Political Toothache

Holy Week Hangovers

It seems like eons ago that we returned from the Holy Week holiday weekend with the hope that the spiritual promise of Passover and Easter would carry over to our portfolios, as well.   Clearly, prayers are more effective in generating spiritual returns than market returns.  But, if we take comfort in things familiar, we did get solid political returns following Holy Week.  Like the return of the same old Middle East political weirdness (what else is new) once Sharon decided to not bomb Arafat into oblivion.  And the return of Jean-Marie Le Pen as a ruling front-runner in France.  You’d think the French, who didn’t like the real Hitler, wouldn’t want a re-constituted one.  (Goes to show what happens to a country when their wine gets overtaken by California upstarts.)  More important, the return of post-Easter candy sales were too good to pass up.  I’m a sucker for a good value and, admittedly, I’m not afraid to load up on sweet things at a sweet price.  Well, (you know where this is going) I quickly re-learned that too much of a good thing is usually first fleeting and then frightening.  I soon had what seemed like Sharon, Arafat and Le Pen gesticulating and being their bombastic selves inside my jellybean-devouring mouth.  Consequently, I’m tempted to update a Rolling Stones standard to a more age-appropriate “Under My Gum.”  Recall that last time I wrote of the inescapability of Eternal Returns?  Soon after Holy Week (and the Choco-Bunny binge) my immediate return was to the dentist.

Dental Hijinks

Not surprising, upon visiting my friendly dentist, I was quickly reminded of the consequences of indulging my sweet tooth.  First, I was informed that my gums were in recession, at which I was tempted to reply, “no; it’s the economy, stupid.”  Actually, the news had me a little miffed because my dentist should have told about this emerging condition on my last visit.  Instead, on that occasion, I was pitched on teeth whitening.  Ah, but the economy was better then (and we were selling high-margin services that people seemed to want, not those that were actually necessary.  Sound familiar?).  Second, it seemed obvious that a root canal was in order.  A lot of painful digging and appropriate medicine brought on by my own reckless behavior.  A retrial would be pointless and, while my incisors did a fine job of shredding primary evidence, residual sugars had me positively nailed.  At least I would be left with my tooth in tact.  As well as my mouth, face and body, which is a lot more than can be said of Enron or Arthur Andersen at the end of the day.  Obviously, most curative medicine is appropriate, but I wonder about our capacity to over-react and thus institute remedial regulations that neither punish adequately the original perpetrators nor dissuade those truly determined to perpetrate fraud in the future.  Systems and regulations cannot expunge criminal intent from human nature and they may actually help foster more elaborate and creative schemes by those willing to circumvent the rules in pursuit of illicit gain.  In the meantime, maintaining and complying with new laws and regulations is a high cost that we all will bear.  Everything will take longer and people will be more cautious and defensive as opposed to creative, aggressive and self-confident.  Not a good attitudinal condition for growth.  Perfect markets regress to the mean.  They also, as we’ve seen, validate unsustainable vagaries unique to their time.  More than anything, the current market is about introspection.  An absolute truth about the market, and the human condition, is that you can’t save yourself from yourself…and you’ll die trying in the process.  At least don’t try it alone.  Sometimes it helps to have an outside agent or confederate to soothe the wound or patch the hole.  Or, in my case, to dig a little deeper to get at the root of the problem.

Sounds of Spring

What’s that sound in the air?  That airy, flighty, wispy sound of swinging?  No, it’s not Spider Man…it’s baseball.  Yes, and such sounds of Spring typically conjure up optimistic thoughts of renewal, rebirth and new life springing forth from virtually nothing.  You bet, baseball is back.  But unlike most Springs, where the whiffing is from baseball bats, this year’s sound of spring is dominated by corporations missing their earnings estimates.  Sadly, most investors are still unfamiliar with routine disappointment and simply don’t expect it to happen more than once or twice in a lifetime, let alone a year.  As a result, they’ve been taking it out on the market (or their children), selling everything and everyone.  Instead, they should consult Boston Red Sox fans, who have more than a casual relationship with consistent, seasonal disappointment.  Their anguish, of course, starts in June, transitions to despair in July and is cemented by all-out disgust by August.  Yet, in the true spirit of hope and renewal, Fenway Park will always be sold-out, lovingly, come next Spring.

Of course, lots of laughter and smiles and blessed giddiness from a post-Easter, candy-induced sugar-high.  Tastes great…more fillings.



So, we’ve divorced ourselves from the 80s

We seem to categorize things by decades.   Each decade is somehow uniquely identifiable and worthy of individual appraisal: 20s: Roaring, (good); 30s: Depression, (bad); 40s: War, (bad); 50s: productivity, (good); 60s: The Sixties, (like, maybe…); 70s: Inflation, (bad); 80s: Excesses, (Really Bad).   Each decade marks an opportunity to change and correct what was wrong with the previous ten years.   The changes we make, however, are often simple remedies that apply topical treatments to structural ailments.  The little changes are easy to make, especially when everyone supports them.   Such mass support, however, should be cause for further alarm.   Was it not mass support and engagement of what occurred in the previous decade that caused the problems now criticized?

Funny how everyone seems to criticize the events of the past without taking any responsibility for having helped to create them.   It was always someone else’s (their) blunders that another (we) now have to correct.  Isn’t it we collectively, who facilitated the existence and preponderance of those maladies in the first place?  Hasn’t that always been the case if we allow such things to happen?

Criticism is easy (as is faulting those critics).  Formulating new ideas that others (not us, of course) should implement is easy.  Making decisive, active and truly meaningful long-term changes is painful; and no one will do it unless something truly profound forces us to change the way we have to think and act.  This, of course, applies to everything: personal relationships and individual moral standards, professional conduct, domestic issues, military campaigns and graduate programs.

We surely won’t change a thing (short of nearsighted, reactionary legislation) due to the “excesses” of the Eighties or the state of the economy.  The recession, a mixture of bad debt and self-prophesy, prompted many sincerely intended suggestions about how we can change our country.  Now that we are assured that the economic downturn will be short-lived, there is some sense that if we can just hold on, things will soon return to normal.  This ought to coincide nicely with Michael Milken’s parole date.  (Which will prompt a resurgence of the exalted “Excessibles,” causing later criticism and more calls for change, which may result in yet another dreaded commentary like this one.)

The current scenario presents another such time when the choices we make now will affect our actions later.  Continuously having to make such choices every decade or so is wearing thin, especially when we seem to be making no substantive progress.  The question remains, however, “toward what?”  What on earth are we trying to do?  Why do we work so hard and worry so much when we fail to achieve even basic fundamental objectives of evolution?  We are each aware of our individual and corporate short-term goals.  But does anything we are now doing lead to any meaningful long-term improvement?  Hardly.  Name your cause and find an agenda.  I’ll wager you won’t find one.  (That heralded triumph in the Gulf does not qualify.  Indeed, political and military execution was brilliant.  I would argue, however, that much of the enthusiasm that contributed to that victory was merely a lot of combined frustration with our state of affairs being vented on a pitiful foe.)

The few efforts that are on track are either poorly presented or are met with tenacious resistance.  The pragmatism of our complicated lives has led toward finding relevance in most things though does not weight those that are decidedly more important.  With equal airtime for every issue, it’s easy to see how everything can become relatively important.

This has caused a controversial reaction by many who I object to this caustic relativism (more ably described by Allen Bloom).  Fighting against this in an effort to keep their turf on the battlefield of Importance, are two general camps wearing different colored uniforms cut from the same cloth.  One aligns itself with an atheistic and existential viewpoint while the other is equipped with the latest fashionable cause — be it social, political or religious — which puts it in proximity to the moral high ground.  Neither camp is less extreme or less dogmatic than the other, and their intolerance of others somehow allows them to feel exonerated from the failures of those who “don’t know any better.” Unfortunately, such extreme positions merely vindicate the middle of the road attitude that quickly and comfortably complies with much but reluctantly commits to little.

The only commitment we can actually make usually requires that we be compensated for it.  We at least have to be assured that it won’t cost us anything.  This is surely the case at any level of government where any changes have to be worked out in a budget package.  Also, in the companies we know, any change seems to always require an amendment to some budget.  How many times do we hear, if not say ourselves, that a manager cannot make changes unless he gets a new budget approved.  Obviously, certain changes do require reallocated capital.  What we have failed to grasp, however, is that most meaningful changes do not cost a single cent.  These are changes in attitude: perception, belief, intent, and behavior.  Capital expenditure that is not supported by an appropriate change in attitude simply postpones the problems that necessitated the change in the first place.  Such commitment, however, entails a huge risk.  (Therefore, to protect myself, I need to be compensated for underwriting my integrity.)

On what side of the equation is greed? 

The current buzz terms are junk bonds and real estate development.   Whatever the case, such elements of greed are important to a free market system.  There have to be risk takers.  That so many people were recently convinced that these instruments were not that risky should not be considered unusual.  The era will simply be an addition to Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds.

It is certainly very difficult to pinpoint in history the exact moment the capitalist world switched over from mutually beneficial trade to the profit-oriented behavior now in favor.  Our system implies, of course, that not everyone can win equally in this game.  The resulting heightened sense of competition benefits most participants in the long run, however, simply due to the increased activity of chasing the dollar.  The system has worked because everyone assumed that with varying amounts of luck and hard work, any disadvantages attributable to birth rights (at least in the US) could be overcome.

Nevertheless, at the fringes of this game exists another contest that extends the notion of winning and losing to another plane.  Similar to the zero/negative-sum game required of all military combatants, the high-risk transactions of businesses have left their fair share of KIAs.  There have always been participants in this arena, though the casualties often extend beyond the players.  Only in our time, however, have mass media exposed these players and glorified them to an entertainment value that far exceeds that which their accomplishments make them worthy.

Many others, of course, began to assume that they too could enter into this league.  The belief quickly spread that risk itself could somehow be leveraged simply by joining the crowd.  (I won’t drown as much on a full ship that sinks than as on an empty one.)

The recent trend toward mass risk-aversion is just as shortsighted as its opposite extreme.  Risk and greed are vital ingredients to the smooth running of our country.  Risk takers have existed from the instant profit became a motivating factor to earn a “fair” return.  Many people benefit from the efforts of a risk taker who succeeds.

Instant information has simply given our current risk takers heightened exposure and has provoked society to contemplate how it should value them.  The excessive risk taker serves just as important a function as those at all other levels engaged in business.  He should not be glorified or vilified when he succeeds, nor pitied or ridiculed when he fails.

What causes problems is when too many try to share equally in the rewards generated by the few who are truly exposed to risk.  As the many join in the attempt to share in the few’s rewards, they too are unwittingly drawn into a deeper exposure as the risk becomes more evenly distributed among the second level participants.  Statistically, this simply means that more people may gain from a rewarded risk, though not in proportion to their exposure.  Obviously, if the risk fails, then the greater the involvement the more widespread the loss.  The most recent examples of risk did not become less risky or change, but the belief about our vulnerability to them did.  Unless, of course, you are a program trader.

Techno no mea culpa

The building block of a computer is fairly simple.  The process is designed so that it has no judgment and makes no mistakes.  It was often assumed, therefore, that computer-based decisions were incontestable.  Naturally, we praise the computer for the success of our good decisions, but because bad decisions do occur, blame has come down on those hapless humans inputting the faultless black box.  As our faith in the computer increased, we lost our ability to use it to explain away our mistakes.  The computer, at one time the perfect scapegoat, has become everyone’s darling.

The remedy to this diabolic dilemma is evidence of the sheer brilliance of human ingenuity.  It’s called “Fuzzy Logic” and it actually helps computers think more like humans.  The great thing is that initial tests show that computers seem to like it (which debunks the notion that they don’t make mistakes).  Even better is the fact that corporate America is sold on the idea that Fuzzy Logic computers will actually be better than current I/O ones.  Because computers will now be able to think like humans, only “better,” humans will be totally removed from responsible decision-making, which, for some of us, means a few more rounds of golf.

Competition among computers will prompt their increasing enrollment in MBA programs.  Before you know it, these new computers will be prone to climbing the corporate ladder, engaging in back office squabbles and indulging in severe bouts of drinking.  As they begin to under perform relative to their compensation, corporate downsizing will force their ouster and make available some pretty good jobs.  Hard disks and Smart Bombs need not apply.