Global Thoughts 7 February 2007

Elizabeth’s first gelato…Miami Beach 29 January 2007.

Some exciting news on the personal front — Karen and I are expecting our second kid the first week in August. We hope to be a Family of Four. That means that sometime soon you won’t just be seeing pictures of Elizabeth Regina.

I get the Financial Times delivered daily and I really find it interesting. So much more so than the Wall Street Journal which is easy to miss. An op-ed column and a book review lead this month’s Thoughts. 

A column by Chistopher Caldwell on 6 January quoting a book “Sons and World Power” by Gunnar Heinsohn, social scientist and genocide researcher at University of Bremen basically says that if you look around today and historically, if you want to know where the violence is look for countries with large and bored populations with at least 30% between the age of 15-29. The rather young American colonialists revolted against the British in its heyday and today’s Germans with small youth populations is now pacifist unlike a generation or two ago. The Moslem countries with tons of youth are in revolt, even with no Jews in Gaza for example. 60 of 67 countries with Youth Bulges are in civil war or mass killing and 13 of the top 27 Youth Bulge countries are predominantly Moslem. But forget about religion as a source of conflict, he says; just wait for the youth to grow up. Countries with few children refuse to send them off to fight. 

A book review talked about the Revolution in Judea — the area populated by Jews under the Roman Empire in the first century of the common era. See Financial Times, 5 January, Rome and Jerusalem: The Clash of Ancient Civilizations by Martin Goodman. The writer notes that one day during a Jewish festival a lowly Roman soldier farted in someone’s face and people demonstrated. The second-rate general in Judea called on Rome for help. In that overreaction, Rome sent in legions of soldiers who then killed thousands of people. Seems rather nuts especially since the Romans hadn’t really had a problem with the Jews until then which was why they had second-rate people in Judea in the first place. Until you hear about these race riots in Indian over some article about language in a newspaper; the demonstrations in 30 countries following cartoons about the Prophet Mohammed in Denmark. Has the world changed and are momentous events in history overreactions coupled with incompetence headed by rather ordinary people? This week hundreds died in civil war in Iraq. No doubt that various deeds of incompetence brought it about — at least this week we know that the US decimated a Shiite militia that operated in Sadr City in Baghdad but put nothing in its place. So the Sunnis had a free kick and took it. Everybody thinks this could have been prevented had the US and its partners gotten its act together instead of having second-rate people running the show from afar.

It took me 2 months but I finally got through Woodward’s book “State of Denial.” It is an anxiety-provoking book that basically says that the people running the Bush Administration coupled with Iraq were terribly incompetent bordering on criminally incompetent. More than that is 600 pages to read but it’s all commentary and piling on to the main point. I hope the next administration does better. I understand that people might vote for Bill Clinton as First Lady. Unless Hillary Clinton self-destructs, I don’t see Obama winning this time around and the advantage goes to the Democrats. I think that McCain is making a mistake backing an increase in Iraq and that he is going against the tide of the public opinion. People are going to want a change in direction in 2008, something centrist and demonstrated competence. Clinton will probably score high on all these points and she just has good scores on being a senator so far.

Israel is in a similar situation. Ehud Barak is somebody nobody likes but he is getting more support even from people who hate him. They think he is competent and they think that Israel will be on a war footing this year and want to see somebody who they think can handle the military aspects of the job. They hope against hope that he has changed a bit so that he might be less arrogant. How will he stack up against Tzippi Livni or perhaps a rematch with Bibi Netanyahu? I don’t know yet but Olmert’s future is becoming increasingly risky; it is a Democratic country and it is hard to believe that Olmert can continue with such low ratings just because the politics is in place. Perhaps right now he can but people are figuring that sooner or later the ground must shift because it’s just not feasible to continue on for years being so unpopular. Also, the more you believe that war is inevitable, as I said earlier this year, the more you believe Olmert has to be replaced because he was elected to make peace not war.

By the way, if you believe the news this month about Syrian-Israeli talks during the past year, we now know why the Syrians were kept out of the summer war. They were talking to each other even during the war. I think though that Olmert is weak, the Syrians will not care to deal with someone they fear may not be able to deliver the goods and that Olmert is not interested in dealing with Syria because he can see the risks but not the benefits. Saudi Arabia is a more interesting partner but between Hamas and Fatah the divisions are so huge that not even Mecca can bring them together for a ceasefire that lasts a week.

China according to Stratfor intelligence will be a problem this year. Economic expansion is causing unrest and the Chinese are simply covering up the non-performing sectors such as banking. They are working to consolidate power ahead of upcoming crises, executing bad officials and making nice-nice with the Vatican trying to get rid of possible problems. I don’t own China equities; I bought Malaysia this year on top of the Singapore, Australia, and Hong Kong I already own. Vietnam I understand is overvalued and India definitely is.

One trend I’m noticing is that private equity is attracting more of the Wall Street investment and managing talent. Public companies have become so burdensome to deal with as investments or as officer-directors that the best and brightest are being attracted to private equity firms and various companies are either not going public or are going private. This is a reaction to over-regulation and it won’t be long before hedge funds collapse and people remember why we went overboard with regulation. At the same time I suppose this year the Congress will liberalize some of the previous regulation to restore a balance. It is not helping the public if too much talent simply runs away from the public markets because they will then be left with second-rate people running second-rate companies.

Interesting Stratfor article notes that Iran’s top nuclear scientist was found dead a few weeks ago and they think that the Mossad might have knocked him off. If so it’s a good way to deal with Iran — knock off the top scientists and besides eliminating the brains it also scares the other scientists. There is a debate as to whether assassinating Ahmadinejad would be a good idea; if Rafsanjani simply takes over and does the same thing with a smile, did anything get accomplished while you now have a scary guy in charge who the world turns into a target to isolate Iran? The other side says if you kill him you’ll scare everyone to know that the subject is a subject not worth talking about publicly and they will not pursue those aims. The US could be more clever; instead of saying we are raising our reserves and having the oil markets jump for joy at higher prices, say we have all we need and get Saudi Arabia quietly to provide more reserves. Everything we do to drive up the price of oil simply gives the Iranians additional succor.

Alan Dershowitz, an outspoken attorney in the US who comments on public issues, has really gone after Jimmy Carter. Carter has received lots of criticism over his book about Israel and the Palestinians that has the word “apartheid” on its cover. Dershowitz goes a bit further and looks into the millions of dollars in donations that Carter’s foundation has received from various anti-semites and Arabs since he left office and noted that Carter doesn’t criticize human rights in the countries that provide him funding. We’re talking millions of dollars. Dershowitz says 

…..I now believe that there is no person in American public life today who has a lower ratio of real to apparent integrity than Jimmy Carter. The public perception of his integrity is extraordinarily high. His real integrity, it now turns out, is extraordinarily low. He is no better than so many former American politicians who, after leaving public life, sell themselves to the highest bidder and become lobbyists for despicable causes…..

I’ve written in the past about how you find out about what drove American presidents as presidents when you look at who gives them money after they leave office. This example about Carter is no different than the others but it is instructive because of the aura of integrity that Carter portrays.

Dershowitz in particular takes pot shots at the former UAE head Sheikh Zayed and notes that Harvard returned the donations from his foundation while Carter refused to. Meanwhile, there has been lots of articles about the new cultural center being built in Abu Dhabi; sounds very exciting and I can’t wait to see it in a number of years. It is a great opportunity to change the culture of the area and even though today it will be a copy of all things western in time perhaps it will spur the organic growth of some new form of arts-oriented culture that the Arabian countries have yet to bring forth in this century.

England will vote in a new leader this year. There is still much work to do there even with Blair’s infrastructure investment. The country still is behind others especially if you look at their awful health care and insurance system.

Vladimir Putin is rather brilliant in Russia and he is gem of a find. Nationalizing all the strategic industries and natural resources will concentrate wealth in Mother Russia and help it rebuild its power as it becomes a manufacturer and exporter and its people get more money to purchase goods and services. He has proven effective at getting satellite countries and Europe to bend to his will by using state assets such as pipelines to withhold things that others need. They criticize him but he gets his way and they keep dealing with him despite the complaints. Knocking off Putin would help ensure that Russia stays down in the next generation. Or perhaps the next president will do as his predecessors have done, turn on Putin after he takes over and self-destruct in the process. I personally have no interest in getting involved in today’s Russia — it is a closed game that has no real order for outsiders. Russia will be healthy for those in power but it will always be a second rate country because it is not free to allow the people to make it great — it is strictly  top down.

Bush has done the most nutty thing since coming into office — he now wants to tax health insurance premiums in excess of $15,000 a year. Even though a decent health insurance plan in New York for a family costs about $25,000 a year if you want the right to choose a doctor under a PPO-type plan instead of having to stay within a network of clinics which is known as an HMO-type plan. So this means that if I get health insurance benefits from my company, I would have to pay tax on $10,000 of the benefit. What will really happen of course is that companies will have to raise salaries so that their employees will be able to pay the taxes and of course 40% of the raised salary will itself go to taxes. People want health insurance more than any other benefit — This is a perfect example of how the Republicans talk about tax cuts and about the Super Wealthy but in fact do things that hurt the Middle Class and effectively raise taxes for the majority of Americans more so than the Democrats ever did. A PPO-type plan is not considered something only for Super Wealthy people. Between not dealing with the marriage penalty or the Alternative Minimum Tax, both items which have hurt middle class Americans, they have been responsible for some of the biggest tax increases in a generation. Meanwhile their tax cuts have been so small that you get more money back using your American Express card to pay the tax (a 2% cash back rebate) than you do from the tax cut! Anyway, I’m sure this has made lots of ordinary people mad as hell, even those who don’t give a damn about anything else.

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