Tuesday, February 24, 2009

Surely You're Kidding, Mr. Friedman

It amazes me how people continue to view the Friedman Twins (Milton and Thomas) as gurus.  Milton's gospel of deregulation left the foxes guarding the henhouse (We tried that once, you know.  It resulted in the 1929 Crash.  And now, rewind and replay.) and resulted in our current mess.  Brilliance.

And Thomas?  Well, today's editorial is just too typical.  He condemns giving money to auto manufacturers and advocates giving it to venture capital firms that will then finance bleeding edge technology that will save the economy from its current free-fall.  Uh huh, pull the other one.

Let me make it clear that I have opposed the bailouts from the start, and I'm no fan of the Big Three.  I've always thought that, if the government wanted to throw money their way, it should take over their pension funds, thus keeping a pile of retirees off the welfare rolls and making it easier for well-managed auto companies to buy them out.  But Thomas's approach is just noodles.

First, another "New Economy" theory?  Please.  Remember 10 years ago when we were all being told that the Dot Com Boom had changed all the rules?  Turns out it hadn't.  And none of the innovations Thomas is banging the drum for now will change them either.  New tools?  Yes.  New rules?  No.

Second, just what kind of crystal balls do you think the venture capital people have, Thomas?  I remember reading one of the tech tabloids that were all around Seattle during the Dot Com Boom and looking at a cartoon of a scruffy teenager announcing that he had created a website for his cat and then watching the suits line up to dump money on him.  It was about that bad.  And of course the VC people also made the real estate bubble possible.  Let's just say they haven't proved infallible in locating long-term investments.

Third, and here's the kicker, your economy isn't even real, let alone sustainable, if all it produces is electrons and documents.  We have a textbook case in the United Arab Emirates right now: Dubai and its "New Economy" are having to be saved from ruin by Abu Dhabi and that dirty, old school dinosaur stuff it pumps.  If you want an economy that lasts more than ten years, you need to make stuff: food, tools, stuff you can touch, stuff you can pick up, and yes, stuff you can drive around in.

Problem is that the US (and the UK for that matter) has gotten pretty weak in the "making stuff" department.  You see, in order to make stuff, you need people who can make stuff.  You need pattern makers and tool-and-die operators and folks like that.  We haven't been paying attention to that, though.  While Europe and Asia were making sure of their next generation of engineers and lab technicians and skilled trades, we were making sure we'd have an endless supply of lawyers and investment bankers.  The closest anyone got to science was computer programming, which amounted to little more than retraining classes teaching people to cut and paste code someone else had written.  Everybody in the US was going to work behind a desk.  Not possible.  Not even desirable.  All those desk jobs can be moved to Mumbai with the push of a button.  Which Thomas has argued is a good thing.

And so here we are, needing to make things ourselves because we can't afford to buy them any more, and we've nearly forgotten how.  Meanwhile, Thomas drives his Lexus past the olive trees on his way to an exclusive country club outside Calcutta, oblivious to the slums he passes and to how they are reflected more and more by the spreading slums back in the US.

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Monday, February 23, 2009

Transition Game

Some sports have leisurely transitions when there's an offense-defense switch.  Personnel shuttle on and off the field, players and coaches have opportunities to regroup and plan, there may even be a complete stop in the game.  Football, baseball, and cricket come to mind.

Other sports have their transitions on the fly.  Soccer, hockey, rugby.  I was watching the championship of the USA Rugby Sevens tournament yesterday, England vs. Argentina.  England seemed to be in control, but in the final minutes Argentina took advantage of a transition off a penalty to score the winning try.  Adapting on the fly is crucial in such a sport.

Basketball is another such sport.  And business requires transition on the fly as well.  And with Larry H. Miller's death last Friday, we will see if the empire he built can play the transition game, or if it will look like the Jazz in their more inept moments.

Miller undoubtedly laid some foundation for this.  He built the business with an eye to passing it on, and he put his son in charge several months ago.  But that's like a coach running a practice or drawing up a game plan.  The issue now is whether the players can execute on the court.

It's a reasonable question.  Several pieces of Miller's empire are vanity projects he subsidized with his core element, the auto dealerships, and we know what auto sales are looking like these days.  Miller built it all up in good times, but the times have changed.  He kept it going with the force of his personality, but that personality is gone.  The new management team may find itself in the position of having a great win-loss record from playing the Clippers at home but now have to go on the road against the Lakers.  Something is going to give, and fast.

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This is stupid...

...even for Utah.

We've all received spam from some "government official" in Nigeria who's sitting on millions in ill-gotten gain and wants your help to move it out of the country.  All you need to do is open a bank account and send him the information so he can transfer the money, part of which is yours to keep.  Of course what's really going on is simple money laundering by common thugs, and all your assistance will yield you is a knock on the door by men with dark suits and shiny badges.

Well, some schmuck in Texas fell for it and opened up an account.  Then the crooks moved on Utah, and the idiocy readings went off the scale.  They forged a few documents, submitted them to the state treasurer, and voila, had $2.5 million transferred to the account, no questions asked.  The only reason it stopped is because the bank in Texas called the treasurer's office and asked if it had any idea what was going on.  Talk about rhetorical questions.

This is amazing.  It tells me that the state lacks basic accounting and auditing principles.  It makes me wonder about the current deficit figures because it makes me wonder how they know what's there and what's supposed to be there.  If a public company did this, the FBI would be kicking in its door.  Instead, we just keep re-electing the same circus to what amounts to life appointments.

I think it's long past time for the fools on the hill to stop paying so much attention to The People's Morals and start paying more attention to The People's Money.

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Monday, February 02, 2009

Whither Rio Tinto?

Rio Tinto, Kenecott's parent, is being hit hard by the downturn in metals prices. Shedding about 15,000 employees worldwide (250 here in Utah) wasn't enough. Selling mining and processing assets last week to raise $1.75 billion wasn't enough. It is now prepared to sell a big chunk of its iron ore and aluminum business to Chinalco, the Chinese state-owned aluminum company. Chinalco already owns 9% of Rio Tinto, and this sale would probably turn it into the major player in RT's ownership.

People have been wondering what China was going to do with all the Yankee Dollars it was piling up. I've been saying for some time it was going to do two things: 1) shower it in places where China wants to make friends and influence people (Look at China's aid and development programs in Asia, Africa, and South America.), and 2) buy up real assets in its deficit trading partners (See for example my 9 October entry about liquidity and solvency.). It's happening. Well, maybe Utah can get stronger direct ties with China out of it.

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