*michael parekh on IT*

ON A NEW PLAYBOOK FOR CHRYSLER

SOMETHING BORROWED

Normally a story on how one auto company plans on turning around another post a merger would not be head turning in the current environment where all auto companies, especially US ones, seem to be driving in only one direction.  But Time magazine's story on how the CEO of Fiat, Sergio Marchionne, plans on making it's investment in Chrysler a success, caught my eye with this bit:

"Since he took over as chief executive of Italy's Fiat in 2004, the chain-smoking Canadian Italian has used Apple as a model, focusing on the way Steve Jobs transformed it from an also-ran computer company into a global icon of cool. 

He encourages Fiat managers to take a close look at Apple's branding prowess and even asks them to benchmark their activities against the company. 

His biggest success at Fiat is the 500 — a tiny, very cool 21st century version of a 52-year-old Italian icon once driven by movie stars such as Marcello Mastroianni and Sophia Loren — which Marchionne calls "our iPod."

Apparently, Mr. Marchionne intends on using a similar playbook at Chrysler, where his company starts with a 20% stake, that could go as high as 35% depending on how the turnaround goes:

"Marchionne is likely to hew closely to the playbook he used to revive Fiat. On June 10, the day Fiat sealed the deal, he announced a thorough organizational revamp. From now on, each of the four individual brands — Chrysler, Jeep, Dodge and Mopar (which makes parts) — will be distinct business units responsible for profit and loss. He also reached deep into the ranks, bypassing the engineers and putting a younger, energetic generation of managers with marketing experience in charge of the brands. "That's a mirror image of what he did at Fiat," says a longtime Fiat executive. Next up: installing Fiat production platforms at Chrysler plants and using Fiat's sales network to sell Jeeps and other Chrysler models around the world."

Who knows, Mr. Marchionne may even come up with a way to make a car dealership as fun to go to as an Apple store.

ON RISKS OF A DOLLAR CARRY TRADE

SLIP-SLIDING AWAY

Barron's this weekend has a piece that may make one's head hurt at first reading, but is important enough to read twice.  Appropriately titled "Money for nothing and bucks for free", the piece makes the following point:

"The dollar could become the main funding source for the carry trade. To review, the carry trade consists of borrowing cheaply to invest in something with a higher return. ("Carry" in this instance refers to the cost of holding or "carrying" an inventory, be it a commodity or a security, which mainly consists of financing charges.)

The preferred way to fund the carry trade had been to borrow in yen, where the cost is near zero. Those yen could be converted into anything with a higher yield, such as U.S. mortgage-backed securities, to garner the spread.

The key risk -- aside from the loss of value of the asset being bought, as with any purchase on margin -- was that the cost of the liability would increase. That would happen with a rise in the yen in this case. And, not coincidentally, the yen rose in tandem with the dollar as carry traders had to unwind their positions during the crisis.

Now, with the Fed pinning the federal funds rate near zero and market rates -- such as the Libor, the London interbank offered rate, a money-market benchmark -- returning to their pre-Lehman collapse relationships versus the Fed's target, borrowing in dollars to fund carry trades looks tempting.

Remember, one of the big risks of a cross-border carry trade is if exchange rates bite you. But what's the risk of borrowing dollars at less than 1% if the U.S. currency's trend is down? Then you're effectively paid to borrow."

Why is this something to potentially worry about?  Well, it puts the Fed in a bit of a difficult position:

"America...still has a substantial current-account deficit that has to be financed with capital inflows. Outflows, as to finance dollar carry trades, would increase the need to attract capital inflows, which would put added downward pressure on the greenback.

Pomboy posits this could potentially lead to the return of such contrivances as the interest-equalization tax, a levy introduced in the 1960s to deter such outflows of capital.

Stanching the free flow of capital would be 21st century equivalent of the infamous Smoot-Hawley tariff, which importantly contributed to the contraction of global trade in the Great Depression..."

In choosing between the lesser of two evils, they may opt to allow the dollar to fall rather than impose draconian measures to curb dollar selling or deflating the economy to defend the exchange rate, the traditional medicine.

Then the response of other countries will be key. Do they permit an appreciation of their currencies, which would hurt their export competitiveness? Or do they follow the dollar's decline?

So far, equity markets have viewed the dollar's slide benignly. Stock investors haven't looked beyond the positive impact of exchange-rate moves on earnings of the Standard & Poor's 500.

But as the world sees a lower dollar as a one-way bet, it will be hard to stop."

Good point to keep in mind, especially for financial worry-warts.

* Image source.

ON GOD AND THE BRAIN

SEEKING THE TRUTH

Some new work by scientists at Johns Hopkins University gets at a question long asked by neuro-scientists:

"...is God a delusion created by brain chemistry, or is brain chemistry a necessary conduit for people to reach God?"

As this NPR article, the first in a five-part series by Barbara Bradley Hagerty, goes on to explain:

"...now, some researchers are using new technologies to try to understand spiritual experience. They're peering into our brains and studying our bodies to look for circumstantial evidence of a spiritual world. The search is in its infancy, and scientists doubt they will ever be able to prove — or disprove — the existence of God.

I spent a year exploring the emerging science of spirituality for my book, Fingerprints of God. One of the questions raised by my reporting: Is an encounter with God merely a chemical reaction?"

In a subsequent piece in NPR, the third in the series, the author goes on to recount some experiments by Andrew Newberg from the University of Pennsylvania:

A few years later, Andrew Newberg made that possible. Newberg is a neuroscientist at the University of Pennsylvania and author of several books, including How God Changes Your Brain. He has been scanning the brains of religious people like McDermott for more than a decade..."

"Newberg found that result not only with Baime, but also with other monks he scanned. It was the same when he imaged the brains of Franciscan nuns praying and Sikhs chanting. They all felt the same oneness with the universe. When it comes to the brain, Newberg says, spiritual experience is spiritual experience.

"There is no Christian, there is no Jewish, there is no Muslim, it's just all one," Newberg says.

A little theological dynamite there — but, remember, the research is just beginning."

Theological dynamite indeed, but the nascent field of neurotheology (aka the Science of Spirituality), is intriguing indeed, especially when the studies start to explore the so called "God Chemical":

"...Snyder, who is chairman of the neuroscience department at Johns Hopkins and was not involved in the study, says scientists suspect that a key player in mystical experience is the serotonin system.

The neurotransmitter serotonin affects the parts of the brain that relate to emotions and perceptions. Chemically, peyote, LSD and other psychedelics look a lot like serotonin, and they activate the same receptor."

The whole series is worth reading, including listening to the audio in the interactive guide that accompanies the series.

(Hat-tip to my friend Greg Ostroff for his original tweet that led me to these articles).

* Image source.

ON A HISTORIC SILK ROAD SPOT

CHANGING TIMES

One of the most memorable places I've had the opportunity to visit over the years is the ancient town of "Kashgar in the western-most regions of China.  As this New York Times article earlier this week explains:

A thousand years ago, the northern and southern branches of the Silk Road converged at this oasis town near the western edge of the Taklamakan Desert.
Traders from Delhi and Samarkand, wearied by frigid treks through the world’s most daunting mountain ranges, unloaded their pack horses here and sold saffron and lutes along the city’s cramped streets.
Chinese traders, their camels laden with silk and porcelain, did the same.
The traders are now joined by tourists exploring the donkey-cart alleys and mud-and-straw buildings once window-shopped, then sacked, by Tamerlane and Genghis Khan.

Now, Kashgar is about to be sacked again."

The piece goes on to explain how this historic town is likely to be changed forever as the central government in Beijing moves forward with it's plans to make the town's residents "earthquake proof" by essentially razing the many parts of Kashgar that make it so special for visitors and those interested in preserving history.

"Over the next few years, city officials say, they will demolish at least 85 percent of this warren of picturesque, if run-down homes and shops. Many of its 13,000 families, Muslims from a Turkic ethnic group called the Uighurs (pronounced WEE-gurs), will be moved.

In its place will rise a new Old City, a mix of midrise apartments, plazas, alleys widened into avenues and reproductions of ancient Islamic architecture “to preserve the Uighur culture,” Kashgar’s vice mayor, Xu Jianrong, said in a phone interview.

Demolition is deemed an urgent necessity because an earthquake could strike at any time, collapsing centuries-old buildings and killing thousands. “The entire Kashgar area is in a special area in danger of earthquakes,” Mr. Xu said."

Some of the motivation here at the highest levels of the Chinese government may be to control and contain some of the separatist efforts in recent years to carve out a more independent identity for the region.  The piece is worth reading in it's entirety.
The place is not very critical in the global scheme of things.  But once visited, it remains etched as a very special place in history.  Here's hoping some of Kashgar is preserved for generations to come.

ON DOWNSIDES OF UNLIMITED TEXTING

TOO MUCH OF A GOOD THING

I'm always amazed at the way a young person these days seems to be able to text away at seemingly amazing speeds on the numerical keypad of an otherwise ordinary cell-phone.  And come away thinking how cool it is that they've been able to learn to do that, much as I had to learn how to type on a QWERTY keyboard at their age. 

But this cautionary piece in the New York Times about the potential downside of unlimited texting by teenagers especially, raises some other aspects of this phenomenon.  First the context:

"Spurred by the unlimited texting plans offered by carriers like AT&T Mobility and Verizon Wireless, American teenagers sent and received an average of 2,272 text messages per month in the fourth quarter of 2008, according to the Nielsen Company — almost 80 messages a day, more than double the average of a year earlier.

The phenomenon is beginning to worry physicians and psychologists, who say it is leading to anxiety, distraction in school, falling grades, repetitive stress injury and sleep deprivation."

All this may be too early to blame just on texting, as the piece goes on to emphasize,

"The rise in texting is too recent to have produced any conclusive data on health effects. But Sherry Turkle, a psychologist who is director of the Initiative on Technology and Self at the Massachusetts Institute of Technology and who has studied texting among teenagers in the Boston area for three years, said it might be causing a shift in the way adolescents develop."

Another thing for teenagers to learn to do in moderation, as if the list wasn't already long enough.

ON NEW ORIGINS

SURPRISING START
Google's "Doodle logo" was a bit of a surprise today, given that it wasn't an immediate reminder for a national holiday or event.  Clicking it, takes one to this page from the National Geographic:

"Meet "Ida," the small "missing link" found in Germany that's created a big media splash and will likely continue to make waves among those who study human origins.

In a new book, documentary, and promotional Web site, paleontologist Jorn Hurum, who led the team that analyzed the 47-million-year-old fossil seen above, suggests Ida is a critical missing-link species in primate evolution (interactive guide to human evolution from National Geographic magazine).

(Among the team members was University of Michigan paleontologist Philip Gingerich, a member of the Committee for Research and Exploration of the National Geographic Society, which owns National Geographic News.)

The fossil, he says, bridges the evolutionary split between higher primates such as monkeys, apes, and humans and their more distant relatives such as lemurs.

"This is the first link to all humans," Hurum, of the Natural History Museum in Oslo, Norway, said in a statement. Ida represents "the closest thing we can get to a direct ancestor."

Pretty cool stuff indeed, and the article goes on to provide a lot more detail on the find and it's implications.  Most surprising though was this obvious question at the very end of the piece:

"What's more, the newly described "missing link" was found in Germany's Messel Pit. Ida's European origins are intriguing, Richmond said, because they could suggest—contrary to common assumptions—that the continent was an important area for primate evolution."

It'll be interesting to see where this line of research goes, shedding light on where humans really did come from.

ON POLITICS OF CAP & TRADE

HORSE TRADING

This New York Times piece asks some timely questions about one of the most popular tools in the government's tool chest to address global warming:

"How did cap and trade, hatched as an academic theory in obscure economic journals half a century ago, become the policy of choice in the debate over how to slow the heating of the planet? And how did it come to eclipse the idea of simply slapping a tax on energy consumption that befouls the public square or leaves the nation hostage to foreign oil producers?"

And goes on to provide a not too surprising answer:

"The answer is not to be found in the study of economics or environmental science, but in the realm where most policy debates are ultimately settled: politics.

Many members of Congress remember the painful political lesson of 1993, when President Bill Clinton proposed a tax on all forms of energy, a plan that went down to defeat and helped take the Democratic majority in Congress down with it a year later.

Cap and trade, by contrast, is almost perfectly designed for the buying and selling of political support through the granting of valuable emissions permits to favor specific industries and even specific Congressional districts. That is precisely what is taking place now in the House Energy and Commerce Committee, which has used such concessions to patch together a Democratic majority to pass a far-reaching bill to regulate carbon emissions through a cap-and-trade plan.

The bill is poised to win committee approval this week, although with virtually no support from Republicans."

Ironic since the whole thing really got going in a Republican administration:

"If there was a single moment when cap and trade crossed the threshold from relatively untested economic concept to prevailing government policy, it came in May 1989 in the West Wing office of C. Boyden Gray, counsel to President George H. W. Bush."

The piece makes for compelling reading on the unintended consequences of some initially far-fetched ideas.  Especially since it looks like it'll be even more of a reality for all of us in not too long.

* Image source.

ON ANECDOTES OF A TRADE WAR

IT'S BEGUN
One of the scariest headlines of the week has nothing to do with unrest in a nuclear Pakistan, rising challenges for the U.S. in Afghanistan, or increasing violence in Iraq.  Instead, it's this story in the Washington Post, titled "Trade Wars launched with ruses, end runs", indicating that the global race to the bottom in a back-door trade war may have begun:

"Is this what the first trade war of the global economic crisis looks like?

Ordered by Congress to "buy American" when spending money from the $787 billion stimulus package, the town of Peru, Ind., stunned its Canadian supplier by rejecting sewage pumps made outside of Toronto. After a Navy official spotted Canadian pipe fittings in a construction project at Camp Pendleton, Calif., they were hauled out of the ground and replaced with American versions. In recent weeks, other Canadian manufacturers doing business with U.S. state and local governments say they have been besieged with requests to sign affidavits pledging that they will only supply materials made in the USA.

Outrage spread in Canada, with the Toronto Star last week bemoaning "a plague of protectionist measures in the U.S." and Canadian companies openly fretting about having to shift jobs to the United States to meet made-in-the-USA requirements. This week, the Canadians fired back. A number of Ontario towns, with a collective population of nearly 500,000, retaliated with measures effectively barring U.S. companies from their municipal contracts -- the first shot in a larger campaign that could shut U.S. companies out of billions of dollars worth of Canadian projects."

The piece goes on to tell tales of unintended consequences unleashed by the politics of government bank bailouts across the world:

"The United States is not alone in throwing up domestic policies assailed by critics as protectionist. Britain and the Netherlands, for instance, are forcing banks receiving taxpayer bailouts to jump-start lending at home at the expense of overseas clients. French President Nicolas Sarkozy initially insisted that his nation's automakers move manufacturing jobs home in exchange for a government bailout, but backed down after outrage surged among his peers in the European Union, of which France is a central member."

These trends seem to be accelerating, at least in an anecdotal form.  It shouldn't be too long before we see the consequences of our best intentions in national and international economic statistics start to pile up.

ON THE FOUNDATION OF GREEN SHOOTS

HOPE SPRINGS ETERNAL

Long-time former editor of Barron's, Alan Abelson, has always had a way with words.  This weekend he does it even better than usual, talking about the current  ebullience in the stock markets, in a piece entitled "A Surge in Botanists":

"...not only are things getting worse more slowly, but equally as important in the remarkable revival of euphoria is that investors en masse, taking a leaf from Federal Reserve Chairman Ben Bernanke, have become budding botanists, able to espy green shoots of recovery in virtually every compost pile..."

He then goes on to add,

"PERHAPS THE MOST ELOQUENT expression of how delusional Wall Street has become was its response to Friday's report on what happened to employment -- or, more importantly, unemployment -- in April. Payrolls shriveled by 539,000, less than the 550,000 to 600,000 guesstimates of the seers as well as March's initial tally of 633,000. That was enough for the choristers to start humming Happy Days Are Here Again.

A slightly more careful look suggests rather emphatically that they're not. The unemployment rate extended its doleful rise, hitting 8.9%, the highest level since 1983. The jobless ranks have swollen by 5.7 million since the recession got underway in December 2007, and there are now 13.7 million people out of work.

Moreover, our favorite measure of unemployment -- favorite because we think it a truer gauge -- is the Bureau of Labor Statistics' U-6, which includes the likes of workers laboring part-time because they can't land full-time jobs, rose to a fresh peak of 15.8%. That means 24.7 million people are effectively unemployed. It's a figure that doesn't get too much notice -- maybe it's just too depressing -- but it should.

For that matter, bad as it is, 539,000 doesn't do justice to the severity of the payroll shrinkage. For one thing, it was puffed up by the 72,000 federal census takers signed on by Uncle Sam. And for another, it includes 226,000 supposed jobs, or 60,000 properly adjusted, courtesy of what David Rosenberg calls the Alice-in-Wonderland birth/death model. Ex this pair of extraordinary items, he points out, the headline number would approach 670,000.

In one of his valedictory scribblings (David's leaving Merrill Lynch and returning to the glories of his native Canada and money management), he also notes that private-sector employment sank by 611,000 in April, and did so across a wide swath. "The data," he contends, "just don't square with the conventional wisdom permeating the investment landscape."

And then finishes it off with this bit on another way to look at "green shoots" going forward:

"Looking ahead, David scoffs at the idea that the "jobs data are about to get better because the markets have enjoyed a nice two-month rally." Among the reasons he's skeptical: the still record-low workweek, at 33.2 hours; the 66,000 downward revision to the back data (which, he avers, tends to feed on itself); the 63,000 slide in temp-agency employment; and the high levels of both initial and continuing jobless claims.

All of which, he believes, foreshadow a further 550,000 payroll plunge when the May data roll out early next month.

To David, as to us, the present buoyant mood on the Street is obviously more the result of rose-colored glasses than of green shoots."

One must always try to be an optimist, but not forget to also be a bit of a pragmatist, and not over-shoot on green shoots.

* Image source.

ON SOME WIRELESS INNOVATION

STRETCHING COMFORT ZONES

Looks like the U.S. wireless carriers are finally trying to innovate a bit on the wireless broadband front, judging from the latest from David Pogue.  Well, at least one of them is, as the review goes on to explain:

"...imagine if you could get online anywhere you liked — in a taxi, on the beach, in a hotel with disgustingly overpriced Wi-Fi — without messing around with cellular modems. What if you had a personal Wi-Fi bubble, a private hot spot, that followed you everywhere you go?

Incredibly, there is such a thing. It’s the Novatel MiFi 2200, available from Verizon starting in mid-May ($100 with two-year contract, after rebate). It’s a little wisp of a thing, like a triple-thick credit card. It has one power button, one status light and a swappable battery that looks like the one in a cellphone. When you turn on your MiFi and wait 30 seconds, it provides a personal, portable, powerful, password-protected wireless hot spot.

The MiFi gets its Internet signal the same way those cellular modems do — in this case, from Verizon’s excellent 3G (high-speed) cellular data network. If you just want to do e-mail and the Web, you pay $40 a month for the service (250 megabytes of data transfer, 10 cents a megabyte above that). If you watch videos and shuttle a lot of big files, opt for the $60 plan (5 gigabytes). And if you don’t travel incessantly, the best deal may be the one-day pass: $15 for 24 hours, only when you need it. In that case, the MiFi itself costs $270.

In essence, the MiFi converts that cellular Internet signal into an umbrella of Wi-Fi coverage that up to five people can share."

The thing to note here is that this is really far less about technology, than Verizon's decision to tinker with it's existing business model for wireless broadband and offer something that may at the margin compete with some of it's own lucrative offerings in the space.  Indeed, not too long ago Verizon specifically frowned at sharing one of their wireless broadband data modems, as the piece goes on to note:

"Sharing a cellular-modem account was something it strenuously discouraged only two years ago."

Hopefully we'll see more of this kind of thing from the wireless carriers going forward.  Fingers crossed.