of prices” and you have a metaphor for the current US monetary policy. It would most certainly not be in the best interests of politicians, or central bankers alike, to turn the inflation switch on overnight. That would result in nothing short of riots. In light of that, it is becoming increasingly obvious that the only way out from under the mountainous pile of government debt is through moderate price inflation and erosion of purchasing power over time. The other alternatives would result in a US government default or debt restructuring and we can be sure that no President, Democrat or Republican, would concede to that under his or her watch.

Some economists will contest claims of higher price levels and lower purchasing power with the sagging level of the Consumer Price Index (CPI) relative to historical inflationary periods. Contrary to some beliefs, one can argue that CPI is a manufactured index that is used as a benchmark for keeping wages, benefits, and cost of living indices in check, and fails to depict an accurate basket of goods. While deflationists are constantly pointing toward the multitude of retail discounts and dollar menu offerings they come across during trips to the mall, they fail to mention rising prices in things like beverages, clothing, pharmaceutical drugs, utilities, transportation, college tuition, and most importantly, inputs like metals (hard commodities) and agriculture (soft commodities).

There appears to be a disconnect between where actual commodity prices are going, and where consumers expect the prices of goods made from these commodities are going. Is it reasonable to think that the things we need to buy (food, clothes, cars, etc.) will miraculously become cheaper even though the inputs used to produce them are skyrocketing? NO! Some simple facts: corn is up 43% this year, soybeans are up 30%, wheat is up 34%, coffee is up 52%, cotton is up 100%. Food and clothes will become more expensive unless the labor to make these items becomes much cheaper. Fortunately, East Asia is already under pressure to improve working conditions so do not expect labor to become less costly. On the metal front: copper is up 18% year-to-date, silver is up 62%, platinum is up 20%, palladium is up 77%, and gold is up 28%. ‘Nuff said?

The laymen frequently combat these statistics with the “wealth” they are accumulating in their stock portfolios and retirement accounts. “If the stock market is up, my portfolio rises, and I am getting richer,” they quip. It appears as if American taxpayers forget that they will lose if the dollar wins the race to zero. After applauding the recent strong performance in the stock market, most Americans show no angst from the 13% decline in the dollar over the past 4 months. “So we won’t go to Europe for vacation this year!” some might crack. Unfortunately it is not that simple. The US operates at a trade deficit and we consume many goods from other countries so cutting out vacations abroad will only alleviate part of the pain caused by the weaker purchasing power of the dollar.

To my fellow frogs I fear we must be realistic and face the facts that life will become more expensive. It could get a lot pricier should the Government and the Fed not perfectly thread the needle of igniting an economic recovery while giving our foreign lenders some semblance of confidence in the dollar. We should prepare for higher prices domestically or find a way to denominate our assets in other stores of value to avoid getting cooked (buy some land or some Chinese yuan…or take my grandpa’s advice and buy 4 boxes of cereal before the price goes up!).

Vegas Musings

2010-11-07T22:03:00.001-05:00

Vegas is hilarious to me. I think it is pretty awesome that people come from all over the world to experience all of the different things Vegas has to offer. I was in Vegas last weekend visiting friends and doing some due diligence on a few casino stocks I own (hat tip J and Z) and I noticed some items worth sharing:

1.) Cab drivers are giving stock tips again? I was surprised to be questioned by my cab driver why I owned WYNN (traded on Nasdaq) when the better play, in his expert opinion, was the WYNN Macau stock that trades in Hong Kong (ticker: 1128.hk). When cab drivers are giving away investment tips I tend to get nervous.

2.) Vegas is still hurting. Steve Wynn said things will not get much worse but you can tell they are reaching to squeeze every ounce from the public. I was annoyed to find out that I could not get Wi-Fi in my room unless I paid the resort fee of $30 a day. That was not as bad as the $1.50 extra charge for bleu cheese olives in my martini. Lastly, table service at the club must be down a good amount. I got far too many cordial texts from the VIP guy at the WYNN asking me when will I arrive at the club. Back in the bull market, they used to drop your reservation if you did not show by midnight. Now they text you until 2 a.m. begging for your business.

3.) People are really serious about risks from the 'Death Ray' at the new Vdara hotel. If you are not familiar, the sun's reflection off the south face of the hotel is so strong that "if you're at the hotel's swimming pool at the wrong time of day -- it can singe your hair and melt your plastic drink cups and shopping bags." Check out one artist's rendering of the giant sized "ant and the microscope" catastrophe at the Vdara below. This is pure genius:

4.) The slot machine industry is mocking its own customers by putting new ridiculous games on casino floors. I came across a slot machine at the Palazzo that I had to take a quick snap of. Below, I compare a traditional slot machine (on the left) to one of the new "win on multiple lines" games (on the right). Are you kidding me? It is bad enough that people don't have to use the hand crank anymore but now they get to follow not 1 or 2 more lines....but 100 lines!

Here's to the people that plug into slot machines until they have to be woken by security...without you gentle folks, the casino's would be forced to charge Angelo Mozilo and the other sunbathers extra, when exposing them to magnified gamma rays like those at the Vdara.

A Monetary Walk of Shame

2010-11-02T12:11:00.001-04:00

Photo: PacificCoastNewsOnline.com

Preceding this week’s highly anticipated midterm elections and two-day Federal Reserve meeting, PIMCO'S Bill Gross published his monthly investment outlook containing some shift in sentiment toward the very system that he advocated just over a year ago. Gross, PIMCO'S longtime Co-chief investment officer, has long been lauded as the “Bond King” and stands at the rarified investment pulpit with the likes of Warren Buffett, Jack Bogle, and Benjamin Graham. His investment outlooks are considered must-reads for anyone in financial services, as they provide insight into what the investment elite are pondering. In this piece entitled “Run, Turkey, Run,” (LINK) Gross predicts that the upcoming Fed meeting: “will likely signify the end of a great 30-year bull market in bonds and the necessity for bond managers and, yes, equity managers to adjust to a new environment.”

Is Gross crafting PIMCO'S own obituary with a statement like this or does this signify PIMCO’s entrance into the equity world as he surrenders to fewer return opportunities in the bond market? Or is the “Oracle of Orange County” taking the first step in a monetary walk of shame, conceding that policies which made sense before have become runaway fiat freight trains that he jubilantly rode?

While Gross has always appeared to have an anti-big-government bend to his commentaries, he was not afraid to partner with the government and even imitate the Fed in 2009 when the United States was peering into the economic abyss. In his January 2009 outlook he wrote, “PIMCO’s view is simple: shake hands with the government; make them your partner by acknowledging that their checkbook represents the largest and most potent source of buying power in 2009 and beyond...For now, our Ponzi-style economy and its policy remedies encourage bond investors to mimic Uncle Sam and its global compatriots. Buy what they buy, but get there first.” (LINK) At the time, it was perfectly acceptable to run the printing press in support of our great nation as managers were desperately seeking refuge from the crisis of 2008. (In other words, "it seemed like a good idea at the time but i do remember having a few too many drinks.")

In his February 2009 outlook, Gross congratulated the Fed and showed optimism towards the unprecedented efforts at a time when markets were particularly fragile. He applauded the Commercial Paper Funding Facility and the Fed’s purchase program for agency backed mortgages opining that these two programs “have been the major policy successes to date…because they have supported and increased asset prices whose decline has been the major deflationary thrust behind the real economy. Stop asset prices from going down and with a 12-month lag, unemployment will stop going up, and President Obama’s targeted three million new jobs will have a fighting chance of being achieved” (LINK).

Today, Gross feels that the Fed and government which he admittedly partnered with in 2009 have gone too far. In his most recent note he says, “Check writing in the trillions is not a bondholder’s friend; it is in fact inflationary, and, if truth be told, somewhat of a Ponzi scheme…Now, however, it seems the Fed has taken Charles Ponzi one step further.” Even though the idea that developed nation’s public debt being a Ponzi scheme is not new, Gross has reached his own proverbial tipping point (in other words Gross has been sleeping with the enemy).

So why the sudden change of heart? When did we transform from the collective supporting of asset prices to what he now calls a “Sammy Scheme” (Uncle Sam’s version of a Ponzi scheme that has been orchestrated by politicians and subsequently enabled by the voters that elected them)? Maybe this is the way it always was and no one wanted to admit it? Gross is coming to grips with the reality that the Federal Reserve, despite its alleged independence, is a highly politicized tool used not only to support asset prices and provide liquidity, but fuel deficits, and rather large ones at that. I would not want to wake up and rollover to that realization either.

Exit the "Knowledge Economy"...Enter the "Creative Economy"

2010-10-25T12:40:00.002-04:00

I recently heard Gary Hamel speak at the Ross School of Business (University of Michigan) in Ann Arbor. I had never heard of Gary before walking into the auditorium, and after listening to him for 45 minutes, I wanted to know everything about him. This guy is good! (http://www.garyhamel.com/)

I took some interesting notes during his talk. Gary is an expert corporate strategist who specializes in the topic of management, specifically how to "reinvent" management. The point that resonated most with me was a slide he posted called "Gary's Hierarchy:"

Essentially, Gary argues that intelligence is pretty much par for the course in today's economy and the real way to differentiate is through creative ability. You can outsource all of the technical skills we were told would take us deep into the 21st century (programming, engineering, finance, etc.). He believes that business is more turbulent today and companies are not able to mitigate the turbulence fast enough. Modern management styles are no longer modern (most taught management styles are from the beginning of the 20th century). Couple this with a faster business cycle and you too may see the need for more agility and creativity from leadership.

Listening to Gary, I immediately took pity on the millions of Americans who are making one of the various paths through higher education their own. It seems like an all too common solution for the current recession we are in is to go back to school...and universities know this so school is not getting cheaper anytime soon. Is all of the money spent on tuition to get a certificate and get "smart" worth it when the more applicable skills come from unlocking creative ability?

The Neighborhood Watch is Back

2010-09-28T16:31:00.002-04:00

Crowded gun show in Michigan this past weekend (courtesy of Chad Hines)

I am starting to wonder what the end game for gun ownership in America looks like. More frequently we hear "gold" and "guns" uttered in the same breath. In fact, last year when talking to my accountant about owning gold and silver his first question was: "How many bullets to do own?"  I did not own a gun at that time so my response was "zero." With a smirk his follow up remark was: "Your gold is worth nothing if you can't protect it." So is there more value in owning the gold or owning the guns? Some take the conversation a step further by saying that organic seeds (not your round-up ready seed varieties from Monsanto) would be most valuable because if the world blows up, people will need self-sustaining food sources in order to exist past what little they can store in their basements. Again, this thought brings me back to my accountant's comment: "Your (INSERT ANYTHING HERE) is worth nothing if you can't protect it."

Gun ownership is controversial in its own right and is something I never paid much mind toward. Why should anyone NEED a gun?  We pay taxes so that our local governments can staff an operational police department armed with enough weapons to protect the community. Right? Well, what happens when those local governments run into financial difficulty and can no longer support the boys in blue to the extent they were able to in the past? We get situations like in Ashtabula County (Ashta-who??) where a judge told citizens to "arm yourselves" (LINK).   Earlier this year in Colorado Springs, the police department was forced to downsize and raise cash by selling off their helicopters (LINK). I cannot imagine that engenders much of a sense of security in that community. We are seeing more and more evidence that Americans are taking their safety into their own hands. Suddenly, the Neighborhood Watch Program is not for the old retiree who likes to ride his or her bike around the block at dusk.

Over the weekend there were two articles I came across about weapons. One was on the cover of the FT about a law in Kennesaw, Georgia that makes gun ownership compulsory (i did a double-take when I first read that but found that the law is not enforced so only 50% of the town's inhabitants are gun owners...50% is still a big number) (LINK). The other was in the Daily News, which stated permits for the right to carry concealed weapons (CCW) are on the rise among celebrities in NYC (LINK). I do not know many celebrities but I do know at least three people who have gotten their CCW permit in the past couple years (one was in NY and 2 were in Michigan).

What should we takeaway from this? There may be some kind of self fulfilling prophecy here. People assume they are less safe (national violent crime and homicide rates have actually fallen over the past 5 years according to the FBI) because the country is on hard economic times and traditional means of protections appear to be less reliable.    I can see how the inclination is to go out and get armed.  You think your safety may be at risk (though on the whole, crime is little changed)...your neighbors are doing it...your friends and colleagues are thinking of doing it...so now you feel like you may want to consider it.  Maybe it is the general level of fear going up, or maybe it is just a simple herd mentality, or maybe it is about keeping the playing field level? I suppose I wouldn't want to be the only Olympic sprinter NOT juicing and getting away with it if everyone else was. People assume they are unsafe and go out to get armed - does that make all of the unarmed people unsafe?

What is the end game here?  Are citizens capable of policing themselves? Will this new found need for protection be turned into local military offensives and militias, should the "mob" decide they have a better plan for how to be governed? Who knows?  I know this much: I own firearms the same way I own term life insurance and teeny puts on the S&P 500.  I am hoping I never actually need any of them.