Saturday, July 19, 2014
I admit it. This week my ego received a terrible blow. As is always the case, such wounds are self-inflicted because the perception of injury can only arise from the a priori notion that one is defined, in part, by some externality (like the perceptions of others). I was on a call with a colleague who wanted me to speak with an investment professional because, "you have so much in common." This colleague has recently seen me as an advisor and has extolled my insight to others as someone "worth listening to."
To say that I shared nothing in common with the person with whom I was introduced would not be appropriate. As we both have lived in the world of capital markets for much of our professional endeavors, we share a common lexicon. Words and phrases between us justify the perception that we are similar or "alike". However, in a few short minutes, I heard this individual promoting investment advice and behavior so entirely antithetical to my values that, for a moment, I was at a loss to know what to do. Do I create an awkward situation for my colleague and abruptly point out that the dissonance is too great? Do I accommodate the investment advisor's predatory arrogance and ignore the depth of moral depravity that I'm hearing? Do I sit and say nothing?
For those of you who know me, you know that the third option doesn't stand a chance. If I sit and say nothing, someone should check my pulse because I've probably sublimated into pure light and a corpse is all that's left to show for me. The second possibility is problematic as I'm increasingly concerned with the error in accommodation when the fullness of a message, once delivered, can be assimilated by its audience as a plausible hypothesis - not on its merits but rather because of the contextual unfamiliarity of the hearer. And, regrettably, the first option affords neither my friend nor his acquaintance the level of respect and decorum with which I choose to enter into communication. And, seeing no good option, I proceeded to take an introspective view of the situation and there, staring me in the face, was the real paradox. I am being judged to have valuable insight and experience by a person who does not have the foundation from which to discern the value, or lack thereof, of what I've got to say. The evidence is in the simile.
It is disheartening to experience the uniform obsession people have with economics on a personal or macro scale when one sees the abject ignorance of the systems upon which economics stand. Our willingness to allow intercessors to stand between us and our money is only rivaled by our cultural acceptance of consensus illusions about accessing the divine; and then, not by much. And just because a person uses the same language in no way suggests that they share common values, motivations, or perceptions. Whether you are an individual investing in a 401(k) - the great tax-deferred illusion that has seduced millions - or a wealth manager or family office; my trouble with 'advisors' is their predictable reflex to view 'safety' and 'risk management' (often pitched as "being conservative") as a justification for herd behavior. The problem with this is two-fold. First, herds by definition mean revert. By this I mean that they collectively act, for the most part, together. That's kind of the point. But my bigger objection is that herds attract predators. And predators have evolved to attack the weak, the young, the desperate, or the feeble. If you wonder why your investment portfolio is not doing as well as the market, I've got news for you. It is! The problem is that you're market exposure is passing through the sticky hands of 'managers' and 'advisors' and they're collecting the return that your money is making.
I recently watched an amazing Planet Earth special on a few lion prides and their hunting behaviors around a watering hole in Africa. Wildebeest after lumbering wildebeest fell prey to the hungry lions and their training cubs. Gazelles and other small deer got blind sided by giant paws and teeth as they innocently bent to quench their thirst. And all the while the monkeys were going nuts trying to scream and warn their quadruped neighbors to look out because there were lions. The monkeys - none of whom got eaten - provided ample warning and the wildebeests and gazelles grazed on.
What I realized this week is that I've failed to communicate my true financial insights adequately because I'm too often associated with the pride of predators. Just because someone has a particular ethnicity, attends the right church, mosque or synagogue, or shows up in a gathering of 'enlightened', and uses the same words I use does not mean that they share my principles and values.
My values are simply articulated (and differentiated):
1. Value exchange should be linked to productivity and mutual benefit. Monetary returns that are solely based on manipulations of a market at a micro- or macro level are parasitic and predatory.
2. Transactions must be done in full transparency when both parties confirm equivalent understanding. If I'm taking benefit from you based on an incomplete set of information or because I know something that you don't know, that's unethical and unacceptable.
3. Investments and returns must be understood before they're deployed or redeemed. If you don't know the reason why there's a gain or loss, it's best not to place the assets you steward into that financial product or venture.
4. Investment returns must have a basis in real transactions. Value can be ephemeral but returns should be objective. When these lines get blurred, someone loses.
5. Duration of investment and expected return should be defined and understood. Nothing grows perpetually. Nothing operates in perfect linearity. This is to say that pulses and cycles must be understood so that expectations are appropriately set.
6. Investing with ethical awareness up front obviates the need for 'charity' and other money-laundering exercises to buy back conscience later. You can't ring the blood of the miners out of gold no matter how many NGOs receive your generous contributions to end slavery and abuse. If you're ignorant or morally apathetic with your investment now, there's no "better you" or "better use" that can justify your greed-fueled neglect today.
There's so many more places to go with this but the moral to my story is simple. I'm not an advisor and I'm going to be more cautious about how I'm promoted by others. This is, to quote the title of this post - the domain of the blind - and we don't need more kings! We need to heal the disease that has robbed the land of sight. The 16th century Erasmus of Rotterdam diagnosed the social disease correctly - he just didn't offer a clear alternative. But, maybe he was a Cyclops… who knows?
Sunday, July 13, 2014
Let's say that I'm driving through Chicago late at night and I'm stopped at a traffic light. A guy steps up to the side of my car, taps on the window and I look to see him pointing a Glock 9mm straight at my head. He calmly tells me to get out of the car. Looking around, I see two or three other shadowy figures each with guns drawn and I realize that stepping out is a risky proposition but staying in the car seems unlikely to end well either. I step out of the car leaving behind my wallet with all my credit cards, my money, and my phone. In a flash, the guys jump into the car and speed off into the night. Only then do I look across the street and see a person slumped in the doorway of a convenience store. He's bleeding but not fatally wounded. At once I know that I've just provided armed robbers a getaway car and, in all likelihood they'll rob again.
Pause. Got the scene?
Let's say that I'm at a country club in Raleigh, NC. I'm a basketball player with about $20 million in compensation and endorsements. I've been invited to lunch with a wealth manager who I'm interviewing to be responsible for my investments. "You really want to protect your hard earned wealth," one of the advisors says, "and we know that you're a responsible, conservative guy. We think that you should probably put about 30% of your portfolio into fixed income, 25% in growth equities, 15% in value equities, 15% in real estate and the rest we'll put in a cash management account for you." I don't know the difference between general revenue bonds, corporate high yield, short-term sovereigns. While I eat my chicken Caesar salad, they don't stop and explain how they came up with the assets or proportional allocations other than to say that the last 5 guys they've worked with have done the same thing. I wouldn't know the difference between "growth" or "value" anymore than these guys could dunk. They've got a glossy brochure emblazoned with a logo of a bank that everyone knows. And at the end of lunch, they tell me that they'll only charge 20 basis points to manage my money. I've never heard the term 'basis points' but they explain that I'll be charged a fee for them insuring that my money is well-managed. Sounds fair.
What's the difference between the Glock and the Glossy? The perps in the first story got away with $40,000. The perps in the second story got away $400,000. Both were opportunistic predators. Both used fear and ignorance in a strange environment to destabilize good judgment. Both will go on to rob again.
I met with a number of professional athletes this weekend. We were engaging in an important conversation regarding financial literacy. Like the work I do in community education in mining and energy extractive resource regions of the world, I have come to realize that the status quo economic system is incapable of acting in the absence of predation on fear and ignorance. The wealth advisor in the second scenario and the armed robber in the first are indistinguishable save their - you guessed it - socio-economic status and selection of weapons. But don't think for a minute that there's one shred of difference in the animating impulse between the two.
Quick check: what's in your head? Do you know the clothing each character is wearing? Do you know their skin color? Do you know the sound of their voice? Do you know the scene and who else is around? Why does this matter? Just to be clear, the same thieves in the second story pull off the exact same heist with a few of the billionaires I know and it robs the billionaires of tens of millions of dollars that they're told is just the way the fickle market works.
Now, here comes the tragic part. We'd probably agree that in the first instance, I wouldn't track down the robbers, give them my cell phone, and tell them that I'm about to come into another few million bucks and that they should call again after I sign my next contract. The truth is that in the second story - the real one - the player actually receives e-mails loaded with financial terms and jargon rife with phrases like, "you should feel good about how your portfolio is doing." Once a quarter he gets a statement with pages upon pages of stocks, CUSIP numbers, and monetary amounts with gains and losses blurring down each page. He's never been told that a geographic overweight to munis is not wise. He's never been told what a benchmark to the MSCI Global means. And in the few instances where new opportunities are presented, he's advised that investing in deals outside the careful management selection done by the manager's firm is "too risky" to consider.
Deepening the tragedy, the fact that every other player in the league - well at least the ones who aren't just blowing their money on cars, women, luxury, and general hedonism - is basically working with the same advisors means that being exposed to the evidence of the theft triggers a remarkable and devastating reaction. "I should probably set up a call with my investment advisor and see why they're doing this," is a frequent response. That's right. Call the thief and see if he'll confess to his crime! Seriously?!
On more than one occasion I found out that being the bearer of facts and knowledge - both of which could actually emancipate individuals from their predators - is met with skepticism and mistrust. "You're not asking for anything for this information," I was told with incredulity. And here comes the kicker. By the way - this is the reason why this post is a partial response to my dear friends and colleagues in the commercial spirituality and self-help business who are struggling with the monetary exchanges that make them feel uncomfortable and unsavory. My life choices have been simple (albeit misunderstood).
1. If someone or a group of people is being harmed (or is inflicting self-harm), my intervention is not predicated upon a transaction for money. I have not, nor do I ever intend to profit from interrupting the evil inflicted upon any person or group. My reasoning is simple. If you're engaging in a time of real or implied danger, expecting a counterparty to act in a fully informed fashion is impractical if not impossible. Rational actors don't stay rational when they're in crisis. I recall the evil of a church group I knew that agreed to build homes for victims of Hurricane Mitch in Honduras only for those who "accepted the Lord." Blackmailing people into behavior with their own survival is consummate evil. Charging admission to well-being and wholesome engagement is unjustifiable.
2. I will not demand value before evidencing the ability to deliver it. I've seldom encountered a situation in which I cannot provide something: knowledge, experience, resources, connections, etc. When I choose to engage, I want to know that the counter-party with whom I'm working is fully informed of the expected outcome before I stipulate a value attribution to my involvement. I can be entirely correct about the quality of an investment, for example, but if my insight cannot be enacted due to a lack of knowledge or an imposed incapacity, that insight is of no value in the impotent environment.
3. I will not accept any value for investment or compensation unless I know that both the counterparty and I are equally aware of what I propose to do and what the expected outcome should be. This means that I spend inordinate effort to educate those with whom I engage to make sure that I'm not running the risk of pulling the wool over someone's eyes. In many instances, this means that I educate a person or group only to find out that they've elected to work with others - at times even expropriating what I've shared to my ultimate economic detriment. That is a far more acceptable risk than being the perpetrator of abuses of information asymmetry.
These three simple precepts are directly responsible for my success in my endeavors. And, for the record, this means that much of my wealth comes in forms not denominated in monetary units. In fact, it is my desire to never have my net worth more than 16.7% in monetary terms. (For those of you who are puzzled here, read about Integral Accounting). At the same time, living by these principles means that most people will chose to discount this alternative and embrace abuse through ignorance, fear, and scarcity because it's a more "understandable" path.
And it's this last point that leads to the title of this piece. I've been accused of offering investments, corporate models, personal insights, and compassionate engagement that is "too good to be true." It saddens me every time I see people experience kindness and generosity and then imagine that it must be coming with an ulterior motive leading to its derision and rejection. This pain has attended most of my life and has been part of many relationships. But I'll gladly wear this cloak rather than acquiescing to the tyranny of using my intellect, access, and experience to become another predator. Whether it's a wealth manager in North Carolina, a thug with a Glock, a mining company corrupting governments to misappropriate mineral rights - they're all using the exact same modus operandi. And until some of us step up to the plate and offer an alternative - equivalently accessed by ANYONE - we're guilty of complacency or complicity. And both of those are too bad to be false.
Sunday, July 6, 2014
I get a kick out of the breathless news that keeps flowing around the NSA's spying on Germany. We're supposed to be surprised or shocked that the U.S. would hack Chancellor Angela Merkel's phone. Ooohhh! Say it isn't so! How could the land of the free and the home of the brave, the house on the hill, the greatest power on Earth, stoop so low as to reduce itself to petty tricks that despotic tyrants use? Thomas Oppermann, the parliamentary leader of the Social Democrats reassured Germans that he, "expect(s) this issue to be thoroughly clarified." Rest well, Germans. You're about to be bamboozled by political double-speak and the truth will not set you free! That's for two reasons. First, you'll never be told the truth. And second, you've never been free and that's not about to change. And the 31 year old German who was just arrested - like our dear Edward Snowden - will either be vilified (if he's dumb enough to have played his whole hand) or relegated to anonymous containment (if he's smart enough to keep better dirt on both the U.S. and Germany than what's been leaked to date). Never mind though, Merkel and Spy-In-Chief Obama were on the heavily tapped phone yesterday talking about Ukraine. I'm sure the Russians were listening.
I'm a bit surprised at how cheaply intelligence is being sold these days. According to Bild, this spy only pulled in about 25,000 euros for his trove of documents. You can't even get a good German car for that to say nothing about the grand old days when spying could get you matching Jaguars! Like everything else in this damn digital world, Moore's Law is sucking all the premium out of espionage. In a few more years, James Bond will have to take the Metro and stay at Holiday Inn Express.
And while we're watching Spy vs. Spy play out across the Atlantic, we're ignoring a much greater crime unfold. Now I know that many of you are tired of hearing about this one but I'm going to keep writing until you pay attention and rise up to take a public stand on a great injustice of our times.
I don't know how many times the Corporatocracy has been codified into the laws of a country in direct violation of its Constitution but a recent set of events in Papua New Guinea have once again risen to international media attention (everywhere but where investors look or care). In the 1992 Mining Act of the Independent State of Papua New Guinea, the laws of the country were expressly forced (by Australian advisors and their Corporate Patrons) to exclude the U.N. and Australian government authorized Bougainville Copper Agreement Act of 1967. On June 6, 1967, the Australian company - Bougainville Copper Pty. Limited (owned by Rio Tinto) - negotiated with the "Territory of Papua New Guinea" (read Australian colonial appointed government) to steal the copper and gold from Bougainville. Steal. Isn't that a harsh characterization? Absolutely not. At no point was there ANY market competition or compensation for the right to develop the resources. At no point was there ANY objective education of the people from whom the land would be taken to explain what they would receive and what the mine would cost. And now, 47 years later, NO AUSTRALIAN, MULTI-LATERAL agency, Securities Enforcement Agency, or any other authority is standing in the way of a repeating of the exact same unconscionable acts being carried out by BCL and Rio Tinto today.
On June 25, Bloomberg's David Stringer wrote an article stating that "Proposed Laws May Impact Bougainville Lease." Bloomberg - a news firm for which I have enormous respect - carelessly reported that Bougainville Copper Ltd (BOC) "controls a number of mining rights on Bougainville, including over the site of the former Panguna mine…," never mentioning the fact that these rights expired with the license over a year ago. David's in Melbourne. His "responsible editors" - Jason Rogers, Andrew Hobbs and Madelene Pearson - failed to insure that the reporting was based on facts appealing instead to the overt misrepresentations of the company and its hired guns.
If one reads the denial of Appeal in the case brought by citizens of Bougainville against Rio Tinto (Sarie v. Rio Tinto Plc, 02-56256, U.S. Court of Appeals for the Ninth Circuit ) one can readily see how far we've come from fairness and the rule of law. The Court, ruling against the Plaintiffs concluded that "only Plaintiff's claims of genocide and war crimes fall with the limited federal jurisdiction of the Act" (Alien Tort Statute) and that unfortunately, the extraterritorial nature of this genocide and war crimes activity tied the Court's hands from being able to adjudicate the case. In addition, Rio Tinto contended that they couldn't be held liable because they were a corporation and that the Alien Tort Statute only applies to people. The Court (both majority and in dissent) found that it would be too imperialistic to use the Courts of the U.S. as the arbiter of genocide and war crimes. I find that an ironic standard given the fact that U.S. investors, U.S. pensions, and U.S. tax authorities have no problem in benefiting from the activities of Rio Tinto. When it comes to their revenue and investment income, we have jurisdiction - when it comes to morality and war crimes - not so much.
Rio Tinto and BCL are now working to coerce the Autonomous Government of Bougainville into granting them a de facto supra-legal status in the proposed new mining Act. During this same time, the citizens of Papua New Guinea and the residents of Bougainville are watching as their government does nothing to pursue the legitimate economic claims due the people - compensation from as far back as 1989 which could be used to actually enable the citizens to have self-determination. Over PNGK 140 million was earned by investing the people's money held by BCL in Rio Tinto's investments. The Autonomous Government and the National Government in PNG are not doing anything to insure that this fact is known. Rather they're letting their brand get sullied by well-meaning but misinformed media outlets who are letting BCL and Rio Tinto drive the message.
This is not right. You can do something about it. If you've got a 401(k) chances are you are invested in Rio Tinto. Let them know that you're not interested in profiting from a Company that has to buy government officials, write laws to subvert citizens' interests, and obfuscate economic benefits so profits can be stolen. And if you can't find their investor relations address, stop investing. It's even a greater offense to anonymously support genocide and war crimes while pretending to be helpless in its face.
We should worry about what's happening in NSA spy rings. We should be concerned about the fact that we can't win if we haven't bribed the refs. That's poor form and bad sportsmanship. But its worse when we've got the facts right in front of our faces and do nothing! That's a real crime against humanity. Your own!
Sunday, June 22, 2014
Situated on an island between Aeaea and the Rock of Scylla lived the seductive Sirens. In the heroic journeys of Odysseus and Orpheus, these mythic seductive beauties figure mightily into the character refinement of the epic. In the former, the Sirens were temptresses placed in the story to prove the capacity to suffer through the agony of self-imposed enticement. In the latter, the musical enchantresses served as the counterpoint to the power of a persistent and inviolate "sweeter song". These beauties enticed men to their watery graves by singing so sweetly that their irresistible attraction overcame self-preservation and security.
I was reminded of this iconic myth at a recent conference. Young men and women from across the globe were invited to "pitch" their entrepreneurial ventures to panels of acclaimed executives and investors. One by one, they came on stage for their 3 minute catwalk. They were attired in Silicon Valley chic. Jeans, canvas sneakers, t-shirts, and, if you're lucky, a sport coat. Fifteen years earlier, none of them would have been thusly attired and, for that matter, no one in their communities would have ever engaged in a solicitation for patronage without a remarkably different decorum. But never mind that, we were in the Mecca of the Valley rather than the peninsula. Each one of these "entrepreneurs" entirely conformed to their perception of what it takes to attract monied moths to their light and were doing their level best in projecting their desirability. Longing for someone or something that would evidence non-conformist thinking or bold risk taking, I was offered tiny glimpses of possible exception but, in the main, saw global youth joining the vampirish chorus of the Sirens.
But what was more disheartening was what was being promoted as exciting new ventures. Rather than identifying new technologies and utilities, the majority of creativity was localization of a narrow swath of social media where the only innovation was the millennia-old cipher called language. From match making to job hunting to gaming - apparently what the Middle East, Asia, and Africa really need is apps in local languages. And through the cunning use of - hold your breath for this - language - whole enterprises could be born! Really? Our brightest, most creative minds should be celebrated for coming up with the idea of translation? And seriously, is the 25% unemployment of youth in the Middle East going to be solved by having an Arabic Linked-In or Monster?
When Edison decided to electrocute dogs, horses and elephants to prove that Westinghouse's idea of alternating current (which we now use safely) was dangerous, he was unaware that in a few short years, his proof-of-danger exhibition would usher in a more "humane" form of execution for humans. On August 6, 1890, William Kemmler's 17-second almost death by electric chair was eulogized as evidence that this "culmination of ten years of work and study," allowed humanity to "live in a higher civilization." He also couldn't have imagined that his epic battle with Westinghouse - in which Nikola Tesla played the role of mercenary pawn - would exterminate inquiry into distributed energy in any form other than electricity. His innovation in harnessing current would in fact form the dominant animating force for human endeavors and concepts like wind, water, light, heat and gravity would be marginalized to the point of endanger relegated to serve as "alternatives" subjugated to feeding the electric currency-based industrial and social mandate. Innovations that once harnessed manual, animal, gravitational, magnetic, thermal, and kinetic forces were enslaved to the 60 Hz, 120V archetype and to this day, "over unity" and "free energy" still holds itself hostage to "proofs" based on shoving energy into a 130 year old utility.
Social media and digital content - a miniscule fraction of the illegitimate offspring of the electrical age - now reign supreme. Our modern innovators are encouraged and seduced into applying their energies into progressively narrower applications of an already constrained memetic scaffold. But the Dawkinsian suggestion that replications of cultural units (memes) should be discerned and integrated based on the mandate that best serves their culture or "host" seems to be violated in the fact that we're celebrating the trivial at the expense of the consequential. More Angry Birds in any language is just an expanding flock of mentally disengaged humans. The Words-With-Friends substitution for conversations with friends does not a community make.
My friend Ed West has come up with a platform called Hylo. It's a collaborative environment in which individuals can express their capabilities to act and serve and define places in which they could use provisions, support or assistance. Ed's trying to suggest that all human endeavors - digital or analog - will benefit from an environment in which capacity and capability are ever-present and sufficient to meet the needs of all actors within a system. And since its nascent stage, "it" (the impulse and the model) has manifest in real estate redevelopment, social spaces, inter-personal relationships, new media, and a host of other outcomes. It's using the digital utility to enrich the analog world - not be dependent on or enslaved to it. Ed's toiling to evidence a model for what it means to step away from the conformity impulse and - with Sirens as back-up singers - follow an Orphean tune.
Monday, June 9, 2014
I was recently critiqued for thinking "too big". My activities apparently exist on a scale that is "too big" to understand. This assessment was most intriguing as it came from a person specializing in leadership. As I reflected on this assessment, I found myself entering a rather intriguing vortex of inquiry.
It's become fashionable to speak in hyperbole in Occidental business and civil society circles. We're the "most connected generation in human history"; "unprecedented in our capacity to collaborate"; participants in "unrivaled opportunities to collaborate and co-create"; and our linear self aggrandizement rolls on. When we contribute to a collective effort, our tendency is to grossly exaggerate our contribution (and its associated entitled reward). Our "global private wealth" is greater than it's ever been according to a recent study by McKinsey with more millionaires than ever before. Models of the Nobel Prize winning "Commons" celebrate the "longest running commons of the sea" and the "Charter of the Forest" as evidence of near eternal scale monuments to our capacity to organize great societal artifacts. Our accepted ontological egos seem to be quite happy embracing "too big" when it comes to applauding our apparent advancement.
Like the peacock for whom displays of plumage create the illusion of vitality and grandeur on what is in fact a rather scrawny bird, I would like to suggest that the use of linear projections of "most", "greatest", "first time in human history" assertions is a thinly veiled admission of the terror of being infinitesimally irrelevant and small in all likelihood. Fueled by our intuitive recognition of diminution of consequence and purpose we seek to inflate our delusional status at considerable personal and social peril.
Let's examine this a bit more closely. I recently encountered an argument asserting that Christians out perform all other faiths in establishing institutions of mutual aid and civil benefit. Devoid of any basis for this assertion save the carefully selected empirical evidence of U.S. records of donations through charitable organizations - already a biased sample - the argument was presented to reinforce a particular predisposition of its proponent. What I found interesting was the abject failure of the argument to include the faith / religion called "The State" or the faiths and religions which, because of their ubiquitous assimilation into culture don't count as faith or religion. While I'll certainly grant that there are numerous church affiliated hospitals in the U.S. (obviously the only place the assertion needs confirmation in a world of 7 billion), I wondered how many ashrams in India have fed the hungry, treated the sick, and cared for the ailing in the thousands of years before a certain itinerant prophet wandered the hills of Galilee and was patronized by a sword wielding Emperor a few hundred years later. I wondered how many roads (human connection for societal formation and trade), aqueducts (public health and food security), and schools were built by tyrants and democrats alike - all relying upon the surrogated belief in hierarchical structures and faith in government. And while those who subscribe to the notion of charity are certainly entitled to their motivations - the idea that comparative charity is relevant is divisive and unnecessary.
We're not more connected because we have social media. Was Thomas Jefferson more connected to the world with his capacity to travel to France, speak French, read Greek, Hebrew and Arabic, then any iPad wielding blogger today? Father Sorin - the founder of the University of Notre Dame - was capable of transatlantic relationship-building unaided by "Like" buttons on social media. The Yongle Empire of China's 14-15th century mandate to share "all known knowledge" in flotillas equipped with libraries were more careful than Google in aggregation and dissemination of knowledge. The Komgi in East New Britain who can listen to the movement of life in the sea from a rock atop a high mountain have been "wired" to the Earth for 40,000 years. They perfected a commons-based economy that was over 30,000 years old before the civilization that would millennia later concoct the Magna Carta and the Charter of the Forest even settled the isles.
I think that our consensus position is to think small because we know that we've been in retrograde for a long time. Thinking small is reinforced by dogma and faith that goes as far as to denigrate wisdom (labeling its aspiration "original sin") and pronounces that the "wisdom of the world" cannot fathom the divine. Thinking small is rewarded by powerful incumbencies that want to cow humanity into narrow chutes in the abattoirs of labor-rent consumption. Incremental minutia is celebrated as "invention" while quantum inquiry is suppressed and marginalized.
But here's the irony. I find that all the people I meet who advocate for thinking and acting "small" actually are overwhelmed with how many constraints they need to keep in their awareness. In fact, the smaller one thinks and acts, the more likely it is that hyper-acuity attends fear of position, failure, scarcity, and extinction. Far from small, the "small" thinker and "small" actor is constantly bombarded with messages of limitations and is more busied and distracted than I've ever been. When I want to solve a national or global challenge, I spend less cognitive effort than I observe in the intricacy attendant to a conversation on someone's cousin's chemotherapy or a cat with diabetes. I think that "thinking small" is actually maddening in its regressive complexity. I think that acting incrementally and small involves rejecting a myriad of bests and nows for the exasperation of serial tedium. The analgesic for the mental pain: hyperbolic statements of being the best, most advanced, and superior!
Nonsense. Our world needs people who are willing to take bold action at a relentless pace. We need audacity to animate ourselves from our collective coma inflicted by the constant pounding of conformity. The greatest challenge facing humanity at present is to have the courage to open the aperture of our awareness to see that the ever-present unfolding of reality always conscripts us to engage to our fullest potential and if we rise to the challenge, the rewards are incalculable!
Monday, June 2, 2014
I’ve been asked many times to explain my rationale behind not following consensus practices of reporting corporate performance with ‘traditional’ accounting. “Yeah, I get that you do unusual things but just show us the financials that we’re used to seeing,” I’m asked by people who have just determined that the businesses that I’ve created are among the most fascinating and innovative they’ve seen. I used to be amused and now I’m just vexed by the illogic of such a request. The field effect of what I’ve done around the world is visible. The powerful technology I’ve architected and deployed is working and continually proven. The countless ventures around the world that have launched, revitalized, or restructured using a unique methodology are bearing fruit. Then I’m asked to explain this unprecedented effect using a metric that was never a component of its manifestation.
I am reminded of my frustration as a member of the radiology faculty at the University of Virginia when we were working with technologies enabling digital mammography and use of gamma emitters to detect early stage breast cancer in young women. One of the FDA’s leading advisors from a famous northeastern medical school in the U.S. (also on the advisory payroll of one of the largest medical device companies making conventional mammography machines) convinced the agency to require newer, better, technology to be tested for equivalence against inferior conventional technology. “Substantial equivalence” was required to take precise instruments and sub-optimally run them to prove that they were “as good as” an antiquated standard. This industry-endorsed (and funded) malpractice and wilful illogic cost the lives of many young women who suffered from aggressive cancers invisible to inferior x-ray technology. Threats to incumbent infrastructure could only be eradicated by proving that the measured out-performance was “not equivalent”. People died. Hospitals and doctors were essentially bribed into acquiescence. And the band played on.
Russia and China look like they’re about to execute a 30 year Russian natural gas supply agreement “worth $400 billion”. This proposed deal makes sense – reportedly – for China as it solidifies another critical energy source for its growth objectives. It fulfills Russia’s desire to find a cash-rich buyer alternative to the contentious European buyers who have been a constant complexity made worse by recent events in Ukraine. But I find it fascinating that both China and Russia seem to be ignoring the fact that this $400 billion deal is not going to cost or be worth what is alleged at present. Why? For the simple reason that a thirty year anything will not be what is proposed. Ukraine has been independent since 1991 – a short 23 years. From the 1654 Treaty of Pereyaslav and the 1686 territorial dispensations in the “Eternal Peace” between Russia and Poland which was neither eternal nor peace to 1991, over 10 million Ukrainians died in wars and famines directly caused by their benefactor caretakers. Not surprisingly, the cost of pumping natural gas from Russia to Europe across Ukraine did not factor in the nearly 350 years of pent up animosity resulting from abusers carrying many flags. Is it reasonable to assume that 1.34 trillion cubic feet of gas will flow from Russia to China for the next 30 years without political or social upheaval? Absolutely not. Do we know the true cost of Ukrainian transshipment of gas? No! But we do know that it’s cost hundreds of lives, the frail global economic cooperation of the former G-8 (now G-7) and G-20 (now G-19?), and massive energy price ambiguity harming manufacturing and employment across the Eurozone.
What is the price of political risk? What is the price of social upheaval? Is it simply the collapse of purchasing power parity or gross domestic product? No. Can the much ballyhooed risk premium in commodities and utilities “price” the certain instabilities built in short term impulses with long term malignant consequences arising from neglect of knowable instabilities? Absolutely not. And can business and finance credibly offer extensions of current accounting models that adequately describe current realities and future opportunities and threats? The fact that we’ve been globally incapable of emerging any economy post-2008 into a robust intervention-free actor is evidence that our metrics fail… Empirically!
Therein lies the irony. Using our consensus metrics, we can see that our metrics are insufficient. Yet we still press on as though their use will somehow manifest their adequacy. Central bank intervention has provided ‘cheap money’ to enrich the paper wealth of a few and push a greater proportion of the celebrated ‘middle class’ into retrograde. The economically poor? Forget about them. Their ranks are growing and their voices are being strangled. While high end retailers like Tiffany and LVMH grew at 9% in the first quarter of 2014, sales of the bottom 99% of homes in the U.S. fell by 7.4%. Elitist retailers like Walmart saw sales fall by nearly 5% while discount retailers at the lowest price points grew over 7%. The middle of the distribution is getting weaker while the tails are getting stronger. In other words – the economy isn’t working for the economy.
So back to my opening. Why would I build a business that is predicated on, or assessed for performance on a system that does not work? How much did it cost me to uncover the fact that Rio Tinto and its closely held corporation Bougainville Copper Ltd is seeking to defraud Papua New Guinea of over $50 million? It cost: years of plane fares, days of interactions with citizens of Bougainville including ex-combatants that multi-lateral peace keepers refuse to engage, three years of direct opposition and discouragement from members of my own organization, courage of my family in the face of ostensible security threats, creative economic modeling and years of forensic accounting, joyful community engagements, a partnership with a great business partner, and countless other inputs. And in over 30 years, did anyone with any budget do the same work? Absolutely not. How much did it cost to build a financial structure that could flow billions of dollars of capital to business by rationalizing their intangible assets in a fashion that banks could understand? Was it millions of dollars of investments? Was it tens of millions of dollars of revenue? No! Others tried the same and have come up discredited and empty. It took bold initiatives in the public arena, ridicule and celebration for taking a contrarian stance against the propaganda of mainstream economists, the tireless effort of loyal members of a team who saw their professional colleagues taking lucrative shortcuts to personal enrichment at the expense of the mission, advanced computational analytics that are unrivaled in any industry – analytics that actually outmaneuver super-computers that cost taxpayers in excess of $300 million each year and bureaucracies on both sides of the Atlantic that cost industry over $4 billion each year.
In a few weeks, my quantitative equity fund will celebrate its first year anniversary of active trading. Measuring corporate stewardship and quality of innovation alone, we have outperformed the large cap equity markets in a year where the same markets have reached their all-time peaks. In short, we’ve beat the best at their own game. And by a considerable margin. Does that make our metrics right? Absolutely not. But what it does show is that the market is not measuring what drives it. And this incomplete view directly harms wealthy and poor alike. Public dollars are spent chasing ephemeral objectives rather than addressing legitimate social and infrastructure needs. Countless illusions are created around businesses that will never bear fruit. From crowd-sourcing to Goldman Sachs, the measurable ignorance premium is growing and we’re the worse for it.
It’s time to account for it ALL – the stuff that we use, the frameworks around which we organize our impulses, the wisdom that we integrate, the capital we use to empower our efforts, the tools we use to build and propagate our impulses, and the success or failure we celebrate or shun! A more complete embrace of reality will have a quantifiable effect. Let’s throw out the sheets that no longer service us and recalibrate our world.
Sunday, May 25, 2014
A Challenge to Pope Francis to Think and Act Differently
Catholics, Protestants, Jews, Muslims, Buddhists, Zoroasters, Hindus, Humanists, Animists and Atheists can probably agree on one thing at the moment: His Holiness Pope Francis is rocking the boat more than has been done in a long time – possibly since a certain disciple credited to be the first pontiff was in a dinghy on the Sea of Galilee with his Master. “Peace, Be Still,” is not uttering forth from his lips but is the fervent prayer of many of his politically correct, consensus surfing followers who have greatly benefited from ephemeral morality. To his credit, his recent appearance in Israel has done nothing to earn him points in accommodative pandering. And, according to press statements, President Mahmoud Abbas and President Shimon Peres have agreed to join him at the Vatican on June 6, 2014 to share in a Prayer for Peace.
In his encyclical “Evangelii Gaudium” Pope Francis clearly articulated a clarion call for the world to take seriously the need to have economic justice on Earth. Upsetting the modern day aristocracy (both the religious and secular) with what talk show host Michael Savage callously disparaged as “Karl Marx in a papal outfit,” (evidencing Mr. Savage’s ignorance of the writings of Karl Marx which bear no resemblance to the Pope’s missives), Pope Francis’ comments seem to be a voice of rational morality in a world of asymmetric predation. On the other hand, advocates for donor-fueled ‘social justice’ campaigns have dared the Pope to turn the Vatican’s massive wealth reserves into a colossal entitlement benefactor. And having seen the church’s massive land expropriations around the world – robbing countless communities of their prime agriculture, mineral and energy resources conveniently surreptitiously stewarded by mercenaries upon whom the church’s wealth has been built – I am sympathetic to the call to have this pope actually emancipate stolen holdings as evidence of his joyful gospel!
But both Savage and Social Activist are reflexively responding to semantics while failing to contemplate where the Vatican should be encouraged to go. In a world defined by expropriation, generations of exterminated options are inextricably our hideous legacy. The “great American experiment” imagined by Alexis de Tocqueville in the 1830s cannot expunge the fact that its foundational labor was indentured and enslaved, its territorial expansion was based on theft and murder, and its hegemonic dominance at present is predicated on capital manipulation – not on democratic, free markets. The Catholic Church in 2014 cannot find enough pontifical holy water to wash its hands of the complicity it has in the Crusades in which it sought to wrest control of land from the “infidel” only to find out that it was seen by the land’s occupants as infidels. And like the disputed “Nazi” confiscation of artwork during the Second World War which fueled legitimate and illegitimate claims to reparations and repatriation, the idea that you give back to today some token of what was stolen in recent and ancient past is ludicrous. The impulse for justice to be equated to recompense is simplistic and nonsensical as neither the beneficiary nor the competence of stewardship would render such impulses effective or salutatory. So, to both reflexive arguments I offer a simple plea: cool your jets and think!
What could you do with the wealth of the Vatican – both in its reserve vaults buried throughout the world and in its vast land holdings – which would actually let some version of a ‘gospel’ be experienced? Well, that’s a fascinating question and one that the good Father has not appropriately engaged. Under a simple calculation, the liquid and reserve asset ‘collateral’ of the Catholic Church would support a bank – think of a credit union – with liquid credit origination capacity of over $180 billion. Add physical land holdings and liquidity on revenue and you have a global bank which would exceed the scale and capacity of Industrial & Commercial Bank of China, HSBC Holdings, Credit Agricole, BNP Paribas, or Mitsubishi UFJ – the world’s top five banks by asset holdings. And if the church was serious, it could replace all the development banks in the world with a capital offering that, at maturity, would repatriate collateral to countries from whom it stole lands in a structured transaction ripped from the very document upon which it purports to draw its authority – the principle of Jubilee. Imagine a seven-year plan that, if executed by its own dogmatic architecture drawn from its own sacred text, would eradicate present day poverty by improving the lives of the economically “poor” by over 100%. And it wouldn’t have to change ANY of its beliefs.
Now why is this path untaken by the Holy Father? Why is he offering to host prayer breakfasts but unwilling to actually use his own biblical principles to address the injustice that he sees in others? Well, for two reasons. First, he’s running an institution that sees charity rather than stewardship as its best offering in the world. By preserving a patriarchal system, he is blinded to the very principles that built Joseph into the greatest economist of all times in the seven years leading up to Egypt’s devastating seven year famine. Second, he’s being advised by those who have a vested interest in preserving the vestiges of justice hiding under his vestments (sorry, I couldn’t resist a bit of “V”)! If he’s serious about a gospel, he should read his own book. His theology is great for boat rocking but he needs to listen to a voice that can calm the storm. So far, that message is being lost in pandering and that’s a cardinal sin.