*michael parekh on IT*

ON MORAL HAZARDS IN 2009

CURVES AHEAD

As I get ready for a quiet get together with some friends tonight to bring in the New Year, I'm reflecting like so many people on all the extraordinary market and economic events that brought us to the place we find ourselves at the end of 2008.  And something my friend Howard Lindzon said in a post yesterday sticks most in my mind:

"‘...Broke is the new Rich’ is coming into play.

Being broke is your fastest path to wealth in late 2008 and should continue in 2009. If you are rich, you will get poor as this bear market progresses, but if you BE broke, you have a chance.

Why?

Talk to a mortgage broker and find out. If you have money, good luck getting a refinance. BUT, if you bugger off for 8 months you are in refinance nirvana. Who cares what you paid and how underwater your current mortgage is.

If you are a hedge fund, just stop redemptions. Your clients are rich. They can wait.

If you are a really big hedge fund, or Private Equity fund say ‘CERBERUS’, and make a shitty, dumb ass investment in GM/GMAC, just ask the gobbernment to bail you out. Shazam - 20 percent of the profits in your pocket and no responsibility for the losses.

America is upside down heading into 2009. Expect the unexpected."

He puts his finger on the moral hazard investors large and small face going into 2009 and it's pretty amazing how widespread it really is across the financial spectrum (good academic definition of moral hazard here).

Here's hoping we navigate through this minefield relatively intact.

In the meantime, wish you all the very best for the year ahead.

ON THE CONTEXT OF GAZA WAR

ROCK AND A HARD PLACE*

 This New York Times editorial on the current war in Gaza doesn't seem to convey the broader context of what appears to be going on.
It starts on a note most Americans would be in agreement with:

"Israel must defend itself.
And Hamas must bear responsibility for ending a six-month cease-fire this month with a barrage of rocket attacks into Israeli territory.
Still we fear that Israel’s response — devastating airstrikes that represent the largest military operation in Gaza since 1967 — is unlikely to weaken the militant Palestinian group substantially or move things any closer to what all Israelis and all Palestinians need: a durable peace agreement and a two-state solution."

But going further, the piece does not highlight the broader context of the current attacks, including the close, hotly fought elections in Israel.  Here, as in elections everywhere, candidates need to prove themselves "tough on external threats" to be seen ready to lead at 3 a.m. 

The only reference to the election is as follows:

"The Israeli defense minister, Ehud Barak, promised a “war to the bitter end.”

We hope he does not mean a ground war.

That, or any prolonged military action, would be disastrous for Israel and lead to wider regional instability. Mr. Barak and Israel’s foreign minister, Tzipi Livni, both candidates to succeed Prime Minister Ehud Olmert in elections set for February, must not be drawn any further into a competition with the front-runner, Benjamin Netanyahu, over who is the biggest hawk."

This Bloomberg News piece highlights the political stakes in Israel in greater detail:

"Israel’s Gaza military offensive against Hamas may make or break Defense Minister Ehud Barak’s political future, and that of his Labor Party.

With national elections scheduled for Feb. 10, the offensive is scrambling the political calculations of both Foreign Minister Tzipi Livni, the prime-minister candidate of Labor’s coalition partner, the Kadima Party, and Likud leader Benjamin Netanyahu. At the same time, the stakes are highest for Labor leader Barak, 66, who was prime minister from 1999 until 2001.

Success in Gaza -- defined as a cessation of the Palestinian rocket attacks that followed the Dec. 19 end of a six-month cease-fire with Hamas -- probably wouldn’t be enough to propel Barak himself to the prime minister’s office. But it would strengthen his position within the ruling coalition, reinforce his perceived public image as the country’s top military strategist and help restore Labor’s flagging political fortunes."

And the only reference to the virtual blockade of Gaza, where 1.5 million civilians have literally had no meaningful access to resources from the outside world for months, as Israel and Egypt have hermetically sealed the territory, is in this one statement:

"...Israel never really lived up to its commitment to ease its punishing embargo on Gaza."

A Google search of the phrase "Israel blockade Gaza" produces over 2 million hits. 

The other place where some restraint is called in the editorial, is the following statement:

"Israel must make every effort to limit civilian casualties."

This in one of the most densely populated places on the planet, where the population literally lives in squalor on top of each other.
Some balance is called for in how the current conflict is perceived, especially in the context of both America and Israel's long-term well-being. 

And the only place to see it in the context of the NYTimes editorial, is in it's 200 plus comments by readers.

Interested parties should read both the editorial and the comments in their entirety to get a better sense of who's doing what to whom for what types of motivations, and what should or should not be done about it all.

It's not just the civilians in Gaza who are between a rock and a hard place. 

The long-term future and well-being of Israel, and America's options on guaranteeing the same, are in the same place as well if the current debate continues to be viewed through this narrow prism.

*Image source.

ON MY FAVORITE iPHONE GAME

TOTAL HIT

Like so many iPhone geeks, I'd been waiting for this long-anticipated game to be released and it doesn't disappoint.  IGN has a review that puts it in context and explains:

"A few years ago, an oft-asked question at mobile games conferences was, "Where is mobile's Mario?"

It was essentially shorthand for the eternal search for the killer app, the game that brings serious heat to the platform that hosts it. For the NES, that was Super Mario Bros.

For the Genesis, it was Sonic the Hedgehog. Xbox had Halo. Unfortunately, mobile never really had a killer app; the closest it got was Tetris or Bejeweled, both perennial bestsellers. If the iPhone even needs a killer app is open to debate -- after all, the platform needs little help getting attention. But now it has one now, whether it wants it or not.

Rolando, developed by Hand Circus and published by ngmoco, is a brilliant puzzle-adventure game, loaded with fab personality. You must save the pop-up book Rolandoland from an invasion of nasty little shadow creatures by using your benevolent powers as the deity-like Finger. (That's what the little roly-poly Rolandos refer to you as.)

You can manipulate objects in the world, such as twisting windmills or releasing bombs from little storage boxes. But the main action is tilting. Since the Rolandos are little balls, you tilt your iPhone from side to side, rolling your friends ever closer to the exit inside each obstacle-filled stage. Each stage has a required number of Rolandos that must escape if you want to unlock the next stage."

This YouTube review of Rolando provides a glimpse of the game in action.

At $9.99 a copy, the App is not inexpensive in the universe of iPhone games.  The game has immense amount of replay value, and comes with a music soundtrack that I'd buy separately if available.  Available only on the iPhone and the iPod Touch, it's a game I'd highly recommend.

ON COMIC STRIPS GOING ONLINE

HITTING THE MARK

As a life-long fan of comic strips in newspapers and magazines, not to mention the Sunday funnies, I read with interest this piece on how comics are faring in the digital world, especially with the onset of mobile distribution*.  As the New York Times explains,

"What do you do when the distribution method you have relied on for more than a century begins to falter? In the last two months, two syndicates have revealed their hands.

In November, United Feature Syndicate, which distributes 50 comics, including “Peanuts,” “Dilbert” and “Get Fuzzy,” made its full archives and portfolio available free on its Comics.com Web site. The company also added social networking features for tagging and rating comics. Visitors can have comics sent to them via e-mail or RSS feed.

The point is to attract more and, ideally, younger readers to the syndicate’s comics..."

Cartoonists are not waiting for the syndicates to develop new business models. They are posting to free sites like Comic Genesis and Webcomics Nation. Some Web comics, like “The Argyle Sweater” by Scott Hilburn, have been picked up for syndication, but that is unusual. Even more rarely, a Web comic might attract a large following at a stand-alone site; such is the case with “Penny Arcade,” a video gaming strip.

Cartoonists are also experimenting with color, animation, sound and novel distribution methods. "

There is a fair bit of entrepreneurial effort online with cartoons over the past few years.  One of my staples is the Cartoonbank, which has an interesting history, as this New York Times interview with it's founder from last year explains:

"After two years of submitting cartoons and getting nothing but rejection, Robert Mankoff finally succeeded in selling his first cartoon to The New Yorker in the 1970’s. He went on to become one of the magazine’s premiere cartoonists and ultimately its cartoon editor. He also had the clever idea of founding The Cartoon Bank, a company meant to syndicate and archive thousands of cartoons; it was bought by The New Yorker in 1997, and Mankoff still serves as its president."

The paradox of online of course is that it shifts the model from too little to too much.  There's only so many cartoons one needs to digest in a newspaper or a magazine (unless of course it's the Sunday funnies, in which case it'll take a while).  Online, the problem quickly becomes one of abundance and how to cope with it all and find the stuff that's really funny for you.  Again, the first piece above explains:

"...But Brian Walker, a member of the creative team behind the comics “Beetle Bailey” and “Hi and Lois” — both syndicated by King Features and created by Mr. Walker’s father, Mort Walker — warns that too much exposure “can take away from the strip itself.” If a comic’s characters are everywhere, he asks, why bother reading the newspaper strip?

And Mr. Walker, who is also a comics historian, believes that comics are best appreciated on paper. He likens reading a comic on a screen to watching a movie on an iPod: the general idea comes through, but some of the essential artistry is lost.

In print, the comics are as much a part of many people’s morning routines as a cup of coffee. The question now is whether daily comics can make a jump to mass electronic distribution and a younger readership — or whether they will be tossed aside like yesterday’s news."

It's a brave new world, and like most things online these days, it's a blessing and a curse for both publishers and consumers.

* Image source.

ON GROWING FIRES ABROAD

GOING AS PLANNED

As we transition from one set of holidays to another this week and get ready for New Year's Eve, we also need to get ready for two escalating conflicts around the world in the coming days.

The two conflicts are of course Pakistan and India getting ready for some sort of a show-down at their borders, and Israel stepping up it's attacks against Hamas in Gaza. 

The casualty numbers in the last 24 hours are approaching 200 and climbing.

The sad thing in both instances is that escalating these conflicts is exactly what the instigators in both situations were counting on happening.
Countries like people are entirely too predictable, and can unfortunately be played like a fiddle.

And as we see from these two cases and so many others closer to home, it's much easier to fiddle when what really matters burns.

ON THE USUAL MOVES

GOING THROUGH THE MOTIONS

Looks like Pakistan has decided to do the expected, moving troops towards it's border with India, four weeks after the vicious attacks in Mumbai.  As the New York Times explains:

"Pakistan is moving some troops away from its western border with Afghanistan, where the United States has pressed it to combat Taliban militants, and stopping many soldiers from going on leave amid rising tensions with India, senior Pakistani officials said Friday..."

In India, the prime minister, Manmohan Singh, summoned the leaders of his country’s armed forces to discuss the security situation, Indian media reported on Friday.

The developments added to the simmering tensions between the two nuclear-armed neighbors one month after the three-day terror assault in Mumbai left 171 people dead. Indian and American intelligence officials have blamed the Mumbai attacks on a Pakistani militant group that has long had ties to the Pakistan intelligence service. But Pakistani leaders reject that argument, saying they have been shown no evidence proving who carried out the attacks."

That this is happening is not a surprise, but more the "round up the usual suspects" kind of thing that both sides do after a violent attack against civilians in one of their countries.  What's probably more of a surprise is that each side showed restraint in doing this for so long after the initial attacks.

The headline of this Economist article on the current state of affairs says it all:

"United against the wrong enemy

Dec 18th 2008 | MURIDKE
From The Economist print edition

Pakistan has made a modest start against the likely culprits of the Mumbai killings. But fulminating against India is more fun."

"IF PAKISTAN’S leaders had ever united against Islamist militancy as they have against India over the past three weeks, their country would not be the violent mess that it is. Ever since India alleged, with subsequent corroboration from America and Britain, that Pakistani terrorists carried out last month’s mass murder in Mumbai, the country’s politicians, generals and fire-breathing journalists have been declaring themselves ready for war—if that’s what India chooses.

India’s government, despite huge pressure from its own bellicose media, has been more restrained. It has said it does not intend to attack its neighbour. But it has demanded that Pakistan dismantle an anti-Indian militant group, Lashkar-e-Taiba (LET), that has carried out numerous atrocities in India, apparently including the outrage on Mumbai.

It has so far relied on diplomacy, particularly through America and Britain, to make this point."

The whole piece is worth reading in it's entirety.  Here's hoping both sides decide to do the harder stuff this time and eschew a bit of fun.

ON THE NEW SOUNDS OF CHRISTMAS

YET AGAIN

Another year, another Christmas morn. 

The gifts have all been opened and heart-felt holidays wishes have been expressed all around. 

Of course one  of the most popular gifts everywhere this year has made an appearance in our household, the Guitar Hero World Tour (Wii Edition).  As I type this, my sister-in-law (aka "The Doctorette" in the game), is treating us all to a rendition of Steely Dan's "Do it again" , to the crackle of a roaring fire *. 

It's one of my favorite all-time songs, and of course I'm not alone in this sentiment.

But it's something familiar heard and seen in a whole different way, on a very special day.

Here's what it looks and sounds like, courtesy of a contributor on YouTube, sans crackling fire. 

Merry Christmas everyone, and the warmest wishes for the Holidays.

* Image source.

ON A HOT HOLIDAY ECONOMIST

WARM AND FUZZIES

One of my pleasures this time every year is the Christmas edition of the Economist. 

For as long as I can remember it's a "Special Double" issue, and it's a special treat to read it cover to cover over the Holidays.  Besides covering the news and issues of the day, the Economist always has in-depth features on topics one may not always think about, but is immensely interesting once you think about it.

This year's issue, is no exception.  I've gone through almost the whole issue, and there are a whole host of "off-the-beaten" articles.

I'll highlight this one titled "Global Warming" as an example.  And no, it's not on what you may think it's about.  It's on how chilies are becoming popular the world over:

"TASTELESS, colourless, odourless and painful, pure capsaicin is a curious substance. It does no lasting damage, but the body’s natural response to even a modest dose (such as that found in a chili pepper) is self-defence: sweat pours, the pulse quickens, the tongue flinches, tears may roll. But then something else kicks in: pain relief.

The bloodstream floods with endorphins—the closest thing to morphine that the body produces. The result is a high. And the more capsaicin you ingest, the bigger and better it gets.

Which is why the diet in the rich world is heating up. Hot chilies, once the preserve of aficionados with exotic tastes for cuisine from places such as India, Thailand or Mexico, are now a staple ingredient in everything from ready meals to cocktails.

One reason is that globalisation has raised the rich world’s tolerance to capsaicin. What may seem unbearably hot to those reared on the bland diets of Europe or the Anglosphere half a century ago is just a pleasantly spicy dish to their children and grandchildren, whose student years were spent scoffing cheap curries or nacho chips with salsa..."

The whole article is worth reading, as is getting the print edition of the holiday Economist.  Enjoy.

Happy Holidays everyone.

ON PET PEEVES ABOUT NEW CARS

ONE MORE THING

Jerry Garrett at the New York Times has a heart-felt piece titled "Five things I hate about new cars", and it's worth a quick read.  I found myself in vehement agreement on his fifth item in particular:

"Finally, if cost is a factor in fixing my list of nitpicks, here’s a cheap one: How about more automakers putting that little arrow on the fuel gauge to remind me which side of the car the fuel filler is on?"

That one is such a brilliant suggestion, it may be even worth it to see if it could be patented.  And it's one that can be implemented by owners of existing cars.  Just get one of those adhesive signature markers and tape it somewhere unobtrusive on the dash, pointing to the the side the gas tank door is located.

I'm sure most of us could add one or more items to Jerry's list.  The one I'd lob in to beg all auto makers to curb their lawyers from implementing those endlessly annoying legal disclaimer splash screens on the navigation screens. 
Most cars are set up so one has to hit an "I accept" or "I agree" button on a screen or two of legalese EVERY TIME one starts the car. 
Just make me sign a document acknowledging the legalese when I buy the car, and/or hire other smart lawyers to provide the auto companies the liability protection they obviously crave. 
But stop taking away a few seconds of my life every time I start my car.
Feel free to adds other issues you feel particularly strong about.

ON THE OTHER SIDE OF GLOBALIZATION

THE BIG PICTURE

The WSJ has a piece today discussing the massive contraction going on in the Indian textile business, as a result of the global economic slow-down.  Some highlights:

"Textile factories -- including India's notorious garment-making sweatshops -- are among the country's first manufacturing businesses to suffer as American and European clothing retailers slash orders amid slumping consumer spending.

India's second-largest employers after agriculture, textile concerns employed 35 million workers last year. But the companies have already shed 700,000 jobs this year and at least 1.2 million textile employees are expected to be out of work by March, according to the government's Ministry of Textiles.

The sector is crucial to the country's economy. The textile industry contributed 4% of India's gross domestic product in the year that ended March 31, and accounted for 13.5% of Indian exports, bringing in $17.6 billion."

Similar stories are playing out in China as well, as millions of workers are being out of work in low-end manufacturing jobs as the global economy goes through this severe cycle.

What we're seeing here is the other side of globalization, and how the complete picture is sometimes obscured by sovereign borders and the way we typically look at economic statistics by country.

In another era, several decades ago, hundreds of thousands in these type of jobs would have been lost within our borders, adding to our national unemployment statistics.  The textile jobs cuts for instance would have been as big news for many of our southern states as the current woes of our "Big Three" auto companies is for Detroit and Michigan.

In a perverse way, the developed countries like the United States are getting a bittersweet benefit from a negative globalization cycle, where a lot of the manufacturing job losses are outside our borders and as a result a bit "out of sight and out of mind".

This unrelated Bloomberg piece takes a look at the other side of this:

"What’s good for General Motors may not ultimately be best for the global economy.

The Bush administration’s $13.4 billion rescue of GM and Chrysler is a fitting finish to a year in which governments around the world expanded their role in the economy and markets after three decades of retreat.

The intervention comes at what may prove to be a steep price. Future investment may be allocated less efficiently as risk-averse politicians make business decisions. Whenever banks decide to lend again, they are likely to find new capital requirements that will curb how freely they can do it. Interest rates may be pushed up by government borrowing to finance trillions of dollars of bailouts.

“We’re seeing a more statist world economy,” says Ken Rogoff, former chief economist at the International Monetary Fund and now a professor at Harvard University in Cambridge, Massachusetts. “That’s not good for growth in the longer run.”

There's no question that we're more inter-connected than ever due to Globalization.  But we do need to be mindful of the negative implications of national economic policies in a cyclical downturn, and see the forest for the trees.