The Truth About Wall Street from Warren Buffett

By Shlomo  Maital  

Buffett

   Each year, legendary investor Warren Buffett, CEO of Berkshire Hathaway, writes a letter to shareholders, the mostly widely read document of its kind, as it has many pearls of wisdom – and of course, Buffett’s incredible track record gives him credibility.  You can easily download and read the whole thing.  I recommend it.  Here are some snippets, drawn from Andrew Ross Sirkin’s New York Times column on March 4:

      On Investment Bankers:  “…constantly urge acquirers (of companies) to pay 20 to 50 per cent premiums over market price….they tell the buyers the premium is justified for ‘control value’ …a few years later bankers – bearing straight faces – again appear and just as earnestly urge spinning off the earlier acquisition in order to ‘unlock shareholder value’.”   Sorkin comments “there are countless example of the build-it-up-and-tear-it-down phenomenon, like Hewlett Packard.”   Of course, investment bankers charge huge fees for this brilliant manipulation.   

      Any true redeeming social value in all this?  Buffett sees none and neither do I.

      On Wall St. in general:  “Money-shufflers don’t come cheap”.   Money shuffling.  Any true redeeming social value in this?   You won’t find it with an electron microscope.

     On private equity: “Equity is a dirty word for many private equity buyers;  what they love is debt. And because debt is currently so inexpensive these buyers can frequently pay top dollar. Later the business will be resold, often to another leveraged buyer. In effect, the business becomes a piece of merchandise.”  

     Sorkin quotes Buffett’s comparison of Berkshire Hathaway (which buys share and companies, and holds them, often forever) and other investment funds: “You can sell it to Berkshire and we’ll put it in the Metropolitan Museum…by itself, it’ll be there forever.  Or you can sell it to some porn shop operator, he’ll stick it up in the window and some other guy will come along in a raincoat and he’ll buy it.” 

     And yes, Buffett believes in real companies that make real stuff, like Heinz ketchup. 

     An enormous industry is thriving on the cheap money that American and European central banks are printing.  That money was supposed to finance real capital formation. Instead it is financing speculative money-shuffling, making big profits for the very people who crashed the world’s economy in 2008.  

    If you don’t believe me,  ask Warren Buffett.  Or read his letter.

      http://www.berkshirehathaway.com/letters/2014ltr.pdf

Is there a Limit to Impatience?

By Shlomo  Maital  

impatience

  Ah, the younger generation.  The kids.  We older people all know,  the kids want it NOW!  They are impatient and they have very short attention spans.  The MTV generation loves super-fast images, that for us seniors are blurry and annoying.

 But hey!  This time they have gone too far.  It’s time to draw a line in the sand.

  Today’s New York Times (March 3) reports that John McEnroe and Patrick Rafter, tennis greats of the past, played an exhibition match in Australia.  Rafter won.  4-3, 4-1. 

   Wait. Run that by me again?  4-3, 4-1?   Don’t tennis matches go to six sets?  Always have, for over a century?  And at Wimbledon, they can go to 17 sets, or more? 

    Well, no.  “It’s whatever the crowd wants, what TV wants,” Rafter said.  “If this is what the fans want, this is what we should be playing.”

    Four-set matches mean a match can be finished in an hour and 45 minutes, ideal for TV. And of course, TV dominates sport, because TV brings the money.

   Actually, it’s a great idea. Let’s shorten everything.  Let’s shorten prison sentences by half.  Let’s cut the 12-month year to 10 months (at the same pay).   Uh, let’s shorten life by a decade or so, those last 10 years are a bummer anyway, and the working youth (if there are any) can’t afford to support all those old guys. 

   The “me” generation is actually the “now” generation.  Watch the Australian Fast4 format spread like wildfire to all aspects of life.  With the future looking so bleak for so many, why not just live for the moment?  

    We seniors have an answer.  Cultivate patience.   Give value to the future because, somehow, the future does arrive, and when it does, it helps if we can work now to make it better, more desirable.  “I want it now” is a losing formula.  “I want  a better future” is a whole lot more appealing.  We should try it some day. 

Mind-Blowing Black Hole!

By Shlomo  Maital  

black hole

BBC’s Radio 4 reports the discovery of a new black hole, a massive one.

       “Public astronomer Dr Marek Kukula, of the Royal Observatory Greenwich, told BBC broadcaster John Humphreys about the new discovery of a huge and ancient black hole.    He said it has grown faster than current physics would suggest possible, in the early development of the universe.    John Humphrys was surprised by the information from Dr Kukula that the black hole “is smaller than an atom” but “contains as much material as 12 thousand million [12 billion] stars, like the sun”.  “

    Smaller than an atom?    Holds material equal to 12 thousand million (i.e. billion) suns?  When our sun’s mass is  4.4 times 10 30 pounds – 12 billion of those, in a single atom?

   And here’s the best part.

   According to Dr. Kukula – this black hole was ‘born’ only 1 billion years after the birth of the universe,  or 12.8 billion years ago.  

  This is impossible.  Black holes are born when suns explode,  then ‘implode’ inward, creating such dense mass that the gravitational force does not allow light to escape, and sucks everything in the neighbourhood into this ‘black hole’.   But a billion years only after the universe was born is not sufficient time for a sun to be born, live, grow old, die, explode as a supernova and then implode to a black hole.

   It just can’t be. 

   So, what is going on?  Do we have to alter the laws of physics? 

   Stay tuned.   And kudos to all those astronomers, and Dr. Kukula, who spend long cold nights in the observatory, peering through telescopes, photographing things, so that one night, toiling in obscurity, so that they can find things that blow our minds.

Oscars: How to Innovate (Movies)

By Shlomo  Maital

Birdman

  Many of you will have watched the Academy Awards (Oscars) last night.  Birdman won ‘best picture’ and ‘best director’.   Boyhood, highly favoured, lost out.  But both Birdman and Boyhood featured extreme innovations, radical ones,  ones built on breaking the rules.

    Boyhood was filmed with the same actors during a 12-year period. It was conceived by the director Richard Linklater, and Patricia Arquette won best supporting actress.  It is the story of a boy as he grows up to manhood.  A 12-year production schedule with the same actors is unheard of in Hollywood…. Getting the actors to agree, and arranging the filming, was a huge and difficult achievement by Linklater.  But it was crucial – switching actors would have entirely lost the effect.  It just HAD to be the same persons. 

    Birdman, with Michael Keaton playing the lead role of an actor who played a super-hero (Birdman) and wants to stage a Carver short story on Broadway,  was also a radical innovation.  It was filmed in one single take, with the exception of a very few frames at the beginning and the end.   This required meticulous production planning, long rehearsals, and a director Alejandro González Iñárritu who yelled ‘cut’ at any mishap during the filming, so that everything could be done in one continuous ‘take’.   Never been done, to my knowledge.  The director is Mexican. Notice how many outstanding Mexican film directors there are?  

    Congratulations to Boyhood and Birdman,   Linklater and González Iñárritu.  I can only imagine how hard it was for you to ‘sell’ the two pathbreaking iconoclastic innovations, to producers and investors.  Maybe you haven’t made $300 million at the boxoffice, like American Sniper – but you have shown the way for others, who will be similarly emboldened to innovate in future and make wonderful lively interesting and unusual films for us, that break the mold.  Thanks!

Euro Nations: Benchmark Estonia

By Shlomo Maital     

 Estonia

  With all eyes focused on Greece,  it is easy to forget about little Estonia.  Bloomberg Business Week reports that this tiny nation, squeezed between Latvia and Russia, joined the Euro zone only four years ago.  Many countries leaped at the Euro capital markets opportunity and their governments sold bonds like drunken sailors. 

    Not Estonia.  Government debt is less than 10 per cent of GDP.  That is one – tenth the average debt burden in Europe, and about 1/20th the debt burden of Greece (170 per cent of GDP).

    How come?

    Estonia has refrained from issuing government bonds, since 2002.  Instead, the Estonian government took loans from the European Development Bank, which lends ONLY for infrastructure and investment, not to finance current government spending.  Maris Lauri says, “we can’t afford to borrow to finance current spending; such borrowing becomes a habit and we saw where that landed Greece and Russia, in 1997/8”. 

      Some Estonian economists are opposed. They think Estonia should leap at the low interest rates and borrow.  But it won’t happen. 

       “Estonia is a strange bird in the Euro zone,” says Frederick Erickson, who heads the European Institute for Political Economy in Brussels. “No other country has such a stronge instinct for understanding the way macroeconomic problems are rooted in the real economy.” 

       Estonia’s Prime Minister says Estonia has to save its borrowing and access to Euro capital markets, for the time when Estonia’s GDP reaches 75 % of the Euro average (it is now 73%), at which time European aid money dries up. 

        Strong wise leadership can keep a small country like Estonia out of hot water.  Greece, in deep hot water, has to be rescued.  Estonia will not.  As the Hebrew saying goes, wise leaders avoid crises that smart leaders know how to escape from. 

Superheroes Meet the 3D Printer Prosthetic Hand

By Shlomo Maital    

  Cyborg Beast

   A year ago, I blogged about Daniel Omar, South Sudan,  and his 3D prosthetic arm, created by an American startup called Not Impossible Labs, founded by Mike Ebeling. Ebeling found a way to create inexpensive functional prosthetic arms for Sudanese children badly wounded in the Sudanese civil war, by using 3D printers and teaching locals how to use them to ‘print’ arms. 

   Today, the New York Times,  “Making the Hand of a Super Hero”, by Jacqueline Mroz,  reports that another online volunteer group, E-nable, founded by Dr. Jon Schull, “matches [American] children in need of prosthetic hands and fingers with volunteers able to make them on 3-D printers.”  Designs are downloaded onto the machines at no charge.   Charity indeed begins at home.  These prosthetic limbs cost as little as $20 to $30, a fraction of the cost of conventional prosthetics, and they work just as well. 

    And the neatest part?  The limbs are designed to look like, say, limbs from Transformers or Cyborg superheroes.  The photo shows Cyborg Beast, a prosthetic hand that could well be one used by superhero Steve Austin, the bionic man.  Rather than try to hide or disguise them, they are in bright fluorescent colors and scream, ‘hey look at me!  I’m cool!’.     The prosthetic hands say,  I’m not disabled, I’m actually, well, kind of a superhero.  And “transformer” is the right word – the printed hands transform a disability into a superhero cool device.   

     Some of the statistics that demonstrate need are shocking.  Some 9,000 American kids receive amputations yearly just as a result of lawn mower accidents alone, and one in 1,000 infants is born with missing fingers. 

      We’re still waiting for 3D printing to change our lives. Meanwhile, good people have discovered a wonderful use for them.   As always, the best ideas are always the simplest.    

The Desperate Search for Good Jobs

By Shlomo Maital

jobs    

    Writing in the recent issue of Scientific American, the Swedish-British economist Karl Benedict Lund raises an issue at the core of our economic woes, and not sufficiently discussed:  Where in the world will we find well-paying jobs for young people, jobs that can sustain and help the middle class to endure?  

    The problem is, in the past,  new industries that were born out of innovation created jobs to replace the industries that were obsolete and dying.  Sunrise industries’ new employment offset the lost jobs of sunset industries.

    But no longer.  Frey notes:   The video-streaming startup Twitch, bought by Amazon for almost $1 billion,  employs only 170 people.   In the past a $1 b. company would employ many times that.   Google has annual revenues of $66 b.,  and employs only 53,000.   IBM, with roughly similar revenues, employs 8 times that (431,000 in 2013).   Dell employs 108,000.   But Dell and IBM are shedding huge numbers of workers.   Once, Dell came along to absorb many of the 250,000 (!) workers that IBM shed in 1993-5.  No longer.

     And Facebook?    Facebook employed only about 9,500 employees in 2014, with $8 billion in revenues.   When Internet companies like Google, Twitter and Facebook can generate a million dollars in revenue per employee,  the founders and shareholders rejoice, but ordinary folks who seek employment do not.

     Frey’s research reveals this fact:   only 0.5 per cent of the U.S. labor force was employed, in 2010, in industries that did not exist 10 years ago.   And there are quite a few such industries.

     How will society deal with innovation that creates wealth, products, services,  and in general wellbeing,   without actually producing many new jobs?   Will we have to accept a bifurcated society, where a fortunate handful become millionaires and the rest of us scrounge for handouts?  What happens when the old pattern of new industries creating jobs to replace ones lost by dying industries fails, and new industries simply don’t create jobs? 

   One possible solution:  A great many more of us will need to become independent business persons, creating our own job by starting small businesses.  This will take a whole new approach to the way we educate our young people, and a new support system that, for instance, can supply micro-credit to such businesses.  

 

Bye, Jon Stewart!

By Shlomo Maital    

 Stewart

    Jon Stewart announced this week that he is retiring from The Daily Show on Comedy Central, after 16 years.  His motive?   “I heard from multiple sources that my family is …really nice people”….  And indeed, that may well be the reason. 

     I personally learned a powerful lesson from Jon Stewart,  born Jonathan Stuart Leibowitz on Nov. 28, 1962.    To make a point, you can yell, scream, protest.  You can write articles and blogs, with massive data, tables and numbers. 

    Or, you can use humor, satire, a sardonic smile, and make a point to get a laugh.

    Which is most effective?  Humor, by far.  Why?    Because, people are never more serious than when they are joking.  I learn far more about what people are thinking from their jokes than from what they say.  Why?  Because some things are hard to say, and if you couch them in humor, satire or a joke,  somehow it’s easier to be frank. 

     Listen carefully to how people kid you. You will learn a great deal about yourself, and about what others think of you.  Even your spouse or significant other.

      Jon Stewart tore strips off Israel, off Israel, off Obama.  He especially loved to expose hypocrisy, which alone can account for the 98 per cent of missing ‘dark matter’ in the universe.  He especially spoke to young people, who hate conventional news but loved the way he presented it. 

     He was great at discovering talent.  And above all, as Senator Tim Kaine (Virginia) says, “even as he cracked jokes, ultimately he was making a serious point.”  Like when he had the Secretary of Health Kathleen Sibelius on his program, and tried to see which was longer, downloading every movie ever made onto his laptop or signing up for coverage under the Affordable Care Act.

      Bye, Jon Stewart. Enjoy your family.  Rest well.   We’ll miss you.

 

When Is Good News Bad News?  When It’s the Stock Market

By Shlomo Maital   

stock market

   Love that stock market!  It goes up on bad news, down on good news.  Can we understand why?

   I belong to a panel of the German Ifo Institute, that quarterly surveys experts around the world to assess the global economic situation.   The latest report?  “world economic climate deteriorates, economic expectations less positive, inflation expectations remain low, US dollar expected to rise (it has), interest rates look set to remain stable (maybe not).”.

    The U.S. stock market has risen sharply in the past year.  But it recently declined. Why?   Good news on the American economy – U.S. job creation and GDP growth are stronger than expected.

    Run that by me again? How can good news be bad news for the stock market?

   It’s simple.   Wall St. is incurably addicted to cheap money and low interest rates, and plentiful credit.   When the economy gets stronger, it increases the likelihood that Janet Yallen and the Fed will raise interest rates, ending the era of cheap money, and denying Wall St. from its daily/weekly fix of low-interest cash, used to speculate and earn billions.  So the stock market drops, because good news for the economy is bad news for Wall St.

    Does this show a sharp conflict of interest between the general population and the moneybags who run Wall St.? 

 

“Choose Life!” – Kayla Mueller

By Shlomo Maital  

 Kayla

   One of the most powerful and terse passages in the Bible is Deuteronomy 30:19:   “I have set before you life and death, blessings and curses. Now choose life”.   The message is clear.  We DO have a choice.  We can see the dark side of everything,  or we can see the bright side, the ‘life’ side. 

    Kayla Jean Mueller was a 26-year-old Jewish aid worker from Arizona, held in ISIS captivity.  As a teenager in Prescott Arizona, she was voted “best smile” in her graduating year in high school.  She was always drawn toward helping the weak, the downtrodden, according to her parents.  She led marches to help Darfur, and was college president of a student-led movement to end mass atrocities.  Her story is beautifully told by Dana Harman in today’s English edition of the daily Haaretz.

     Mueller had been in Syria, as an aid worker, for one year and a day, when she was kidnapped on Aug. 4, 2013.  Earlier, she had travelled the world, volunteered in India and in Israel, and then in the West Bank. 

    President Obama recently announced that Kayla was dead. ISIS says she was killed in the Jordanian bombing raids.  In any event, ISIS is responsible.  Her family managed to keep her identity secret, hoping this would help gain her release. 

     During her 18-month captivity with ISIS, Kayla wrote a note to her parents.  Here is part of it:

     “I have been shown in darkness, light – and have learned that even in prison, one can be free.  I am grateful.  I have come to see that there is good in every situation, sometimes we just have to look for it.”

       Kayla may be physically dead.  But her message will live forever.  Choose life, even when the forces of darkness choose death.   Choose light.  Choose to see the bright side.  Long after the murderous thugs of ISIS are dead and buried, Kayla’s message to the world will live on.    

 

Blog entries written by Prof. Shlomo Maital

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