tag:blogger.com,1999:blog-74808858713361927802024-02-18T18:07:23.052-08:00The MBA Ivory TowerTeddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.comBlogger19125tag:blogger.com,1999:blog-7480885871336192780.post-33490176253263167062013-04-10T08:19:00.001-07:002013-04-10T08:19:43.234-07:00<div class="separator" style="clear: both; text-align: center;">
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<b><u><span style="font-size: 24.0pt;">The Chinese
Real Estate Petri Dish<o:p></o:p></span></u></b></div>
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<b><span style="font-size: 15.0pt;">What it
means for the Chinese citizenry, its economy, and the world<o:p></o:p></span></b></div>
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<span style="font-size: 15.0pt;">April 2012<o:p></o:p></span></div>
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<i>60 Minutes</i> recently highlighted how China’s economy is in
unchartered waters. The country is experiencing unprecedented economic growth
and the real estate market is a significant part this growth. While the risks
are well known, the outcome and its timing are uncertain due to the unique
structure of the Chinese state-planned economy and the speed at which it is
growing. As a result, its leaders are trying to “thread the needle” in regards
to finding the perfect blend of government control, capitalist intentions, and
the consideration for their society. The result is that real estate is the
petri dish for the evolution of an economy. The implications for all
stakeholders are enormous. <o:p></o:p></div>
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The real estate market in China
is the perfect case of competing forces: the government’s desire for control
and capitalism’s natural inclination to resist that control. The Chinese
government has its hands firmly on the economy’s rudder, but every time it adjusts
to avoid one storm, it seems to steer into an unexpected storm. This is a very
unique situation due to the need to manage growth, while simultaneously facing daunting
demographic challenges. The government claims to be in control of the situation
and has taken actions to stem the tide, but the problem is that capitalism is
not a one-dimensional system that can be headed off with rules and regulations.
Despite this, China is attempting to do just that. <o:p></o:p></div>
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<b><i>How China got into this
Predicament <o:p></o:p></i></b></div>
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The Chinese government does not
allow its citizen’s to invest abroad, banks offer paltry returns, and the stock
market is incredibly volatile due to the heavy influence of the government in
many industries and the lack of transparency. As a result, Chinese citizens
have craved for ways to invest. As the <i>60
Minutes</i> episode highlights, this lack of investment opportunities changed
fifteen years ago when the Chinese government began allowing people to own
their own homes. Chinese government did this for two main reasons: (1) in
anticipation of the great migration into cities from the countryside, the
government figured that giving people the opportunity to have a stake in
property would provide demand and capital needed for the heavy infrastructure
spending required to accommodate future movement into city centers and (2)
allowing for real estate investment gives citizens a way to invest
domestically. The problem, as to be expected, was that it channeled an outsized
amount of people’s savings into one asset class. <o:p></o:p></div>
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The result? “Ghost cities” abound
that are uninhabited for miles. This is a new phenomenon because, unlike the
American ghost towns we know all too well (Detroit), the Chinese cities present
an entirely new dynamic. Instead of being the remnants of a formerly prosperous
metropolis that failed to stay ahead of the capitalism dynamism curve, the
Chinese ghost cities are developments for <i>anticipated</i>
commerce. Never before have societies built to this degree in anticipation of
future commerce and a government’s desire to plan the future. Leslie Stahl
referred to the strategy as China’s “If you build it, they will come” plan.</div>
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<span style="font-size: 8.0pt; line-height: 115%;"><a href="http://business.financialpost.com/2012/08/29/what-china-doubters-have-wrong-about-its-ghost-cities-stephen-roach/">http://business.financialpost.com/2012/08/29/what-china-doubters-have-wrong-about-its-ghost-cities-stephen-roach/</a></span><span style="font-size: 8.0pt; line-height: 115%;"> <o:p></o:p></span></div>
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<b><i>The Future<o:p></o:p></i></b></div>
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The big question is will it work
and if it doesn’t, what are the consequences to the Chinese citizenry, the
Chinese economy, and even the world? While sound in intent, the amount of
building and investing has put the Chinese government’s plan to create ample
housing for a rising middle class out of the reach for those it is intended for.
Additionally, it has put citizen’s savings at risk. The average apartment in a
city such as Shanghai now costs forty-five times the average Chinese worker’s
yearly salary. As a result, even if a worker wanted to move to the city, the
cost of apartments is practically impossible. So ironically, despite all this
new capital investment that was supposed to provide new homes for workers, bring
more workers to the cities, and develop more tightly knit communities, the <i>real </i>Chinese economy is arguably not
much different than it was prior to the cranes lighting up the sky. Even more
troubling is that most of the price appreciation in these empty properties is
due to middle class buyers simply bidding up prices. If this perpetual buying
dries up, the bottom could fall out. <o:p></o:p></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgF2Qrhrt_hrGtF-vZPCDrFwMwGOSKweJrs2H4ErKfmFEbQpBILkZhuCi7pO1B8lDRQYjWu_qFwJY8N1NbyEywbp8_vlRz2YbtTvfmV8-7FKGUUFEirZ4kMSmRM3SVAkVx6nCX0mIGA_Ao/s1600/Chinese+People.png" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em; text-align: center;"><img border="0" height="181" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgF2Qrhrt_hrGtF-vZPCDrFwMwGOSKweJrs2H4ErKfmFEbQpBILkZhuCi7pO1B8lDRQYjWu_qFwJY8N1NbyEywbp8_vlRz2YbtTvfmV8-7FKGUUFEirZ4kMSmRM3SVAkVx6nCX0mIGA_Ao/s320/Chinese+People.png" width="320" /></a></div>
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<span style="text-align: justify;">Sounds familiar doesn’t it? With
all of this real estate priced at elevated levels, but not generating any true
positive cash flows, as former Citigroup CEO Chuck Prince referenced, what is
going to happen when the music stops? Stateside, we saw exactly what happened:
economic turmoil, credit market seizures, massive borrowing, and government bailouts.
In China, we could see the same thing happen, yet with a different twist. China
does not have nearly the same degree of stability that the United States is
fortunate to have built up. If the housing market collapses, the risk of public
unrest and economic turmoil is a serious threat. In addition, unlike the United
States, China does not have the legal framework, transparent institutions, and
arguably most importantly, the ability to borrow from the public markets to fill
the gap in the absence of private capital. While it is true that China is
significantly more “cash rich” than the U.S. due to their budget surplus, a
real estate collapse would require enormous amounts of cash.</span></div>
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<o:p></o:p></div>
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China’s “balance sheet” is
certainly well-equipped as any nation to support its economy, but a real estate
collapse would present challenges. One concern that must be whispered in the
halls of the Federal Reserve is what it would mean for the Chinese stock of US
treasuries. The risk is certainly there that the Chinese would begin dumping
those securities to support the falling housing market. As a result, interest
rates would spike in the U.S. and around the world, causing credit markets to
seize up again making it practically impossible to borrow and force the global
economy back into a major tailspin.<o:p></o:p></div>
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Chinese’s grand experiment is
going to test the capacity for capitalism and managed societal growth. Whether
or not it is possible to keep the genie in the bottle and monitor it is
unknown, but if history is any sort of guide, we are likely to experience some
very volatile times in the coming years. Bubbles are bubbles for a reason…they
are bound to burst. <o:p></o:p></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgh0dGAT81DLSC1Gd0SWzITcJdVYf_Cd0bxb-C5d3_sMVQnXSWKmHgR-0ux6VjmhD0SDHflXHSvWEbarWFlWal61Q6nZLe-kSINJCACbP4E2RPVrcxyZnNqW3El_Hap3UKIoqZgmp-4lpA/s1600/Chinese+Real+Estate.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><img border="0" height="400" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgh0dGAT81DLSC1Gd0SWzITcJdVYf_Cd0bxb-C5d3_sMVQnXSWKmHgR-0ux6VjmhD0SDHflXHSvWEbarWFlWal61Q6nZLe-kSINJCACbP4E2RPVrcxyZnNqW3El_Hap3UKIoqZgmp-4lpA/s400/Chinese+Real+Estate.png" width="345" /></a></div>
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<a href="http://www.marketoracle.co.uk/Article14251.html"><span style="font-size: 8.0pt; line-height: 115%;">http://www.marketoracle.co.uk/Article14251.html</span></a><span style="font-size: 8.0pt; line-height: 115%;"><o:p></o:p></span></div>
Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com1tag:blogger.com,1999:blog-7480885871336192780.post-88452739851544116722013-03-26T12:20:00.001-07:002013-03-26T12:21:31.384-07:00<div style="text-align: center;">
<b><span style="font-size: large;"><u>Interview with Tom Gardner of the Motley Fool</u></span></b></div>
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<a href="http://www.youtube.com/watch?v=WJUQLllKQBs&feature=youtu.be">Interview Link</a><br />
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Darden School of Business Professor R. Edward Freeman talks with Tom Gardner, CEO and Co-founder of The Motley Fool, about Conscious Capitalism and the role of business in society. Professor Freeman interviewed Gardner as part of his Coursera course, "New Models of Business in Society." The Motley Fool is a financial-services company dedicated to building the world's greatest investment community. (For more on <a class="yt-uix-redirect-link" dir="ltr" href="https://www.coursera.org/course/bizsociety" rel="nofollow" target="_blank" title="https://www.coursera.org/course/bizsociety">https://www.coursera.org/course/bizso...</a></div>
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Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com0tag:blogger.com,1999:blog-7480885871336192780.post-91316237798807170602013-03-07T18:41:00.000-08:002013-03-10T11:04:08.747-07:00<br />
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<b><u><span style="font-family: Georgia, Times New Roman, serif; font-size: 24.0pt;">“DESERVED vs. EARNED"</span></u></b></div>
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<b><span style="font-size: 15.0pt;">Vastly
Different Mentalities and What it Means for Society<o:p></o:p></span></b></div>
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<span style="font-size: 15.0pt;">March 2012</span><span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 15.0pt; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></div>
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Countless arguments have been put
forth by authors, political pundits, leaders, and average Americans about what defines
the United States right now and why the country is in its current condition.
Opinions cover the entire spectrum from the far left to the far right, but for
me, it is a very simple explanation. The country has evolved from an “earned”
belief to a “deserved” one. <o:p></o:p></div>
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Now wait a second…don’t they mean
the same thing? While I would consider the two words related, there is a stark
difference. The essence of <i>earning</i>
something indicates receiving something from the work you have done, while <i>deserving</i> indicates that you are
“worthy” of receiving something. Worthy ? What exactly does that mean?
Essentially it is the belief that you are entitled to something despite the fact that your efforts don't necessarily align with the reward. This being said, you could argue the meanings of these words to no end.
However, a little clearer picture might develop if you look at some real-life
situations. <o:p></o:p></div>
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<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEivJo-7gvqmTqBp1x-_qyjdB1BqwHNVBCU0nKdjMvGbECkt3qDKFOQSSuBKlpDotBovriXwUaPxqmiEHGKe0Rvvm5tqWrIxfMY16tDIGuFe9DItcHLfx4Tjh2C7vMm1LIraDnZxjm4jhxE/s1600/deserve.PNG" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em; text-align: center;"><img border="0" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEivJo-7gvqmTqBp1x-_qyjdB1BqwHNVBCU0nKdjMvGbECkt3qDKFOQSSuBKlpDotBovriXwUaPxqmiEHGKe0Rvvm5tqWrIxfMY16tDIGuFe9DItcHLfx4Tjh2C7vMm1LIraDnZxjm4jhxE/s320/deserve.PNG" width="222" /></a></div>
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How often do you hear people
utter the phrase, “I deserve your respect”, or “I deserve these entitlements”,
or “I deserve this bonus”? Chances are we’ve all heard it uttered countless
times throughout our lives (and frankly we’ve most likely uttered it ourselves…unfortunately I
know I have), but the troubling part is it seems to be occurring more often and
from people in all walks of life. The professional athlete who “deserves the
fan’s respect” despite multiple transgressions and spotty play; the public
civil servant who “deserves his pension” despite the fact that he or she has
gamed the system by cramming in hours in the final year to boost his or her retirement
package; the Wall Street banker who “deserves his massive bonus” because of his
or her title; and the business school student who “deserves a job” because of
all the hard work and expensive tuition. While it is true that in many cases
these people have <i>earned</i> these
things, the fact that they feel as though they have <i>deserved </i>them says a lot about where we are as a country.<br />
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When people feel they deserve or
are entitled to something because that is the way it has always been done and
not because they’ve earned them, we inevitably will experience a decline.
Earning something requires putting something in for something in return. The
NFL quarterback who wins a Super Bowl and serves as a role model <i>earns</i> our respect, the civil servant who
put in his or her mandated number of years and fairly paid into the system <i>earned</i> their pension, the Wall Street
banker who brought in deals that added to good performance for the entire bank <i>earned</i> his or her bonus, and the
business school student who excelled both in the classroom and in interviews <i>earned </i>his or her job offer.</div>
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<o:p></o:p></div>
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While this argument might seem to
be a matter of semantics and has a significant amount of gray area, the mindset
should be the focus. Someone who believes that they <i>deserve </i>something is most likely resigned to sit back and wait for
a reward, while someone who believes that they must go out and earn it will
likely go out and do just that…earn it. Clearly one is a more productive state
of being and will contribute to a more productive society. <o:p></o:p></div>
Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com0tag:blogger.com,1999:blog-7480885871336192780.post-36873908680409734632013-02-13T16:27:00.000-08:002013-03-07T18:46:33.461-08:00<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgANdJ44jqnn7aM6AC1qJY8b7XNYfOHwv9B4dLOh7PO8jAAknSmxp5R9A6bwHg_-bFumky3QG4SQRm8bEkz5Je1SNFy7NqmP2KIWYd4sgYzHPYSiC7xE-WX9Nx4xHLGcdp5oU_atPcxSjo/s1600/Peer+Pressue.PNG" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em; text-align: center;"><br /></a>
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<b><u><span style="font-size: x-large;">PEER PRESSURE</span></u></b></div>
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<b><span style="font-size: 15.0pt;">What it can teach us about equity
investing<o:p></o:p></span></b></div>
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<span style="font-size: 15.0pt;">February 2012<o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">Peer pressure. We have all
experienced it in one shape or form, but the commonality across all different
variations of this social animal is that it forces people to do things they
ordinarily would not do. We have all been lectured, “If all your friends told you
to jump off a bridge, would you jump?” However, despite our best intentions,
the vast majority of us are naturally inclined to follow the herd. Simply
stated, people are typically more likely to act if encouraged by others. While
this is perfectly understandable, it often leads to problems because rational
thinking can be blurred when it is not driven by proper analysis. Today, when
you hear that equities look attractive because retail investors are shifting
their funds from bond funds to equities, take a lesson from as far back as
elementary school and resist the urge to blindly follow the pack. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">The Federal Reserve has actively
manipulated the bond market for years now with the goals of bringing down
interest rates and pushing investors out the yield curve. Bernanke and his deputies’
actions have in large part been successful, especially regarding credit
markets. Their bond buying programs have lowered interest rates across the
board allowing corporations to issue debt at historically low rates. On the capital
markets front, investors who moved out the risk spectrum during the past few
years profited off of this Fed-led recovery as credit spreads tightened and
equities experienced a significant run-up. While this has been a positive development, it has led to fewer opportunities for meaningful
upside in bonds and equities (especially in bonds). As a result, investors are forced to once again move out the risk spectrum; this time in the
form of opportunities such as direct lending, emerging market bonds, and real
estate. The problem is these types of alternatives are out of the reach for the
vast majority of retail investors. As a result, the average retail investor is
stuck between the proverbial rock and a hard place…or in this case, between
bonds with depressed yields or stocks close to perceived fair value. </span></div>
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<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">With neither option offering a
clear choice, equity peer pressure is starting to creep back in. As we know,
the perpetual problem with peer pressure is that it involves someone being pushed
into something they are not comfortable doing. In this case, investment bank
and buy side analysts are advising clients to move into stocks because that is
where fund flows are going. Seems eerily familiar doesn’t it? When justifiable
reasons no longer seem to be evident, echoes of, “if everyone’s doing it, you
should to!” get louder and louder. In the case of investing, with valuations
close to fair value, margin expansion slowing, and equities close to their
all-time highs, beware following what everyone else is doing. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgANdJ44jqnn7aM6AC1qJY8b7XNYfOHwv9B4dLOh7PO8jAAknSmxp5R9A6bwHg_-bFumky3QG4SQRm8bEkz5Je1SNFy7NqmP2KIWYd4sgYzHPYSiC7xE-WX9Nx4xHLGcdp5oU_atPcxSjo/s1600/Peer+Pressue.PNG" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em; text-align: center;"><span style="font-family: Georgia, Times New Roman, serif;"><img border="0" height="228" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgANdJ44jqnn7aM6AC1qJY8b7XNYfOHwv9B4dLOh7PO8jAAknSmxp5R9A6bwHg_-bFumky3QG4SQRm8bEkz5Je1SNFy7NqmP2KIWYd4sgYzHPYSiC7xE-WX9Nx4xHLGcdp5oU_atPcxSjo/s320/Peer+Pressue.PNG" width="320" /></span></a></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">This development is not new. In
fact, I would venture to say that a large part of the reason why retail
investors are always the “last ones to the equity rally party” is due the fact
that when rallies look tenuous and without merit, institutional analysts need
to tap a resource to keep it marching upwards. So, who better to lean on then
those most susceptible to peer pressure than you, the retail investor. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">So what is the retail investor to
do?</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify; text-indent: 0px;">
<span style="text-indent: -0.25in;"><span style="font-family: Georgia, Times New Roman, serif;">1. Resist
the peer pressure. You were cautious for reasons specific to yourself. You
either are inherently cautious, need the cash, or just haven’t felt comfortable
investing in riskier assets. Whatever the reason, don’t change your stance
because the “experts” are saying that other retail investors piling into stocks
should entice you to do the same.</span></span></div>
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<span style="text-indent: -0.25in;"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify; text-indent: 0px;">
<span style="font-family: Georgia, Times New Roman, serif;"><span style="text-indent: -0.25in;">2. Buy when comfortable. </span><span style="text-indent: -0.25in;">While
equities certainly have value with P/E’s still at reasonable levels when
compared to historical fair value measures, carry attractive dividend yields (especially
versus bond yields), and strong corporate balance sheets, </span><i style="text-indent: -0.25in;">do not </i><span style="text-indent: -0.25in;">blindly rush back into broad equity funds. Doing so could
expose you a poor entry point if we do see a correction from current levels. Buy when you're comfortable. </span></span></div>
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<span style="text-indent: -0.25in;"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoNormal" style="text-align: justify; text-indent: 0px;">
<span style="font-family: Georgia, Times New Roman, serif;"><span style="text-indent: -0.25in;">3. </span><span style="text-indent: -0.25in;">Maintain
discipline. Timing the market is largely fruitless. As a result, determining
whether we are at the peak of the rally or not is almost impossible to
determine. In addition, just because you feel like you missed the majority of
the recovery in equities, doesn’t mean you should pile in now. Opportunities to
put your idle cash to work will present themselves, so start </span><i style="text-indent: -0.25in;">layering</i><span style="text-indent: -0.25in;"> in now if you feel more comfortable
with equities. Be disciplined enough to start investing a portion of it each
month. If the market begins to rise, great. If it retreats, even better; this
is why you’re layering in. Lower prices equals greater value opportunities.</span></span></div>
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<span style="text-indent: -0.25in;"><span style="font-family: Georgia, Times New Roman, serif;"><br /></span></span></div>
<div class="MsoListParagraphCxSpLast" style="mso-list: l0 level1 lfo1; text-align: justify; text-indent: -.25in;">
<span style="font-family: Georgia, Times New Roman, serif;"><o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">These are obviously just a few
recommendations from someone who is far from an expert. That being said, I can
say with absolute certainty that I have made the mistake of doing the opposite
of each recommendation and have tried to learn from those lessons. <o:p></o:p></span></div>
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<br /></div>
<br />Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com0tag:blogger.com,1999:blog-7480885871336192780.post-14936870027363114522013-02-07T11:32:00.000-08:002013-03-07T18:46:46.376-08:00<div class="separator" style="clear: both; text-align: center;">
<b><u><span style="color: #222222; font-size: x-large; mso-ascii-font-family: Calibri; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">RESHORING</span></u></b></div>
<div align="center" class="MsoNormal" style="background: white; margin-bottom: .0001pt; margin-bottom: 0in; mso-line-height-alt: 13.5pt; text-align: center;">
<b><span style="color: #222222; font-family: Verdana, sans-serif; font-size: large;">The Opportunity for a Rust Belt
Renaissance</span></b><span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 10.0pt; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></div>
<div align="center" class="MsoNormal" style="background: white; mso-line-height-alt: 13.5pt; text-align: center;">
<span style="color: #222222; font-size: 15.0pt; mso-ascii-font-family: Calibri; mso-bidi-font-family: Arial; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">February 2013</span></div>
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<br /></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">It is well documented that firms
are beginning to bring a portion of their operations back to the United States.
Global companies have recognized that with labor costs overseas rising and with
the American consumer desiring more “customized” products, “reshoring”
operations is an appealing business strategy, especially in the more automated manufacturing sectors. As a result, companies have set in motion
a trend that could provide for a “Rust Belt Renaissance” if the right steps are
taken. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">Companies are acting on the belief
that the marginal benefits of offshoring production to China no longer outweigh
the benefits of producing many of the same goods stateside. Not only are wages
in places like China becoming more in line with the U.S. (U.S. manufacturing wages
are down 2.2% since 2005 while Chinese wages have risen close to 10% - <i>Economist</i>), but being able to customize
and respond more quickly to local demand is seen as a major advantage. In
addition, productivity levels stateside continue to outpace the Chinese. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">Multinational companies seem to
be making the decision to reshore because it benefits their bottom lines and
not solely for patriotic reasons. As a result, they are indirectly creating a wonderful opportunity for American states, municipalities, and
cities. In a time when areas of the country are eroding from an inability to
foster positive economic growth, the process of reshoring presents a once a
generation moment to capitalize on a major shift in the economy.</span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjI1Np1f-uKSch3RCgsuZPWORxyV6BetCt53vQp1O4OVwuLq0oHRXNij1zJdDQ3SuWhVfM44gchLUs1xQIkRv1opIlUBk29BEeqJqsFASLtW24eMZLO32WbBJa4mG6SsmbKlcTTN7Ks3M0/s1600/Detroit.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><span style="font-family: Georgia, Times New Roman, serif;"><img border="0" height="209" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjI1Np1f-uKSch3RCgsuZPWORxyV6BetCt53vQp1O4OVwuLq0oHRXNij1zJdDQ3SuWhVfM44gchLUs1xQIkRv1opIlUBk29BEeqJqsFASLtW24eMZLO32WbBJa4mG6SsmbKlcTTN7Ks3M0/s320/Detroit.png" width="320" /></span></a></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><b>Former Bastions of Industry</b></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">Detroit and Cleveland used to bastions
of industry in the United States. However, like companies that fail to innovate
and adapt, these two cities have fallen the way of Eastman Kodak and
Blockbuster. The problem for these cities is that bankruptcy is not an option the way
it is for companies. Cities have a much “stickier” nature in that they cannot
close its doors, sell off its hard assets, and reorganize. Instead, cities have
citizens that do not want to leave and contain an infrastructure that cannot be
disassembled. As a result, these parts of the country experience a slow
deterioration. <o:p></o:p></span></div>
<span style="font-family: Georgia, Times New Roman, serif;"><br />
</span><br />
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">Despite these differences, there is a clear link between the
fall of cities and industry. Detroit is inextricably linked to the Big Three
automakers while Cleveland’s past economic success was tied to iron and steel
manufacturing, shipping and rail. Not surprisingly, as these companies
contracted and industries were offshored or moved to other states with less
restrictive union channels of power, employment and population declined. </span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Today, cities like Detroit and Cleveland are vastly different than
they were a few decades ago. Politicians, pundits, and the broader American populous
lament this decline, but few act. Instead, leaders at the business and
government level should be thinking about and working together to implement
ways to bring companies back to these cities. When and if this is done, these
cities will be ripe for American investment both on the public and private
side. Reshoring is the catalyst. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;"><b>The Opportunity</b></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">Have you recently looked at
housing prices in the Tri-State area (NY, NJ, CT)? Washington D.C.? San
Francisco? If you have, you realize very quickly that it appears that the housing
bust feels like a myth. Prices are at or above the frothy 2007 levels. This doesn’t
even account for the cost of living levels. Food, transportation costs, taxes,
and all the other daily costs squeeze you at all points. Now…have you ever
spent an extensive amount of time in Detroit or Cleveland? I’m guessing not,
but believe it or not, I have. My mother grew up in Cleveland and until
recently, my grandmother lived in the same house she moved into close to forty
years ago (she was a lifelong Clevelander). Her house, which I am guessing was
over four thousand square feet and is on a two acre plot of land in one of the
nicer suburbs only 15-20 minutes from downtown Cleveland, is valued at close $350k
(it was valued at the same price over ten years ago). State and local taxes in
Cleveland? Substantially lower. Last
time I visited her, dinner out? Easily 30% less than in Washington or New York.
Private school education? Over 20% cheaper. Don’t believe me? I needed some confirmation
too. A quick Google search led me to <a href="http://www.bankrate.com/">www.bankrate.com</a>
and the contrast is stark. Bankrate.com lists that if you made $100,000 in
Cleveland, OH, you would need to make $137,340 to have a similar quality of
living in the Tri-State region (and this doesn’t incorporate the soft issues
like hours spent commuting to work, stress levels, etc) (<a href="http://www.bankrate.com/calculators/savings/moving-cost-of-living-calculator.aspx">http://www.bankrate.com/calculators/savings/moving-cost-of-living-calculator.aspx</a>). <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhsVxMD0Gxcu4mdgJM3eHw49BR5teJTKLiQSYdhL_So7z804E05kzw7adBZKhwZV1nwlRAMmV1A04k1wgVQDYldk0nTkfkCzpnDw6mfjBhmpT-sqzb1Jyc3BdB_Pkw5wNqaGRhNHNOl1pU/s1600/PP+House.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em; text-align: center;"><span style="font-family: Georgia, Times New Roman, serif;"><img border="0" height="192" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhsVxMD0Gxcu4mdgJM3eHw49BR5teJTKLiQSYdhL_So7z804E05kzw7adBZKhwZV1nwlRAMmV1A04k1wgVQDYldk0nTkfkCzpnDw6mfjBhmpT-sqzb1Jyc3BdB_Pkw5wNqaGRhNHNOl1pU/s320/PP+House.png" width="320" /></span></a></div>
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</div>
<span style="font-family: Georgia, Times New Roman, serif;"><br />
</span><br />
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">Why highlight these differences?
Cities like Detroit and Cleveland present a very opportunistic economic moment
for companies looking to reshore. However, they need to display a willingness
to provides companies with incentives to set up shop with perks like lower corporate tax
rates, less restrictive unions (this is already happening as Ford announced it
is bringing some production back to Ohio and Michigan after reaching a new
agreement with the UAW - <i>Economist </i>Special
January Special Report “Outsourcing and Offshoring”), and a willingness to
provide a suitable business infrastructure. If they do this, they have the
potential to attract both companies and people looking for jobs in cities that provide
a nice quality of life at very affordable costs. <o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">These Midwestern cities offer a
degree of flexibility that both Chinese manufacturing hubs and more expensive
U.S. cities cannot. Their proximity to the American consumer could allow companies
to customize and move products from the assembly line to the consumer very quickly.
Secondly and arguably most importantly, companies would have a greater “margin
of safety” regarding compensation in these cities on a relative basis (10-15%
less than many areas) while letting employees pocket the difference. This could
entice workers to relocate back to the Rust Belt (something that is much easier
to do now that the housing market appears to be bottoming and foreclosures are
being worked through).<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">There is clearly an opportunity here.
Why can’t the revival of the American Rust Belt start today? Why can’t we turn
the system on its head? For years, American companies have created jobs for citizens
of emerging markets, which has assisted the increasing standards of living in
these countries. Today, the challenges that faced emerging markets’ income wage
gaps and joblessness are the same ones that face numerous cities here in
America’s Rust Belt. The main reason emerging markets rose in the past two
decades was not due to government subsidies or IMF aid. Instead, emerging
markets were pulled up off the ground by the worldwide leaders in industry moving
in and setting up shop. With productivity levels higher than ever before, income
levels at attractive levels, and being situated within close proximity to the
vast new sources of American made energy in the various Midwestern shales, the
American Rust Belt is primed for a recovery. The only thing now is can the
right leaders step up to turn an opportunity into a rea</span>lity?<o:p></o:p></div>
Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com0tag:blogger.com,1999:blog-7480885871336192780.post-91945612350474166192012-11-12T06:08:00.002-08:002012-11-26T16:13:14.093-08:00<br />
<div align="center" class="MsoNoSpacing" style="margin: 0in 0in 0pt; text-align: center;">
<b style="mso-bidi-font-weight: normal;"><u><span style="font-size: 24pt;"><span style="font-family: Calibri;">Shifting
Consumer Preferences</span></span></u></b><br />
<b style="font-family: Calibri;"><span style="font-size: 15pt;">Can the “Big
Box” retailers survive?</span></b></div>
<div align="center" class="MsoNormal" style="background: white; margin: 0in 0in 10pt; text-align: center;">
<span style="font-family: Calibri;"><span style="color: #222222; font-size: 15pt; line-height: 115%; mso-ascii-font-family: Calibri; mso-bidi-font-family: Arial; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;">November
2012</span><span style="color: #222222; font-family: "Arial","sans-serif"; font-size: 15pt; line-height: 115%; mso-fareast-font-family: "Times New Roman";"><o:p></o:p></span></span><br />
<span style="font-family: Calibri;"><span style="color: #222222; font-size: 15pt; line-height: 115%; mso-ascii-font-family: Calibri; mso-bidi-font-family: Arial; mso-bidi-font-weight: bold; mso-fareast-font-family: "Times New Roman"; mso-hansi-font-family: Calibri;"><br /></span></span></div>
<span style="font-family: Georgia, "Times New Roman", serif;">Technological advancements and consumer preferences are
shifting more quickly and dramatically than ever before. As a result, companies
that hope to succeed in this new digitalized global economy need to adhere to a
business strategy that enables them to “turn on a dime” and adjust to this new
reality. If a company fails to do so, it runs the risk of going from a market
leader to laggard overnight.</span><br />
<br />
<div style="text-align: justify;">
<span style="font-family: Georgia, "Times New Roman", serif;"></span><br /></div>
<div class="MsoNormal" style="margin: 0in 0in 10pt; text-align: justify;">
<span style="font-family: Georgia, "Times New Roman", serif;">The United States economy has seen countless transformations
in the last century. Companies are typically formed on the heels of innovation,
grow into industry leaders, mature, and eventually die. This pattern has been
repeated over and over for generations, which is represented by the fact that only
one of the original twelve companies in the Dow Jones Industrial average
remains today (General Electric). Bellwethers of American business lore such as
US Steel, Woolworth, Standard Oil, and General Motors (as well as countless
others) have either befallen bankruptcy, restructurings, or have been
downsized. This turnover is natural. In fact, it is healthy in many respects.
Failure leads to growth because it opens the door for new and innovative new
businesses. However, the key difference today is that this cycle has sped up
dramatically. <o:p></o:p></span></div>
<div style="text-align: justify;">
<span style="font-family: Georgia, "Times New Roman", serif;"></span><br /></div>
<div class="MsoNormal" style="margin: 0in 0in 10pt; text-align: justify;">
<span style="font-family: Georgia, "Times New Roman", serif;">Former American business icons have fallen from glory for a
wide variety of reasons, but a major commonality was that their declines were
relatively gradual and spread over a number of years. Compared to today, technology
and consumer preferences of the 20<sup><span style="font-size: x-small;">th</span></sup> century moved at the speed of a
massive oil tanker crossing the Pacific. This enabled companies to rest on
their laurels and eventually grow to unsustainable sizes. As a result, they did
not adapt to new business environments and slowly succumbed to “deaths by a
thousand cuts”. Today, companies are still facing these daunting challenges to
adapt to new technology and consumer preferences, but in an environment that is
changing at the speed of a Porsche 911 instead of a massive oil tanker. <o:p></o:p></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhPutLgvt0luDxug83kHvAe0TdV6uLcHNR2C-gHbtV2D5JiL9LQupoeCPXU4jHs090r6ngeNY8R2YOdbGWqFwk-rCgKBALXLzpHHKGmMd_ter6uzwRjvxLg-dce7Q0-jTzLdmlRExcOLI/s1600/Barnes+and+Noble+-+Best+Buy.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: Georgia, "Times New Roman", serif;"><img border="0" height="129" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhPutLgvt0luDxug83kHvAe0TdV6uLcHNR2C-gHbtV2D5JiL9LQupoeCPXU4jHs090r6ngeNY8R2YOdbGWqFwk-rCgKBALXLzpHHKGmMd_ter6uzwRjvxLg-dce7Q0-jTzLdmlRExcOLI/s320/Barnes+and+Noble+-+Best+Buy.png" width="320" /></span></a></div>
<div class="MsoNormal" style="margin: 0in 0in 10pt; text-align: justify;">
<span style="font-family: Georgia, "Times New Roman", serif; mso-no-proof: yes;"></span><br /></div>
<div class="MsoNormal" style="margin: 0in 0in 10pt; text-align: justify;">
<span style="font-family: Georgia, "Times New Roman", serif;">Best Buy and Barnes and Noble were once considered pioneers
in their respective industries. Their business models completely shifted the
way people shopped for electronics and books. In many cases, they were regarded
as the “robber barons” of the later 1990’s putting local electronics and book
stores out of business. Now, less than a decade later, the roles have been
reversed. Googles and Amazons of the world are the robber barons and Best Buy and
Barnes and Noble are the local merchants. As a result, these former market
leaders are on the verge of obsolescence. <o:p></o:p></span></div>
<div style="text-align: justify;">
<span style="font-family: Georgia, "Times New Roman", serif;"></span><br /></div>
<div class="MsoNormal" style="margin: 0in 0in 10pt; text-align: justify;">
<span style="font-family: Georgia, "Times New Roman", serif;">How did this happen so quickly? Business shifts used to take
decades to develop. Today, it is measured in years. Both Best Buy and Barnes
and Noble got caught in a predictable bout of complacency. The former stalwarts
of electronics and bookselling were becoming overly entrenched<span style="mso-spacerun: yes;"> </span>in their “big box” models just as a consumer
revolution was taking place in the form of the internet shopping experience.<span style="mso-spacerun: yes;"> </span>This led to an increase in fixed costs,
physical footprints with long leases in too many locations, and large liabilities
on their balance sheets just as this model was becoming outdated. This strategy
has made it very difficult for the companies to shift to new business
strategies and generate new concepts. In this era of light-touch, nimble
maneuvering ability, Best Buy and Barnes and Noble backed themselves into a
corner as they pressed ahead thinking they had cornered the market instead of
building a framework for the new century. <o:p></o:p></span></div>
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<span style="font-family: Georgia, "Times New Roman", serif;"></span><br /></div>
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<span style="font-family: Georgia, "Times New Roman", serif;">Today, the two companies find themselves in a competitive
battle, so entrenched and stretched thin that they are having trouble creating
value through innovation. While Amazon has redefined the marketplace for
electronics <i style="mso-bidi-font-style: normal;">and </i>books through a light
footprint, internet-based, centralized shipping model, Best Buy and Barnes and
Noble seemed to embrace the Kim and Mauborgne “Red Ocean Strategy” of following
market innovators into highly competitive and decreasing margin businesses.
Both companies harnessed their efforts on highly competitive markets (BB in
price matching and online sales; B&N with e-reader and tablet focus) where
they are being subjected to price wars due to the relatively homogenous array
of products in the space. <o:p></o:p></span></div>
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<span style="font-family: Georgia, "Times New Roman", serif; mso-no-proof: yes;"></span><br />
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<span style="mso-no-proof: yes;"></span><br />
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<span style="mso-no-proof: yes;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZq7vscXnjByTfEUJhCdojOowJ_YjK7peelkO-uLwzhIaxk77Co0qgx-cbrVlfYmlXom4QPPge3LX1SacW7D_m0TXfzmdlWoSaOMpotb62kwUSk3wJ9AAaboZ2ili-8hf0D23w5tFzurs/s1600/Red+Blue+Ocean.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><span style="font-family: Georgia, "Times New Roman", serif;"><img border="0" height="240" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhZq7vscXnjByTfEUJhCdojOowJ_YjK7peelkO-uLwzhIaxk77Co0qgx-cbrVlfYmlXom4QPPge3LX1SacW7D_m0TXfzmdlWoSaOMpotb62kwUSk3wJ9AAaboZ2ili-8hf0D23w5tFzurs/s320/Red+Blue+Ocean.jpg" width="320" /></span></a></span></div>
<span style="mso-no-proof: yes;">
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<span style="font-family: Georgia, "Times New Roman", serif;"></span><br /></div>
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</span></span><span style="font-family: Georgia, "Times New Roman", serif;"></span><br />
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<span style="font-family: Calibri;"><span style="font-family: Georgia, "Times New Roman", serif;">Instead, leaders of Best Buy and Barnes and Noble should be
looking towards “Blue Ocean” opportunities for alternative products,
industries, and new customers. After spending years getting attacked from all
sides, the two companies should pursue products and services that will redefine
the industry and make competition irrelevant. This is asking a lot, but if they
are successful, they could see a return to glory. If not, they will soon go the
way of Circuit City and Borders.</span> <o:p></o:p></span></div>
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Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com0tag:blogger.com,1999:blog-7480885871336192780.post-74928237341269988382012-10-10T14:02:00.000-07:002012-10-12T08:25:27.511-07:00<br />
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<b><u><span style="font-size: 24.0pt;"><span style="font-family: Georgia, Times New Roman, serif;">Leadership
in a Globalized Economy<o:p></o:p></span></span></u></b></div>
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<b><span style="font-size: 15.0pt;"><span style="font-family: Georgia, Times New Roman, serif;">Emergence
from the Silos</span></span></b></div>
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<span style="font-size: 8.0pt;"><span style="font-family: Georgia, Times New Roman, serif;">October 2012<o:p></o:p></span></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">We are approaching a period of
time that the world has never seen before. With technology speeding the process
of globalization dramatically, we are essentially on the verge of a “clash of
civilizations”. Countries throughout the world are opening up (or being forced
to open) their borders to an unprecedented flow of capital, ideas, products,
and people. Corporations can access markets once regarded as impenetrable,
countries are engaging in trade that blurs channels of commerce, information
exchanging between citizens is as easy as signing on to the internet. On the
flip side, this hastily increased degree of communication has led to conflict:
the Arab Spring, riots throughout Europe due to austerity, Occupy Wall Street
vs. Tea Party movements, Chinese pirating of American products, but that is
just the tip of the iceberg. The dynamic that will lead us through this rapidly
changing environment is not the newest technology, or a newly integrated trade
channel, or a dramatic shift in communication. The solution is much simpler and
may be the first indication of where to look for investment opportunities.
Leaders with a broad scope of understanding, ability to think steps ahead, and
ability to reach across disciplines are needed more than ever. When these types
of leaders emerge, their nations and companies will be the catalysts for a
transformational global economy centered around interconnected lines of
commerce. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span>
<span style="font-family: Georgia, Times New Roman, serif;">Too often we think of leaders in
“silos”, focused solely on their respective institutions. Whether this refers
to corporations or governments, leaders going forward must look beyond their
specified areas of interest. There is simply too much overlap between the
various disciplines. For society and the global economy to sustain the progress
we have seen and not retrench through tariffs, over-regulation, or restrictive
business practices, leaders who are willing to move beyond their silos must
emerge. </span><o:p></o:p></div>
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<span style="font-family: Georgia, Times New Roman, serif;">Recent events suggest that major
mistakes are being made on a global level based on assumptions made on faulty
data or ignorance. To name a few: (1)
Assuming the Germans would just bail out the Greeks because it made the most
economic sense is naïve because it ignores the countless cultural and
historical underpinnings that the two countries have endured; it runs as deep
as Greeks claiming that much of their current debts should be forgiven due to
the fact that the Germans still owe them 75 billion euros worth of gold they
stole during WWII and for murdering countless Greeks (Thomas, David. Festering
Anger, Nazi war crimes and the 60bn pounds the Greeks believe the Germans owe
them. UK Daily Mail. 11/2/2011. <a href="http://www.dailymail.co.uk/news/article-2056400/Greece-debt-crisis-Greeks-believe-Germans-owe-60bn.html">http://www.dailymail.co.uk/news/article-2056400/Greece-debt-crisis-Greeks-believe-Germans-owe-60bn.html</a>.)
(2) Expecting the Chinese consumer to <i>quickly</i>
pick up the slack of a slowing economy and sagging export market despite a past
filled with government takeovers, lack of protection for personal property, and
socialist intentions. (3) Enacting the same governmental and business policy
that we practice in the U.S. to the Middle East; the environment is extremely
different due to religious implications and cultural rigidity. Simply believing
that women should have the same rights as men is one thing, but attempting to
force similar compliance on other countries is a very different story. There are
countless other examples, but the key takeaway is that business and
governmental decisions must incorporate a much deeper subset of considerations.
Decisions that used to have one or two “implication tracks” now have three to
four times that. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">In just the next few months, this
axiom will be tested. The United States elections are looming in November and
the outcome could very well determine the path this country takes. Tax issues
and a “fiscal cliff” have raised issues regarding class division, the U.S.’s
role in the world, and the role that the government should play in Americans' lives. The country is as polarized as it has been in generations with no
apparent end in sight. Americans seem to be craving for some sort of middle ground,
but so long as our elected politicians require the uncompromised support of the
far wings of the parties, the more difficult it will be to reach middle ground.
This makes it very difficult for corporations and their leaders to make the
decisions for the future of their firms. J.P. Morgan reports that 61% of
American clients say the fiscal cliff is affecting their hiring plans. That is
one reason why unemployment is so high. Durable goods orders plunged 13.2% in
August, partly because companies are too scared to invest their cash mountains
to expand production<a href="file:///C:/Users/LamadeE13/Documents/Articles/Blogs/October%202012%20-%20Silos%20and%20the%20Clash%20of%20Civilizations.docx#_ftn1" name="_ftnref1" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 11pt; line-height: 115%;">[1]</span></span><!--[endif]--></span></a>
(Economist, <i>Business and America’s Fiscal
Cliff: Give us a brake</i>, Oct 6-12, 73.) <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">Regardless of who wins the election, I believe a shifting to
the center is inevitable. The American electorate is tired of Congress inaction
and business leaders <i>need</i> certainty. Perpetual
gridlock and polarizing political conflict is not sustainable, especially when
the can that’s been kicked down the road has no more room to run. Despite the
inaction of the past two years, I believe that this is about to change due to
the action forced by the pending “fiscal cliff”. President Obama must reach
across the aisle if he wants his any productivity in a second term and, despite
his rhetoric in the Republican primary, Mitt Romney is at heart a moderate Republican whose “true colors” have been showing in recent weeks. Either way, both men have
to be aware of the consequences to the country and their presidencies if the
aisle is not crossed. <i>(Update: see this article from cnbc.com regarding other leaders who will influence the "fiscal cliff" <o:p></o:p></i></span><span style="font-family: Georgia, Times New Roman, serif;"><i><a href="http://www.cnbc.com/id/49378389">http://www.cnbc.com/id/49378389</a>).</i></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">In China, the question of whether an economy of its size can
be sustained under the thumb of a state-dominated structure with state-sponsored-entities
driving much of the growth has not been answered. Is consumption something the
Chinese citizenry ready for and, if so, what will their preferences be? Has the
massive capital accumulation led to a mis/overinvestment causing a massive
bubble or has it set the stages and built the infrastructure needed to become a
sustainable world power? The difficult part about these considerations is that
two are seemingly at odds. Investment is made out of saving, which requires
consumption to be deferred. The returns to investment must be set against the
disadvantage of having to wait. In more complicated economies, households must
save so that entrepreneurs can invest.
In most economies, people’s saving is voluntary, but China has found a
way of imposing the patience its high investment rate requires <a href="file:///C:/Users/LamadeE13/Documents/Articles/Blogs/October%202012%20-%20Silos%20and%20the%20Clash%20of%20Civilizations.docx#_ftn2" name="_ftnref2" title=""><span class="MsoFootnoteReference"><!--[if !supportFootnotes]--><span class="MsoFootnoteReference"><span style="font-size: 11pt; line-height: 115%;">[2]</span></span><!--[endif]--></span></a>
(Economist, <i>Special Report – China’s
Economy: Prudence without a Purpose</i>. May 26 – June 1, 8). Is this
sustainable? I do not believe it is.<o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">If China wants to build a
sustainable economy and challenge the United States as the dominant global
economic power, it needs leaders who promote transparency and growth from the
private sector. Historically, state controlled economies can succeed as long as
the economy is driven by exports, but transitioning to one that can turn inward
and lean on domestic consumption can be very difficult. This is where
technology and the speed of communication are game changers because if China’s
new leadership wants to continue China’s ascent, they must realize that
clamping down on citizens and this proliferation of information is nearly
impossible. The Kremlin was able to clamp down on the inflow of information in
the Cold War because communist leaders did not have to deal with today’s “information
glut”. Chinese leaders do not have that same luxury. </span><o:p></o:p></div>
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<img height="224" src="http://tealeafnation.com/wp-content/uploads/2012/09/Reform.jpeg" width="320" /></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
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<br />
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<span style="font-family: Georgia, Times New Roman, serif;">The Middle East is a part of the
world that has been supplying the rest of the world the energy needed to
advance society, but for the most part, has wallowed in stagnation. There are a
number of reasons for this: men such as Moammar Khadafy and Saddam Hussein ran
their countries as brutal dictators, religious beliefs that often condemn the
forces of capitalism are pervasive, economies tend to be overly dependent on a
single commodity, vast parts of land are uninhabitable, and many nations have a
history of international powers imposing their will inside their borders have
made it very difficult to gain a footing in the world economy beyond being the
largest exporter of oil. There is a vast, yet extremely difficult opportunity
here in the untapped human capital resource that the Middle East possesses. The
problem is that it is a very explosive region with a stick of dynamite in the
form of the “Israel Question” situation positioned right in the middle of it.
The Arab Spring demonstrated that there is a demand for sort degree of freedom
and democracy in the region. Technology like Twitter and Facebook opened up
channels of communication never see before and furthered causes much faster and
decisively than ever in the Middle East. The issue now is technology got the
ball rolling, but leaders both in the region and internationally must now take
the reins for this to be a success story and not a quagmire. </span><o:p></o:p></div>
</div>
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<img height="197" src="http://www.sexysocialmedia.com/wp-content/uploads/2009/06/revtweet.jpg" width="320" /></div>
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<span style="font-family: Georgia, Times New Roman, serif;">The Middle East is an incredibly difficult
area to invest in, but is a region that needs to be understood because it’s
effects impact investing everywhere else in the world. I am incredibly
concerned about the Iranian situation, both in regards to its nuclear program
and to Israel. Dictator-led countries, despite the atrocities they committed, provided
a counterbalance to Iranian power. Now that many of these dictators have been
overthrown, Iran has emerged as the most powerful actor in the region and as
long as Iranian president Ahmadinejad is in power, this will be an ongoing concern. If these developments continue, it should be a catalyst
going forward for strategic defense companies and energy producers in safer
parts of the world, but pose a major risk to major multinational corporations and markets across the globe. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<span style="font-family: Georgia, Times New Roman, serif;">Technology can only take us so
far. Machines have proven to do a lot for humans to speed up the process of
manufacturing, communications, and services, but they can do very little when
it comes to leading. Leadership styles and methods will come into conflict if a
“G-Zero World”, as Ian Bremmer describes it, emerges. Will countries agree that
a global economy is the best path forward or will we see a return to hegemonic
rule where nations retreat to within their borders? Only time will tell, but
leaders will dictate the path and provide channels to attract capital. </span><o:p></o:p></div>
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Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com0tag:blogger.com,1999:blog-7480885871336192780.post-41534465090437861022012-10-03T10:39:00.000-07:002012-10-10T14:04:02.771-07:00<br />
<div align="center" class="MsoNoSpacing" style="text-align: center;">
<b><u><span style="font-family: Georgia, Times New Roman, serif; font-size: x-large;">The “A’ha!”
Moment<o:p></o:p></span></u></b></div>
<div align="center" class="MsoNoSpacing" style="text-align: center;">
<span style="font-family: Georgia, Times New Roman, serif;"><span style="font-size: large;">How to think
about Investing in this Global Economy</span><span style="font-size: 15pt; font-weight: bold;"><o:p></o:p></span></span></div>
<div align="center" class="MsoNoSpacing" style="text-align: center;">
<span style="font-family: Georgia, Times New Roman, serif;">October 2012<o:p></o:p></span></div>
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<br /></div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">I had an “A’ha!”
moment last spring when I spent a few hours listening to John Griffin (Blue
Ridge Capital founder and former Tiger Cub), Rick Gerson (founder of Falcon
Edge Capital and Griffin’s protégé), and Michelle Kelner (portfolio strategist
at Prince Street Capital) at the McIntire School of Commerce’s Spring Investing
Symposium (try saying that quickly ten times). While in Old Cabell Hall at the
end of the UVA lawn, I was frantically jotting down notes while trying to digest
their comments. I recently reviewed my notes and noticed three highlighted quotes
that applied directly to how we should be looking at the markets right now,
especially business school students.</span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal" style="margin: 0in 0in 0.0001pt 27pt; vertical-align: middle;">
<span style="font-family: Georgia, Times New Roman, serif;">"You make the most money when things go from <i>really </i>bad to just bad" – Rick Gerson<o:p></o:p></span></div>
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<br /></div>
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<span style="font-family: Georgia, Times New Roman, serif;">“For Emerging Markets investing, you need to have direct information: visit the countries, read the local newspapers, check out local company websites, read local blogs.”<span class="msoDel"><del cite="mailto:Lamade,%20Edward" datetime="2012-05-01T10:06"> </del></span>– Michelle Kelner<o:p></o:p></span></div>
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<br /></div>
<div class="MsoNormal" style="margin: 0in 0in 0.0001pt 27pt; vertical-align: middle;">
<span style="font-family: Georgia, Times New Roman, serif;">“Be optimistic and don’t listen to the naysayers….the US and global economy has been through worse. Investing timidly will only lead to missed opportunities. Also, for perspective, Greece's GDP is the equivalent of Oregon's GDP” – John Griffin<o:p></o:p></span></div>
<div class="MsoNormal" style="margin-bottom: 0.0001pt; vertical-align: middle;">
<br /></div>
<div style="text-align: justify;">
<span style="font-family: Georgia, 'Times New Roman', serif;">In today’s markets, despite the apparent risks in investing globally, we cannot simply look stateside for opportunities, especially during the most uncertain and volatile times. Why? For one thing, you are closing yourself off to endless opportunities to invest in countries with better growth</span><span style="font-family: Georgia, 'Times New Roman', serif;"> </span><span style="font-family: Georgia, 'Times New Roman', serif;">prospects, natural
resource opportunities, liberalizing financial markets, and stronger
demographics. It would be like a Virginian saying in the mid-1800’s that they
would only invest in the Commonwealth despite the opportunities that the
transcontinental railroad was opening up out west because of the “vast dangers”
in this “ uncharted territory”.</span></div>
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<br /></div>
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<img height="213" src="http://news.stanford.edu/news/2012/september/images/railroad_toc.jpg" width="320" /></div>
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<br /></div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">When investments
“at home” stabilize and yields compress like they have in the US, investors should
scour the world for investments that are “dangerous” or appear to be going
badly, analyze the catalysts that would stabilize the situation, and strategically
invest in assets that will benefit from a reversion to the mean. As Gerson
said, profitable ventures or investments may not even need a full recovery.
With dislocations becoming more common and dramatic, even a partial recovery
might suffice. <o:p></o:p></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
<div class="MsoNormal">
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">So how do
you identify these opportunities? You can read all the <i>Economist </i>and <i>Wall Street
Journal </i>articles you want, but that is just running with the herd. Real
alpha generation comes from a much more “local” approach. As Kelner advocates,
read local newspapers and blogs, peruse trade journals, and check out local
company websites. The internet has given us access to these types of resources
like never imagined. However, these avenues are just the beginning. To really
get a true understanding for investing abroad, you have to see it with your own
two eyes. It is the only way to form an original investment thesis. If you don’t
form this perspective, how can you really tell whether the ECB and the European
Union are making progress on a solution for their debt troubles without speaking
to people on the ground? How can you grasp what the slowdown in Australian
mining and natural resource exploration is like without seeing it? How can you deem
the Chinese real estate investment as a bubble without observing the population
dynamics and current living situations? <o:p></o:p></span></div>
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<img height="240" src="http://www.bullionstreet.com/uploads/news/2011/11/1321941416.jpg" width="320" /></div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">I do not
have the financial backing of a parent corporation or an endowment or a hedge
fund. In fact, as a debt-burdened business school student, I am the exact
opposite. However, I know that I need a glance into these local cultures,
cities, and economies so I am stretching the budget a little bit more and
heading over to see parts of Asia and Europe in the spring, but this is just a
start. <o:p></o:p></span></div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">Towards the
end of the symposium, John Griffin, who was moderating the discussion, made a
plea. It was almost as if he was tired of leading the discussion instead of
dictating it. He commented on something that almost always goes unsaid, “Be
optimistic. Don’t listen to the naysayers. The US economy has been through
worse”. It is a simple concept, but one that should reverberate to any young
investor. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">I mention a
lot about history in this blog, but here it is again. Why should the satirical
rhetoric towards “This Time is Different” only apply to manias and upside momentum?
If it is true that this time is <i>never </i>different,
why not adhere to the philosophy that every downturn is followed by an eventual
upturn. Human nature is to be overly optimistic in good times and perpetually
negative in bad times. The best investors, like Griffin and his mentor Julian
Robertson, don’t listen to the naysayers. They scour the globe and invest when
they have conviction, even in the darkest markets. Why should the rest of us be
any different? </span></div>
</div>
Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com0tag:blogger.com,1999:blog-7480885871336192780.post-90271690249412325582012-09-28T08:27:00.000-07:002012-10-10T14:04:45.849-07:00<br />
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<br />
<br />
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<b><u><span style="font-size: 24.0pt;">The Wave
of Liquidity<o:p></o:p></span></u></b></div>
<div align="center" class="MsoNoSpacing" style="text-align: center;">
<b><span style="font-size: 15.0pt;">Where we are
and Where we are Headed<o:p></o:p></span></b></div>
<div align="center" class="MsoNoSpacing" style="text-align: center;">
<span style="font-size: 15.0pt;">September 2012<o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">Think of the current state of the economy as a surfer
riding the lower rung of a massive wave. The wave keeps growing, but unfortunately
for the surfer, the crest of the wave just keeps getting further out of reach.
The surfer cannot rise with the wave because something is holding him back. <o:p></o:p></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">As you can
guess, the wave is the liquidity that the Federal Reserve has been providing in
the form of historically low interest rates and quantitative easing programs;
the weight holding the surfer down is the fiscal drag and uncertainty provided
by a gridlocked Congress. The next four months will be very telling as to
whether the surfer can unshackle the fiscal drag and rise to the top. Although
we will see some bumps along the way and volatile periods in the markets, I believe
a solution sewn from compromise is very possible.</span></div>
</div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><img alt="Surfer Under Wave" height="240" src="http://www.freebestwallpapers.info/bulkupload//02082011/6//Sports/Surfer-Under-Wave.jpg" width="320" />
</span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">The Federal
Reserve has been put in a very precarious position because it is <i>required</i> within its mandate to keep
inflation in check while striving to achieve full employment (sub 5%
unemployment). Today, as globalization has progressed and created a massive
savings glut, inflation has fallen to decades-long lows. With the massive
deleveraging that is taking place across the globe, <i>deflation</i> has become the bigger threat. As a result, the Fed has
flooded the markets with excess liquidity in order to fill the gap and stem
these deflationary pressures. Many argue how effective (or ineffective) the Fed’s
actions have been, but it is difficult to dispute that the Fed’s aggressive
actions helped avert another Great Depression and has put the economy in a
position to eventually recover. The Fed has shown through multiple quantitative
easing programs and in statements like Bernanke’s at Jackson Hole that it is
willing to continually support the recovery to whatever extent necessary. The problem
is, it can only do so much. It is now up to either President Obama or
Republican nominee Mitt Romney to lead an increasingly partisan Congress to
pass bipartisan legislation in 2013 that will shed the fiscal drags holding the
economy back and make this a true recovery instead of a stimulus led one. <o:p></o:p></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span></div>
<span style="font-family: Georgia, Times New Roman, serif;"><div style="text-align: justify;">
Believe it
or not, the combination of Federal Reserve liquidity and fiscal cliff uncertainty
present an opportunity. Ironically, the opportunity is the chance to establish
some certainty. How so? Clearly there will need to be compromise with regards
to federal spending and taxes. Cutting federal spending has been a non-starter
for the Democrats, while tax hikes have been the same issue for the
Republicans. With 2013 around the corner, the fiscal cliff will simply not
allow the two sides to bury deeper and continue on this path of trench warfare.
With mandatory cuts to spending coming down the pipe to the tune of $607bn (4%
of GDP) and revenue generation needed to close the budget deficit gap, a
meeting point that establishes a long term plan for reform is the only way true
reform will take place. Otherwise, if nothing is done, the American economy
will immediately be thrown back into recession. We could be facing an immediate
negative GDP number in the first half of 2013 according to the Congressional Budget
Office. If the recovery is thrown off track because of political wrangling, it
is a safe bet to assume that the politicians who win in November will have a
very short tenure in Washington. Either way, the first step to compromise will
have to come from the Oval Office and both Obama and Romney will have
incentives to make this happen.</div>
<o:p></o:p></span></div>
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<br />
<div style="text-align: justify;">
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span></div>
<span style="font-family: Georgia, Times New Roman, serif;"><div style="text-align: justify;">
For Obama,
no matter where you stand on the political spectrum, it is nearly impossible to
argue that his presidency has had any “Ronald Reagan-Tip O’Neil moments of
compromise”. As a result, the only meaningful agenda we saw in the past four
years came during the first half of his administration when the Democrats had
full control over the House and Senate. With this unlikely to occur again this
time around, if Obama wants his Presidency to have a more lasting legacy, he
will have to come to the middle and lead the parties to compromise instead of being
a passive observer.</div>
<o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<span style="font-family: Georgia, Times New Roman, serif;"><img height="213" src="http://www.clotureclub.com/wp-content/uploads/2011/03/reagan.jpg" width="320" />
</span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">Presidents
are inevitably concerned about their legacy and Obama is no different. If his
first term is remembered as one of inaction and his second as being the
catalyst for a double dip recession, he could go down in history as a “two-term
Jimmy Carter”. Instead, if after being regarded by many as one of the most
liberal presidents ever to take office, he can pull the two sides together and
achieve a compromise that establishes a path forward that allows the economy to
slowly ride the wave of liquidity higher, his legacy will be all but secured.
If however he does not, his legacy will not be the only thing that will be
tarnished….we could all be in a world of hurt. <o:p></o:p></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, 'Times New Roman', serif;"><br /></span></div>
<span style="font-family: Georgia, Times New Roman, serif;"><div style="text-align: justify;">
Romney is a
bit more difficult to read, but if you really cut through the political
wrangling and posturing, he appears to be a moderate at heart. In fact, if you’ve
ever watched him defend his “staunch conservative beliefs”, you immediately
want to cringe. It is the same feeling you get when you watch Tom Cruise jump
up on Oprah’s couch. Romney, appears to be fiscally conservative, but open to
compromise because he is a moderate on other issues. What defines him and what
gives me hope that he can bring the parties together is that prior to running
for president, he was willing to give some ground on both issues. A tried and
true right wing conservative could not have won the governorship of
Massachusetts where he spearheaded the well-known health care laws and rose
revenues by raising some state fees. In addition, he has stated that he believes
climate change has some legitimacy, seems to have shifted towards the pro-life
stance due to a need to cater to the right-wing of his party, and maybe most
importantly has recently backed away from the Republican “tax cutting”
rhetoric. All in all, I believe that if Romney were elected he would shift back
to the middle. He is a former business leader who knew that to get things done,
you have to make compromises; if you don’t, deals will not get done and money
will not be made.</div>
<o:p></o:p></span><br />
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div align="center" class="MsoNormal" style="text-align: center;">
<span style="font-family: Georgia, Times New Roman, serif;"><img height="172" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiP6edTJi5viMSgzIKR-J5h8LWlZ4qaTeUu93ZUsKHEwtKoSllaPetIJR48JlwwDOhXQyOHsdc4xliD7lG8qYr3V-j1weCliuBpLagjpwlZVfa-m8cP9D9EKVFsLSIPeIXGUOO-1-G3Wy4/s320/Obama_Romney.jpg" width="320" />
</span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNormal">
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">The good
news is there is room for compromise. While immediate cuts would force the
economy immediately back into recession and too gradual action will allow for
an unsustainable growth in government debt, progress towards a “hybrid” course of
action very likely would be enough to show investors that America has the
ability and the will to make serious strides towards ensuring its economic
future. The country, as well as the two presidential candidates, has too much at
stake to not. <o:p></o:p></span></div>
</div>
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<br /></div>
Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com1tag:blogger.com,1999:blog-7480885871336192780.post-30845304395749664462012-09-21T09:53:00.001-07:002012-10-10T14:15:59.036-07:00<div class="separator" style="clear: both; text-align: center;">
</div>
<div style="margin-left: 1em; margin-right: 1em;">
</div>
<div align="center" class="MsoNoSpacing" style="text-align: center;">
<b><u><span style="font-size: 15.0pt;">ECONOMIC
SWINGS and QUANTITATIVE EASING<o:p></o:p></span></u></b></div>
<div align="center" class="MsoNoSpacing" style="text-align: center;">
<b><span style="font-size: 15.0pt;">Uncharted Territory<o:p></o:p></span></b></div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">Life is all about swings. No…not the swings we grow up on
playgrounds, or the rope swings that drop us into rivers, or mood swings. I am
referring to swings in human sentiment; the types of swings that shift dramatically
at the drop of a hat and are the reason why the markets become irrational, both
on the upside and downside. <o:p></o:p></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">In the past five years, we have seen dramatic swings that
have caused significant bouts of volatility as the global markets make their
way through the most dramatic deleveraging since the Great Depression. As a result,
the labor, housing, energy, and sovereign debt markets have all been called
into question. What’s even more difficult to understand is how they have shifted
so dramatically from one extreme to the other. One day its “doom and gloom”,
the next its all “peaches and cream”. The experts and pundits have all rolled
out various explanations, but their metamorphoses are hard to understand. <o:p></o:p></span></div>
</div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div style="text-align: center;">
<span style="font-family: Georgia, Times New Roman, serif;"><img height="257" src="http://www.cartoonstock.com/lowres/jmo0142l.jpg" width="320" /></span></div>
<div class="MsoNormal" style="text-align: center;">
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">Don’t believe me? How did the United State go from being
subject to the mercy of OPEC and the oil cartel to all of a sudden becoming an
energy exporter flush with natural gas and hidden oil reserves accessible by a
new extraction technology known as fracking? Why do we hear one day about the
possibility of a tiny European country (with a GDP equivalent to the state of
Oregon) taking down the entire global economy to, days later, hearing that a
solution is at hand and the euro will be preserved? Or…why do markets tank at
the news that a tsunami has destroyed much of Japan’s productive capacity only
to see markets rebound as the Japanese people display their incredible
resiliency and begin to rebuild? I think a large part of the reason is due to human
nature. Humans overreact to negative news , but more often, respond dramatically
well to the daunting challenges that surround us. <o:p></o:p></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
<div class="MsoNormal" style="text-align: left;">
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">The question now is where does the “human nature” factor
weigh in and what is the next pendulum to swing? It is difficult to argue
against the fact that investor sentiment seems to have settled into a period of
complacency as the stock market has risen close to 10% over the summer in the
face of continuing troubles in Europe, a slowdown in emerging markets, stagnating
U.S. data, and the pending “fiscal cliff”. With so much uncertainty, I am
concerned that QE3 is in large part to blame. <o:p></o:p></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">It is certainly a little counterintuitive to think of a
rising stock market as “blameworthy”, but in the longer term view, it is. A
stock market that rises on increasing profits from higher productivity or
organic growth or technological advancement or a whole other host of
explanations that shift the spectrum of business advancement, is clearly
positive. On the flip side, one that rises on increasing margins by cost
cutting and is then boosted due to a perceived “Central Bank Backstop” is unsustainable.
In the absence of real reform, we are seeing this phenomenon as the Federal
Reserve attempts to fulfill the employment part of its mandate by attempting to
alleviate the pain of the deleveraging cycle. As Henry McVey, head of KKR’s Global Macro
& Asset Allocation team said in his recent <i>Insights </i>report, <o:p></o:p></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">History suggests that
governments have several options for attacking excessive debt loads. One option
is to significantly raise government revenues through higher taxes; the other
is to cut social benefits. However, neither seems particularly popular in a
slow-growing economy and demographic environment in which a new baby-boomer
turns 65 every 8 seconds. A <i>third</i>
alternative, which the government is currently pursuing and is almost <i>always</i> inflationary in nature, is to
hold interest rates down and do whatever it can to get nominal GDP growth above
nominal interest rates in order to reduce the debt burner over time. <o:p></o:p></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
<div class="MsoNormal" style="text-align: left;">
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">With Congress being incapable or unwilling to use either of
the first two levers, the Federal Reserve has leaned very aggressively on the
third lever and recently instituted QE3. Now it is hard to imagine that the
specific process of bond buying or anticipation of bond buying that QE3 entails
is directly responsible for the stock market rally. How much lower can interest
rates go? Instead, I believe that with each subsequent announcement of
quantitative easing and the comments from Chairman Bernanke that go along with
them, we see a further combination of complacency and euphoria from equity
investors. Why you ask? Because with each QE announcement, the Fed’s “support
at all costs” becomes more firmly implanted. The most concerning aspect is that
even the Fed is unsure what the consequences might be. Is the Fed just pushing people
into risky investments that appear safe to the untrained eye? Are we simply
putting off the pain that deleveragings entail for another day or generation?
What are the long term consequences of avoiding short term pain? If you read
Bernanke’s own words at Jackson Hole, it appears he doesn’t even know. <o:p></o:p></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">As the Committee embarked on
this path, we were guided by some general principles and some insightful
academic work but--with the important exception of the Japanese case--limited
historical experience. As a result, central bankers in the United States, and
those in other advanced economies facing similar problems, have been in the
process of learning by doing. <o:p></o:p></span></div>
</div>
<div class="MsoNoSpacing" style="margin-left: 0.5in; text-align: left;">
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">(<i>Monetary Policy since the Onset of the Crisis</i>, Chairman Ben S.
Bernanke at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson
Hole, Wyoming, August 31, 2012)<o:p></o:p></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">“Learning by doing”? With trillions of dollars and the
global economy at stake, I am not sure I love this approach and fear the swing might come off its hinges. <o:p></o:p></span></div>
</div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
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<div style="text-align: center;">
<span style="font-family: Georgia, Times New Roman, serif;"><img height="320" src="http://www.infiniteunknown.net/wp-content/uploads/2009/12/helicopterben.jpg" width="242" />
</span></div>
</div>
<span style="font-family: inherit;"><br /></span>
Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com2tag:blogger.com,1999:blog-7480885871336192780.post-57599942719845834042012-09-13T10:27:00.002-07:002012-10-10T14:16:35.134-07:00<br />
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</div>
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<b><u><span style="font-size: 24.0pt;">European
Fallout: </span></u></b></div>
<div align="center" class="MsoNoSpacing" style="text-align: center;">
<b><u><span style="font-size: 24.0pt;">Unify or Splinter</span></u></b></div>
<div align="center" class="MsoNoSpacing" style="text-align: center;">
<b><span style="font-size: 20.0pt;">Lessons from
our Founding Fathers<o:p></o:p></span></b></div>
<div align="center" class="MsoNoSpacing" style="text-align: center;">
<br /></div>
<div class="MsoNoSpacing">
<br /></div>
<div class="MsoNoSpacing">
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">Many
pundits have claimed in recent months that the European Union is bound to fail
because the member countries will never choose a <i>union</i> over their specific <i>nation</i>.
In fact, many defenders of this hypothesis believe that the E.U. was doomed
from inception due to the fact that it was purely monetary and not fiscal in
nature. The premise is based around the belief that human history has rarely,
if ever, seen a group of individual states put aside their differences and
agree to unite under a common federal government for the future prosperity of
all. There are simply too many competing interests: culturally,
demographically, and in regards to a nation or state’s sovereign independence.
It is hard to debate the significance of these challenges, but the argument
that these types of challenges cannot be overcome is overblown. All you have to
do is take a look back two hundred years at the formation of the United States
(<i>specifically read “Founding Brothers” by
Joseph Ellis). </i><o:p></o:p></span></div>
<span style="font-family: Georgia, Times New Roman, serif;"><i><br /></i></span>
<br />
<div style="text-align: center;">
<img height="224" src="http://adamthinks.com/wp-content/uploads/2009/12/founding-fathers-soda-vs-pop.jpg" width="320" />
</div>
</div>
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<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
<div class="MsoNoSpacing">
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">In 1790,
renowned Federalist Alexander Hamilton’s proposed a plan to have the federal
government assume the debts that states had built up during the Revolutionary
War. His goal was to shore up their balance sheets and bring the 13 states under
the federal government umbrella. Predictably, this plan met substantial
resistance from some and ardent support from others. The states that had piled
up debt, but were cash strapped due to the inability to raise funds, welcomed
the concept of Assumption. On the flip side, the states that had paid off the
bulk of their wartime debt were opposed. For these perceived “responsible”
states, Hamilton’s proposal did them a perceived injustice by “compelling them,
after having done their duty, to contribute to those states who have not
equally done their duty” (Founding Brothers, 57). States like Virginia, which
had made considerable strides to pay down their debt, felt that they had stayed
the course and were now being punished for it. Why were the rules changing all
of a sudden to accommodate those who failed to do so? <o:p></o:p></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
<div class="MsoNoSpacing">
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">This was,
however, not purely financial dispute. It also had a lot to do with power. Many
states felt that the power to govern themselves was under fire. The perception
was that “under the guise of doing the states a favor by assuming their debts,
the federal government was implicitly, even covertly, assuming sovereign
authority over the economies of all of the states”. James Madison, representing
the state of Virginia, said “in short, Virginia was being asked to trust its
fate to the collective wisdom and virtue of the central government”. When
Madison later softened on the idea of Assumption, his loyalty was questioned,
“How do you feel? Is your love for the constitution so ardent that it should
produce ruin to your native country?” By ‘native country’, the questioner meant
Virginia “(FB, 58). <o:p></o:p></span></div>
</div>
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<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;"><br /></span></div>
</div>
<div class="MsoNoSpacing">
<div style="text-align: justify;">
<span style="font-family: Georgia, Times New Roman, serif;">To top
it off, Madison, typically a calming force in politics, was also getting chastised
by <i>northern</i> state politicians for
risking the future of the republic by <i>not</i>
advancing Hamilton’s legislation. If there was ever an apparent lose-lose in
terms of partisan politics and is the fate of the union’s future, this was it. <o:p></o:p></span></div>
</div>
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<span style="font-family: Georgia, Times New Roman, serif;">This
sounds eerily familiar doesn’t it? If you read those previous paragraphs again
and compare the states like Virginia to Germany, the states who were cash
strapped to the PIGS (Portugal, Italy, Greece, and Spain…I’ve removed Ireland
from the original PIIGS), and the <i>northern
</i>state politicians to the “Monday Morning Political/Economist Quarterbacks”
who are questioning every decision that does not move closer to united Europe,
a clearer picture develops: maybe we have seen this before. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">Hamilton’s
dedication to a centralized solution to the fiscal problems facing the new
government emerged out of his frustrating experience with the inadequate and
hopelessly divided authority of the Confederation government in 1780’s. His
goal in 1790 was to unravel, then place the United States’ tangled mess of
foreign and domestic debt on firm financial footing by restoring public credit
(FB, 61). It took time and persistent negotiations both in public and
behind-the-scenes, but cooler heads eventually prevailed. The Founding Fathers
reached a number of compromises (such as moving the capital to Washington DC
and kicking the can down the road by delaying confronting the issue of the
slave trade for twenty years) that set in motion the establishment of a union
while maintaining strong state rights. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">Today,
we see Mario Draghi and the ECB, under the presumed strict watch of the leaders
of the Bundesbank, attempting to do something very similar to what Alexander
Hamilton attempted to do in 1790. Draghi and company are attempting to hold
together a fragile union that currently possesses very little allegiances. As
evidenced by the American episode over 200 years ago, it will require leaders
of substantial intelligence, foresight, and understanding to avert a possible
crisis. They will need to balance the same sort of “federalist” intentions of a
stronger central government with the “republican” intentions for maintaining
the power at the state (nation) level. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">The
creation of the European Union and the euro was a huge leap for the European
continent. After generations of conflict and strife, the goal was to unify a
continent by encouraging better relations and increasing channels of commerce. Despite
the positives that have coincided with its creation, the argument for
dissolution will inevitably continue, especially emanating from the masses.
However, I would argue that there recent events and this close parallel to the
U.S. experience provide hope that leaders like Draghi and the technocrats who
have replaced corrupt officials like Berlusconi continue to make progress and
eventually bring the union together much like the American founding fathers
did. The risk however is, in the words of George Washington speaking to Congress
in 1778, “It is a maxim founded on the universal experience of mankind, which
no nation is to be trusted father than it is bound by its interest; and no
prudent statesman or politician will venture to depart from it.” Will the
European Union emerge as a national union or continue to fragment into a
collection of national interests bound by a common currency? The answer may
determine Europe and the global economies fate for the foreseeable future. </span><span style="font-family: Book Antiqua, serif;"><o:p></o:p></span></div>
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Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com0tag:blogger.com,1999:blog-7480885871336192780.post-29846371589025075422012-07-31T19:02:00.000-07:002012-10-10T14:17:47.840-07:00<br />
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<span style="font-family: Georgia, Times New Roman, serif;">August 2012</span><br />
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<span style="font-family: Georgia, Times New Roman, serif;">Being a history and international affairs major, I found myself battling an uphill battle over the past 7 years navigating the world of interest rates and credit bonds. Every time I thought I had grasped a complicated concept like the duration of high coupon off-the-run bonds or deciphering the impact of CDS spreads widening, I was confronted with another financial monstrosity (don’t worry if you have no idea what these are. I worked with them for five years and still would struggling explaining them to you). Point is, I realized very quickly that studying Czarist Russian or American military history was not going to help a whole lot with the number crunching aspect of my job. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">As a result, my first few years on the desk were incredibly challenging. It didn’t help that I started in early 2007, right before the markets started to collapse (I am trying to justify my “deer in the headlights” appearance that lasted much longer than it should have). Either way, it would have been a steep learning curve no matter when I started. What I had learned as an undergrad clearly was not doing me any favors pricing an interest rate swap or running a muni defeasance. As a result, I found myself questioning why I had not majored in economics or even more drastically, decided not to go to law school. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">Surprisingly, this mindset did not last very long. In fact, it evolved dramatically over the years, especially as I read and studied markets more. It is obvious that the markets are largely dependent on numbers, complicated bond math, and supply & demand equations, but a large portion of this is just noise. As a result, you will find a collection of young hedge fund traders trading off data relating to different countries GDP's, CPI's, and trade balances or mutual fund analysts making recommendations based on earning's reports, new product introductions, and EBITDA multiples. The macro hedge fund strategists travel to all parts of the world studying crop reports and oil production, while mutual fund analysts scour the corporate universe visiting production facilities and interviewing employees. This type of data gathering works fantastically well most of the time, but it largely ignores some of the most easily accessbile information and best sanity check of all....history. If they would take a step back and look at things from a historical perspective, there might be a more obvious story to tell and trade to make.</span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">What do I mean by this? Simplify it. We are hearing constantly that Great Depression in 1929 or the 1987 Crash or the Dot-Com Bubble in 2001 or the current Sovereign Debt Crisis in Europe are all parts of the greater credit cycle. We also are taught that cycles are inherently a story of human nature and events. What does that sound like? You got it…history. Cycles are segments of history that typically develop into booms and busts because people do not learn from their past mistakes. We have heard this a thousand times, but it is shocking that learning from these lessons never sets in. Whether you read Ken Rogoff’s “This Time is Different” or Seth Klarman’s “Margin of Safety”, examples of this stare us right in the face, yet the same mistakes are made over and over. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">Today, the biggest current threat to the global financial system is the fledgling European banking sector and the sovereign debt issues facing the “wine drinking nations” in south. Predictably, the common investor has headed to the hills, but the truly opportunistic investor like experienced hedge funds, private equity firms, and opportunistic real estate funds are scouring the continent, putting “boots on the ground”, and looking for distressed investment opportunities across the broad landscape of asset classes.<o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">I have been fortunate to have had the opportunity to speak with a number of funds over the past two months that essentially repeat the view that there are opportunities to be had. The Eurozone will hold together because the consequences are too severe not to. What they do not and seemingly cannot explain is when?</span></div>
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When? While it is true that playing the “timing game” is largely a loser’s bet, history can lend a significant hand. When do humans, and most politicians act? Only when it is absolutely necessary (I say <i>mostly</i> because the truly great leaders are the ones that are able to put their political ambitions aside and place their will to act at the forefront). </div>
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In the face of the Nazi threat in Europe and the mass execution of the Jewish population, when did the United States Congress decide to act? Not until the Japanese bombed Pearl Harbor. When did this establishment of politicians decide to pass TARP in order to rescue the banking system? Not until the stock market reacted to its failure to pass through the house with a drop of over 500 points. When did the Eurozone leaders allow the ECB to pass funds directly into Spanish banks in order to save the system? Not until the system was on the verge of collapse. I could go on forever.</div>
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<span style="font-family: Georgia, Times New Roman, serif;">Unfortunately, political office holders change, but in many regards, they stay the same. For the most part, they are all more concerned with <i style="mso-bidi-font-style: normal;">their </i>livelihoods and <i style="mso-bidi-font-style: normal;">their </i>re-election campaigns than making the difficult decisions. However, even with this all being said, in strong democratic systems eventually cooler heads prevail and the tough decisions are made. <o:p></o:p></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;">How does this impact investing? Before you make a decision to trade based on a quantitative model that tracks technical trends, or a complicated momentum chart based on the Elliot Wave Principle, or a discounted cash flow analysis based on countless assumptions, take a step back and ask yourself, “has a similar opportunity to make a similar trade, in a similar environment, ever been made before, and if so, what can that tell me about my trade today?” Just a little glance to the past can go a long way. </span><span style="font-family: Calibri;"><o:p></o:p></span></div>
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Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com1tag:blogger.com,1999:blog-7480885871336192780.post-58852092628977131862012-06-20T19:31:00.003-07:002012-10-10T14:18:05.161-07:00<br />
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<span style="font-family: Calibri; font-size: x-large;"><strong><u>A Much Needed Time for Some Perspective</u></strong></span></div>
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<span style="font-family: Georgia, 'Times New Roman', serif; line-height: 115%;">The situation that has engulfed our University is bordering on lunacy. As I wrote about earlier this week, I do not agree with the way the board ousted President Sullivan. It was handled incredibly poorly and certainly leaves a lot to be desired in regards to setting an example for both current and past students. This being said, as far as the board went in one direction, some current faculty members are bordering on going just as far in the other.</span></div>
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<span style="font-family: Georgia, Times New Roman, serif; line-height: 115%;">In today’s Washington Post, microbiology professor Ian Macara became the second UVA professor to resign in protest claiming, “It is a tragedy that a small group of provincial-minded plutocrats on the Board of Visitors could so rapidly destroy the reputation of what had been one of the great public universities of the United States”. Now I do not know professor Macara personally, but two sentences sum up his lack of knowledge and support for UVA. “<em><strong>Destroyed</strong></em> the reputation? <strong><em>Once</em> </strong>one of the great public universities?” Talk about an overreaction. Even if there is an inkling of truth in his comments, how about standing up for what you believe in and trying to use this as a lesson that everyone from the University can learn and grow from? I am sorry professor Macara, but you have vastly underestimated this University and those who support it. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif; line-height: 115%;">Secondly, I do not understand the protesting of Carl Zeithaml’s decision to accept the role of interim president. The university needs to function and who better to serve in the interim? The McIntire School is one of the most successful programs at UVA and under his tenure he has brought an innovative approach to learning that has vaulted the program to the top of the national ranks (and as a disclaimer, I was a history major with no connection to McIntire). The university needed someone to step up, he was voted in with almost unanimous support, and he accepted. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif; line-height: 115%;"><span style="line-height: 115%;">Finally, regardless about how I feel the process was handled, I do not think that former president Sullivan should be reinstated because I simply do not see how that would work. As I said in my previous blog, I do not have enough information to form an educated </span><span style="line-height: 115%;"> </span><span style="line-height: 115%;">opinion on the substance behind the ouster, but I have faith in the system no matter how strained it might be at this point in time. Rector Dragas probably will not survive this situation either, but either way, I do not agree with any decision that goes backwards. Eiter way, do people really think that the University would be able to function with a president who was essentially given a vote of “no-confidence” by the board? No matter how much support she appears to have in the community, would the University really repair its reputation by reinstating her? My inclination is that the answer to both is no.</span></span></div>
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<span style="font-family: Georgia, Times New Roman, serif; line-height: 115%;">When all is said and done, UVA will survive this series of events, but there is no going back. The sooner the school circles the wagons and begins what will certainly be an exhaustive search for the future leadership of the university, the better. Give interim president Zeitaml your support in the meantime and let’s work to make this<i> </i>university emerge stronger than ever. </span></div>
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Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com0tag:blogger.com,1999:blog-7480885871336192780.post-88544219295081409262012-06-18T18:44:00.000-07:002012-10-10T14:18:24.079-07:00<div style="text-align: center;">
<span style="font-size: large;"><strong><u>The Ouster of President Sullivan: Trust the Process</u></strong></span></div>
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<span style="font-family: Georgia, Times New Roman, serif; line-height: 115%;">We often hear the phrase “any press is good press”, but that is a difficult case to make regarding the recent developments surrounding the ouster of University president Teresa Sullivan. Personally, I have gone back and forth on the issue: on the one hand, I want to trust the board members appointed to make difficult decisions (although<span style="color: #282828;">, regardless of the validity of their decision, Rector Dragas’s opaque actions are worthy of <i>harsh</i> criticism and review)</span>. On the other hand, I can’t help but be skeptical of the decision to remove a popular president only two years into her term. This waffling all changed this afternoon when I read Paul Tudor Jones’s op-ed in the Daily Progress. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif; line-height: 115%;">Jones’s take on the issue focuses on UVA’s slow decline from a premier university to one that has become satisfied with being good, not great(<a href="http://www2.dailyprogress.com/news/2012/jun/17/aspiring-achieve-greatness-ar-1993965/"><span style="color: blue;">http://www2.dailyprogress.com/news/2012/jun/17/aspiring-achieve-greatness-ar-1993965/</span></a>). He references the fact that UVA has slipped from being this nation’s leading public institution and consistently being ranked among the preeminent universities, to being proud to label itself as “tied for the #2 public university” or a “top 25 university” (when it has hovered just around that #25 slot for years). His comments clarified a lot for me. Why has this development gone practically unnoticed? Because it is very difficult to acknowledge a death by a thousand cuts. Years of funding pull backs, lack of direction, and lowered admission yields have been those cuts. Mediocrity is something that seems to have become tolerated at a university that should expect nothing of the sort. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif; line-height: 115%;">Jones’s quotes Thomas Jefferson at the beginning of his op-ed and it is spot-on,</span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><span style="line-height: 115%;">“</span><i><span lang="EN" style="color: #282828; line-height: 115%;">God forbid should we ever be 20 years without such a rebellion… It is lethargy that is the forerunner of death to the public liberty.”</span></i></span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><i><span lang="EN" style="color: #282828; line-height: 115%;"><span style="mso-spacerun: yes;"> </span></span></i><span lang="EN" style="color: #282828; line-height: 115%;">Lethargy in higher education right now cannot be tolerated. There are too many universities vying for accomplished students and aiming to rise up the rankings. As other universities have ascended, UVA seems to have been content to rest on the foundation that Jefferson built the university</span><span lang="EN" style="color: #282828; line-height: 115%;">. Lagging in teacher salaries, keeping outdated curriculums alive at the expense of more forward thinking ones, falling behind on fund raising while hanging onto the past are all indications of complacency. </span></span></div>
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<span lang="EN" style="color: #282828; font-family: Georgia, Times New Roman, serif; line-height: 115%;">In regards to President Sullivan, I have little doubt that she was a good steward for the University during her two years. In fact, I was very impressed with her after having the opportunity to speak with her prior to the 2011 Men’s lacrosse championship game and after reading several of her letters to the University community. This being said, if the board believed she was not the innovative and forward looking president that the University needs, I will trust their decision to end her tenure, despite the timing. As T.S. Lewis said, “<i>We all want progress, but if you’re on the wrong road, progress means doing an about-turn and walking back to the right road; in that case, the man who turns back the soonest is the most progressive”</i>. </span></div>
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<span style="font-family: Georgia, Times New Roman, serif;"><span lang="EN" style="color: #282828; line-height: 115%;">At this point, only time will tell what comes of this situation. Whoever assumes the position of the 9<sup>th</sup> president of this wonderful University will have a lot to face when he or she takes the helm, but I am confident that our new president will be riding a ship that is more than capable of righting itself. Either way, we need a president willing to take on the challenges that the university faces. As Jefferson said, “</span><i style="mso-bidi-font-style: normal;"><span style="line-height: 115%;">In matters of style, swim with the current; In matters of principle, stand like a rock”.</span></i><span style="line-height: 115%;"> We need a president that will stand like a rock during these difficult times. </span></span><span style="font-family: "Book Antiqua", "serif"; font-size: 12pt; line-height: 115%; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin;"></span></div>
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Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com1tag:blogger.com,1999:blog-7480885871336192780.post-35864779733010114842012-05-03T09:41:00.002-07:002012-06-07T08:15:19.361-07:00<div style="text-align: center;">
<strong><span style="color: #073763; font-size: x-large;"><u>The Decline of the United States</u></span></strong><br />
<strong><span style="color: #073763; font-size: x-large;">Quite the Opposite</span></strong></div>
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<span style="font-size: 12pt; line-height: 115%;"><span style="font-family: Calibri;">There has been a lot said about the inevitable decline of the United States, the shift away from the broader developed world, and the emergence of China and the BRICS. Before attending Darden, I really could not find an argument as to why this trend was nothing short of inevitable. The emerging markets clearly have more room for growth and more opportunity in the pipeline due to the increased levels of infrastructure, manufacturing, and eventually consumption This pattern is not new. In fact, this is exactly how the United State surpassed Europe in the early 20<sup>th</sup> century and how Britain surpassed continental Europe in the 19<sup>th</sup> century. That being said, to steal a line from Ken </span></span><span style="font-size: 12pt; line-height: 115%;"><span style="font-family: Calibri;">Rogoff, I think “This Time is Different”.</span></span></div>
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<span style="font-size: 12pt; line-height: 115%;"><span style="font-family: Calibri;">I started thinking about this after I had a coversations with a friend from Argentina. He mentioned that educated people from his country, especially ones working in finance, convert their paychecks immediately from the local currency into US dollars. I understood the basic premise behind this due to domestic inflation concerns, but his comments regarding <em>certainty </em>were what caught my attention. Shortly after our conversation, I began reading more about this issue of certainty and found that it runs even more deeply than I thought.</span></span></div>
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<span style="font-size: 12pt; line-height: 115%;"><span style="font-family: Calibri;">Certainty in the US is what sets it apart from the emerging markets. The legal framework and system of checks & balances that this country is built on ensures that investing in the US is safe and that the markets remain liquid. As a result, even during a time when the Federal Reserve is printing massive amounts of money and government officials can’t seem to get spending under control (or just about anything for that matter...), foreign funds continue to pour into the U.S. This seems very counterintuitive, especially considering emerging economies growth potential and seemingly cleaner balance sheets. </span></span></div>
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<span style="font-size: 12pt; line-height: 115%;"><span style="font-family: Calibri;">The problem is that despite these investing opportunities, nations like China, Brazil, and India do not have a stable investment track record. China has a hybrid communist/capitalist economy, Brazil has massive class division, and India has incredibly poor physical and financial infrastructure. As a result, in a time of global uncertainty, preservation of capital is more important than a few hundred basis points of yield. </span></span></div>
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<span style="font-size: 12pt; line-height: 115%;"><span style="font-family: Calibri;">Secondly, after spending the past few weeks working through Global Economics cases as well as some outside reading, it is clear that the mobility of labor will play a key role is America's continued economic strength. We typically hear that jobs have been shipped overseas because “that’s where the cheaper labor is”. Well, there are several major headwinds to that shift heading our way. One, China and the other emerging markets are starting to see higher demand for wages. According to the most recent <i style="mso-bidi-font-style: normal;">Economist, </i>Chinese labor costs have risen 20% a year. This leads to higher input costs and higher prices passed along to American corporations. Secondly, emerging markets do not use commodities like oil as efficiently as the developed world and as a result, use more of it to create a single good. With rising oil prices, this also makes producing goods overseas more expensive due to higher production costs as well as higher transportation costs. With the new found glut of energy resources in the form of natural gas and shale deposits, US energy costs should presumably decrease as these sources become more integrated. Lastly, in conjunction with the previous point, technology is advancing to the point where unit labor costs are shrinking in the US and productivity levels are increasing resulting in American workers being able to “do more for less”. As a result, American companies are starting to resort to a “China plus one strategy” and moving some operations back to the US. </span></span></div>
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<span style="font-size: 12pt; line-height: 115%;"><span style="font-family: Calibri;">Having worked on a government bond desk before Darden, I was pretty aware of several of these factors, but it was pretty fragmented. Darden has connected the dots for me through cases we have studied (Argentina’s fiscal and monetary crisis, China’s emergence, and currently studying the Euro crisis to name a few), but just as importantly through engaging with classmates. </span></span></div>
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<span style="font-size: 12pt; line-height: 115%;"><span style="font-family: Calibri;"><span style="mso-spacerun: yes;"> </span></span></span></div>Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com1tag:blogger.com,1999:blog-7480885871336192780.post-57478372220259450232012-01-15T13:03:00.000-08:002012-01-17T07:59:32.974-08:00The Great Recession: Explain it like you would to your grandson...<div class="separator" style="clear: both; text-align: center;"><a href="http://media.merchantcircle.com/25806358/grandmother%20and%20grandson_full.jpeg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="208" id="il_fi" src="http://media.merchantcircle.com/25806358/grandmother%20and%20grandson_full.jpeg" style="padding-bottom: 8px; padding-right: 8px; padding-top: 8px;" width="320" /></a></div><br />
<div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-size: 12pt;"><span style="font-family: Calibri;">I have heard countless stories about the impact of the financial crisis and malaise we have all experienced over the past four years, but the one that stands out among the rest is pretty simple: as a country, we started to take some things for granted and assume things would continue on a parabolic trajectory. As a result, we are currently experiencing a massive deleveraging period that will only be solved as time passes and the gaps are filled. This has been and will continue to be a painful process, but hopefully we will all emerge stronger after learning some valuale lessons. Personally, I have tried to read as much as I can on the topic, but at the end of the day, it took some very simple conversations with my grandmothers to truly understand what this really meant.</span></span></div><div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><br />
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<span style="font-size: 12pt;"><span style="font-family: Calibri;">I am very fortunate because both of my grandmothers are still alive. Both are in their nineties and although their memories are starting to fade a bit, their long term memories are still sharp as ever. As a result, they have not forgotten the lessons they learned growing up as children of the Great Depression. Since both were born prior to the 1929 crash, they saw first-hand how a period of inconceivable growth led to a massive economic crisis. As a result of the subsequent bust, they and their families learned the "value of a buck" and how to live within their means; they struggled, but survived; they learned to look at things in a different light, but never lost sight of what was important. </span></span><br />
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<span style="font-size: 12pt;"><span style="font-family: Calibri;">Throughout my entire life, my grandmothers have tried to instill these lessons in me and their other grandchildren. Whether it was reminding us to only take as much food as we were going to eat, following us around turning off the lights, forcing us to share no matter how much we didn’t want to, or handing us a dollar and telling us not to spend it all in one place, my grandmothers never forgot what it was like to have everything taken away. </span></span><br />
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</div><div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-size: 12pt;"><span style="font-family: Calibri;">Today, my grandmothers’ generation is almost gone and with it goes the memories of what the struggle of the Depression was all about. As a result, the <i style="mso-bidi-font-style: normal;">vast</i> majority of Americans don’t know what it was like to have a thriving economy quickly spiral into a decade of despair. In many ways, the mid 80's to early-mid 00's were years of one of easy to come by goods and services, which led to a feeling that "this time things will be different". Plenty of explanations have been thrown around: cheap energy, seemingly limitless amounts of credit, free public education, and if qualified, relatively easy access to employment. Because of the aging and diminished numbers in the people from the Great Depression era, it is not entirely surprising that Americans took a lot for granted and repeated some of the mistakes of the 1920’s. It is also not surprising that without many of those Great Depression babies left to impart those lessons, we seem to have repeated many of those mistakes of the past. </span></span><br />
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</div><div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-size: 12pt;"><span style="font-family: Calibri;">Despite listening to these lessons over the years from our parents and grandparents, there is no substitution for personal experience. The good news is we are getting that experience right now. The bad news is this Great Recession is far from over and there is a significant amount of pain left to be felt. The key for all Americans is to learn the lessons that my grandmothers’ generation did so that when we experience a sustained recovery, we emerge stronger and more disciplined. <o:p></o:p></span></span></div><br />
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<div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><b style="mso-bidi-font-weight: normal;"><i style="mso-bidi-font-style: normal;"><span style="font-size: 12pt;"><span style="font-family: Calibri;">A description of the 1920’s…how different from that of the 2000’s?</span></span></i></b></div><br />
<div align="center" class="MsoNoSpacing" style="margin: 0in 0in 0pt; text-align: center;"><i style="mso-bidi-font-style: normal;"><span lang="EN" style="font-family: "Times New Roman","serif"; font-size: 12pt; mso-ansi-language: EN;">This period was an era of great economic growth and widespread prosperity driven by government growth policies, a boom in construction, and the rapid growth of consumer goods such as automobiles. The <a href="http://en.wikipedia.org/wiki/Economy_of_North_America" title="Economy of North America"><span style="color: windowtext; text-decoration: none; text-underline: none;">North American economy</span></a>, particularly the <a href="http://en.wikipedia.org/wiki/Economy_of_the_United_States" title="Economy of the United States"><span style="color: windowtext; text-decoration: none; text-underline: none;">economy of the US</span></a>, which had successfully transitioned to a peacetime economy, although there were sectors that were unstable, especially farming and mining. The United States augmented its standing as the <a href="http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)_per_capita" title="List of countries by GDP (PPP) per capita"><span style="color: windowtext; text-decoration: none; text-underline: none;">richest country</span></a> in the world, its industry aligned to mass production and its society acculturated into <a href="http://en.wikipedia.org/wiki/Consumerism" title="Consumerism"><span style="color: windowtext; text-decoration: none; text-underline: none;">consumerism</span></a>.</span></i><o:p></o:p></div>Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com0tag:blogger.com,1999:blog-7480885871336192780.post-48586731360106181452011-12-14T14:34:00.000-08:002011-12-14T14:43:23.840-08:00The Tebow Phenomenon: A Lesson in Leadership<div class="separator" style="clear: both; text-align: center;"></div><div style="margin-left: 1em; margin-right: 1em;"><img height="400" id="il_fi" src="http://blogs.denverpost.com/broncos/files/2011/12/TebowSICover-495x687.jpg" style="padding-bottom: 8px; padding-right: 8px; padding-top: 8px;" width="287" /></div><br />
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<div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-family: Calibri;">As I made my way back to Washington DC to catch a train to New York, I was listening to a conversation between the host of “The Herd” radio show, Colin Cowheard, and his guest, former NFL quarterback and current ESPN NFL analyst, Trent Dilfer. Like most NFL analysts right now, they were discussing the “Tebow Phenomenon” and attempting to explain it. <o:p></o:p></span></div><br />
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<div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-family: Calibri;">For those of you who are not familiar with the “Tebow Phenomenon”, let me give you a little background. Tim Tebow is the current starting quarterback for the Denver Broncos, a former Heisman trophy winner, and an NCAA National Champion at the University of Florida. If that is all the information you were privy to (and if so, I’d argue you were living in a black hole), one would assume it was very logical that he is having such a successful season in the NFL. Oddly, this could not be further from the truth. <o:p></o:p></span></div><br />
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</div><div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-family: Calibri;">Pundits across the country have labeled Tebow “guaranteed to fail”, possessing “the most flawed throwing motion in the history of the NFL”, and a “total fraud”. I am not simply referring to a few talking-heads. This is the <i style="mso-bidi-font-style: normal;">overwhelming</i> consensus. The issue, however, is that the story is not unfolding as widely predicted. After taking over as the starting quarterback eight weeks ago, the Denver Broncos have won seven of their last eight games, five of which coming by four points or less. Even more inexplicably, Tebow has been the one leading the Broncos to victory in the fourth quarter (in most cases, after consistently playing poorly for the first three quarters). Do Tebow and his devout Christian beliefs simply will the Broncos to victory? Is it pure luck? Is it actually possible that Tebow is better than we all thought? People “in the know” have had trouble explaining it. In fact, most have simply given up trying. Dilfer, however, had a very unique take on it and is one that I think we can all apply to our personal and business lives. <o:p></o:p></span></div><br />
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</div><div class="MsoNoSpacing" style="margin: 0in 0in 0pt 0.5in;"><i style="mso-bidi-font-style: normal;"><span style="font-family: Calibri;">Everybody is trying to define this intangible quality that we see every week from the Denver Broncos and want to make it all about Tim Tebow, but the only person who doesn’t make it about Tim Tebow is Tim Tebow. He makes it about everybody else, how great his teammates are, <span style="mso-spacerun: yes;"> </span>how great his coaches are, how blessed he is to be doing what he is doing. That level of humility galvanizes a team. Nobody is fighting for credit because the guy getting all the credit is giving credit to everyone else. It makes everybody better. Special teams have an unexplainable power of a team moving in one direction when no one cares about their specific piece of the pie. Humility resonates with everyone on the team. <o:p></o:p></span></i></div><br />
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<div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-family: Calibri;">Now, as a disclaimer, I used to be a Tebow “hater”. In fact, I still think he is a little over-the-top, a bit dramatic, and certainly not in the “elite class” of NFL quarterbacks with Tom Brady, Aaron Rodgers, and Drew Brees, but the last two months have forced me to adjust my view. Tebow has never wavered, has never strayed from who he is as a person and a leader, and as a result, has rallied a very mediocre team to heights no one imagined possible. </span></div><br />
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<div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"></div><div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-family: Calibri;">As we all head off for Christmas break to try and find that vaunted summer internship or a path to future success, I think this is a lesson that resonates deeply. At the end of a day, teams permeate every part of our lives: your classmates, your learning team, your family, your current or future line of work, and the most successful ones are the ones led by people like Tim Tebow. Success is driven by strong leaders who steer the team with a steady hand and step up when needed, but also manage to deflect the credit to where the credit is due. He or she knows that they are the public face of the organization, but most likely would not have gotten there without the people working with them or the countless people who supported them along the way. <o:p></o:p></span></div><br />
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<div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"></div><div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-family: Calibri;">Tim Tebow might not ever win a Super Bowl. He might fall flat on his face next week and never win another game as many, including myself, have been predicting for weeks, but maybe he won’t. Maybe this streak continues and the Broncos continue to advance. I guess the message is that no one knows what will happen over the next few months, but I can say now, with absolute certainty, that Tim Tebow has put the Broncos in a position no one thought possible. A place where the team thinks, arguably knows, that they will be in every game to the final down because they have all bought in to the message from the man at the top. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div><br />
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</div>Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com0tag:blogger.com,1999:blog-7480885871336192780.post-68740092227355073522011-12-01T10:23:00.000-08:002011-12-04T06:33:51.089-08:00The World Around Us: Taking off the Blinders and Looking Outside the Ivory Tower<div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><div class="separator" style="clear: both; text-align: center;"><span style="font-family: Calibri; margin-left: 1em; margin-right: 1em;"><img height="300" id="il_fi" src="http://bernie.cncfamily.com/img/blinders.gif" style="padding-bottom: 8px; padding-right: 8px; padding-top: 8px;" width="200" /></span></div><br />
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<span style="font-family: Calibri;">As a student, it is incredibly easy to put on the proverbial blinders and block out what is happening in the world around you. After all, it is much easier than making the effort to be aware. However, during this prolonged period of economic stress, turning a blind eye to what is unfolding outside of the ivory tower is the last thing you want to do. <o:p></o:p></span></div><br />
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</div><div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-family: Calibri;">Before coming to Darden, I worked on a government bond sales & trading desk for a large bank in New York. Every day I was inundated with negative headlines about the geopolitical events and financial turmoil surrounding the markets. As a result, the opportunity to step away from reality and make the move back to Charlottesville was very appealing. However, being away from the markets for several months has given me an even greater appreciation for what I learned and saw first-hand.<o:p></o:p></span></div><br />
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</div><div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-family: Calibri;">Since the vast majority of us are only in Charlottesville for a short period of time, I strongly urge you to make a conscious effort to try and straddle this fence between being aware of the broader economy and enjoying the separation from it. The “Charlottesville cocoon” is a special place, but once the time comes, we will all have to jump back into the real world and immerse ourselves in these uncertain times. Understanding what is driving the current economic conditions will go a long way, no matter what profession you choose. <span style="mso-spacerun: yes;"> </span><o:p></o:p></span></div><br />
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</div><span style="font-family: Calibri;">In this seemingly never-ending string of financial calamities, Europe and Greece are now firmly in the cross-hairs. Even some of the most informed people have been perplexed by the premise that a tiny country like Greece is a risk to take down the entire European banking system and even some large U.S. institutions. We can spend days, weeks, or even months reading the Wall Street Journal or watching CNBC and still not have the slightest clue. The economists and TV “talking-heads” use words like contagion, credit-default-swaps, and liquidity ratios, none of which have much tangible meaning to us, but the consequences for all of us are very real. Simply put, understanding what is going on in the world and how to conceptualize it is more important than ever. <o:p></o:p></span><br />
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</div><div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-family: Calibri;">The key issue today is Greece and why it’s causing such commotion. Why is it a big deal? Because Greece is the”country version” of the overleveraged US homeowner/housing market. In fact, in a simple google search, the first line under Greece’s contribution to the Sovereign Debt Crisis in Wikipedia is, <br style="mso-special-character: line-break;" /> <br style="mso-special-character: line-break;" /> </span></div><div align="center" class="MsoNoSpacing" style="margin: 0in 0in 0pt; text-align: center;"><span style="font-family: Calibri;"><i style="mso-bidi-font-style: normal;">“</i><i style="mso-bidi-font-style: normal;"><span lang="EN" style="mso-ansi-language: EN;">The Greek economy was one of the fastest growing in the eurozone from 2000 to 2007; during that period, it grew at an annual rate of 4.2% as foreign capital flooded the country. A strong economy and falling bond yields allowed the government of Greece to run large </span></i></span><a href="http://en.wikipedia.org/wiki/Structural_deficits" title="Structural deficits"><i style="mso-bidi-font-style: normal;"><span lang="EN" style="color: windowtext; mso-ansi-language: EN; text-decoration: none; text-underline: none;"><span style="font-family: Calibri;">structural deficits</span></span></i></a><span style="font-family: Calibri;"><i style="mso-bidi-font-style: normal;"><span lang="EN" style="mso-ansi-language: EN;">. “</span></i><span lang="EN" style="mso-ansi-language: EN;"><o:p></o:p></span></span></div><br />
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<div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-family: Calibri;"><span lang="EN" style="mso-ansi-language: EN;">Hmmm, 2000-2007? Fastest growing? Capital flooding in? Falling yields? Large structural deficits?<span style="mso-spacerun: yes;"> </span>In so many words, Greece and US Housing Market/Homeowner are interchangeable. The quick explanation as to why this happened to both is because of the belief that “this time is different”. When this is the case, that little voice inside of you that ordinarily stops you from doing irrational things doesn’t kick in. In the case of the American homeowner, the belief was that housing never goes down, loans were the equivalent of easy money, and “keeping up with the Jones’s” was simple so long as you played the housing game. In the case of the Greeks, they were accepted in the E.U. which gave them a feeling of acceptance. Then when funds flooded into their country, their belief that outsiders had faith in their country was reaffirmed. The disastrous result for both the American homeowner and the Greeks was<span style="mso-spacerun: yes;"> </span>a self-fulfilling prophecy. </span><o:p></o:p></span></div><br />
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</div><span lang="EN" style="mso-ansi-language: EN;"><span style="font-family: Calibri;">Overleverage, or the use of too much borrowed money, is causing this domino effect around the world. No matter how many ways you slice it, debt is debt and the more you add, the more you will eventually have to pay back. When used prudently, it advances society. When used to excess it can bury societies. At this point, there is no end in sight in regards to the decline in the US housing market or the Greece situation. Unfortunately, I cannot envision a quick solution to this mess because deleveraging is a slowly developing process with many complicated intricacies. <o:p></o:p></span></span><br />
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<div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-family: Calibri;"><span lang="EN" style="mso-ansi-language: EN;">At some point, society will navigate its way through these troubling times, but it will inevitably rear its ugly head once again. The key for all of us hiding out in our academic silos is to force ourselves to remove the blinders and make sure we are aware of what’s going on around us so that we are not caught by surprise when it happens again.</span></span></div>Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com1tag:blogger.com,1999:blog-7480885871336192780.post-73856573803856341442011-11-17T10:36:00.001-08:002011-12-04T06:34:44.433-08:00The Rotunda and Lawn are Crumbling - What's Really at Stake<div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><div class="separator" style="clear: both; text-align: center;"><span style="font-family: Calibri; margin-left: 1em; margin-right: 1em;"><img height="210" id="il_fi" src="http://campaign.virginia.edu/atf/cf/%7B60e98f9d-457d-4c0b-aabf-2ff9f94f708c%7D/ROTUNDA%20RESTORATION_240.JPG" style="padding-bottom: 8px; padding-right: 8px; padding-top: 8px;" width="240" /></span></div><br />
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<span style="font-family: Calibri;">The Rotunda is crumbling, the fire-places in the rooms on the lawn were recently deemed unusable, and the University is having difficulty deciding what to do because of financial concerns. Thomas Jefferson is probably turning over in his grave at the thought. With tuition sky-rocketing and new buildings sprouting up around campus on a regular basis (the “extended lawn”, the new McIntire Rouss-Robertson Hall, the John Paul Jones Arena), how is the University having trouble raising or even justifying the costs of raising money needed to fix the cherished architecture that this incredible university was built around? How did it come to this?<o:p></o:p></span></div><br />
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<div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-family: Calibri;">Like the arms race between the USA and Soviet Union during the cold war, colleges and universities around the country have become sucked into a development battle. They are expanding rapidly in hopes of a brighter future. Considerations such as: How much will building a new science wing or economics building or basketball arena boost their rankings in the latest US News & World Report? Will it bring a new caliber of student? Will the endowment get more support? UVA has been at the forefront of this development. This being said, I do not mean to imply that this type of growth is a negative. In fact, I am thrilled to see the university invest in these types of projects, especially because they have kept with the Jeffersonian image. What I am simply pointing out is that it is mind-blowing that it is all happening when the core of the university is crumbling. <o:p></o:p></span></div><br />
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<div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-family: Calibri;">I am a proud graduate of the College of Arts & Sciences ’04 and am now down in Charlottesville for a second stint attending Darden. When I go on a jog around school, I inevitably find myself running through the lawn. As an undergrad, I would have given just about anything to have had the opportunity to call it home as a fourth-year. However, now I find it a little disheartening to run through on a crisp fall day. Take a look for yourself. You will see big black bags continue to hang from the tops of the massive white pillars. Wood stacked up next to the doors of the rooms on the lawn….no longer needed. While these are not necessarily signs that the destruction is imminent, they do show there is a risk that the Rotunda and the lawn as a whole are moving down the path of dying a death by a thousand cuts. <o:p></o:p></span></div><br />
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<div class="MsoNoSpacing" style="margin: 0in 0in 0pt;"><span style="font-family: Calibri;">Thomas Jefferson built this university around the lawn and constructed it in a way that still exists to this day because, as Susan Svrluga so eloquently said in her recent Washington Post article (<i style="mso-bidi-font-style: normal;">Home is Where the Hearth Isn’t), </i>“Jefferson envisioned a place where learning was not limited to the classroom, where students and faculty lived side by side, where people would gather for philosophical debates over dinner or discuss books by the <i style="mso-bidi-font-style: normal;">fireside</i>.” Now I am not naïve to think that things today are supposed to be identical to the way they were generations ago, a time when the lawn was the central learning place for the entire university. After all, with an undergraduate student body nearing 15,000 students and the lawn being the home to 54 students and a select few professors, the university is a much different place. I am only advocating that if we lose our perspective on what makes this university so special, what will be left with? I equate it to the society we live in today, one which has seen a shift to a focus on outward appearances instead of what’s at our core. In the case of the University of Virginia, if we let the heart of the university die, what good is anything else we add to the surrounding appearance?<o:p></o:p></span></div>Teddy Lamadehttp://www.blogger.com/profile/05525985266017901376noreply@blogger.com0