It has been a while

Too bad the world hasn’t improved while I’ve been gone. McKinsey and The Economist have generally reported that executives have better (read not bad as before) expectations for future growth.

In similar significance is the fact that I quite like my new coat.

Without improving the structural problems currently burgeoning the world, or at least the time bombs going off and crashing the whole system, there will be no real improvement.

Anyway here are a few articles I found particularly interesting from The Economist. I’ve attempted to make summaries shorter.

Over-regulated America
http://www.economist.com/node/21547789

“Consider the Dodd-Frank law of 2010. Its aim was noble: to prevent another financial crisis. Its strategy was sensible, too: improve transparency, stop banks from taking excessive risks, prevent abusive financial practices and end “too big to fail” by authorising regulators to seize any big, tottering financial firm and wind it down. This newspaper supported these goals at the time, and we still do. But Dodd-Frank is far too complex, and becoming more so. At 848 pages, it is 23 times longer than Glass-Steagall, the reform that followed the Wall Street crash of 1929. Worse, every other page demands that regulators fill in further detail. Some of these clarifications are hundreds of pages long. Just one bit, the “Volcker rule”, which aims to curb risky proprietary trading by banks, includes 383 questions that break down into 1,420 subquestions.”

“Those who have struggle to make sense of it, not least because so much detail has yet to be filled in: of the 400 rules it mandates, only 93 have been finalised. So financial firms in America must prepare to comply with a law that is partly unintelligible and partly unknowable.”

“Every hour spent treating a patient in America creates at least 30 minutes of paperwork, and often a whole hour. Next year the number of federally mandated categories of illness and injury for which hospitals may claim reimbursement will rise from 18,000 to 140,000. There are nine codes relating to injuries caused by parrots, and three relating to burns from flaming water-skis.”

“Many lawmakers seem to believe that they can lay down rules to govern every eventuality. Examples range from the merely annoying (eg, a proposed code for nurseries in Colorado that specifies how many crayons each box must contain) to the delusional (eg, the conceit of Dodd-Frank that you can anticipate and ban every nasty trick financiers will dream up in the future).”

“The government’s drive to micromanage so many activities creates a huge incentive for interest groups to push for special favours. When a bill is hundreds of pages long, it is not hard for congressmen to slip in clauses that benefit their chums and campaign donors. The health-care bill included tons of favours for the pushy. Congress’s last, failed attempt to regulate greenhouse gases was even worse.

Complexity costs money. Sarbanes-Oxley, a law aimed at preventing Enron-style frauds, has made it so difficult to list shares on an American stockmarket that firms increasingly look elsewhere or stay private. America’s share of initial public offerings fell from 67% in 2002 (when Sarbox passed) to 16% last year, despite some benign tweaks to the law. A study for the Small Business Administration, a government body, found that regulations in general add $10,585 in costs per employee. It’s a wonder the jobless rate isn’t even higher than it is.”

“All big regulations should also come with sunset clauses, so that they expire after, say, ten years unless Congress explicitly re-authorises them.”

“Would this hand too much power to unelected bureaucrats? Not if they are made more accountable. Unreasonable judgments should be subject to swift appeal. Regulators who make bad decisions should be easily sackable. None of this will resolve the inevitable difficulties of regulating a complex modern society. But it would mitigate a real danger: that regulation may crush the life out of America’s economy.”

Good job to The Economist, nailed the hammer on the head with this one. It is worth reading the article in its entirety.
You can read more from them on Dodd-Frank at:
http://www.economist.com/node/21547784

Grappling in the Dark
http://www.economist.com/node/21547821

“Mr Bo is a former minister of commerce and considered to be one of China’s more charismatic senior leaders. Before last week, he was thought likely to be promoted to the Politburo’s nine-member standing committee in the autumn. His failure to gain a seat would be a blow to two influential political camps. One is a group made up of the “old left” who lament the passing of Maoism, and the “new left”, who want to restore some of Mao’s more worker-friendly policies. This group extols Chongqing as a model of the way the country should be run. It admires Mr Bo for his heavy spending on social housing and on education and health care for migrants. The old left likes Mr Bo’s attempts to revive “red culture”, including the singing of old revolutionary songs, and his fierce campaign (carried out by Mr Wang) against corruption and organised crime.”

This is important because it is a rare insight into the direction that the current Politburo and the CCP want to take China in the coming years. That vision does no include a communist revival.

 

EDIT:

Had to add in this picture I found on the Economist with the map as the size of countries according to their government spending:

http://www.economist.com/blogs/charlemagne/2012/01/europes-debt-crisis?fb_ref=activity

If we don’t do anything about it, it’ll go away. Right?

Obama’s Decision to Punt Oil Pipeline Pleases Almost no One.

http://www.dailytech.com/Obamas+Decision+to+Punt+on+Oil+Pipeline+Pleases+Almost+no+One/article23259.htm

Quotes:

” In one fell swoop the President of the United States (POTUS) Barack Obama managed to infuriate Canadians and Republican U.S. politicians alike.  Those are typically mutually exclusive feats, but his decision to bow to activist pressure and shelve the development of a critical oil pipeline is drawing criticism from both sides.”

“Dubbed the Keystone XL pipeline, the pipe in question was supposed to stretch 1,700 miles across the U.S. plains, transporting process oil sands crude — a low to mid-grade crude to U.S. refineries in Texas for procesing into fuel (the initial removal of sand would occur at local facilities in Alberta).

Currently the Alberta tar sands are underutilized due to insufficient refining capacity.  Meanwhile refineries in Texas sit idle due to insufficient domestic oil supplies.  The pipeline would have remedied both problems, pumping the equivalent of 700,000 barrels a day (249.2m barrels a year) into the U.S. market. ”

“The U.S. uses 19.15m barrels/day, so the new supply would offer approximately 3.7 percent of the domestic demand.  While that may sound trivial, it would allow the U.S. to potentially entirely drop one of its more hostile sources of foreign oil, such as Venezuela (806,000 barrels/day) or Iraq (637,000 barrels/day).”

“The cost of getting all that sand out is a 10 to 30 percent emissions hike in greenhouse gases [source]… However, that emissions hike occurs largely at the extraction level, meaning that as long as Alberta finds someone to sell/ship its crude to, the emissions hit will be taken, regardless of whether that someone happens to be the U.S.  It’s unclear whether the pipelines environmentalist adversaries realize this and are just morally opposed to being involved.”

“Recent studies have shown that in the last decade global temperatures flatlined, even as greenhouse gas emission continued to rise.  Yet many environmentalists and their powerful political allies remain convinced that the long-term trend will be continued warming.  Many of these parties predict a doomsday “runaway warming” scenario, in which soaring temperature amount to mass humans deaths.

Groups like 350.org, Bill McKibben, Bold Nebraska’s Jane Kleeb, and Friends of the Earth decried the potential environmental (mostly global warming) impact of the pipeline and threatened to drop support for President Obama if the project was granted a speedyapproval.  If these groups sound familiar, they’re among those who attacked the POTUS onhis support of modern nuclear power — pressure that the President Obama caved to in the wake of Japan’s Fukushima nuclear accident.”

 

My big issue here is that you cannot have it both ways. You can’t claim that we should avoid nuclear energy and simultaneously complain about the use of fossil fuels, otherwise you are just maintaining the status quo, which is unacceptable. We need to begin to change the way we think. On one end we need environmentally conscious and informed consumers who demand change and vote with their dollars, on the other we need politicians and companies to do the right thing without being coerced. If we don’t, well, we’ll just be living with the consequences and have no one to blame but ourselves.

These are exactly the kind of facts the IC is here to bring to light.

Keeping the Bottom 50% the Bottom 50%: Lets Make Pizza a Vegetable

If I had to design a system to guarantee that the bottom half of the country could never escape their fate there are a couple thing I would do (please bear with my sarcasm):
1. I would make their education sub standard, this way even if they make it to a good higher education institution they will fail there.
2. I would create standardized systems that reward those with money and recreational time.
3. I would attempt to flood as much useless information into their minds as possible. Shows like MTVs 16 and pregnant should replace any decent broadcast media (what an oxymoron).
4. I would make sure that the daily institutions that the bottom 50% rely on serve the nutritionally worst food and help to create the worst possible and most expensive and destructive habits.

Unfortunately for the United States, I am trying to achieve none of these things while the United States government is reaching these goals as fast as possible. In the past couple of days, they manged to think of something that even I could not have imagined (and lets recall that I really want to be a consultant): They declared pizza a vegetable.

This is, however, a bit of an oversimplification. Congress blocked the USDA from implementing strong guidelines that forbid the two tablespoons of tomato paste in frozen pizza to be considered a vegetable as it has been in previous years. A subsidized meal cannot be served if it does not contain a single serving of vegetables.

How can congress justify serving the least healthy food to the underprivileged children who require subsidized food? In this case it must be lobbying. No politician will vote against a budget bill because of such a provision, but maybe its time they should. If congress is going to help to turn the country around this is the kind of thing they need to take a stand for. I see no value in allowing schools to serve nutritionally poor foods, its just another case of kicking the cost down the line in the form of greater healthcare expenses in years to come.

http://today.msnbc.msn.com/id/45306416/ns/today-today_health/t/pizza-vegetable-congress-says-yes/#.TsVR7_JJ92M
Pizza is a vegetable? Congress says yes

The True Fiscal Gap of the United States, Adapted from a Discussion by Laurence Kotlikoff

Fixing the U.S. Economy: A discussion by Laurence Kotlikoff

Laurence Jacob Kotlikoff (born January 30, 1951) is a William Warren FairField Professor at Boston University, a Professor of Economics at Boston University, a Fellow of the American Academy of Arts and Sciences, a Research Associate of the National Bureau of Economic Research, a Fellow of the Econometric Society, a former Senior Economist and President’s Council of Economic Advisers among others.

 

All words below are paraphrases by Prof. Kotlikoff and may not be used as direct quotes. I lacked the resourced to properly record his statements with the accuracy required for quotes. I also re-organized them to make the summary more fluid. Boston University: School of Management, however, may have the discussion on file as a video if you choose to contact them.

 

 

 

• The Real Budget Deficit of the United States
• The current deficit numbers are meaningless. The United States has, originally unintentionally, hid the true size of its debt and kept it off the books.
• Instead of its current method which relies too much on labeling the U.S. should use infinite horizon fiscal gap calculation to determine its true debt.
• This calculation reveals that the United States has a Fiscal Gap (On book obligations + off book obligations) of 211 Trillion USD.
• This number indicates a fiscal gap of 14x GDP, Greece is currently at 12 and Germany at 3.
• What would be required to fix this?
• For the United States: 64% permanent hike in federal taxes or a 40% cut in all non-interest federal spending
• For Germany: A 13% permanent tax hike or 11% cut in transfer payments

• Social Security
• When all the major benefits are combined a baby boomer will receive, on average, $40,000 a year in todays dollars. This will represent about 80% of per capita GDP in 2020.
• The Social Security Administration’s Trustees’ Report disagree with the Congressional Budget Office that they are sufficiently funded
• Table 4B6
• Social Security is underfunded by 29%, it must be cut by 22% just to continue to function.
• This has essentially created a ponzi scheme and in the process wiped out the U.S. savings due to increased old age consumption. The net national savings rate (as opposed to the meaningless personal savings rate) is next to zero. Net investment rate is next to zero.
• This means investment is made up by foreign investors in the U.S. and the current account deficit.

• How the U.S. kept this off the books
• How did this happen?
• This originally started under Eisenhower when he created Social Security as a tax instead of recording it as a loan. They promised each person that they would receive the principal plus more. This allowed the U.S. to keep this debt off the books. Eventually healthcare benefits were added too.
• In order to prove his point, Prof. Kolikoff showed that he could create a scheme that would eliminate the entire U.S. deficit overnight without any money actually changing hands, requiring only the change of language used.
• His point was that the current deficit numbers are meaningless, but people are unable to look past them because it is easier. This is why infinite horizon fiscal gap should be used instead. With finite horizon it can simply be a language game.
• Censorship
• Both Republicans and Democrats have censured this.
• Both Clinton and Bust W. Bush’s administrations outright
• Obama Administration fudged the results by calculating as if Medicate and Social Security don’t exist.

• Private And Public Sector Examples
• When you adjust U.S. earnings for inflation and exclude fringe benefits they are no higher today then in 1964.
• Many companies had a defined benefit plan similar to the Social Security model, however, they are now receiving considerably less then they were originally promised (ex. Delta Airlines).
• The markets value the fact that the U.S. can print money, but this is not the panacea it is proposed to be. Already the fed had printed enough money to quadruple the M1, but banks are sitting on it. We may see prices increase four fold.
• Russia printed in the 1990s to cut real salaries of government employees and pensioners, it solved the government’s problem, but many starved and died.

• The instability of the U.S. Financial System as a whole
• In the U.S. the FDIC has only 3 Billion dollars to ensure 6 trillion dollars worth of deposits.
• One crash can have a ripple effect, such as Lehman.

• His solution
• Limited Purpose Banking, where investment banks become only middle men and are equity funded only.
• He details this more in his book Jimmy Stuart is dead.
• The Purple Plans
• Bi-partisan plans that can be found online.

 

Next Week I’ll start to go over the purple plans and limited purpose banking and post up what I find here. I’ll attempt to reach Professor Kotlikoff for comments as well.

 

Do I completely agree? Not necessarily, I wonder about how the nation could be left uncompetitive by a move to limited purpose banking. I also wonder if it will be as easy for people to invest their savings, I doubt it does us any good if everyone just sits on their savings instead of investing them.  I need to look into this issue much more before I make an opinion, but Professor Kotlikoff does an excellent job of highlighting the problems that many people, and especially our government, like to ignore.

Has China Sucessfully Cultivated its Domestic Consumer Market?

I’ve often said here that I don’t believe China is in the stable position that the world believes it to be because it has failed to capture its own domestic market. Many Chinese are not able to afford the products produced in its country and China relies on cheap exports for a large part of its growth.  The problem with cheap labor exports, is that they don’t produce a lot of revenue compared to other stages of manufacturing. I recall reading a report that claimed that China received only 6c per dollar spent on the manufacturing of the iPad compared to the 20-30c received by Japan, South Korea and Taiwan who fabricated pieces and participated in high tech manufacturing.

Am I correct? That, for now, is impossible to tell as the numbers coming out of China are often unreliable or coerced by the politburo’s long reach. McKinsey, however, just came out with a survey based study that I recommend reading and discuss below.

http://csi.mckinsey.com/Home/Knowledge_by_region/Asia/China/2011_Annual_Chinese_Consumer_Survey.aspx

Full Disclose: My experience with China comes from a few sources. I work for a company called China Programs that promotes summer study programs in China, I spent a little over a month in Shanghai at East China Normal University during the Olympics where I conducted studies of the local population  and have read many journals and taken classes on the subject.

 

Quotes and Analysis/Opinion:

“McKinsey’s 2011 Consumer Report, like those of previous years, is a snapshot of the buying behavior of China’s urban consumers.“

This is an important fact to remember while reading this report. China has millions of migrant workers and a large part of its rural lands are in poverty compared to its cities. Success of its cities does not mean that China has captured its entire consumer base, although cities alone may be enough to move them to the next stage of growth. This disparity may also cause political instability in China.

After being present for a small seminar (Boston University allows it undergraduate students to cross register for graduate classes) and asking questions of Dr. Ho Szu-yin, Taiwan’s former deputy National Security head under Ma Ying-jeou, Taiwan is acutely aware of this fact. The previous administration’s plan (and what it looks like will continue, blue or green) is to preserve the status-quo while civil unrest grows in China between rural and urban in hopes that fundamental change in China will neutralize the threat of reunification before demographic changes in Taiwan render it unable to defend itself due to social obligations maturing

“First-time buyers have been a major driver of category growth in China.
This year, however, among the urban population, only 5 percent of
consumers who spent more did so because they were first-time buyers,
down from 20 percent in 2010.”

This is the slowing growth that I am somewhat concerned about. If it is slowing this dramatically in urban centers, rural sectors will be considerably worse.

“Chinese consumers can be quick to adopt what were once unfamiliar
products, opening up whole new areas of growth. For example, 66 percent
of consumers in the survey said they bought chocolate this year, compared
with 46 percent just two years earlier. Similarly, fabric conditioner and pure
fruit juice were once unfamiliar to the Chinese, but penetration rates are
now as high as 42 and 60 percent respectively.

Although brand awareness is rising, there is little sign that brand loyalty is
following suit. In fact, an increasing number of consumers choose between
a growing number of their favorite brands.”

What I see here is massive opportunity for Western Company growth, but also a potential for them to fail. If they are unable to capture brand loyalty they will spawn domestic competition. When these companies end up inevitably making products that are as high in quality as their western counterparts these companies will face increased competition. These companies also do not have the disadvantage of paying off R&D costs since they can simply copy the current formulas of competitors, although they will have to overcome brand stigma.

“Although almost 60 percent of the population now has Internet access, as
a medium for obtaining product information, its reach remains relatively
limited—only 28 percent of those surveyed said they had recently received
product information from Internet advertising and other forms of online
communication for consumer electronic products, for example. In short,
the Internet has by no means replaced other media channels as an
important source of product information.”

Why? In my opinion this is because in China they have not yet managed to make consumer websites as friendly as western counterparts like amazon, they are not protected by the same laws as western countries so they worry they may never receive their products or they may be counterfeit, there is not a rigid price structure and you cannot bargain online, fears of identity theft, lack of unified shipping services (USPS priority mail helps online businesses in America more then the government realizes) and finally lack of cheaper prices online then in stores.

It could also be partly cultural as the Chinese culture values relationships highly, but I doubt that this is a strong factor.

“Emotional considerations, barely apparent two years ago, are playing a
more important role in consumers’ choice of brand, particularly among
wealthier people.”

Welcome to modern high end branding. Why wealthier Chinese? Most likely it is because it represents a significant status symbol, especially in a place where fake goods are so prevalent. From my anecdotal experience I saw people go to great lengths to prove that goods were genuine and not counterfeit while in Hangzhou and Suzhou.

“The Chinese have taken to consumerism with ease, embracing thousands
of new products, services, and brands. By 2020 and within the course of
one decade, real consumption will have doubled to $4.8 trillion and China
will then be the world’s second-biggest consumer market after the United
States.”

“The government, keen to rebalance the economy, has responded by flagging
domestic consumption as a top priority in its latest five-year economic
plan, which includes a range of consumption-boosting measures such as
subsidies on energy-efficient cars, rebates to rural consumers on purchases
of electronic goods, and an increase in the minimum wage.”

From here I’ll refrain posting and analyzing the rest of the 50 page report. I highly recommend reading it, especially for people who plan to enter the Chinese market.
I do offer some advise to those who plan to try to enter enter the Chinese market (any more then this and you’ll have to hire me):
The Chinese attitude is very different then that found in the western world. They perceive value very different and have a different chain of logic to the point that some unfamiliar with the culture would consider it circular (and even some experts). Traditional tactics will not yet work in the market. If you plan on targeting the rapidly growing middle class you have to take this into account. While the upper class (not including party and politburo members who intentionally avoid this image) has grown to favor high-end western products and product values, the middle class will likely demand a much more sino-centered product line and values. It will be nearly impossible to train sufficient amounts of current western talent to manage a market of over 100 million consumers (what I predict to be at least the middle classes market size in the coming five or so years), so any branch extended to China will need significant amount of domestic talent to be hired but also must be under close supervision to maintain quality and brand assurances as well as prevent ethical misinterpretations of a western logic centered policies.

 

The Size of the Greek Problem According to German Chancellor Merkel

I wouldn’t mind seeing a Sarkozy one too, even better would have been the size of the vein in Silvio Berlusconi’s head leading up to his resignation.

Chancellor

The Real Share of China’s Debt

I’ll post more tomorrow, but here is an issue that has constantly driven me crazy that I can type out in under half an hour.

A lot of sources often like to talk about China’s massive ownership of U.S. debt and refer to it by saying “China owns a majority of U.S. Debt”. I’ll presume that they are talking about treasury bills and public debt, but this statement is still a fallacy.
A majority is defined as 50% + 1. As the graph and pdf of the data show, China is no where near that amount of ownership.

US Public Debt Ownership by MSchapiro

The chart and accompanying data show that China owns under a quarter of U.S. debt. Japan is second at about twenty percent.
What does this mean?

25% is still a significant percentage of U.S. debt, but current economic conditions guarantee that China cannot easily use the debt as a weapon. There are a few reasons for this:

1. There is a nearly insatiable demand for bonds as a stable investment in the current market. Germany and companies such as GE don’t have enough to go around. This why U.S. T-bonds actually have a negative real yield right now. Which means that when you factor in inflation you are losing money.

2. China cannot simply liquidate or call in this debt. Treasury bonds, like any other bonds, have a maturity date. Until such a time as they mature, China cannot magically demand the money. At worst, China can dump them into the market. This would be terrible for everyone at the Federal Reserve and Treasury Department who would have to stay awake for weeks trying to re-balance everything, but at a same time a dumping of the bonds would plunge the yield down even further, making it cheaper for America to borrow money.

3. China’s economy, in my opinion, is not inherently stable. They have failed to capture a local consumer market, so as world exports decrease and hopefully pick up they will have to tide themselves over. Many Chinese companies are also in debt. They are in no position to start playing around with their safe money that underpins the country, or they too will find them in a Greece like situation but far more catastrophic.

 

In the end, China is more stuck with us then we are with them. They cannot dump their treasury bonds without serious repercussions to their own country. Its akin to picking up a stone only to drop it on your own foot. Most of peoples fears of Chinese debt warfare are unfounded and come from a media frenzy and over simplification of a complex financial issue.

Currency war on the other hand… That is a topic for a different day.

For the Weekend 11/5/11

I leave you with this, I found it funny:

Copyright KAL (Used for non-commercial purposes)
http://www.economist.com/node/21536664

Article of the Morning 11/3/2011

Splits Deepen in Greece Over Referendum on Euro Debt Deal

http://www.nytimes.com/2011/11/04/world/europe/greek-leaders-split-on-euro-referendum.html?hp

Quotes:

“Hours after Prime Minister George A. Papandreou of Greece emerged from a meeting with Europe’s leaders here, pledging to hold a referendum on a new European debt deal, key ministers in his government rebelled against the idea on Thursday, deepening rifts within his government on the eve of a no-confidence vote in Parliament that could lead to its collapse.”

“The two leaders also said that no more aid would be given to Greece until after the referendum. This would include the next $11 billion installment of aid; Greek officials have said that without the additional funds, the country will run out of money by mid-December.”

“Divisions within Mr. Papandreou’s government flared into the open on Thursday when Finance Minister Evangelos Venizelos and his deputy broke ranks publicly with the prime minister to oppose the ballot, saying it could jeopardize Greek membership of the euro single currency.”

“The disputes emerged soon after Chancellor Angela Merkel of Germany and President Nicolas Sarkozy of France held emergency talks with Mr. Papandreou on Wednesday night to express dismay at his surprise announcement on Monday that he planned a referendum.”

“It was up to the Greek people, they said, to decide whether they want to commit to the agreement — which includes banks’ taking a 50 percent loss on the face value of their Greek debt — and to continue to use the euro.”

“Mrs. Merkel said the referendum “in essence is about nothing else but the question, does Greece want to stay in the euro zone, yes or no?”

I have no idea what Greece is thinking. Their country is leaning off the edge of the cliff. The brain just asked the body to vote on if it should sprint as fast as it can or casually walk off the edge. It is bad enough that the deal is really only a temporary fix that hopes to create a small fire wall around Greece while the EFSF is built in hopes to deter another crisis.  The EFSF does not have the funds to tackle Italy or Spain should they crash as well.

I really wish that Greece and the Euro zone would do less to prove game theory, but instead of cooperating EU members are managing to push themselves further and further into crisis and worrying only about themselves. I would like to say simply let them lie in the bed that they’ve made, but the damage would be too wide if it spreads. Greek credit default swaps have a massive spread around the world, enough to force banks to need to recapitalize. If another country were to enter into a similar situation we would be forced into a global decline.

Here are my predictions for the coming months:

The Greek people will vote out of the plan and their economy will continue on a downward spiral. The European Financial Stability Fund will lack the firepower to stop the second country from entering into their own full blown debt crisis (Spain or Italy, France will probably be downgraded to AA). If they take the path of Greece then the Euro zone will be in a serious danger of crumbling.  The EU will continue to beg China to expend its foreign reserves to bolster the EFSF in crisis, to the point that they even guarantee the debt. China will not take this as its own debt crisis will start to emerge onto the international scene.

Already global economies have shrunk and have a chance to fork on an event most people will be unaware of. If the authorities on CDS decide not to declare the inevitable hair cutting of debt-bond values as a credit event then the entire market of CDSs will crash as they have little point if large haircuts are not considered a credit event (Greece’s debt turn in is voluntary at this point, so there hasn’t been this dilemma yet). On the other hand if they do, most insurance agencies and major banks will find themselves in the situation of AIG in 2008. Either option is bad, the second is catastrophic.

From there, who knows? The world economy is going to be in a very dark place. I imagine that people will start to look for scape goats (mirrors would be helpful) which was the point of the referendum in the first place. Instead we are in a time that I leaders need to take strong action. Our political leaders need to stand on their feet and fix the real structural causes behind these global problems. They have to account for the mistakes they, and their predecessors, made and put the world back on track. Business leaders need to do the same. The most important change, however, must come from the people. People who intentionally remain uninformed or misinformed are the causes of many of these problems. They are free to claim that things are unfair and that they were unaware of situations or what things actually meant, but who is this really an excuse for? If the change is not grassroot, and I do not mean tea party or occupy (they are part of the problem), then it will not become structural and it will not be change, instead it will be more of the same.

Case Study: Microsoft Courier 11/1/11

http://news.cnet.com/8301-10805_3-20128013-75/the-inside-story-of-how-microsoft-killed-its-courier-tablet/

This is an interesting article on how Microsoft lost out on an opportunity and I think the authors miss an important point. While they highlight the fact that Boston Consulting Group’s survey found that many people want an traditional windows business tablet, Microsoft is large enough to do both. Creating the Courier tablet would have given them immense expertise on tablet design, function atheistic, debugging ect. that would have at the very least put them in a position to make a substantially better business tablet since this market is by no means going to go away. This was somewhat of the strategy employed by Microsoft with its first generation of Xboxs as a loss leader. Instead it seems Microsoft will be left with another Zune. A product that comes late to the market and, although better then the competition’s offering and services, fails to properly drum up word of mouth advertising hype.

The real take away here is to let people properly preform their jobs. Microsoft particularly created a skunk works division for the exact reason of creating new and innovate products that help move the company towards a more diversified (read large and more profitable microsoft) product portfolio. In fact it seems that Microsoft has set up an innovation team that rivaled any consultancy team. They had done their homework and come up with an innovate idea and product, so innovative that it still seems interesting even with the iPad 3 launch on the horizon. Had Microsoft followed through, it is hard to believe that they would have regretted the decision. On a corporate level did sticking to their core base of products make sense? Yes. In the long term, however, if the company remains overly conservative how long will it really be relevant? If only people in the financial world are the ones using excel, then Microsoft has lost 90% of its business. I have a feeling AOL went somewhere down the same path.

You can contact me or any other American at informedconservative@aol.com… oh wait.