The New York times recently asked “Does the America for Sale sign require a warning label?” The implication being, should the U.S. warn the global financial community that there are certain conditions to buying American companies? In this writer’s opinion, the New York Times has it wrong. These days it is not America that should have a warning label… the financial opportunists should get their Brioni designed lapels branded “HOSTILE”. Here’s why...
With weakness in the dollar, the world is coming to purchase everything, attached or not. It appears there are almost no limits… everything is for sale, our companies, our financial institutions and our real estate. Who’s buying? Well now, there’s the rub.
First let’s put the size of this new wealth in perspective. The average person going about the daily business of earning a living and attempting to build a life is familiar with the meaning of “wealth” as it might pertain to certain names who regularly appear in the media as being amongst the wealthy or wealthiest. Most of us can probably quote Warren Buffet’s stated fortune. By any measure the aggregate of his assets are substantial. They pale, however, when compared to the size of the foreign funds that have been accumulating through this past decade of oil price runaway inflation and global economic boom. Whether from trade, as China has done, or from the sale of a critical resource like oil, foreign governments have accumulated colossal amounts of cash. Some of this bullion has been parked in so called sovereign wealth funds. To this potent wealth, add the existing large pools of capital in off-shore trusts and funds also controlled by foreign governments, desert princes, dictators, and inheritors, and you have potential for irrepressible influence and leverage. Little is revealed of these enormous stores of wealth. They are not internationally accountable and there are no visible audit trails. They provide no structural evidence or transparency and their influence in the North American economy and markets is substantial.
Historically, corporate America has viewed these large baskets of cash as usually non-interfering deep pockets. Until now, it has been considered discourteous, indelicate, irritable and absolutely ungentlemanly to ask probing questions. The “depth and breadth” of this new-found power will engender audacious influence on whatever elements might fit the policy interests of its “owners” in the moment. Trade secrets will only be a line item in their “influence and pressure” list of priorities. They will have bigger fish to fry. The disturbing challenge to both the U.S. and Canada is that in the majority, these funds represent foreign entities antipathetic to North America’s way of life, its social structures and mores, its political structures, its culture and most importantly, its freedoms. This new financial clout is in fact new-found political authority for foreign geopolitical forces. This should energize all North Americans to sit up and take sober notice.
Heads of North American corporations, regardless of the wealth they have been able to privately accumulate, are pawns in the larger scheme of the global movement of capital and influence. It is unfortunate that senior executives managing these companies too often demonstrate a dearth of common sense, and default to “self-service” instead of considering the greater national perspective. Only very occasionally an acquisition emits blinding optics that politicians cannot ignore. Out of Congressional or Parliamentary pockets come the admonishing waving fingers incarnating “national security” or “national interests” and investigations are launched. Rarely is an acquisition, even one jeopardizing national security, ever stopped in its tracks. For such occurrence, a glaringly abusive corporate capture would have to have received an overdose of public attention.
Let us not ever assume foreign powers can be implored to act in our best interest. We can barely influence our neighbors to act conscientiously. Ask the Ukraine if getting oil cut off in winter by Russia was for financial reasons, or was for offensive political coercion. To date any attempts to bring reason to the table, clarify motives, or establish parameters for investments (acquisitions), have been all but dismissed out of hand and rebuffs have come with subtle warnings from individuals representing foreign interests. The IMF and the World Bank cannot be expected to provide surveillance or even negotiate on our behalf.
Is the current methodology satisfactory? 3Com’s recent presence in the headlines is a perfect reminder of the too present proclivity for careless and self-indulgent influence affecting decisions by both sides of the equation - the executives as well as the acquisitors. Only slightly further back in memory reside the shadows of Oriental Steam Navigation Co. (P&O) and its six major U.S. ports. There were at least two sources of bewilderment for Americans. One was that the company’s sale to the UAE (a foreign government) was being touted by the U.S. President, and the second was learning that the biggest “port” authority in the world was Dubai Ports World. “What? Who? How was this possible?” When it was finally slapped down following very loud public objection, did the threats from the UAE about damaging relations etc. ever come to pass? Not a chance. We should file that for future reference.
Now let’s go to the other side of the globe and consider the enlightening attitude of the Chairman of the China Investment Corporation, Lou Jiwei, speaking of the U.S., “if any country receiving investments has misgivings, China may choose to leave or look elsewhere.” We must heed this feigned indifference, while emulating the dispassionate “who cares.” Let’s not be so quick to further lubricate the already slippery out-of-balance free trade system. Prudence and sound judgment absolutely have to prevail, and balanced rules applied and followed.
Only a vigorous and impervious stance can be effective. It is a rare negotiation that is effectively concluded from a position of weakness. Since all acquisitions cannot be reviewed, foreign governments aren’t about to restrain themselves and executives will push boundaries whenever possible, what policy will protect the home front interests?
Answer: RULES. Congressional rules, not negotiated rules. The rules should include transparency of structure and control. The U.S.’s Committee on Foreign Investments should be dragged out of its closet and a more public vehicle installed for oversight.
This is at odds with the current approach of placating out of fear or out of misguided spirit of gentlemanly co-operation or perhaps ulterior motives or even backdoor inducements. Endless objections would surface, “we fear retribution” and “don’t we want their money?” and “our economy is in a downturn” and even “we can’t afford to right now, we need foreign investment” and “we can’t annoy these foreign governments” etc. Where else would they place their vast pools of capital? Will Saudi Arabia, Kuwait, Norway and Singapore switch a few trillion dollars to China's corporate sector? Or will Qatar, Bahrain and the UAE pull out of U.S. treasuries and markets, and perhaps invest in Russia’s unrecognizable version of democracy? Is there even another continent that the world’s largest pools of cash will move to? For the crumbs (risk capital) maybe. Not for the large cash. Owners of this new-found wealth and power may resent America, but they are not fools.
The U.S. remains the most stable and safe place for the world’s capital. PERIOD. No need to be arrogant – just confident.
Friday, February 29, 2008
The New York times recently asked “Does the America for Sale sign require a warning label?” The implication being, should the U.S. warn the global financial community that there are certain conditions to buying American companies? In this writer’s opinion, the New York Times has it wrong. These days it is not America that should have a warning label… the financial opportunists should get their Brioni designed lapels branded “HOSTILE”. Here’s why...
Thursday, February 28, 2008
The solution is infinitely complex and infinitely simple. STEP 1: Get out of Iraq. Now, not next year.
Some estimates place the cost of the Bush misadventure into Iraq at over $3 trillion dollars. The full cost will take years to fully conceive and appreciate. By any perception and judgment this is aberrant. Endless analysis and debate over democracy in the Middle East or whether there will be a complete breakdown between all factions in Iraq or even whether Iran and the Saudis will more directly get involved, is extraneous to America’s priority – stop the hemorrhaging. The U.S. treasury needs some respite. U.S. taxpayers, their children and grandchildren are going to bear an already oppressive burden.
You cannot help your neighbor if your home base is unstable. Retrench, recoup, take a year or two off from foreign battles requiring more than 10,000 troops. Reestablish international confidence in the U.S. as the world leader with some vision tempered with occasional wisdom.
Other countries will be forced to enter the frey in the Middle East in a more serious way to fill the void. Even Russia isn’t so sure anymore that it wants its neighbor Iran sitting on nuclear arms.
Paying attention to the home front will also rebuild any deterioration of foreign confidence that might have eroded the dollar’s strength. Return to confidence and ignore the machinations of multiple heads of state clamoring to denigrate the image of America and deface its currency. There is ample reason for Europe to be concerned with the rapid rise of the Euro and the resulting impact on its exports. Russia which has shifted away from its momentary pretence at democracy, is now taking aim at the dollar through the Euro. Could we suspect that the Rubble is the world’s reserve currency of choice in Putin’s fanciful long term dreams. Dream on. Nor is any other country likely to become a safe haven for the world’s cash.
Since WWII the U.S. has been the safest and most stable place to store capital. The world acceded for 3 generations. The U.S. hasn’t just been a military power, it has been respected and admired for its form of government and its technological prowess. Some of that respect has only been temporarily tarnished by a misguided administration, driven with a dogmatic determination that debt was its right.
OK, so STEP 2: Tighten the belt. No, really, really tighten the belt and promote more tightening. Forget about spending that tax rebate as Bush suggested. Do without where possible.
STEP 3: Save. Reverse the trend of the past decade and put away those nickels and dimes. They add up to dollars, eventually. They’ll ultimately accumulate to a return of Confidence. We’re dealing with a change in general attitude here. Let’s energize a broad reversal of disposition, and a reversal of “fortunes”.
It is regretable to observe the fact that CEO's of America's 1,000 largest corporations have demonstrated little restraint on their personal accumulation of wealth while too many of their own employees or subcontractors earn below subsistence wages. In the face of such minimal display of reason or wisdom, the answer defaults to “legislation” to minimize devastation at the bottom of the income spectrum.
Even the middle class has seen no increase in its real income for over 20 years, while the income for the top 5% of earners has been skyrocketing. The millions of low income earners don't need to read the current Forbes list of the wealthiest to know there is a fast growing imbalance. Let's pay attention.
Heeding that imbalance and reducing it will ensure there isn't a complete breakdown in our social system and our social contract. All arguments presented in opposition hold little logic, common sense, or reason. They also demonstrate an absence of compassion. Such assertions are usually misinformed and proffered by individuals too busy cashing monthly checks higher than the average annual Income to care. We all deserve what we get, after all, don’t we? Perhaps not.
Are we truly concerned that most of our goods are produced by people earning poverty level wages in distant foreign backwaters? Not much really, pass the ketchup. We're just thrilled to get our furniture or designer jeans at cheap prices. Are corporations making sure that the goods they import are made in safe conditions or assembled by people earning a reasonable wage? Nope. How can such companies know such things . . . they use sub-contractors, don't they? The rationalizations are endless.
Let's make sure that the minimum wage enables at least the human beings at the bottom of our own food chain to rise above the level of an indentured class. Slavery is neither legal nor politically correct . . . so why is it so present and pervasive? The statistics are overwhelming. Let’s not ignore them.
Tuesday, February 26, 2008
While America’s attention, and too many dollars are directed at the Middle East, a looming giant in the Far East is evolving into a potentially more formidable antagonist on the world stage. The average American should be more preoccupied with current and future events in China than with any present or future embrace of democracy in Iraq, or anywhere else in the Middle East for that matter.
North America’s lifestyle has become dependent, even addicted to cheap imported goods from Asia. Practically every product we purchase at our local mall is manufactured in China, with only a few manufactured by its neighbors. The telephone call you make for service on those products goes to a bank of service reps in the Philippines who can instantly call up your private information. Manufacturers are providing us goods we might otherwise have to do without, or wait longer before acquiring. How much more would we pay for those goods? No one knows. That depends on too many variables, including existence of monopolies, company market presence, competition etc. Meanwhile, WalMart has become the standard bearer for free trade.
In the almost 166 years since the Treaty of Nanking when trade was opened up across the wider Chinese landscape, the West’s relationship with China has rested delicately on uncomfortable trade and not much else in acquiescence to the political and cultural divide. In the nineteenth century Britain positively counter-balanced its purchase of silk, tea, gold, silver and porcelain from China by becoming its principal opium supplier. The Treaty of Nanking obligated China to accept more opium grown on plantations Britain controlled in India. Some accounts of this period suggest that up to one quarter of the Chinese population became addicted. In the context of such history including the contemptible Opium Wars, it is not surprising that even after much time passed, attempts to admonish China for human rights violations are falling on deaf ears. Meanwhile, over a century later, the tide of goods leaving China for U.S. ports in 2007 was $321 billion. Only $65 billion worth floated in the other direction. Strangely, that inequality in movement is in and of itself, not an insurmountable problem, yet its optics cause unease on this continent.
Forecasts suggesting China will emerge as the world’s largest economy within one generation are likely accurate given China's propensity to remain pragmatic and maintain the status quo. It will do deals with anyone and any country that will serve its needs. It makes deals with oppressive dictators in Africa for natural resources and doesn’t meddle with local politics. It evidently does not see itself as an international policeman.
Congress is unlikely to take dramatic action other than uphold the concept of “free trade” although there is really no possibility of mutually beneficial free trade if there is not broad based balance between the partners. Trade sanctions would do little to repatriate jobs. Multi million dollar bonuses are too much incentive for heads of corporations to ignore . . . product manufacturing and the provision of services will continue to move off-shore. China has shown that it will move at its chosen speed in all affairs, including the devaluation of the yuan. It’s almost as if the corridors of power in Beijing are resonating with whispers saying “Global instability? What instability? We’re good. So what if we have mountains of foreign exchange? Did you manipulate the currency? … Nope. Did you?”
We all witnessed Matel apologize to China for shipping defective toys. Corporate America apologizing? By any other term, this is Fear. Fear that they won’t manufacture your toys for you if you don’t pull a mea culpa. Matel suggested that they hadn’t been careful enough with their quality control. That’s called confusion. Confusion because is shows lack of confidence. Such confusion was also present when Yahoo turned over names of dissidents to the Chinese government. Confusion and fear… that’s when stupidity sets in, and it did.
Tightening the belt on this side of the Pacific and internationally promoting the rule of law might have some influence on America’s long term peace of mind. That should include promoting full disclosure and transparency for Chinese companies that American firms take public. Can we expect that to happen? Not really. Wall Street has set up camp in China to raise capital for Chinese firms. Will they turn a blind eye to the lack of internationally accepted reporting procedures we have come to expect here? Will Wall Street firms defy common sense to make hundreds of millions in fees anyway? Will they attempt to rectify concerns pertaining to such trade apprehensions as subsidies, piracy and protected intellectual property violations? Past behavior suggests not. Anything goes, under the rationalization “We want to be in position to tap this burgeoning market. If we don’t, somebody else will. Why should we take a position on such elements, we’re not in the politics business.” Those are rationalizations, of course, for not doing the right thing.
It is left to the U.S. government to exert pressure. Unfortunately, threatening protectionism is no leverage at all when you’re admonishing a country holding over one and two third trillion dollars in U.S. government securities. Holding so much of America’s debt impels some moderation on China's part and we can be grateful that it requires economic stability as much as we do. At least for now. Let’s not create an even bigger power than the one we now face. Balance of power nurtures constraint and moderation.
America, cut back … way back, and save. Lousy time to be suggesting this, but is there a choice? It's time for America's middle class to become selfish.
Saturday, February 23, 2008
Pundits in every media are tripping over themselves to explain the dearth of Republican votes in the current primaries while the Democrats are apparently showing up in droves. It is perplexing that the media isn’t deciphering and proffering why a man with little experience, and little national recognition prior to just a few months ago, is making a bee line for the White House.
We are witnessing an unusual confluence of events. The American economy is slowing while the vast percentage of Americans are coming to a realization that the opportunity they’ve believed in, is not turning out as professed. As I’ve noted previously in these articles, the most consequential element unconditionally required for the long term health of a society is broadly available education. It all starts there. An educated society understands its needs and how to meet them. It is capable of achieving what is required for its own long term harmonious, and reasonable, well being. An educated society also understands its values, aspirations, and culture within the context of the broader global community. An educated society has a sense of evolution and remains sanguine in the preponderance of its opportunities. When greater and greater numbers are unable to achieve education to the maximum of their capabilities, hope evaporates. When such numbers reach significant percentages of the population, that society strains. Evaporation of opportunities accentuates any resentments that may be simmering.
We have all accepted that our free market system will produce prosperity for the greatest number. If any such system is to function adequately and serve the greater good over the long term, balance and reason should, and must, prevail. Today’s America faces a rapidly spreading divide between the proverbial “haves” and a much too large segment of the population struggling each day to achieve sustenance and shelter. While the burden of through-the-roof medical care costs is literally breaking families, and an avalanche of mortgages are sliding into foreclosure, and cars are being repossessed in unprecedented numbers, national headlines tell the newly displaced that the Head of America’s largest oil company has paid himself $400 million. He did it, not because he was smarter or more talented than millions of others, but because he could. His board members are in on the game and endless others at the top of the financial food chain are abusing their positions like the hedge fund manager who paid himself $2 billion in compensation last year. It is accepted because it would be inappropriate to say anything against such abuse, since that would imply denigration of the sacrosanct concept of “free market.” Unfortunately, there is nothing “free market” about such abuse. When the head of one the world largest internet based companies, who after receiving almost a billion dollars in company stock, proceeds to take shares in different new public offerings, adding another hundred million or two to the personal pot, something is rotten in the system. The fact that “others did it” is hardly a proper or moral rationalization, yet the media stayed silent. There was absolutely nothing free market about this abuse of position. No abuse is reasonable and rampant abuse only serves to break the system.
During the coming election voting booths will see millions of faces the booths won’t recognize. The Democratic candidate will likely be Obama, and he could become the next President, not because of his track record, but because he has been able to deliver speeches that resonate with millions who are feeling left behind in the opportunity sweepstakes. His addresses actually promise very little and provide little insight into the man. Their delivery evokes an unsettling sense reminiscent of proselytizations déja-vu. There is something discomforting about someone appropriating the power of the Presidency with so little experience and obscure intent, yet it is his appearance of “detachment” from the imperious top of the food-chain that is creating such broad based support amongst those feeling disenfranchised. Although one hopes that he takes this trust seriously and meets the monumental expectations, the national debt of over $9.2 trillion and the total U.S. combined debt at over $50 trillion provide almost overwhelming constraints to the restoration of broad based opportunity.
Thursday, February 21, 2008
Stanford University’s announcement that it would offer free tuition to students coming from families earning less than $100,000 per year is a serious landmark move on the part of one of the world's leading educational institutions. Other institutions should follow suit particularly those with similarly disproportionate endowments from Yale to the University of British Columbia.
Practically all recently graduating North American students are now heading into careers burdened by onerous loans, weighed further by usury level interest rates. Does this make practical sense? We are creating an indentured class of citizens, and its constituents are our kids.
Is there something more important for the future flourishment of a country than the education of its children? Is our society’s future prosperity and place in the world order not dependent on the breadth and depth of their and their childrens’ learning? When did we develop the attitude that education is a privilege and not a right? As tax payers, we should want our children to receive free full education. Where does the book of common sense say that free education should stop at high school?
Whether studying to become a doctor, artist, or carpenter, education should be made equally available to all levels of society. Only through that equality do we have a chance of being a truly equal opportunity society. Broad availability of federally funded education is as significant, if not more so, than availability of medical services.
Many qualified students drop out of higher education pursuits when faced with the enormous challenges of repaying loans that can add up to annual totals of between $50,000 and $80,000. They could not, or would not, accumulate such debt. This is particularly true of students from lower socioeconomic backgrounds. We just have not provided an even playing field. The gap is already too wide between rich and poor. Stanford is taking a leap forward, demonstrating leadership and vision. Most critically it is doing its part in affirming very publicly that the dream of opportunity can be a reality.
Perhaps for the first time in history, America faces a “product” problem where conventional capitalist solutions can’t seem to abrogate a severe dilemma. Billions of dollars are fattening up plump administrations hopelessly fighting a delusory “war” on drugs, while communities across North America are seeing their children as young as eight years old exposed in the school yard to the latest mind-bending drug of the month. There is nothing appreciably or demonstrably effective with the War On Drugs. The term is a rationalization for the continuing and progressive build-up of a bloated infrastructure achieving absolutely NO cogent or even compelling results.
From heroin, to cocaine and methamphetamines, extreme psychoactive substance use continues to burgeon pervasively through our society (I don’t include marijuana here as it is not considered to be in the same league as these drugs). The flashy media events we all watch following a “big drug bust”, are only that . . . media events feeding egos, rationalizing promotions, securing salary increases and justifying additional underlings for the deployment of ever more impotent engagements. Footage of paramilitary operations smoking out low level mill-hands in the jungles of Columbia provide abundant self-serving gratification for the senior levels of the food chain.
All told, it costs somewhere near $200 billion for drug policy enforcement by all levels of government. A bloated judicial system, lawyers, agents, police and jails are all part of this juggernaut feeding copiously from the taxpayer trough. Making money is fine and everyone should be able to find work, but could they at least show taxpayers a positive trend resulting from such expensive efforts? Fear mongering keeps the trough replenished without much squabble but dispatches little succor to all the communities passionately struggling for answers.
The single most important element in the drug food chain is the pusher. It is not the grower. It is not the transporter. It is not smuggler. It is not the financier. It is not even the user. Eliminate the pusher, and we begin to bring stability to the user population. Only then can rehabilitation begin to have some impact. Sure we can provide parents with more effective tools, or provide schools with videos presenting the ravages of drugs on the human body, or other variations on “Just Say No”, (forget the idiocy of urine sampling on school kids). Unfortunately there are only two effective actions the system can take against the malignant and lethal invasion - legalization and extreme punishment.
Legalization would radically bring product value down eliminating the lure of easy cash for the pusher. Legalization and government controlled distribution is a solution that will take years to see daylight. Extreme punishment on the other hand means putting away a pusher for life. No one can look at a “life” sentence and think, “I can handle that,” as one might with a few months of a couple of years. Elimination of the pusher means elimination of any PR or promotion to any product in the drug firmament and eliminating the process of, "The first three are on me, the fourth one . . . well, then you're mine!"
Our collective historic relationship with cigarettes and alcohol can form the basis for our strategy on the drug front. Its review can provide us with some of the common sense required as we take decisive actions to deal with a problem which is rotting us from within. We advertised and promoted cigarettes and alcohol, creating broad dependence and building enormous pools of wealth making it impossible to unravel the structures that grew for their production and delivery.
The judicial system should be provided the very strictest of guidelines for punishment, not vague, approximations for sentencing. Focus on the pusher. I also don’t differentiate here between the pusher we all see on so many of our street corners and the supposed friend who turns a friend on to a drug. It’s rare that someone gets up suddenly one day and says, “I’m in the mood to do some heroin today.” That just doesn’t happen. That’s not how drug use expands. Use grows maliciously and with intent. Self-serving friends make money from friends, and “friends” are easy picking since there are few behavioral forces more powerful than peer pressure. Perhaps such malicious and malignant individuals don’t really fit the definition of “friend.” A pusher by any other name . . .
Perhaps we can gradually implement what is right, rather than abiding obstinately with what is expedient and rarely in the collective best interest. Perhaps we can expunge our "lack of will," and abate the damage inflicted on society.
Wednesday, February 20, 2008
British Columbia’s Liberal controlled government has decided to impose a “Carbon Tax” on its population just as the price of oil hit $100 per barrel. This tax grab presented by B.C.’s Finance Minister Carole Taylor was announced with the brilliant rationalization that this would improve the environment while keeping the economy strong. Now there’s an enlightened argument bound to catch on across North America. That should really stick it to those guys driving their S Class Benz 500’s and gas guzzling SUV’s. Oh, and don’t run out and buy a diesel if you live in B.C. because the tax applies to diesel, natural gas, coal, propane, and home heating oil.
The B.C. government’s argument doesn’t stop there. Ms. Taylor claims that B.C. will commit $1 billion over 4 years to fight “climate change”. . . that’s right Climate Change. They could have told their tax payers that they wanted to clean the air they breathe, but no, they’re telling them they’re going to fight Climate Change? This means what exactly? This absurd claim is one government’s version of jumping on the “green” wagon . . . more tax on the middle class that is already struggling to make ends meet.
The story gets even better. To really confuse the electorate, using a "watch-the-left-hand-while-I-stick-it-to-you-with-the-right-hand" trick, the B.C. government says it will provide low income earners an annual climate action credit of $100 per adult and $30 per child. The B.C. Liberal Cabinet and the likes of Ms. Taylor seem to take themselves very seriously and appear to believe that further taxing those who have been pushed out to distant burbs and whose long commutes are already complicating their lives, will be thrilled and grateful with a further convolution added to the tax code. They’re already paying the highest prices in North America, well over $4.00 a gallon, and most of that is taxes. What’s another nickel or two per liter?
There must be something in the B.C. water. Nowhere in its media is there any commotion about this absurd circus being led by Premier Campbell. By its government’s reckoning, B.C. should soon see its highways void of vehicles as its hard working middle class decides to “change the climate” and become more carbon conscious.
Given the B.C. government’s mismanagement and overspending on preparations for the 2010 Olympic games, it might consider a novel tax placed on real estate not owned by residents.
In the meantime - an easy prediction for this Carbon Tax: Other governments around North America won’t take B.C.’s lead. They would be too embarrassed.
Sunday, February 17, 2008
Unlike any event in recent history, a confluence in events is creating an unprecedented shift across the global political, financial and social landscape. Oil has been floating around the $100 per barrel mark and seems to have stabilized there. While the U.S. war in Iraq is exasperating America’s debt, China's economy has been filling its coffers at a pace perhaps never before witnessed in human economic expansion and a long list of nations is finding new bluster and arrogance. Oil’s price is conveying vast amounts of cash into such non-democratic treasuries as Saudi Arabia, Russia, Iran and Venezuela. Although this was not an intended consequence of ordering troops into Bagdad and neither was its further destabilization of the Middle East, the fact remains that from the likes of Putin and Armadinajad the cheers are deafening. Along with the avalanche of currencies accumulating in the reserves of governments unfriendly to North America’s interests, comes an escalation in their spheres of influence.
At the same time, North American consumers overburdened with personal debt are raiding the kids’ piggy banks to fill their tanks on the way to work. Altering the prevailing transformation of America’s position on the international theater of authority and persuasion requires a very rapid price decline per barrel to well below 60% of the current level. That sounds ridiculous since human dependence on oil continues to increase unabated. Consumption is not about to reverse if we all run out and purchase hybrids or abstain from reading with lights on. There are over six and one half billion of us and that number is heading for ten billion.
There are actions the U.S. can implement to begin reversing the tide.
1. Get out of Iraq and stay out of any conflict for long enough to give U.S. taxpayers time to fully understand their predicament and implement a turnaround plan - I say ‘taxpayers’ because Congress seems unable to demonstrate leadership.
2. Start building nuclear reactors to make a major impact on national dependence on oil. This will take years but there are no currently known viable alternatives to nuclear energy that can supply a meaningful percentage of the demand. Yes, there are problems with “waste” handling, nevertheless there are known technologies and processes that can be diligently implemented.
3. Launch a national “savings” campaign opposing the profligate spending of the past decade. That goes for all levels of the political landscape - individual, city, state and particularly federal government. The promotion of “spending” which has historically been promoted as good for America has resulted in an American middle class holding the biggest bag on a total U.S. combined debt of $48 Trillion. Maybe congress will hear the roar and pay attention.
America’s choices may be limited but there are some.
Friday, February 15, 2008
At least for some, there is "some" good news. While Greenspan’s recent suggestion that housing prices have a long way to go before hitting bottom, and Bernanke provided us a very pessimistic forecast suggesting the economy “could avert” a full-blown recession, the North American stock markets have experienced a mid-term down trend, yet they remain in a Long-Term UP TREND. The hard to accept fact is that there is a disconnect between prevailing events impacting the economy and the current U.S. stock market. This disconnect is NOT obvious.
Contrary to much media commotion and punditry, the U.S. markets remain and will remain a principal and dominant safe haven for foreign and off-shore capital. This is so to a degree never before seen, and certainly not reminiscent of the situation during the period preceding the crash of 1929. The enormous pools of invested funds controlling and managing the markets will continue to do so, carefully, diligently, willfully and even on occasion - ruthlessly.
This need not fit into any definition of great "conspiracy". It is very simply and with all practicality, a system subdued by common sense. Doubting that the markets are managed in an orderly and deliberate fashion would be to ascribe "stupidity" to those directing the enormous tides of capital sweeping in and out of the major markets. Stupid, they are not. Why would anyone gamble with such vast pools of cash? Why would anyone in such position leave success or failure to the winds of chance, or to the whims of human frailty such as myopic administrations launching endlessly expensive social or political experiments in foreign lands? Why would the smart money leave its returns in the hands of the too often egocentric inclinations of corporate heads?
Recall the period between mid 2002 and March 2003 during which an astounding 7 to 10 trillion dollars moved into the major indexes. This massive movement of cash turned a long term market Crash into a long term Up Trend still prevailing today. The reversal of this long term trend will occur when such time arrives that a colossal "profit taking and cashing in" is appropriate. The timing will have nothing to do with home values, or U.S. currency held by China or Japan. Until then we will witness short term and mid term fluctuations.
"Volatility" is not the result of big pools of money "cashing in". They are simply collecting intermittent tithing, albeit serious tithing. The good news for most market watchers and occasional or minor participants is that they can stand witness to the greatest show on earth from the sidelines, silently observing those tides of capital astutely, ingeniously and with absolute dexterity, fleece all lesser players. There's something comforting about knowing that there's order and discipline in our capital markets, even if the profundity of its wisdom and altruism is as deep as a mirror.
The good news is that if you’re already in the markets, the long term should treat you well.
Thursday, February 14, 2008
With the economy’s decade long exuberance becoming sedated and its fuel’s energy becoming forced to reconsider spending habits, the Free Trade forces, pro and con, have become seriously conflicted. Neither side knows what is right or wrong because no-one can really predict the long term outcome of either stance. Effective crystal balls in this domain are hard to find when it comes to free trade and our global economy. Undeniably free trade is the ultimate economic equalizer . . . at least globally.
For all of us staunch capitalists it is difficult to deny that there are signs the pro free trade argument may not be all we had hoped for.
Between countries of approximately equal standards of living, the impact on the participants is tempered and there is no overwhelming and imbalanced loss or gain. One example is the U.S. Canada trade relationship which is the world’s largest. Although there is no such thing as absolute Free trade, the current arrangement has contributed positively to both countries. There are many factors that affect the impact, but overall the outcome is positive.
When there is serious imbalance such as has existed between the U.S. and China or the U.S. and Mexico the long term impact on the respective societies can be extreme. Furthermore the current “arrangement” with China hardly resembles anyone’s definition of free trade since China has made it difficult for anything American to be brought in. Meanwhile, the American consumer has fuelled the creation of a vast Chinese middle class almost equal in size to the population of the U.S.
As long as there are new clusters of people on Earth whose life styles aren’t on par with that of the U.S., there will be someone willing to work for “lower” wages. With six and a half billion of us, there is a long way to go before there is anything resembling standard of living parity. If the world’s population continues to grow at present rates, it will never happen. Millions of service jobs currently performed by U.S. workers are vulnerable and potentially up for grabs by countries developing their own skilled work forces such as India, China and the Philippines. The lower the barriers to trade, the more opportunity for our corporations to find alternative sources for goods and services. While this has historically enabled the U.S. consumers to enjoy products they might not have otherwise been able to afford, it has also “spread the cash” far and wide.
Unfortunately, too much of the cash spent by U.S. consumers was borrowed, and too much of that borrowing was extracted from leveraged escalating real estate values. Now we stall for a while. By “we”, I mean everyone from here to New Delhi. Everyone has depended on the U.S. consumer, including Russia and Saudi Arabia, not just China and India.
This “stall” is an American consumer forced into restricting the “buy” urge. There is hope that this “stall” period will stimulate savings .
So what do you do?
Do you support free trade and watch incomes of the middle class continue to stall? Free trade works really well when you are the one doing the “selling”. Free trade has absolutely nothing to do with this new beloved term that has forced its way into our lexicon – outsourcing. Hiring foreign workers isn’t “trading”, it’s simply availing oneself of “cheaper labor”. All countries would wish to see it’s population employed. Or do you support protectionism to protect jobs? Protectionism would simply mean more expensive goods. Can you visualize almost every product in your local WalMart increased in price by a multiple of 10? Your 5 year old’s runners would be $200.00 instead of $20.00. Life would change. Reality - globalization is unstoppable. Our population is growing but the global community is shrinking.
No politician currently running for the office of president is presenting any answers to this dilemma, principally because there are none, . . . just opinions on differing sides of the argument. If you are your brother’s keeper, globalization is good and you await a note of gratitude from the recipients of your ‘debted’ benevolence. If you’re not your brother’s keeper, you’ll look for someone to set some onerous tariffs before your company out-sources your job. The odds are not good that your CEO will feel benevolent with your bank account, and history suggest he won’t suddenly discover altruism or wisdom. Just be grateful he’s not moving to Dubai.
Lack of moderation has brought us to the current economic slump. Moderation should absolutely prevail on both sides of the free trade argument and in the implementation of any corrective measures for us to weather the next few years. Another reality is that real average income has not only been stagnant for a whole generation, it has dropped. When you add this to spreading income inequality and wealth concentration, you get pressure for the implementation of balancing measures.
This is where creative minds get pushed.
Saturday, February 9, 2008
There are few more confusing or idiotic idioms than "It's not personal, it's business". We like to think all corporations are ethical while we feel safe in the knowledge that the "Enrons" will somehow surface and be severely punished. No such luck.
Apply the 80/20 rule and what do you have? 20% of companies are ethically run, managed by individuals whose ethics are exemplary. That leaves the other 80% mired in the grey quagmire of dubious ethical principles and morals. Some go right over the edge and get caught. Most don't.
This is still less annoying than knowing that the Gulf of Mexico now has a massive "dead zone" whose roots lie as far upstream as the farms around the head waters of the Mississippi River where millions of tons of fertilizers, insecticides, fungicides, herbicides etc leach into the soil. There are natural alternatives to enriching soil but farmers would never put anything on their lands that the Monsantos, Duponts or Dows haven't approved of. Who can blame them. Many of us would all do the same if the alternative to survival was "no market for your crop".
Does anyone question a mining company's obnoxious and reprehensive contamination of an Indonesian river as long as it's being done profitably? We might care a little, but not enough to be as outraged as so many of us seem to become when we learn of Enron executives building castles with proceeds resulting from fraudulent financial schemes implemented with great dexterity.
The heads of tobacco companies standing in front of a Senate hearing, sheepishly copping to having known and denied the impact of nicotine on human health is an image we have all witnessed with some degree of helplessness. How could whole organizations have lied and perverted evidence as a matter of corporate governance.
Where is the ethical leadership when the head of one of the world's largest internet based companies gets bought' by Wall Street brokers, then excuses it with "Well, everyone else does it". We then watch as the company makes peculiar financial acquisitions making the brokers hundreds of millions. Egos and greed sometimes have no bounds.
Can we all sleep soundly knowing that the Sarbanes-Oxley Act passed into law in 2002 to give the government real teeth to go after potential "WorldCom's"? Hardly. Such occasional bureaucratic oversight of accounting firms simply means that when you "cook the books" make sure that the corporate Board Of Directors approved it. Most abuse flies under the radar. Is any corporate board ever charged. It is also Only when there is a major disintegration of investor equity that anything really comes to public attention and action is taken, not because there is an ongoing ecological or human health disaster in the making.
Oversight is not a satisfactory answer. The answer lies in education . It lies in the infusion of consideration and sensitivity for our fellow human beings, not just ourselves. Ethical behavior is the application of basic common sense and should be practiced by all corporate citizens, with the more influential ones taking the lead.
Currency in today's society is the final bastion protecting independence of state and culture.
The world's two largest trading partners, the United States and Canada, would form a powerful "currency block" although the US would have its own currency decisions blurred unless it just stampeded over Canadian desires and needs. In its own best interest the US would have no choice. Opinions asked of its Northern neighbor would be exiguous at best and inconsequential a majority of the time.
Given the imbalance in GDP size between the two countries Canada would lose any independence it currently enjoys. Such loss of control would arouse resentment on Canada's part in the long term. In such enmeshed economic environment, Canada wouldn't catch a cold if the US sneezed, it would writhe into paralysis. Its parliament in Ottawa would thrash and squirm, but its impotence would be stifling.
The inclusion of Mexico in such a currency block would seriously compound the difficulty of regulating such things as interest rates. Mexico does not function like the US and Canada, either in the nature of its social and political system or its corporate system. On the world stage Mexico remains a third world country where such primal elements as the scarcity of the rule of law and the extreme imbalance in the standard of living across its social classes, produce a foundation for its Nuevo Peso that might be mistaken for quicksand. Evidence of such economic distress presents itself in form of the monumental illegal immigrant dilemma currently facing the US.
Even in Europe where there is not such economic or social imbalance as there is on the North American continent, the Euro is creating significant resentment amongst member states. In North America, lets leave well enough alone.