Archive for August 2015

Environmental Catch 22

August 31, 2015

President Obama will visit Alaska and plans to announce a change back from the Mount McKinley name to its original Indian name, Denali. He will use the trip also to emphasize the threat global warming presents and the need for the world to take it seriously. The President’s actions are understandable given the science, the melting glaciers, and that President Obama is in his last months in office.

Environmental groups are calling the Obama Administration “hypocritical”. How can the Administration be for the environment and still give Shell the go ahead for Arctic oil drilling?

For sure the Obama Administration wants it both ways. The Administration seeks to get kudos from environmentalists and yet also see the need for energy and satisfy economic realities with jobs associated with drilling. It does seem a bit odd that the Keystone pipeline has languished for so long even though it involves no new drilling. Building the pipeline will not increase the supply of oil but rather change where it is refined. Why the big deal with Alaska?

Environmentalists are loath to admit global warming is a far bigger and more complicated problem than just Alaska or the US, or other developed countries. China and India are moving towards the spots of #1 and #2 polluter and with their combined 2 1/2 billion people, they will draft the output of US’ 340 million. Getting a handle on global warming is much more involved than drilling in Alaska.

Environmentalist point out that unless the developed world presents an example, the rest of the world will not follow. Hmmm.

Reducing fossil fuel consumption must involved decreasing the world’s dependence upon most carbon energy sources. Wind, ocean, thermal, solar, along with hybrid systems all lie on the path to lower demand for fossil fuels and subsequently reduced global warming. Environmentalist might consider advocating for non-fossil or significantly reduced fossil fuel alternative energy sources.

Both political parties could take a message from this controversy too. The path away from fossil fuels is not clear and is expected to be costly (at least initially). Political parties, who either denying global warming, or approve new oil exploration while embracing global warming dangers is sending a very mixed message to voters.

The unintended message is that politicians cannot be trusted to see right from wrong, and cannot be expected to advocate innovative solutions to tough problems.  Voters may see non-traditional elected officials as just as good as the current crowd.

What say Ben Carson, Bernie Sanders, or Donald Trump?

Dick and Liz, Truly Exceptional

August 30, 2015

Saturday’s Wall Street Journal carries a half page op-ed column by Liz and Dick Cheney. The father daughter team went way beyond attempting to rewrite history in their piece. One is tempted to believe their column was really an attempt to hawk their new book due out in September. Seeing it in any other light would either bring further discredit to former Vice President Dick Cheney’s long years of public service, or more cynically, underscore the failings of those who cannot bridge world changes and insist upon living in the past.

The Cheney’s column, titled “Restoring American Exceptionalism”, is roughly constructed in three parts. They open with a claim that American Exceptionalism has its roots in the founding days of our Country. Hmmm. The Cheneys do not belabor this claim and immediately move on to slamming President Obama for abandoning Iraq and making a “bad” deal with Iran.

The Cheneys omit any explanation why President Obama was in a position to remove US troops from Iraq in the first place, and say nothing about what a mess Iraq became after President George W Bush and Vice President Dick Cheney invaded and occupied Iraq, thereby opening Pandora’s Box. Probably just a minor detail in Dick and Liz’s opinion (or an inconvenient truth in many other’s minds).

By this point, Dick and Liz are full throated in their denunciation of President Obama over the Iran nuclear deal. Their argument reads like the words were from AIPAC or maybe even Prime Minister Netanyahu. As you might guess, the Cheneys offer no alternative path or explanation why no agreement does not lead to war while an agreement does. Hmmm.

After making a “President Obama – Neville Chamberlain” comparison, the Cheney’s catch their breath on reminisce over the successes of WWII and post war recovery, and of course, the winning of the cold war. I guess these are things “exceptionalsim” is made of.

It is doubtful any one can accuse the Cheneys of being unsure of their visions nor hampered with too many facts. Simply check out PNAC (Project for the New American Century) begun in 1997.  Cheney’s view of the world (especially the Middle East) and the unbridled use of American military power is on display. What’s so wrong with using other people’s children to fight on the ground? It’s called an all volunteer Army and a great thing when there are not so many other civilian jobs.

The kindest light that can be put on this column is it represents a crass attempt to merchandize a book. The Cheneys show complete ignorance of true American Exceptionalism and instead attempt to conceal America’s foremost foreign policy failure (Iraq War) with shameful comparisons to former great Americans. George Marshall, Dwight Eisenhower, and Harry Truman would spin in their graves if they could read this column.

The Middle East (especially Iran), China, and Russia all represent complex challenges for America foreign policy. One foreign policy approach is unlikely to work for all. Selecting the best approach for each will be both difficult but critical to maintaining a peaceful world. Negotiating by laying down ultimatums is the quickest way to failure. Negotiating in good faith may not always produce desired results also but good faith is the only way win-win outcomes can be forged.

The Cheneys don’t recognize this alternative.

GOP – Near Sighted?

August 29, 2015

The 2016 Presidential elections preliminaries are underway. Both Parties have begun their primary processes, and pundits speculate daily over which candidates will become their party’s standard bearer. Hillary Clinton has appeared the Democrat favorite and in polls has been preferred over all the GOP hopefuls. So, is the election over (already)?

Not so fast.

Hillary Clinton is like honey, she attacks all sorts of attackers who hunger for her defeat. Clinton, however, is every bit their match. She campaigns in a highly controlled manner and provides as few openings for her opponents as possible. The “Bengazi morphed into private email server” controversy has lasted this long mainly because Clinton has chosen to not engage the issue (apparently because she believes it is irrelevant). Clinton’s strategy, however, has given credence to a “trustworthiness” issue and the original Clinton glow has faded somewhat. She appears beatable although defeat is by no means certain.

The GOP seems unwilling to accept this opportunity to win back the White House. With Donald the Trump leading the way, most of the Presidential candidates have made prejudicial comments while campaigning. To be sure, with 16 hopefuls, attracting voter attention is not easy. A “near sighted” party, however, must recognize that the way they attract attention now will have consequence in the future election.

Recent reports indicate the broader GOP controlled Congress might enter the election dynamics. When Congress returns from its summer recess, it will be facing a budget and debt hurdle of their own making.

GOP Congressional members have laid down the gauntlet that any budget or any debt extension bill must contain measures that “defund” planned parenthood. Do you see the connection?

Apparently these GOP Congress members think they can hold hostage the budget and debt extension (that is the US paying its bills) until Democrats agree to defund Planned Parenthood. It is hard to image anything more nearsighted. Women and poor citizens vote in the national election and will remember a Government shutdown (again).

One can question whether Planned Parenthood represents a substantive issue or whether GOP support is just a cynical sop for their evangelical wing. In either case, Planned Parenthood has nothing of meaning to do with either the Budget or the Debt. Even worse, politically speaking Planned Parenthood plays right into the Democrat’s claim that the GOP is conducting a war on women.

As in 2012, the GOP sees things differently. Focusing two inches away, they see a path to defund Planned Parenthood, and see no consequences. Maybe the country is not ready for nearsighted President.

Roanoke Tragedy – No Kidding

August 28, 2015

The two television employees who were killed while recording a live interview for a morning show once again shed an uncomfortable light upon guns. Armed with two recently purchased hand guns, a former station employee shot the TV anchor person and her cameraman. To add insult to injury, the killer then posted his own video on social media. A few hours later, the killer took his own life as police neared his capture. What a tragedy.

News reports have not shown any connection between these specific victims and the killer. The killer had been fired from the local Roanoke television station but the two victims were not involved (according to reports). In addition to the two victims, there was also an interviewee who was shot but is predicted to survive. Is this a tragedy about being in the wrong place at the wrong time?

News reports indicate the killer felt himself the victim of racism as well as sexual discrimination. He attributed his firings at the Roanoke station as well as an earlier one at a Florida station to discrimination because he was black and a gay man. Was this a tragedy because the killer was mistaken in these beliefs or was he correct in his beliefs and just cracked under pressure?

News reports claimed that the killer had only recently purchased two handguns. In a perfectly legal Virginia transaction, the killer obtained the means to become a black, gay, killer. Could this tragedy have been prevented if the laws prohibited the sale of guns to blacks, or gays, or just black gays?

This event’s tragedy reflects the heavy cost of having let the gun genie out of the bottle. When one reads the 2nd Amendment and reads the words “well regulated militia”, the Constitutional purpose of gun ownership is clear.   The right of States to control or regulate other uses should also be clear.

The tragedy of this Roanoke shooting stems from the Supreme Courts recent decision affirming the right of all Americans to possess fire arms any time, any place, and severely limits the reasons a State can limit gun ownership or possession.

Commonsense would lead a thoughtful person to minimize the provocative nature of “open carry” or the general public danger of “concealed carry”. Target shooting, hunting, and home defense, on the other hand, when combined with appropriate levels of training and gun safety education, could be allowed for all willing Americans.

The Roanoke tragedy is just another example of deaths that didn’t need to happen. Clearly hand guns didn’t make the killer kill. Hand guns simply enabled the killer to kill. As the NRA says, guns don’t kill, people kill.

Columbine, Newtown, and Virginia Tech gun tragedies, for example, were all front page news. Senseless deaths only possible due to easy gun availability.  Nothing has changed. That’s the real tragedy.

Should Biden Run?

August 27, 2015

With Donald Trump shaking up the GOP Presidential primary scene, Vice President Joe Biden ponders whether he should enter the Democrat race. Should he, or should he stand to the side?

Comparing Donald Trump and Joe Biden would be a mistake. Their candidacies, however, could have similar effects upon who ultimately is selected as their party’s standard bearer.  Both could dislodge the consensus pick.

Before Trump entered the race, the GOP presumed nominee was Jeb Bush. He had credentials, well known name, and access to lots of money. Opponents like Scott Walker or Marco Rubio, while attractive in their own right, could not match Bush’s overall offering and pundits felt, would need to wait for their turn (or maybe accept the Vice Presidency). The rest of the GOP field simply were losers and in time would have had to make a concession speech.

Trump has changed all that. Trump’s fiery speech has highlighted the GOP positions on women, immigration, and indirectly on evangelical obsessions.  Trump enabled some candidates to hang themselves by agreeing with some of the Donald’s positions and a few others to put down place holders that show them as thoughtful, genuine candidates. Jeb Bush, however, while trying desperately to be viewed in the latter camp, has stumbled and made to appear irrelevant.

Thank you Donald.

On the Democrat side, Bernie Sanders has done an outstanding job of articulating the concerns of many progressives. While he has underscored many legitimate American concerns (like healthcare costs, abuses of large financial institutions, and protection of entitlements for the elderly and poor), the majority of Democrats (and all Americans) appear not ready for stepping whole heartedly into the socialist pool. The primary is Hillary’s to lose and as things stand now, Hillary Clinton will become the Democrat nominee.

So what happens if Joe Biden enters?

Strategically, Biden is looking up a steep hill.  He has less resources (money and staff) and will be challenged on how to gain sufficient attention to win primary votes. It is not that Biden is necessarily a bad candidate, but from a Democrat perspective, the party already has a candidate who could win the national elections.

In all things in life there is always “what might happen next”?

Hillary will continue to be hounded by GOP controlled investigative committees. These investigations could raise a negative cloud and infer that Clinton is unfit (untrustworthy) for office. Worse, while the charges fly, Clinton could inadvertently say something that begs more questions. Consequently, the race would then be over Hillary’s worthiness (not competency), and not over the GOP’s platform. This focus will enable the GOP candidate to escape defending their platform around women’s rights, immigration, healthcare, and foreign policy. Hmmm. So is Biden the better choice.

He might be but not at this time.

With Biden entering the race, the Democrat Party will be emulating the GOP with one more white male candidate. In addition, there is the risk that in order to win, Biden might think he has to destroy Clinton’s reputation (zero sum game) and will plant the seeds for a GOP victory. And, while Hillary can be characterized as “ice cold”, Biden, on the other hand, lives in the moment and can be expected to say all sorts of things. Those “unpresidential things” could come back to haunt Biden if he were to somehow win the nomination.

The reality that both parties are facing in 2016 is that neither national party truly control the nomination process. Big money and big egos are far more dominant in the section process. This would suggest that Biden will declare his candidacy and the Democrats will have race too.

So for full disclosure, I have a dog in this fight. It is Hillary Clinton, for better or worse. She is a centrist, maybe even a little right of center and can be expected to keep government out of our personal lives. She is a woman and after a black President, the country should be ready for a woman. Hillary will come with a lot of Clintonesque baggage (secrecy, triangulation) but otherwise she is a very competent person. She will be boss.

The question of should Biden run or not is nearly impossible to answer. His candidacy could put Hillary in a better light or if she were to faulty, Biden would be in an excellent position to win the nomination and enter the Presidential race on a strong basis (not the second pick). Hmmm.

I guess we have let Joe be Joe and honor his choice.

Stock Market Woes Again

August 25, 2015

Last Friday the Dow Jones Average fell some 500+ points in one day. That is a lot. Over the weekend, pundits breathlessly characterized the fall as “correction like” but technically not a correction. Monday was worse for China are the US stock markets dropped over 500 points.  Hmmm. What were these markets trying to say?

Stock markets are places where most people pretend to make investments (buy or sell stocks for example) when in reality they are making “bets” (wagers). The bet is that an hundred dollar investment will in a short time be worth $200. The thinking goes that when the stock reaches $200, the investor will sell and pocket a profit of $100. Pretty simple and easy to understand how one would make money.

The “bets” can drive the average stock price up and up.  Remember, when the price rises, someone has also decided to sell thereby taking his/her profit.  At some point the average price is viewed as too high and then the market physiology reverses this process and prices drop.  Normally the drop is just a little, these past few days it has been a lot.

Not so long ago (ok, well maybe it was 50 years ago), individuals and conservative investors preferred dividend bearing blue chip companies.  These companies were stable and regularly paid a dividend.  The overall quality of the company investors chose was important.  The stock value appreciated but only slowly, so investors tended to hold onto these stocks for a long time.  The investor made money from dividends and a little appreciation when the stock was finally sold.

Not any more.  Investors want to make money much sooner and quarterly dividends are not enough. Investors care little about the long term prospects of companies they invest in.  It’s all about how much can be made now.   Putting things in perspective, most banks are paying less than 1% on savings, yet stock market investors are hoping for double digit returns (although they will settle for 5+% if they must.

The “stock market industry (the wide range of media, analysts, and financial advisors)”, works hard to make the investment process sound complicated, almost seemingly to make us look the other way when these panics occur. Potential investors are told to look (with the help of an advisor) for “undervalued” stocks or stocks in certain fast growing fields like energy, transportation, or maybe real estate. Investments in those fields are most likely to appreciate in value future investors are told. Advice abounds that conditions remain favorable for growth and it is not too late to “get in the market”. Hmmm.

Compared to China, Wall Street caters more to the “institutional” investor rather than the average individual (mom and pop) investor. Mutual funds as well as hedge funds make most of the Wall Street trades, and make them electronically. Ironically, empirical data shows that funds which mimic the overall averages of sectors or the market as a whole do as well or better than investments by individual expert’s picks. So, indexed funds must be safe? Hmmm.

Lets look at China which is turning an unsettling light upon stock markets. In China, most investors are individuals who make their own trades. The Chinese stock market process has looked more like a casino where “you place your bets and pick up your winnings”. “Don’t have enough money, no problem, just borrow and invest”.

With the overall Chinese economy having been growing at almost 10% per year, experts could predict with some certainty that stocks would be worth more next year than now. Growth rates of 10+%, however, are simply unsustainable and while China has enjoyed over 10 years of this type of growth, China’s growth rate has receded recently to the 7-8% range. While still the best in the world, pundits worry that China’s growth rate will fall further.  What about the possibility that the market is already over priced?

The stage has been set. China’s stock market, loaded with borrowed money and with investors who have had no clue why stock prices were as high as they were, are poised to panic. Like with the US market, the heavy hitters all play the same game. “Get in the market first, get out of the market first. leave the losses to others”.

Last into the market and last out of the market is a prescription for losing a lot of money. Accordingly, when market watchers see the market go down, the urge to panic and sell sets in.  How far of a drop the Chinese market must endure before the “correction” is complete is unknown. What can be counted upon is that market makers will reenter the market at some point and be set to ride the market up again, all the while encouraging average people to invest. The many who have been investing with borrowed money (especial if buying on margin), will likely be wiped out during the current “sell phase”.

The market’s herd mentality, however, can not be denied.. If an investor gets out early, he/she can watch the stock drop further and see others try to emulate the “pros”. Even if the investor gets out too soon, as long as the market does follow him/her to lower levels, these investors will be poised to jump back in and benefit more from a rising market.

The moral of this story is there are no market fundamentals, indicators maybe, but no primary calculations which can inform on when to buy and when to sell. Further there is only money to be made if there are buying and selling cycles. If stocks are high (as measured by market averages and specific stock’s historic record), sell and put money aside. When stocks seem low, buy and hold until stocks seem high, then sell and count your profit. The obvious problem is recognizing the high point and the low point.

Listen carefully what the pundits say over the next few days. Many will tie the drop in US prices to the drop in China’s stock market or China’s overall growth rate (the fear card). This is pure malarkey. The US has a much more diverse economy and while China is an important trading partner, it is only one of many.

A far better explanation lies in the herd effect (one sells, we all sell) and the reality that a steep correction (large drop) just creates more room for speculators and market makers to make a killing on the way back up.  Hopefully your financial advisor is not recommending “rebalancing your portfolio” which of course involves selling.  The wise investor is already “diversified” and should be able to wait out this current Wall Street chill.

Lastly, the pundits may predict tough times ahead because a slowing Chinese economy will have knock on effects in the US.  The notion is that US business earnings will decline.  Hmmm.  Maybe but just how much?  Some corporate earnings may be less with a slow or not growing China, but that should be only a small fraction of US companies.  And more to the point, betting on future earnings growth should remain unchanged.  Without a doubt there will be confusion around a slow down in China, but US fundamentals seem as sound as the ones that got the Dow Jones to 17,000+ in the first place.

Amazonian (Or Is It Neanderthal) Thinking?

August 18, 2015

In Sunday’s New York Times, a front page story begins and sprawls out over more than two full pages.  It ran under the headline, “Amazon’s Bruising, Thrilling Workplace”. The story written without Amazon’s full support laid out the pressure and expectations Amazon’s white collar staff are experiencing. The sub-headline read “Giant Retailer Tests How Far It Can Push White-Collar Staff”. Hmmm.

In the early 1960’s, SRI (Stanford Research Institute) introduced the concept of “business stakeholders”.  Stakeholders are groups of people without whose full support the business could not thrive. Over the years, the term “4 stakeholders” has narrowed the many possible stakeholders to Customer, Employees, Community, and Shareholders (Owners).

The notion is that unless a business tends to the needs of all these stakeholders, the long term corporate prospects will be far less than otherwise possible and potentially truncated. The 4 stakeholder concept directs management to make decisions which involve the needs of each of these 4 groups. The implied message is business performance (what owners or investors seek) will be optimized if all 4 groups’s needs are balanced.

The NYT article was disturbing to read on many levels. The two most significant management risks involve (1) favoring or not paying attention to one or more stakeholders, and (2) creating the work atmosphere where healthy checks and balances are muzzled in favor of “A Tale of Two Cities” atmosphere of behind the back criticism.  As described in this article, Amazon has both risks.

Silicon Valley high tech firms’s personnel practices have become familiar to us.  They woo talented workers with free food, gyms, and college campus like work places. Pay and stock options are also liberally used to develop employee loyalty and hard work. The employment model seemed to be “bright people, well rewarded, produce great innovative results”.Apple and Google, for two, seem to have a bright future. What could Amazon be doing that’s so different?

This article introduced quite a different model, “bright aggressive people, adequately rewarded, continual measured for performance yields results (and some who fail or burn out are discarded)”.

Amazon employs an almost cult-like approach to white collar work. Drive, drive, drive. Beginning with recruitment (sounded like Amazon seeks all type A’s), then orientation (learn the mantras), and beginning with their initial work assignment, periodic peer ranking (who stays, who gets weeded out), Amazon makes clear to employees what personalities and output are wanted.

Amazon encourages fellow workers to secretly criticize fellow workers and expects supervisors to give weight to these comments during personnel assessments. Personnel development and  improvement results from “survival” more than from coaching and counseling.

Assignments are expected to be completed as quickly as possible demanding the workers full attention, often 7 days a week and 18 to 20 hours a day.

Amazon relies on data availability. All aspects of day to day operations are tracked and a supervisor can see “real time” measures of what his subordinates are doing. On a periodic basis, the bottom performers (regardless of how good those employee might be) are let go (timely reminder to those remaining what could lie ahead). The article reported instances of workers losing their job because of serious illness and pregnancy (failures to perform). Hmmm.

Amazon does have a carrot as well as a stick. It rewards middle level workers with stock options and given Amazon’s stock performance, these can be attractive financially. The article also spoke of the “thrill” that some workers experience with the get it done at any cost model.

Jeff Bezos, Amazon’s founder and CEO, has publicly compared Amazon to Microsoft (both firms headquartered in Seattle) and said he will not allow Amazon to calcify into a rigid bureaucracy (slow reacting) like he sees in Microsoft and promises to keep Amazon striving to deliver customer delights before the customers request them. Hmmm.

The purpose of the NYT article can only be guessed (the article was featured as news). One could think the Times published the report as an expose of questionable management practices, or possibly a warning of a coming trend in management direction (why don’t more companies fire the bottom performers?). Or could this article have resulted from encouragement from major competitive retailers like Walmart or Macy’s (to show Amazon in a poor light)? Amazon claims to have surpassed Walmart already as the US retailer, so where next?

The article is disturbing and clearly describes a workplace I would not wish to be part of.

Amazon might not be alone in these policies which de-value workers.  A recent practice involving Disney involved firing US white collar workers and replacing them with imported lower priced (special visa) white collar workers from lower wage countries.

The trend is disturbing. The early days of globalization outsource jobs to low wage countries. Then businesses used the resulting lower wage rates to pressure other blue collar workers to accept lower wages. Now this new Amazon model culls the most productive white collar workers, consume them until they become less productive, and then discards (fires) them. Hmmm.

Amazon has surged ahead of its peers by capturing the web experience market and satisfying consumers willingness to buy on-line. These competitive advantages are not unique.   Amazon growth has been built upon broadening its range of products and services. They continue to experiment with new methods of deliver such as drones and same day service. A question might be, how long can this growth be sustained?

A more relevant question would be “what will happen when Amazon can no longer grow so quickly? What will happen to its stakeholders? Will Amazon be forced to shortchange its employees, the communities in which it operates, or (OMG) abandon its customers?   Hmmm.

One cannot argue that an ideal work force contains a lot of dull, unimaginative, lazy people. It is equally hard to argue that those that produce more should not be rewarded more. The question becomes what mix of people produces the best results for the longest period of time?

Activist investor, however, see the goal as which management style produce the greatest return for their investment with little regard to any stakeholder but themselves.

If this NYT article paints an accurate picture, Amazon will almost assuredly need to evolve to another form of white collar management as their business model ages. At the current pace, Amazon is burning out the bright young people it is hiring. It would be surprising if this risk and prediction is not well known within Amazon’s top management.

Of course, Bezos might have have a vision of growing Amazon into not just the largest retailer, but one so large as to make all others subservient.

Hmmm. Don’t they call that a monopoly?

Note: to learn more about a contrasting management style, see “Visions, Values, and Results” by John R Lewis