Monday, May 25, 2009

The Dirty Little Secret That Is No Longer Secret And Is Still Very Dirty

So here we are, the United States is about to spend billions (or is already doing so) on cleaning up the environment. I don't object to that; if there is no Earth then there are no people, right?

I am also sympathetic to the argument that we need to lead the charge here. But the grim reality is that (predominantly) China and India are the most notorious polluters in history (as I have written before.) Combined they account for nearly 50% of all offending airborne substances. And when has our leadership been effective? On human rights? Nuclear proliferation? The rule of law? I'll leave it to you to find the proper examples.

The Chinese use as a defense the fact that during the industrial revolution, the US, Great Britain and others were equally profligate.

That was then...we didn't fathom the consequences and the scale was massively different.

But we all need to understand that despite what we do in the country, and no matter how much we spend, until and unless we get China and India to cooperate, this will be an effort in vain. Maybe we should send Al Gore over there to lecture them...fat chance in hell.

The article linked below has all the facts...soft coal burning forever in China:

Condition Yellow If Not Red

Please follow the link below to read about why this mortgage situation is MUCH worse than has been previously reported. Okay, it was hitherto easy to blame the stupid people who got in over their heads with loans that quickly went sour. The argument was that they were greedy and depended on ever-increasing real estate values to justify their actions.

Well, as I have written before, the issue here is not with real estate, it is with job losses. And now, even folks who have previously been prudent are faced with foreclosure problems; not that taking a house back is a panacea for the financial is actually a nightmare.

So let's keep talking on a national level about water boarding, Nancy Pelosi and the like. We are slipping ever deeper into this horrible thing.

Here's the link:

and another sent in by Tim Chilleri:

Rich Versus Poor...An Illegitamate Debate

I confess that I read only two newspapers each day, the Wall Street Journal and the New York Times; this is made much easier because I can use my Blackberry to get the most relevant articles. I also can tell you that the old adage, "it's like sticking your head in the oven and your feet in the refrigerator," does indeed apply...on balance I have an "average temperature" but that doesn't bode well for the rest of the body.

In any event, because I am lacking much in the stuff that would cause me to be enthusiastic about writing, I am putting together some things that I have been sitting on for a while. Here is the first installment.

Rich Versus Poor

A friend, former colleague, fellow venture capitalist and such recently put together a blog that in typical fashion, attempts to explore the growing gap between rich and poor people. He doesn't take a stand because that is not his way. But I think that he is asking questions that go beyond first principles.

For example, he opines that rich is self-evident and poor is relative. I think this is completely backwards, notwithstanding that the government defines rich as a family that makes $250,000 per year or more (ask 100 people that make $250,000 if they feel rich right now and you will get an alarming answer.) My point is that poor is obvious (you can't feed yourself or your family or you are stuck on the New York streets) and that rich is conditional on how you became so.

There are people who have created things...I am not a Bill Gates fan or a Warren Buffett devotee either, because I believe that luck is a heavily discounted factor with respect to success, but to me, it is inarguable that they have, over time, created value for society.

Other "rich people" have destroyed value but they continue to get paid exorbitant sums. AIG was founded in 1919 and now, virtually ceases to exist, having lost the entire earnings accumulated during nearly a century. Lehman Brothers was founded before the Civil War...where are they now? I could mention many dozen firms and organizations that have encountered a similar fate, including GM, Chrysler, et al but I'll spare you those details.

What has happened here?

Yesteryear, getting "rich" involved producing value in a product or service. All the great industrialists in the past did so, despite often having nefarious reputations. But in today's society, it is easier to steal than it is to create.

All the great nations, China, Russia, India, the United States, (you name them, Britain and France have long since lost greatness) have become kleptocracies. If you don't believe me, then please explain how a rich person like Bernie Madoff can pull off his scam for decades. Also please inform as to why there are hundreds (if not thousands) of unoccupied concrete buildings in China. When you are finished discussing these items, I'll throw a bunch more at you.

My points with respect to my venture capitalist friend are that (1) he is hopelessly naive about who is rich and why they are rich, (2) that being rich is not "ipso facto" a good thing, (3) the poor don't have money but they (for the most part) aren't stupid...they see the fat cats getting theirs without retribution and they are properly enraged. (4) As I have so often noted, there is a re-basing coming in America (and the world) but it will not be a pleasant thing and there may be much social strife that attends this.

Finally, an unrelated note on venture capitalism. It has long since ceased to be a positive economic driver in America...there have been negative financial returns since 2000 and the phrase "early stage investing" has become an oxymoron. This saddens me greatly and I am trying to change the footprint, but the kleptocrats seem to be commanding all the resources.

Wednesday, May 13, 2009

A Shameful Performance, Mr. Greenspan

Recently Alan Greenspan addressed the National Association of Realtors (they should be tarred and feathered for inviting him to speak) and Mr. G. attempted to distance himself from culpability for the housing bubble. He offered the usual Greenspan gobbledygook about long-term rates and overnight-rates and he then had the temerity to suggest that history is somehow being revised to portray him in a less than favorable light.

As a sure senility sign, Greenspan goes on to say he sees "seeds of bottoming" in the US housing market. I don't suppose he caught the numbers just reported today (and known for a while) that home prices have declined by another 14%!

He followed that statement with an even more asinine one in which he asserts that the economy has been "otherwise running extraordinarily well in recent weeks." I guess losing a net 500,000+ jobs last month is just hunky-dory as are the anemic retail sales just reported, or empty freighter ships sitting idle, clogging up Asian ports. Has this guy just dropped in here from Mars?

The fact is that Greenspan was a central player in the financial debacle that we are all now living through, yet he refuses to accept responsibility for anything like that. I'll admit that he wasn't alone in pursuing disastrous policies, and in making it easy for Wall Street et al to create exotic mortgage-backed securities in ever increasing, risky volumes, on very shaky fundamentals. But his refusal to stand there and have the fortitude to say, "I was wrong, I goofed and I'm sorry about it," makes me want to regurgitate. It also tells me that this guy is so out-of-touch with what is going on today that he isn't qualified any more to teach even a kindergarten class.

I try not to be a hypocrite. I have made at least a hundred bad decisions in my business career but I believe that each time I made a mistake, I stood there and took the medicine. Mr. Greenspan needs more than medicine...he could use a lobotomy.

If you want to read the short (disgusting) Wall Street Journal article about all this, just follow the link below.

Monday, May 4, 2009

Messrs. Buffett and Munger Made Clear Their Complete Disdain for the Use of Higher-Order Mathematics in Finance

Well lookie here:

Buffett and Munger don't like the math used in finance (and I suppose economics too.) What the heck did we say in the blog "Why I Hate Economists," published February 25th.

The problem isn't with "higher order" math as is described by these investment titans, it's with math that is bad.

You can read the rest in the original blog.

Washington Speak?

Check out this article by following the link below:

In the text, the good Admiral proclaims that Pakistan's nukes are safe for now. He goes on to assert: "But at the same time, Admiral Mullen said that the main military focus of the United States must now shift from Iraq to Afghanistan and that the gains of the Taliban in the region threatened American interests in the region as well as the safety of Americans at home.

“I say that with the full knowledge that we still have about 136,000 American troops in Iraq, and that the fighting there isn’t over,” Admiral Mullen said. “We remain committed to the mission we’ve been given in Iraq, make no mistake, and we will stay there long enough, in keeping with their agreement, to ensure the Iraqis can provide for their own security.”

As an avid Washington follower, I believe it is my duty to decode this for you. 1) We are scared crapless about the fact that the Taliban has such a strong foothold in Pakistan. 2) The Pakistanis haven't told us jack about where the nukes really are. Even Israel can't respond because those weapons are heavily dispersed. 3) Afghanistan is nothing; what we really want to do is to move troops to Pakistan (per my suggestion in a prior blog) but the admiral can't say that directly...after all, that would be invading a sovereign country (like we haven't done this before.) And you don't make flag officer in this man's Navy by being controversial or outspoken. 4) There is no leadership and no government in Pakistan. They can't feed or educate their poor; a task that is increasingly inuring to the Taliban, especially with respect to young children. 5) The Taliban want the nukes and are likely to create a diversion so that they can capture one "on the fly" so to speak, while it is being transported. With weapons like this, it only takes one to tango.

Here's my analysis. The Taliban will end up with a nuke (the odds are 100 to 1 in favor of this happening) and they likely will fire it at India (whom they hate almost as much as they despise us.) India may yet be the savior (put very loosely) here because they will not, in my opinion, merely fire one back but rather, will seek to destroy the entire country by means conventional and otherwise.

And what is our government doing about all this? Well we're waiting for a feckless, incompetent and uncommunicative interim Pakistani President to fly over here for more discussions.


Saturday, May 2, 2009

Becoming a Migraine By: Timothy Chilleri

Very recently, President Obama publicly denounced the bond financers of Chrysler. This is worrisome for a couple reasons. First off, Obama says it wasn’t such a good idea to throw money at the car companies for the past few months. So, why is he upset over private investors not throwing good money after bad? Secondly, this is the fundamental right of any private investor. To impinge publicly is completely irresponsible of the President. To act as if these men are fundamentally bad people for trying to allocate their resources properly is disgusting. I do not remember a President in my lifetime publicly call out and address individuals in such a manner. The following is an excerpt from the NYT:

“Peter A. Weinberg and Joseph R. Perella are part of a band of Wall Street renegades — “a small group of speculators,” President Obama called them Thursday — who helped bankrupt Chrysler.

That, anyway, is the Washington line.

In fact, Mr. Weinberg and Mr. Perella, with sparkling Wall Street pedigrees, are the epitome of white-shoe investment bankers. And their boutique investment bank, a latecomer to Chrysler, played only a small role in the slow-motion wreck of the Detroit carmaker.

But now the two men, along with a handful of other financiers, are being blamed for precipitating the bankruptcy of an American icon. As Chrysler’s fate hung in the balance Wednesday night, this group refused to bend to the Obama administration and accept steep losses on their investments while more junior investors, including the United Automobile Workers union, were offered favorable terms.
In a rare flash of anger, the president scolded the group Thursday as Chrysler, its options exhausted, filed for bankruptcy protection. “I don’t stand with those who held out when everyone else is making sacrifices,” Mr. Obama said.” (The Lenders Obama Decided to Blame,

Our President is fuming at a group of private bond holders who were tired of losing money and wouldn’t agree to the government’s terms?! The freedom of choice is a fundamental right of all investors.

And on the topic of sacrifices, everyone but our government is making sacrifices. Tell me Mr. President, how is spending $1.2 trillion in this years budget a sacrifice? How is passing a $3.5 trillion budget in 2010 a sacrifice? You praise Americans for cutting back, yet you are entirely offsetting the effects by spending trillions of dollars. Don’t you see the contradiction?

Either way you dice it, the Obama administration is repeating the same mistakes as they continue to get more involved in markets when they should be getting less involved.

In my view, the world is becoming more fragile by the day. This doesn’t mention further economic weakness in the pipeline between Alt-A and Option Arm mortgages, the commercial real estate market, as well as the geopolitical risk lurking around the world. All in all, this headache is becoming a migraine which doesn’t bode well for the future.