Evening VIP Archives

Lunch With Supreme Court Justice Sonia Sotomayor

?I have to admit that it was with some trepidation that I joined Supreme Court Justice, Sonia Sotomayor, for lunch this week in San Francisco. I have friends in the New York federal prosecutors office who warned me that she was tough as nails and a complete bitch, first as a prosecutor herself, and later as a judge.

I confided this observation to her, and she agreed completely. Growing up as a poor Hispanic girl in the South Bronx, with a single parent family, demanded more than toughness. Her father died young from chronic alcoholism.

As a kid, she beat up a lot of others, but was thrashed often herself. It was certainly no place for weaklings, or those who stuck to establishment rules. Her family nicknamed her ?ahi?, Puerto Rican for ?hot chili pepper.?

Interviewing Supreme Court justices is tough, as I learned when I met Sandra Day O?Connor a few months ago, the first woman ever appointed. But at least we had some common ground, both growing up on ranches in the baking Southwest before air conditioning was invented. The great insight with her was that on her first day at work there was no woman?s bathroom at the Supreme Court. Sonia Sotomayor would be a different kettle of fish.

Justices are not permitted to comment on any cases in the recent past, present, or those that may appear in front of them in the future. And by recent, I mean in the past 12 years. You really have to go back to Andrew Jackson for them to feel totally comfortable.

Back then, my own family took a case to the court on the interpretation of the India Removals Act of 1830. We won. So the best that you can do is try and get the measure of the person, their character and their motivations, and distill down their essence. Then you have to extrapolate forward as to how this may influence their future decisions.

You might ask what this piece is doing in an investment newsletter. But the Supreme Court is playing a growing role in the lives of traders. The recent decision in favor of Obamacare totally upended the entire health care industry, which accounts for no less than 12% of our GDP, and will soon rise to 18% (You sold the HMO?s and bought the drug companies).

The Citizens United decision permitting unlimited anonymous corporate political donations was a boon for the media and the Washington DC commercial property market, as tens of thousands of new lobbyists were hired. Bush v Gore, which decided the 2000 presidential election, turned out to be the greatest windfall in history for the oil and defense industries. Investors ignore the Supreme Court at their peril.

Justice Sotomayor frankly admitted to me that she was an early beneficiary of affirmative action. But she ran like thoroughbred, once the bit was between her teeth. She was one of the first women admitted to Princeton, which proved to be a totally alien environment. There she heard a Southern accent for the first time. The looking glass metaphors in Lewis Carol?s Alice in Wonderland were unknown to her.

When invited to join Phi Beta Kappa for her academic excellence, she thought it was a scam. They asked for money for a lousy symbolic key, so she threw it in the trash. Sonia rarely slept, graduated Summa cum Laude in 1976, and moved on to Yale Law School.

Racial slurs, sexism, and discrimination, feature large in her life. When she worked as a corporate litigator, a senior partner complained that he didn?t know why the firm was hiring all these minorities, only to dismiss them for incompetence a few years later. I hope this guy isn?t planning on pleading any cases in front of the Supreme Court in the near future. In fact, Sotomayor will have to rule on a reverse discrimination case brought by a white college student some time this year.

Sotomayor is one of those rare individuals who walks a fine line between both political parties. She was appointed a federal judge by George H.W. Bush. She was moved up to the Appeals Court by Bill Clinton. Obama named her as his second Supreme Court appointment, and only the third woman in history.

I think the majority of observers missed the most important outcome of the 2012 presidential election. If a conservative justice dies or retires before 2016, and another liberal replaces Justice Ruth Bader Ginsburg, the impact on history will be huge. Then, the court swings from a 5-4 conservative vote, where it has been for the past 40 years, to 5-4 liberal for the next 40 years.

Sotomayor is a crucial part of this plan, and is so far following the script. In her first case, during which she confesses she was ?terrified?, she dissented on the above-mentioned Citizens United case. She has voted with left leaning Justices Ginsburg and Stephen Breyer 90?percent of the time, one of the highest agreement rates on the Court. She was in the 5?3 majority in Arizona v. United States that struck down several aspects of the state?s anti-illegal immigration law. She was also in the 5-4 majority that ruled in favor of Obamacare.

The US Supreme Court is a world stage, as its decisions are closely followed by many other countries. It is a non-stop conversation in which she walked at mid point. Sonia says most people would find her job boring, as it is very contemplative. The court only hears 60-80 cases a year, and allocates just an hour to hear arguments for each case. The rest of her time is spent reading, writing, editing, and arguing with other justices.

The reality that there is no higher court than her own places an additional burden on her decisions. It is all humbling, as every case produces someone who, in the end, believes an injustice has been done. You can?t play God. Sotomayor is the only member of the court who has worked as a judge.

Sonia revealed to me that her inspiration to go into law came from the Nancy Drew children?s mystery novels and the Perry Mason TV series. Chronic type 2 diabetes prevented her from working in the field. For her, being a lawyer enabled her to work as a detective while in the confines of an office.

On January 21, Sotomayor administered the oath of office to Vice President, Joseph Biden. Not bad for someone who claims her main accomplishment in life was throwing the opening pitch at a New York Yankees game in her hometown Bronx.

As our lunch broke up, she invited me to Washington to tour the Supreme Court and meet the other justices. I said I might just take her up on that.

February 1, 2013/by Mad Hedge Fund Trader

Lunch With the Treasury Secretary

Evening VIP

When I wake up at 4:30 am each morning to check the overnight markets and review the opening salvo of incoming emails, I often have trouble focusing in my groggy state. So I had to blink twice when the first message in my inbox politely inquired if I had time to meet the Secretary of the Treasury in Palo Alto for lunch that day, apologizing for the short notice.

Tim Geithner was in San Francisco for a day to meet with a small group of venture capitalists and other business leaders. I can?t say who else was invited. Suffice it to say that I was the only one without an NYSE or NASDAQ listing.

When I greeted the lithe, athletic, but diminutive Treasury Secretary, I could see the six secret service agents in the room visibly tense up. At 6?4? I towered over him, but he shook my hand firmly. I knew he was an avid surfer, and asked if he had stowed his board on Air Force One so he could shoot ?Steamer Lane? in nearby Santa Cruz after the meeting. He laughed, confessing that he rode the waves in a less than adequate fashion.

Geithner succinctly laid out the administration?s position on a wide range of financial and economic issues. The economy is now healing, has been growing for 20 months, but conditions were still very tough, especially if you were in construction, real estate, or small banks. Private sector investment grew 20% in H1, but then slowed down to 10% in H2. Exports are strong.

The economy is undergoing some difficult, but necessary changes. The crisis was caused by excessive debt levels, the adjustment of which is now mostly behind us. The savings rate has soared from below 0% before the crisis to 4%-6% today. The debt burden is falling. Still, further measures are required.

Geithner thrilled his audience by proposing a permanent investment tax credit for domestic R & D. On top of that, he wants to add a one year tax credit for capital investment. It was music to the ears of those present, who were primarily engaged in the business of starting new companies. He would also eliminate tax preferences that encouraged companies to build plants overseas. At the very least, the playing field should be level.

Stepped up spending on infrastructure is a big priority, which has suffered from decades of neglect and under investment. The US is not a country with unlimited resources, and this is where the taxpayer gets the highest return on money spent. He also highlighted the urgency to extend tax cuts for the bottom 98% of the working population. The country entered the crisis with an unsustainable fiscal situation, and this would help address that.

Geithner says that the US would not engage in a debasement of its currency. It is very important that our counterparties believe that we will fulfill our long term obligations. The US benefits from the dollar being used as a reserve currency, and there will be no non-dollar reserve currency in our lifetimes.

The Dodd-Frank bill was an essential reform, as a huge financial industry had grown up outside the existing rules. Banks needed bigger shock absorbers. Governments do a very bad job at picking industries to protect, which only supports the weak at the expense of consumers.

Geithner said that by any measure, the Chinese Yuan was undervalued, and that was unfair to all of the country?s trading partners. Although this was enabling China to reap short-term benefits, long term it meant that the US was setting its monetary policy. A flexible exchange rate would give China economic independence and soften the impact of imported inflation. When asked what exchange rate he would be happy with, he would only say ?HIGHER?.

The 49-year-old Geithner has devoted much of his life to public service. He spent his childhood abroad while his father was a micro finance administrator for the Ford Foundation, growing up in Zimbabwe, Indonesia, and India, and finally graduating from high school in Bangkok. He did his undergrad at Dartmouth, and obtained a master?s in Asian studies at Johns Hopkins, where he gained fluency in Chinese and Japanese. I first met Tim myself two decades ago, when he was a low level Treasury attach? at the Tokyo embassy who spoke the local language flawlessly. After that, his rise was meteoric, from Undersecretary of the Treasury for International Affairs, to President of the New York Fed, to his current gig.

Geithner put on quite the performance. No matter what the question, he was able to caste it in the context of its historical background, the lead up over the past two decades, the current policy response, and parallels with other major and minor countries. We jumped from the Japanese stagnation, to the Swedish banking crisis in the early nineties, to Indonesia?s explosion of hyperinflation in the sixties, to the Mexican debt crisis, all within a minute. His canned answers to standard question rolled effortlessly off his tongue, while original problems delivered an intensity of thought one rarely sees.

Before he left, I pulled out all the cash in my wallet and pointed out to Geithner that while I had bills signed by previous Treasury Secretaries Larry Summers, Paul O?Neil, and Robert Rubin, I lacked one with his illegible scrawl. Did he have any which he could exchange with me? He sheepishly admitted that while such bills existed, they we being held back from circulation until the Treasury?s existing stockpile of Hank Paulson bills ran out, in order to deliver taxpayers good value for money. I would only see his bills once the economy recovers and the growth of M1 starts to accelerate. That is truly an answer one would expect from the 75th Treasury Secretary.

January 3, 2013/by Mad Hedge Fund Trader

An Evening With the Chinese Intelligence Service

Evening VIP

I normally avoid the diplomatic circuit, as the few non committal comments and soggy appetizers I get aren?t worth the investment of time. But I jumped at the chance to celebrate the 62nd anniversary of the founding of the People?s Republic of China with San Francisco consul general Gao Zhansheng.

Happy Birthday China!

When I casually mention that I survived the Cultural Revolution and interviewed major political figures like Premier Deng Xiaoping, who launched the Middle Kingdom into the modern era, and his predecessor, Zhou Enlai, modern day Chinese are enthralled. It?s like going to a Fourth of July party and letting drop that I palled around with Thomas Jefferson and Benjamin Franklin.

Five minutes into the great hall, and I ran into my old friend Wen, who started out her career with the Chinese Intelligence Service, and had made the jump to the Foreign Ministry, as all their best people did. She was passing through town with a visiting trade mission.

When I was touring China in the seventies as the guest of the Bank of China, Wen was assigned as my guide and translator, and we kept in touch over the years. I was assigned a bodyguard who doubled as the driver of a tank like Russian sedan. The Cultural Revolution was on, and while the major cities were safe, we ran the risk of running into a renegade band of xenophobic Red Guards, with potentially fatal consequences.

I asked Wen when China was going to float the Yuan? She explained that this is something China knew it had to do, but it wasn?t going to be rushed into by some opportunistic foreign politicians. If it moves too soon, millions will lose jobs, creating political instability, something the central government wants to avoid at all costs. Many of the largest scale employers were only marginally profitable, and a hike in the renminbi of only a few percent would force them out of business. I pointed out that that was exactly what was happening in the US.

Worth More Than Meets the Eye

I warned that if the Middle Kingdom waited too long, Washington would force them into an appreciation through punitive import duties and anti-dumping actions, as we did with Japan 40 years ago. It was Nixon?s surprise ban on textile imports in 1971 that finally persuaded Japan to float the yen, then at ?360. If that didn?t convince the Chinese, then imported inflation would. The longer China delays, the bigger the pop when their currency is finally set free.

Wen then went on the offensive, claiming that Chinese workers were being exploited by American companies keeping wages low. The product that China made for $1, and sold to the US for $2, was then sold by Wal-Mart (WMT) for $20, which kept all the profits. She pointed out that the Walton family had a combined net worth of $100 billion, more than the total worth of the lower 40% of the US population. This could never happen in China.? I told her that by selling the product at $20, Wal-Mart wiped out another US company that used to make that product domestically and sold it for $40, throwing those people out of work.

Modern Times in China

I then asked Wen what were her country?s plans for its massive foreign exchange reserves, now at $3.7 trillion? She agreed that this was a problem because the reserves were pouring in so fast, at an embarrassingly high rate of $10 billion a month, and that it was the most rapid accumulation of wealth in history. While it had more than enough Treasury bonds, any attempt to sell might cause their value to collapse and freeze relations with the US. I suggested China should start hedging its gigantic holdings without selling them, or some managers would be facing a firing squad in the future.

China has therefore begun directing new reserve inflows into other instruments, like gold, Japanese government bonds, and ultra-high yield PIIGS bonds in Europe. While the Europeans were more than happy to take the money, the Japanese were complaining that China?s modest purchases were driving up the yen, further depressing their own economy. We all know what has happened to gold.

China tried to recycle its surpluses by buying foreign companies that produce the natural resources it desperately needs. But takeover attempts were fought tooth and nail as a foreign invasion, or on national security grounds, such as the attempt to buy California?s Unocal in 2005 and Australia?s Oz Minerals in 2010. It was now using a strategy of buying low profile minority stakes in foreign resource companies. China took a big stake in the Petrobras (PBR) secondary equity offering.

Check Out This tasty Little Morsel

I asked her about the real estate bubble in China that was causing so many foreign investors to lose sleep. She said it was true that sales were slow at some luxury buildings in Beijing and Shanghai, but the great majority of developments were aimed at working people, and were filling up as soon as they came on the market. The 40% down payment demanded by the People?s Bank of China headed off the rampant speculation that brought the American financial system down. Buyers of second homes were required to pay entirely in cash.

Rooms With Views

Wen then complained about the aggressive military stance the US was taking towards China, ringing it in with the Seventh Fleet. Holding a knife so close to the country?s foreign supply line jugular vein made them nervous. China was basically indefensible. All it would take was the sinking of a few grain ships, and 100 million would starve within a year. President Bush was rattling his saber as soon as he moved into office, until 9/11 diverted his attention to Afghanistan and Iraq.

Wen told me there is a school of thought in Beijing that as the country?s economic power grows- it is passed Japan to become second in GDP last year? that the US will increasingly perceive it as a military threat. This would lead America to mete out the same hostile treatment to China as it did Russia during the cold war.

Walking Softly, But Carrying a Big Stick

I assured her that the Seventh Fleet was there to watch and listen, but to do nothing. It was really in position to provide a security blanket for allies, like Japan and South Korea, but nothing more. China wasn?t engaging in the belligerent behavior that Russia was at the height of the cold war, like blockading Berlin, basing missiles in Cuba, stationing fast attack nuclear submarines off our coasts, and invading Afghanistan.

I argued that if China truly has no expansionary intentions, the more we know about you, the better. It is always prudent for a potential adversary to conclude you are not a threat, and that no action is needed. The more you help the US do that, the better. China is decades behind the US in military technology, and you really have nothing we want. Little more than 200 nuclear weapons without an ICMB or submarine delivery systems were hardly viewed as a major threat.

Wen seemed perturbed that I was aware of her country?s nuclear stockpiles, and asked how I knew this. I said that former CIA director Leon Panetta told me (click here for ?Lunch With the CIA?). She said ?Oh.? I asked what was that test downing of a satellite in space about, anyway? She didn?t answer.

In any case, with our military fully committed fighting two wars in the Middle East, we lacked the resources for an Asian offensive if we were so inclined, even against a piddling, mismanaged, rogue state like North Korea. But looking at the world for the next 30 years, who is the Pentagon going to model and war game against, but China, with its 2.5 million man army?

Wen countered that the People?s Liberation Army was purely a defensive force. With a 12,000 mile land border, an 11,000 mile coastline, and dubious neighbors like Russia, Iran, and India, they have no other choice. Its ability to project force over great distances, as the US can, is virtually nonexistent. Its 1979 invasion of Vietnam was about reclaiming ten miles of lost territory. China got involved in Korea only after general Douglas MacArthur threatened to rain atomic bombs on the mainland, losing 2 million men, including Chairman Mao?s son. China could have done a lot more in the Vietnam War, but didn?t, limiting its participation to a supply, logistical, and advisory role.

That?s a Lot of Border to Defend

I then warned that if you really are worried about the Pentagon, you should stop hacking into our computers. She replied that the US started this by emptying out Chinese mainframes many times, and they were only responding in kind. I said yes, but that China was targeting private companies, like Google (GOOG), Hewlett Packard (HPQ), and Oracle (ORCL) that without military grade software, were unable to defend themselves. The Chinese agencies involved then used the data to their own commercial advantage.

What Did You Say the Password Was Again?

By the time Wen married, China had already adopted its one child policy. As much as she wanted more children, she understood the government?s need to adopt such a drastic policy. Without it, the population today would be 1.6 billion, not 1.2 billion, and all of the money that went into buying capital goods would have been spent on food imports instead. The country would have stagnated at its 1980 per capita income of $100/year. There would have been no Chinese economic miracle. She was very proud of her one son, who was a software engineer at Microsoft (MSFT) in Beijing.

Her husband, a mid level official at the Ministry of Commerce, fared less well, dying of lung cancer at a relatively early age. The US and Europe had exported their worst polluting industries to China to take advantage of lax environmental controls, turning the air in Beijing into a choking haze. Sometimes her son would come home from school coughing and wheezing so badly that he couldn?t play outside. The two packs of cigarettes a day her husband smoked didn?t help either.

Imported From the USA

I asked if she recalled our first trip together and a dark cloud came over her face. We were touring a section of Fuzhou when three policemen marched up. They started shouting at Wen that we were in a restricted section of the city where foreigners were not allowed. They started mercilessly beating her with clubs.

I was about to intercede when my late wife, Kyoko, let go with a blood curdling tirade in Japanese that froze them in their tracks. I saw from the fear in their faces that she had ignited their wartime fear of Japanese authority and the dreaded Kempeitai, or secret police, and they beat a hasty retreat. To this day, I?m not exactly sure what Kyoko said. We took Wen back to our hotel room and bandaged her up, putting ice on the giant goose egg on her head. When I left, I gave her my copy of HG Well?s A Short History of the World, which she treasured, as the book was then banned in China.

Wen mentioned that she was approaching the mandatory retirement age of 60, and soon would be leaving the Foreign Service. I suggested she move to San Francisco, which offered a thriving Chinese community and home prices that had recently dropped by half. She laughed. No matter how much prices had fallen, she could never afford anything here on a Chinese civil servant?s salary.

Wen told me that China was grateful for the billions of dollars that foreigners had poured into her country as a result of my writings. I replied that I was simply trying to show my readers where to make some money, nothing more. It was pure opportunistic self-interest. One of my recommendations, for Chinese search engine Baidu (BIDU), was up more than tenfold in less than two years, (click here for the call). Did she happen to know about any more future Baidus? Wen said that she wasn?t that close to the stock market, but that she would get back to me.

I asked Wen if she still had the book I gave her nearly four decades ago. She said it had become a family heirloom, and was being passed down through the generations. As she smiled, I notice the faint scar on her eyebrow from that unpleasantness so long ago.

In view of Wen?s comments, I think you have got to buy the Chinese ETF (FXI), which is the principle lagging emerging stock market this year, once the ?RISK ON? trade comes back into favor. You also better revisit my stock picks in the area, including Baidu, China Mobile (CHL), and China Telecom (CHA).

December 30, 2012/by DougD

Lunch With the Army Chief of Staff

Diary, Evening VIP

I can?t tell you how many times I have received a call from the Joint Chiefs of Staff asking ?if country ?A? attacks country ?B? what is the effect on country ?Q? and ?Z?? After all, there is a pretty short list of those monitoring the global macro economy for 40 years with direct experience in the Middle East since 1968. So when I saw the 703 area code for the Pentagon light up on my caller ID, I thought ?Who is it this time??

It was the office of Army Chief of Staff, General Ray Odierno, calling, wondering if I would be free for lunch that day in San Francisco. The General had expressed interest in my recent piece, ?The Declining America Myth? and wished to explore my ideas further (click here for the link). General Odierno is the commander of the most effective fighting force in the history of warfare and has access to massive intelligence resources, so I thought I?d pick up some information useful to my readers.

Then I thought, ?Yikes!? I was already committed to some speaking engagements at the San Francisco Money Show that day. But duty calls. So a quick call to the organizer and my friend, Charles Githler, and I was able to roll over everything to the next day. That was fine, as long as I didn?t mind giving four speeches and doing three TV interviews in one day.

Hours later, I was briskly walking up Sutter Street to the Marines? Memorial Club. For good measure, I stopped at a barber shop and cut off all my hair. I have learned over the years that the more you look like someone, the more likely they are to confide in you. So it was ?number two buzz cut? here we come. The unexpected dividend of the move was that there was a definite upsurge in interest from the ladies, now that all the white hair was gone and I looked ten years younger.

When I saw the grey GM Suburbans out front and the attendant armed bodyguards, I knew he was early. General Odierno is a thickset man with a handshake like a vice grip. The hash marks practically made it up to his elbow. His uniform displayed a chest full of campaign ribbons and awards. His epaulettes displayed the four starts of a general. But I also noticed that he lacked the ones for Vietnam, his first action coming with Desert Storm. I must be getting old, I thought. Note to readers: much of what we discussed was classified and this piece has been cleared by Army censors.

The general was spending a few hours in the city on his way to visit Larry Paige and Sergei Brin at Google headquarters in nearby Mountain View. There he hoped to learn of the strategic value of the company?s newest online tools. Technology is now developing so fast that it is a challenge for the military to integrate it in to operations fast enough to have an immediate impact. In the aftermath of the Arab Spring, Facebook is now seen as being worth 10 divisions.

The present size of the army is 490,000, down from 1 million at the end of the Vietnam War. Plans are to reduce the force by 80,000 over the next decade, partly made possible by the withdrawal of troops from Iraq and Afghanistan. The goal is to offset this decline with stepped up training and education of the remaining soldiers to accept greater responsibilities. The challenge is to achieve this without ?hollowing out? our forces.

The Joint chiefs are well aware of the fiscal and deficit problems plaguing the US. During the Cold War, the base defense budget peaked at $400 billion, fell to 310 billion by 2001, and ratcheted back up to $510 billion after 9/11. Spending for Iraq and Afghanistan are separately appropriated funds that go on top of this. The target is to lower this to $489 billion over the next ten years. Manpower accounts for 50% of the defense budget, and the cost per soldier has doubled since 2000, making it far and away the biggest cost driver. If budget sequestration comes into force after November ?it will be difficult for the Army to accomplish its mission.?
Odierno says that the Army has made ?incredible progress? training local forces in Afghanistan.

The recent upsurge in suicide bombings and ?insider? attacks prove that the Taliban is losing and is being forced to retreat from the field. This should enable a cut in our forces there from 80,000 to 50,000 by 2014, reducing their role to counter-terrorism and training. While the drone attacks in Pakistan were controversial, they were bringing results, and a major part of the Taliban leadership has been wiped out.

He was optimistic about the future of Iraq. The country is expected to increase oil production from 3 million barrels a day to 5 million, making it the world?s fourth largest producer. If they share the wealth they can look forward to a more stable future. If they don?t, then the internal strife will continue. He wouldn?t get into whether it was a good idea to invade Iraq or not. But removing Saddam Hussein from the global stage has been good news for everyone, especially the Iraqis themselves.

Regarding Syria, Odierno said that he had prepared a list of options for President Obama, and it was up to him to decide what to do. It starts with the existing humanitarian aid and escalates in intensity from there. Next on the list is the enforcement of a ?no fly? zone. I asked why we didn?t just supply the rebels with hand held ?stinger? ground to air missiles, as we did in Afghanistan 25 years ago, with great success. He said it is unclear who the rebels really are and what they represent.

We know that Al Qaida is certainly on the ground in Syria, as foreign fighters account for 10% of the rebel force. The concern is that terrorists could get their hands on these missiles and use them against our own civilian airliners. Odierno chose his words very carefully, as if gingerly stepping through a minefield. Past experience tells me this means that action is imminent.

The general indicated that the Army was making a substantial investment in cyberwarfare. This goes far beyond simple antivirus protection and now includes protection of American financial and industrial networks. It also includes offensive capability. The next war may not start with flying bullets, but with a volley of pernicious computer files that disable enemy communications networks, military, and industrial facilities.

There are hints that this is already underway against Iran, which recently sustained serious damage to its nuclear program from the Israeli ?stuxnet? virus. One of his aides suggested that we now have the ability to ?fry? a country in ten minutes.

I asked the general about the upsurge in army suicides, which are now occurring in record numbers. He said that it was a reflection of American society as a whole, which is seeing a nationwide increase in suicide rates. These are not the fallout from post-traumatic stress, because over half of the deaths have been by soldiers who have never seen combat. The Army is now conducting educational programs to allow officers to identify those at risk. That is tough to do in a profession that values strength and sacrifice.

General Odierno graduated from West Point in 1976 with a commission in field artillery. He has commanded units in Germany, Albania, Kuwait, Iraq, and the US. He commanded the 4th Infantry Division during the invasion of Iraq, and years later became the operational commander for the highly successful ?surge? there. He has been the Army Chief of Staff since 2011.

When I got up to leave, he thanked me for my service. I said that his contribution had been infinitely greater. I reminded him that he had my number and could call at any time, and that I considered the opportunity to serve the country an honor and a privilege. With that, his security guard hustled him out of the room. I wondered how soon the next call would come.

Now Better Trained and Educated

August 28, 2012/by DougD

An Evening With Travel Guru Arthur Frommer

Evening VIP

When I backpacked around Europe in 1968, I relied heavily on Arthur Frommer?s paperback guide, Europe on $5 a Day, which then boasted a cult like following among impoverished, but adventurous Americans. Over the following years he directed me down cobblestoned alleyways, dubious neighborhoods, and sometimes converted WWII air raid shelters, to find those incredible deals. When he passed through town some 44 years later, I jumped at the chance to chat with the legendary travel guru.

Frommer believes there are three sea change trends going on in the travel industry today. Business is moving away from the big three travel websites, Travelocity, Orbitz, and Priceline, who have more preferential side deals with airlines than can be counted, towards pure aggregator sites that almost always offer cheaper fares, like Kayak.com, Sidestep.com, and Fairchase.com.

There is a move away from traditional 48 person escorted bus tours towards small group adventures, like those offered by Gap Adventures, Intrepid Tours, and Adventure Center, that take parties of 12 or less on culturally eye opening public transportation.

There has also been a huge surge in programs offered by universities that turn travelers into students for a week to study the liberal arts at Oxford, Cambridge, and UC Berkeley. His favorite was the Great Books programs offered by St. Johns University in Santa Fe, New Mexico.

Frommer says that the Internet has given a huge boost to international travel, but warns against user generated content, 70% of which is bogus, posted by the hotels and restaurants touting themselves.

The 81-year-old Frommer turned an army posting in Berlin in 1952 into a travel empire that publishes 340 books a year, or one out of every four travel books on the market. I met him on a swing through the San Francisco Bay Area (his ticket from New York was only $150), and he graciously signed my tattered, dog-eared original copy of his opus, which I still have.

Which country has changed the most in his 60 years of travel writing? France, where the citizenry have become noticeably more civil since losing WWII. Bali is the only place where you can still travel for $5/day, although you can see Honduras for $10/day. Always looking for a deal, Arthur?s next trip is to Chile, the only country in the world he has never visited.

Arthur?s Next Big Play is Bali

July 30, 2012/by DougD

An Evening With Hillary Clinton

Evening VIP

When Secretary of State Hillary Rodham Clinton passed through San Francisco last week I jumped at the chance to get an up to date overview on American foreign policy. The former first lady was making a brief San Francisco stop on her way to meet leaders on an extended Asian tour.

She showed up wearing one of her trademark charcoal pantsuits and a subdued gold necklace, her blonde hair with tinges of grey having grown out from previous years. She was clearly at ease, and far more relaxed than when I had seen her in Washington, having once lived here and counting legions of friends. An extended vacation from the daily hand to hand combat of American politics must also be at work.

Hillary is fundamentally restructuring America?s conduct of its foreign policy through the implementation of a quadrennial review, similar to efforts already in place at the Defense Department. While pulling together the many competing and diverse strands of thought at Foggy Bottom and countless other government agencies is nice in theory, it is devilishly difficult to implement in practice.

Afghanistan is front and center on her plate these days, as her recent visits to Kabul? testify. The US is executing a two pronged military/diplomatic strategy of stepped up bombing, while enticing the Taliban to the negotiating table. The code words are ?reintegration? and ?reconciliation?.

The first is intended to bring young Taliban fighters back to civilian life, who were often forcibly conscripted. The second seeks to bring their leadership to our side and to cut links with Al Qaida. The US has also tripled civilian aid workers in country to propel the development of a stable economy. For the last three decades the Taliban were offering the best paying jobs in town because they were the only jobs.

In Pakistan, from where the Taliban now launches most of its operations, the military is the strongest and most stable institution in the country. Recent floods have made the infrastructure needs of the country even more pressing. But before the US helps this volatile Moslem country, it must help itself first, through the raising of taxes. At 9% of GDP, Pakistan has the world?s lowest taxation burden, with many of the wealthy elite paying less than $100 a year.

Iran is a difficult nut to crack, as there are disputes raging within the country on which direction to take. Hillary?s State Department is pushing for a common negotiating forum with Europe to bring Iraq to the table on the nuclear issue, which will hopefully yield results.

The administration may push the passage of the START treaty with Russia on nuclear weapons control in the Senate, which has so far received bipartisan support. The US is supporting Russia?s application to enter the World Trade Organization because of its assistance in stopping weapons flows into Afghanistan and its anti-terrorism efforts.

The US supports China?s peaceful rise, but the picture is complex. China has certainly earned points through buying our debt and imposing sanctions on North Korea and Iran. It failed to move forward during the Copenhagen climate negotiations, but then went home and initiated enormous alternative energy projects on its own. The revaluation of the Yuan, relations with Taiwan, human rights, and the status of the Dalai Lama stand out there as potentially contentious issues.

Relations with Mexico are a top priority. The US is helping the beleaguered country in its brutal war against drug lords, which are now fielding paramilitary forces adopting terrorist tactics. Car bombings have become a regular occurrence. The US is partly responsible for Mexico?s plight with its endless demand for illegal drugs and a steady supply of weapons South of the border. We are bolstering law enforcement efforts, and helping raise a conviction rate in drug cases of only 2%, partly because so many witnesses disappear.

Hillary has launched a complete reorganization of US foreign aid efforts, which are currently scattered around 24 different government organizations whose management don?t know or contact each other. This will be rebuilt around the USAID organization originally established by president Kennedy, so the expenditure of hard fought tax dollars can become more efficient (click here for their site at http://www.usaid.gov/about_usaid/ ). The US lost its way in foreign aid during the seventies, was hollowed out by successive conservative administrations, and degenerated into wasteful subcontracting to non-governmental organizations.

There are few places I can go to get a complete, well researched, well thought out, truly global view. Hillary Clinton is certainly one of them.

June 10, 2012/by DougD

Wal-Mart Is on Safari for Customers in South Africa

Evening VIP

It looks like the next ?blue light special? will be offered in South Africa (EZA), (AFK) Apparently, the retail giant, Wal-Mart (WMT), got the memo that the country is a great place to invest (click here for ?On Safari for Trades in South Africa?). It?s $4.3billion bid for retailer Massmart is a huge vote of confidence for that emerging nation.

My old friend, Carl Van Horn, the former chairman of JP Morgan Investment Management, taught me a golden rule a long time ago that has proved invaluable over the decades. Follow the money. Go to the industries and countries where the big companies are making their direct investments, because the stock market always follows.

What is Wal-Mart seeing in South Africa, with unemployment at 25%, and a simmering race war percolating just below the surface? Perhaps it believes that skyrocketing prices for the gold and diamonds, the beleaguered country exports will trickle down to the main economy, cutting the jobless ranks and accelerating development. Booming economies tend to have a salving effect on social problems too.

That would be a boon for retailers selling not only to a rising middle class, but to the rest of emergent Africa as well (click here for ?Feel Like Investing in a State Sponsor of Terrorism?). Wal-Mart is not alone in this leap of faith. Check out the ETF for this fascinating country and consider scaling in on the current big dip.

Headed for the Blue Light Special?

May 20, 2012/by DougD

A Chat With Bill Clinton

Evening VIP

I opened the e-mail at my usual wake up time of 4:00 am. President Bill Clinton was playing with Tiger Woods at the Presidents? Cup PGA tournament at the Harding Park Golf Course in San Francisco today. Would I have time for a chat about US economic policy afterwards?

That afternoon, in walked Bill, sunburned from his morning on the links, to chew the fat with some Bay Area business leaders. I can?t say who else was there, but I?ll give you a hint: I was the only one without a NYSE listing.

Bill says that the US needs a new job engine every five to seven years to continue growing. Reagan had the personal computer, he had the Internet, but since then there has been nothing. As a result, new job creation fell from 23 million during his administration to a net job loss of 1.5 million during the Bush years (click here for BLS stats ), causing real standards of living to fall for two thirds of all Americans.

The big challenge is how to bring back the economy without burning up the planet. $1 billion of new spending would create only 870 jobs in a conventional coal fired power plant, but 2,000 jobs for a solar plant, 3,300 for a wind facility, and 6,000 from improved building efficiencies. So creating a new job engine is a matter of political survival for Obama and the Democratic Party.

Bill believes that getting health care costs off the back of corporations is also essential for recovery. As things now stand, all of our net new economic growth is going to cover increased health care costs. And that only gets us an outcome that ranks 25th globally.

Clinton now devotes himself to his Clinton Global Initiative, on non-profit which coordinates inter-governmental cooperation in health care, education, and the environment, and has raised $57 billion for new development projects (click here for their website).

He was incredibly well informed, obviously still has access to confidential intelligence briefings, and rattled off statistics like an M60 machine gun. You really get the impression you are dealing with a Rhodes Scholar. I reminded him of the 1968 anti-war demonstration we both attended in London and he laughed. It?s great to see someone still warding hard, even when they can sit back on their laurels and coast if they choose.

May 17, 2012/by DougD

Dinner With Nobel Prize Winner Dr. Joseph Stiglitz

Evening VIP

The great thing about interviewing Joseph Stiglitz over dinner is that you don?t have to ask any questions. You just turn him on and he spits out one zinger after another. And he does this in a kibitzing, wizened, grandfatherly manner like one would expect from a character that just walked off the set of Fiddler on the Roof. The unfortunate thing is that you also don?t get to eat. The Columbia University professor and former World Bank Chief Economist animatedly talked the entire time, and I was too busy feverishly taking notes to ingest a single crouton.

Stiglitz argued that for 30 years after the end of the Great Depression there was no financial crisis because a newly empowered SEC was on the beat, and everything worked. A deregulation trend that started under Reagan began stripping away those protections, with the eventual disastrous repeal of Glass-Steagle in 1999. The philosophical justification adopted by many economists, including Fed chairman Alan Greenspan, was that unfettered markets always lead to efficient outcomes.

This belief was based on simplistic models assuming that markets were always perfect, always open, and that everyone had perfect information. Stieglitz?s own work on ?information asymmetry,? which earned him a Nobel Prize in economics in 2001, pulled the rug out from under this theory, because it showed that one party to a transaction always has more information than the other, often the seller.

The banks used this window to introduce super leveraged derivatives that had never been regulated, studied, or even understood. They then clawed open accounting loopholes that were so imaginative that not only were shareholders and regulators deceived about how much risk was involved, senior management was clueless as well. Instead of managing risk, they created risk.

A 2006 GDP that was 80% derived from real estate transactions and a savings rate that fell to zero meant that a severe crash was a sure thing. President Bush?s response was to unleash an extreme form of ?trickledown? economics, with the banks given $700 billion with no conditions attached. Intended to recapitalize the banks so they could resume lending to the mainstream economy, much of the money ended up being paid out in bonuses and dividends. Of the $180 billion used to rescue AIG, $13 billion went to Goldman Sachs, and much of the rest went to German and French banks. No wonder Main Street feels cheated.

The financial system is now more distorted than ever, with major institutions wards of the state, and smaller banks that actually lend to consumers and small businesses going under in record numbers, because the playing field is so uneven. There are too many structural conflicts of interest. The ?once in a 100 year tsunami? argument is merely a justification for changing nothing. Banks would rather maintain the fiction that the loans on their books are good, than make adjustments, meaning there will be more foreclosures in 2012 than in 2010 or 2009. No financial system has ever wasted assets on this scale, and the end result will be a national debt many trillions of dollars larger.

The $787 billion stimulus package was too small, and should have been at least $1.2 trillion, but there was no way Obama was going to get more out of this Senate. The 40% of the stimulus that was tax cuts will get saved and create no immediate beneficial effects on the economy. More money should have gone to the states, which unable to deficit spend, are now a huge drag on the economy. But even this meager package was able to prevent the unemployment rate from rising from 10% to 12%, as it was set to do. The inadequacy of the first package means a second is almost a certainty. Any major spending cuts will produce ?Hoover? outcomes.

The outlook for the economy is bleak, at best.

Well, I don?t get to chat at length with a Nobel Prize winner every day, so I thought I?d give you the full blast, even though I had to leave a lot out. I?ll talk more about markets tomorrow.

March 28, 2012/by DougD

Murray Sayle: The Passing of a Giant in Journalism

Evening VIP

I was saddened to hear of the death of my close friend, the Australian, Murray Sayle, after a long battle with Parkinson's disease at the age of 84.

Murray was one of the giants of journalism in the second half of the 20th century. He started by editing the newspaper at University of Sydney, where his incendiary opinions got him expelled from school. It seems there was a problem with his suggestion to erect a statue of Priapus at the administration building honoring the chancellor, but only at the back door. He moved on to London's Fleet Street in 1952, arriving as a wet behind the ears, but sassy colonial, and landed a job with a small paper named The People. This was when the media was then dominated by giant daily broadsheets. He went on to become the quintessential war correspondent, reporting for the London Times, known in the trade as the ?Thunderer?, because the building shook when its giant presses ran.

I first met Murray in 1975 at a Mensa meeting in Tokyo where I was presenting a paper on the chemical structure and properties of tetrahydrocanabinol. Murray was on the hunt for a story, as always. He was cooling off after a decade of dodging bullets, bombs, shrapnel, and napalm covering the war in Vietnam. Murray once told me that since his writings were often perceived as antiwar, it was a tossup who would shoot him first, the Vietcong or the Americans. Murray told me that the Foreign Correspondents' Club of Japan had one of the best English language libraries in the country, and that he would be happy to sponsor me for membership; thus inadvertently, launching me on a career in journalism.

Murray moved into a converted 19th century silk worm grower's farm house in a small mountain hamlet three hours outside of Tokyo with his wife Jenny, his tireless and loyal supporter. There, they raised three children who went through the local Japanese school system, soldiering on in their 19th century black German cadet uniforms as the only white kids in the district, emerging as flawless interpreters. I often made the long and arduous trip to Aikawa-cho (?Love River?) on weekends, spending long nights over endless flasks of hot sake listening to Murray drunkenly quote extended passages verbatim from Rudyard Kipling. We passionately debated the issues of the day until we fell asleep at the kotatsu. If I learned nothing else, it was that there is always another way to look at any issue. As I had the tendency to always turn up with a different Japanese girlfriend, his pet name for me became 'Randy'.

Over a career that spanned nearly 70 years, Murray scored countless interviews with notoriously difficult to reach figures, like Ch? Guevara and Yassir Arafat. He managed to nail defecting British spy, Kim Philby, by staking out the one newspaper stand in Moscow that sold the Financial Times. Murray would regale me with tales of Ugandan dictator 'Big Daddy' Idi Amin, who stored the severed head of his wife's former lover in his refrigerator. Murray won numerous awards for his Vietnam coverage and for his description of the barbarous downing of a Korean Airlines flight 007 off the coast of Japan by a Russian fighter in 1983, which killed 269 helpless civilians.

Just before he died, the university that shamefully ejected him 65 years earlier, made amends by awarding him an honorary doctorate. The wit, candor, and insight of this larger than life figure will be sorely missed.

February 16, 2012/by DougD

Cookie and Privacy Settings