Why We STILL Need America – and Obama

By Shlomo  Maital

Long Ranger

 As a child, I recall listening to The Lone Ranger on the radio.  The Lone  Ranger wasn’t alone; his Indian friend Kemo Sabe rode with him. Together they fought evil, injustice, crime and helped the helpless.

  Today America is again The Lone Ranger.  Ebola outbreak?  America sends 3,000 soldiers to set up as many as 17 emergency treatment centers in Liberia.  Why? No other country can or will.  And Ebola is a threat to all of Africa and perhaps the world. Liberia is an entire nation under lock-down!  And health workers and journalists are murdered in Guinea, by suspicious villagers who think they are bringing the disease rather than fighting it.

  ISIS? (Obama is right.   It is really ISIL,  Islamic State in the Levant, because ISIL believes they will establish the Caliphate throughout the Mideast, including Lebanon and Israel. What you call things DOES matter!).   America to the rescue, leading a ‘coalition’, but have no doubt, most of the military action will be American.  Because Europe has given up defense spending and prefers to shelter under American defense spending.

    If there is a major humanitarian disaster somewhere in the world, that takes resources and abilities,  it will be largely America to the rescue. 

    So, yes, we can criticize America, Americans and their leader President Obama.  But as many have noted,  at present there is no other country who can come close to replacing America, in its will and ability to come to the rescue, like The Lone  Ranger.  And yes, America does stumble, fail to fully understand the cultures in which it operates, and yes, it does endlessly debate its decisions to intervene abroad.  But in the end,  like The Long Ranger, America is there.

    So – thanks, America.  We really do give you a bad rap.

 

Why U.S. Stock Price Rise IS a Bubble — Beware

By Shlomo  Maital

Bubble

  The Standard & Poor 500, the broad index of Americna stocks, has set new records this summer.  This, despite the flagging U.S. economy, an unpopular President, gridlock in Congress, and mountains of cash held abroad by U.S. multinationals, stubbornly refusing to invest it in their own country.

   Writing in the London Telegraph, Andrew Davis notes:  “US shares are undoubtedly expensive – on some measures such as the Cyclically Adjusted Price-Earnings ratio, which uses a 10-year average of earnings to calculate their current valuation, they have only been more expensive a few times in the past century. “

   What is going on?  Is it a bubble?

   Andrew Davis has a simple answer.  Stock buy-backs.   

“Companies are using their cash, and cheap interest rates, to buy their own stock, in large amounts.  That said, it is clear that one of the forces that has driven the long rise in US equity prices has been the willingness of companies to buy back their own shares. A lot of this buying has been funded by companies taking advantage of extremely low interest rates to issue debt and using the proceeds to buy in their own equity.”

     Personally I would not invest in companies that have nothing better to do (R&D, innovation, HR, infrastructure, facilities, IT) with their cash than curry short-term favor with myopic shareholders by artificially pumping up their own stock price.  When I tell this to CEO’s, they frown, or worse – but they agree, in their heart of hearts.  They simply feel they have no choice but to buckle under shareholder pressure.   

   They DO have a choice.  Present a capital investment program. Invest when other companies are afraid to.  Then, when the recovery finally comes, you will have a major competitive advantage —  and your stock price will rise for the right reasons. 

Scotland: The REAL Story

By Shlomo  Maital  

 Scotland

  The Scottish flag, chosen by the Scottish Parliament in 2003 (yes, there is such a thing)  is very beautiful; it forms part of the flag of the United Kingdom and Northern Ireland.  (There was a huge debate over the precise color of blue). 

 Today the Scots are voting on independence.  The vote is very close.  It is roughly even.  Some 4.2 million Scots men and women have registered to vote, or 97 per cent of the voting age population aged 16 and over (yes, 16 and 17 year olds can vote!).   It is expected that at least 80 percent will vote. I predict the ‘no’s’ will win, by a small margin. 

   There is fierce controversy. UK Prime Minister David Cameron predicts apocalypse, catastrophe, if the vote is “yes”.  And just a one-vote margin in favor of yes will do the trick.   There are many who favor a ‘yes’ vote and independence, predicting utopia.

    Where does the truth lie?

     Smack in between. The truth is, it makes almost no difference whether Scotland is an independent nation or remains a part of the UK.

    Why?     If “yes”,  it will retain the British currency, the pound, trade with Britain, remain part of the EU… basically nothing of importance will change.  What will change is that Scotland will be formally, nominally and independent country.  So?  Who cares what you call it?   What matters to the people of Scotland is their wellbeing and standard of living.  And that simply will not change.

    So, don’t believe the hysteria.  Neither ‘yes’ nor ‘no’ vote hysteria is right.

     Scotland is part of a broader geopolitical picture – the fact that increasingly politics is local, while business is global. The reason is, many regions feel they can do better without the burden of the lazy bureaucrats in the central government.  And there is some evidence. Slovenia divorced Yugoslavia, just in the nick of time, and has done super-well.  Bangla Desh divorced Pakistan, and has not done so well, though arguably better than Pakistan.  Quebec did NOT divorce itself from Canada; if it had, it would really not have mattered, business would have remained global (Canada wide).  

     What about Scotland’s vast oil wealth? It’s not really wealth; it is leased by big oil and Scotland gets royalties, not that much, because this oil is among the most expensive in the world to pump from under the sea.   What about Britain’s nuclear naval base in Scotland?  It won’t change; it will be leased.  Who owns the RAF jet fighters based in Scotland?  Well, who the heck cares?

     Let the politicians on both sides babble on.  Business, trade, economics are global. They disregard borders these days.  So whether or not there is an imaginary border between Scotland and England matters not at all.

The Super-Rich: The REAL Explanation

By Shlomo  Maital

    Roger Martin

Roger Martin

 

  Want to know the real story behind the super-rich – those who pull enormous inflated salaries?  The Dean of Univ. of Toronto’s Rotman School of Management, Roger Martin, a former McKinsey principal, tells us the story in the latest issue of Harvard Business Review:

    The rich are getting richer in the United States, surely, but the real problem, says this former business school dean, is who exactly is getting mega-rich and how. It’s not the capitalists (that is, the shareholders and investors). It’s the speculators (the people who manage their money). The top 25 hedge fund managers in 2010 raked in four times the earnings of all the CEOs of the Fortune 500 combined. How come?

Here is the explanation.

Through a once-obscure mechanism called the “2&20 formula.” Derived from a 2,000-year-old practice whereby Phoenician ship captains took 20% of the value of a cargo successfully delivered, it’s the formula that governs how hedge fund managers are compensated — a 20% cut of the profits generated (taxed at the 15% capital gains rate) on top of a 2% asset management fee. And what are those 25 people doing? They’re borrowing stock, holding it for sometimes less than five minutes, and creating and profiting from the resulting volatility.

And – the solution? Pretty simple, according to Roger Martin:

 This problem can be fixed with tax laws that penalize high-frequency trading and require the profits to be taxed as income, and concerted efforts among pension and endowment funds to stop lending the overpriced hedge fund managers the stock they’re playing with.

   What are the chances the U.S. Congress will fix the problem?  With obstructionist Republicans calling the tune, and with November elections upcoming, with the Democrats  in danger of  losing control of the Senate – less than zero. 

National Happiness – 2013 Rankings

By Shlomo   Maital

Happiness

  Three eminent economists – Richard Layard, John Helliwell and Jeffrey Sachs – combine to prepare an annual World Happiness Report.   Their measure is based on self-assessed happiness, interpreted as “satisfaction with life” together with the perceived emotion of wellbeing.  In their latest report,   for the years 2010-12,  (see above), Scandinavian and Northern European countries rank highest, along with Canada, Austria, and surprisingly,  my country Israel (11th), despite the Mideast conflict,  and Costa Rica, a relatively poor but serene and beautiful country.  Note that Mexico, at 16th, ranks above the United States, despite the latter’s $50,000 GDP per capita.

Why?  The answer is simple.  Happiness, note the authors, is driven in part by the standard of living (per capita GDP), but also by life expectancy, social support, freedom to make life choices, and generosity.   This is why Qatar, the wealthiest country in the world by far, with per capita GDP of nearly $100,000, ranks only 27th, because it is a rigid autocracy.

   I am amazed at how poorly individuals and whole nations practice the simple art of best-practice benchmarking.  If you are a political leader, and if your avowed goal is to improve the wellbeing of your citizens, the ones who elected you, would you not explore the world and visit the places in which people are the happiest, and try to find out why?   And would you not try to bring home some of the “recipes”  they use – income equality, social support, generosity, social cohesion?

     I get this response very often when I make this argument:   Israel is not Denmark. Followed by all the excuses.  And my response is:  Well – why isn’t it?  Can we make it so? 

     There is a lesson for individuals in this Report, not just for countries.  True, you do need a basic level of income to be happy. But you also need the love and support of family, the generosity of others, and good health (supplied, as a public good “health care”, by good governments, or at least they should).  Even if you have high income, if you lack the other ingredients, the income may not help much.  Keep this in mind.  

Meltdown 2015 – 7 Reasons It May Happen

By Shlomo   Maital

meltdown

 IMD (a leading European business school based in Lausanne, Switzerland) Professor Arturo Bris offers eight reasons why a financial and economic meltdown in 2015 is likely.  He may be wrong – but we should all be aware of the underlying danger signals.  Forewarned is forearmed, or, as the Boy Scouts say,  “be prepared”.

  • Stock market bubble: equities rose 18 percent between June 2013 and June 2014.  Bob Shiller (Yale) says the gap between stock prices and corporate earnings is larger than it was in the crisis periods of 2000 and 2007. Why the bubble? Because there is just so much money, those who hold it are desperate to put it SOMEwhere… no matter what.
  • Chinese banking system:   Need more be said?
  • Energy crisis:   If the US Congress allows energy exports, it could crash the price for oil, and sink Russia and other oil-reliant countries. This could lead to violence.
  • New real estate bubble:   The housing bubble is back – low interest rates, rising real estate prices in many markets.
  • Corporate failures:   Corporate debt is now rated, on average, BBB. This means that in the next 5 years about 16 companies in the S&P 500 will go bankrupt. This could have major impact.
  • Geopolitical crisis: The world is a huge mess, with civil wars raging in the Mideast and elsewhere.
  • Poverty crisis: The number of people in the world living in abject poverty grows.   This is dangerous; because desperate people may do desperate things.
  • Cash crisis: There is simply too much money out there. Central banks have printed enormous amounts of cash, and it is floating around the world. Some banks and some companies are so rich they could buy entire companies (anyone want to buy Israel? Jamaica?).   Right now that money is just sitting. If it starts to move, if its velocity rises, we may get huge problems.
  • It is possible to prevent a meltdown, if a) politicians are aware it could happen, and b) begin taking action NOW.   But both a) and b) are highly unlikely. We the people should therefore try to be aware of the meltdown danger, and begin taking our own steps to protect our families our incomes and our assets

How Competing For Grants Kills Science – and Scientists’ Motivation

By Shlomo   Maital  

Science lab

   This is the sad story about how a shortage of resources, and the system of competitive funding of research grants through peer-review, is ruining U.S. science and killing scientists’ motivation.   I heard it today on America’s National Public Radio News, in a report by Richard Harris.

   Ian Glomski thought he was going to make a difference in the fight to protect people from deadly anthrax germs. He had done everything right – attended one top university, landed an assistant professorship at another.  But Glomski ran head-on into an unpleasant reality: These days, the scramble for money to conduct research has become stultifying.  So, he’s giving up on science.  Ian Glomski outside his home in Charlottesville, Va. He quit an academic career in microbiology to start a liquor distillery.

Why is he giving up????  

Because to get grants, you need to ‘tweak’ safe existing ideas, so your peers will approve it; because if you have radical ideas, your peers who judge the grants competition will shoot them down, because if you succeed, those ideas will endanger the judges’ own safe, conventional, non-risky research.

“You’re focusing basically on one idea you already have and making it as presentable as possible,” he says. “You’re not spending time making new ideas. And it’s making new ideas, for me personally, that I found rewarding. That’s what my passion was about.”

    Glomski wanted to study anthrax ‘in vitro’, in live animals, using scanning techniques.  Today it’s done by analyzing tissues of dead animals. His idea might have failed. But if it succeeded, it could have utterly changed our understanding of anthrax and other such diseases. 

    In theory, peer-review of grants is fair.  But it fosters extreme mediocrity.  And as government funding of research declines, (20% cut in recent years),   competition gets fierce (1 of 8 grant proposals is successful, and it takes long stretches of time to prepare one – so young scientists spend their time writing proposals rather than doing effective research). 

    Harris reports that “…. payoffs in science come from out of the blue – oddball ideas or unexpected byways. Glomski says that’s what research was like for him as he was getting his Ph.D. at the University of California, Berkeley. His lab leader there got funding to probe the frontiers. But Glomski sees that far-sighted approach disappearing today.”   Playing it safe will never generate the creative breakthroughs we need.

     As with many things in America, scientific research is utterly screwed up.  And it is unlike to change in the near future. 

Raise the U.S. Minimum Wage – Now!

By Shlomo   Maital

fastfood strike

    Have you wondered, why low-paid American workers, who lost well-paying jobs in manufacturing to Asia and instead got low-paying jobs in services, like fast foods,    have been so passive under exploitation and poverty?

    No longer.    A spontaneous group of fast food workers has  organized, using social networks, and have mounted demonstrations in major cities.  Many earn minimum wage, which in some places is $7.50 an hour.  That means you get $30 a week for a 40 hour work week, or $120 a month — $14,400 a year.   Nobody can survive on that. 

    Is that what they are worth?  Is that commensurate, as economists say, with the value of the marginal product of their labor?    I doubt it, given Macdonald’s fat profits. 

    But wait!   If you raise the minimum wage, you will cause more unemployment and hardship, because the higher the price of something, the less is the demand.  Right?

     Here is what Zeynep Ton writes in Fortune (he’s an adjunct associate professor of operations management at the MIT Sloan School of Management and the author of The Good Jobs Strategy: How the Smartest Companies Invest in Employees to Lower Costs and Boost Profits).

   I studied four retail chains that manage (to pay workers more than minimum wages);   Costco, Trader Joe’s, QuikTrip (a U.S. chain of convenience stores with gas stations), and Mercadona (Spain’s largest supermarket chain). They offer their employees much better jobs than their competitors, all the while keeping their prices low and performing well in all the ways that matter to any business. They have high productivity, great customer service, healthy growth, and excellent returns to their investors. They compete head-on with companies that spend far less on their employees, and they win.

  Zeynet Ton notes:    “Nearly one fifth of American workers work in retail and fast food, and they have bad jobs. They earn poverty-level wages, have unpredictable schedules that make it hard to hold on to a second job, and have few opportunities for success and growth. These are not just people who are uneducated or unskilled. In 2010 more than a third of all working adults with jobs that did not pay a living wage had at least some college education or a degree.”

    It’s simple.  To boost a flagging economy, put more income into the hands of those who need it; they spend it, creating demand, more jobs, and by Keynes’ multiplier effect, economic growth.

    Does this sound more logical than the European no-brain austerity program?  And, if nothing else, more fair?

How to Build Great Ideas On Key Facts

By Shlomo   Maital

Facts

 How do you develop great ideas for startups (whether social or business-oriented), that truly meet unsatisfied wants and change the world?

   I got an idea about ideas, from the current issue of TIME Magazine, of all places (Sept. 8 and 15 double issue).    This issue has an incredible number of interesting facts, presented creatively, visually. 

   You get great ideas from one key fact.  That fact at one fell swoop demonstrates vividly the need, and sets the stage for thinking big,  for tackling huge problems with huge impact, if successful.

    Examples?

  •    At present,  2.4 billion people are connected to the Internet; 44.8 percent of them are in Asia.  That means that 4.6 billion people have NO Internet connection.  How can this pressing need best be met?   Challenge:  Find a way to bring the Internet to 4.5 billion people who currently lack it. 
  •    At present, 2.8 billion people in the world cook over open fires; 4.3 million people die each year due to indoor air pollution, caused by open fires used for cooking. Most of the deaths are women and children. Challenge?  Find a way to save millions of lives, lost through inhalation of smoke from indoor cooking fires; 
  • Half the world’s children go to schools without electricity. Challenge: Find a way to bring electricity to the 1.3 billion people in the world who have no access to it.
  • Between 1998 and 2010,    463 children have died of overheating or hyperthermia in cars in the United States, the majority of whom were accidently left behind by caregivers.   Challenge: Find a simple way to prevent this.
  •    60 million plastic water bottles are used annually in the United States alone. Challenge:  Find a biodegradable plastic, that degrades in 90 days, and that also fertilizes plants.  (One of my students in Shantou Univ. China, is close to a solution).

*  Apple has $158.8 billion in unspent cash reserves.  Huge cash reserves are held (abroad) by Microsoft, Cisco, Google, Pfizer, and other U.S. companies.  Challenge: Feasible legislation to get them to bring the money home and invest it in America.

   And, one example of how this could work.

  • Why don’t we get heart cancer???   Because tumors grow when cells divide and multiply uncontrolled – but heart cells never split and multiply, beginning shortly after birth, unlike other cells.  

 

  •    Idea: Technion Prof. Yoram Palti thought that if you put an electro-magnetic field around, say, the brain, when brain tumor cells tried to divide, creating a narrow cell wall, you could explode them with the magnetic field. This could treat ‘untreatable’ tumors and stop them in their tracks. Basis: Cell division is largely by sick ‘cancer’ cells.   Palti, who is over 70, and his startup now have a proven device that stops brain tumors in their tracks, as well as lung cancer (very hard to treat).  Check out “Novocure”. Thanks, Prof. Palti!

Understanding the Mideast: A Guide for the Perplexed

By Shlomo  Maital     

free for all 

  Are you having trouble understanding what is going on in the Mideast?  What leads one human being to behead another human being – twice?   I LIVE in the Mideast, and have lived here for nearly 50 years.  And I’m having real trouble getting the picture.

    When in doubt, ask Tom Friedman,  New York Times columnist, who does his research through the soles of his feet.  Here is the best summary I know, (from his NYT column today),  in just a few words, and it explains why President Obama is not a wimp, but is justifiably cautious, listening to his experts. There are not one, not two, but  THREE civil wars ongoing. [ By the way, ISIS, Islamic State in Syria, is called ISIL by Obama, because the literal translation from the Arabic is Islamic State in the Levant, where Levant means the whole Near East...a one-letter different that is highly significant]:

   “…. There are three civil wars raging in the Arab world today:  1) the civil war within Sunni Islam between radical jihadists and moderate mainstream Sunni Muslims and regimes; 2)  the civil war across the region between Sunnis funded by Saudi Arabia and Shiites funded by Iran; and 3)  the civil war between Sunni jihadists and all other minorities in the region — Yazidis, Turkmen, Kurds, Christians, Jews and Alawites.

  Friedman might also have mentioned the festering conflict between Israelis and Palestinians,   a century old, predating the establishment of Israel. 

     So, what does Friedman recommend for battling ISIL?   “I support using U.S. air power and special forces to root it out, but only as part of a coalition, where everybody who has a stake in stability there pays their share and where mainstream Sunnis and Shiites take the lead by demonstrating that they hate ISIS more than they hate each other. Otherwise, we’ll end up in the middle of a God-awful mess of duplicitous allies and sectarian passions, and nothing good we do will last.”

    Makes sense?   In Israel, I live next door to a “God-awful mess of duplicitous allies and sectarian passions”.  There goes my neighborhood…. if yours is much better, be thankful.

 

Blog entries written by Prof. Shlomo Maital

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