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By Shlomo Maital
OK, the Fed, under Janet Yellin, has officially ended QE3. After injecting 4 trillions dollars of cash into the US economy, $85 b. a month for almost four years, it’s over. It’s time for a summary. QE (quantitative easing, RIP, rest in peace).
How well did it work? Well, it was better than Europe’s austerity, and the EU learned nothing from Ben Bernanke’s aggressive actions to forestall a new Depression. The U.S. unemployment rate is 5.9%, GDP growth was 4.6% last quarter, and the dollar strengthened. Is Europe paying attention?
For investors? The 3 QE plans created great uncertainty and volatility. Each time a QE (quantitative easing, meaning, the Fed buys bonds and injects money into the system, that banks can lend) was announced, the stock market rose (expecting some of the new money would go into equities) and each time it ended, the stock market fell.
Against expectations the QE 3 has actually lowered the 10 year Treasury bond rate, after it rose by 100 basis points. This cost bond legend Bill Gross his job at PIMCO, the world’s biggest fixed income investment fund; he guessed wrong on the direction.
Despite that mountain of money, inflation remains low, because most of that money is just sitting there, not moving; money velocity has declined. Deflation is the problem, in the U.S. but mostly in Europe.
Overall, faced with the lack of fiscal policy (as politics forced Obama to slash the US federal budget deficit), there was no other policy tool available to stimulate the economy, other than QE, boosting the supply of money. It may yet prove harmful, because the dollar is the world’s currency, still, and there are far too many dollars washing around out there – they are causing property bubbles far away, even in Hong Kong and China. But for now, it looks like the three QE programs led by Ben Bernanke worked not bad.
Let’s watch now how his successor Janet Yellin handles weaning Wall ST. from its junky addiction to cheap money.
Is Aging (and Everything) a Matter of Mindfulness?
By Shlomo Maital
Ellen Langer is a Harvard University psychologist who 25 years ago published a landmark book on “Mindfulness” – defined as “”the intentional, accepting and non-judgmental focus of one’s attention on the emotions, thoughts and sensations occurring in the present …”. In other words: Being here, in the ‘now’, not in the past, and not in the future.
Lately, attention has returned to her work, with results showing that it can halt ‘aging’ and perhaps even…. cure cancer?
An Oct. 22 New York Times article reports:
“ In one [study], she found that nursing-home residents who had exhibited early stages of memory loss were able to do better on memory tests when they were given incentives to remember — showing that in many cases, indifference was being mistaken for brain deterioration. In another, now considered a classic of social psychology, Langer gave houseplants to two groups of nursing-home residents. She told one group that they were responsible for keeping the plant alive and that they could also make choices about their schedules during the day. She told the other group that the staff would care for the plants, and they were not given any choice in their schedules. Eighteen months later, twice as many subjects in the plant-caring, decision-making group were still alive than in the control group.”
Langer feels that “what [sick] people needed to heal themselves was a psychological “prime” — something that triggered the body to take curative measures all by itself.” In 1981, She tried to show this with a group of older men told to reminisce about what they were like 22 years ago.
“The men in the experimental group were told not merely to reminisce about this earlier era, but to inhabit it — to “make a psychological attempt to be the person they were 22 years ago,” she told the NYT. “We have good reason to believe that if you are successful at this,” Langer told the men, “you will feel as you did in 1959.” From the time they walked through the doors, they were treated as if they were younger. The men were told that they would have to take their belongings upstairs themselves, even if they had to do it one shirt at a time.” The study was called the Counter Clockwise study.
What were the results????
“Each day, as they discussed sports (Johnny Unitas and Wilt Chamberlain) or “current” events (the first U.S. satellite launch) or dissected the movie they just watched (“Anatomy of a Murder,” with Jimmy Stewart), they spoke about these late-’50s artifacts and events in the present tense — one of Langer’s chief priming strategies. Nothing — no mirrors, no modern-day clothing, no photos except portraits of their much younger selves — spoiled the illusion that they had shaken off 22 years.”
“At the end of their stay, the men were tested again. On several measures, they outperformed a control group that came earlier to the monastery but didn’t imagine themselves back into the skin of their younger selves, though they were encouraged to reminisce. They were suppler, showed greater manual dexterity and sat taller — just as Langer had guessed. Perhaps most improbable, their sight improved. Independent judges said they looked younger. The experimental subjects, Langer told [the NYT reporter], had “put their mind in an earlier time,” and their bodies went along for the ride.”
I’ll soon turn 72. I believe Prof. Langer. I believe that what you believe about your age, your aging, and your body, is close to what is. We seniors do not have to accept what society decrees – that we are retired, irrelevant, marginal, ill, feeble, forgetful and of little use to anyone. It’s time for a Grey Revolution…and Ellen Langer is providing the ammunition.
“Middle” Universities: You’re in Trouble
By Shlomo Maital
Brand name “Middle” Local Univ
At a recent gathering of some of my former students, I heard an exceptionally interesting talk by one of them, now a senior executive at an on-line university.
His point: many universities are asleep. They face growing stiff competition from on-line courses, which are meeting students’ needs far better. The age of ‘industrial grade’ education, one size fits all, standard program, standard diploma, standard degree, is nearing its end.
Students want specific skills, and according to Forbes Magazine, 80 per cent of MBA programs THINK they provide those skills, but 80 per cent of MBA students believe that they do not. The skills including: critical thinking, ability to analyze complex situations, decision-making and active listening.
In future, we will need more knowledge workers, higher productivity, but governments are spending less and less on education (in the U.S. student loans impose usurious interest, up to 11 per cent, and unlike mortgages, they cannot be escaped). More and more, employers want proof of key workforce skills, not empty credentials like diplomas or degrees that are evidence only of the ability to pay high tuition and pass exams.
So, watch for on-line courses offering specific skills (e.g. on Coursera, a highly popular course teaches how to create applications for Android devices). Look for older workers to take those courses, as part of lifelong learning and skill rejuvenation. And warns the speaker, watch out if you’re a university “in the middle”, i.e. not a brand name, like Yale or Stanford or MIT, and not a purely local university, conveniently nearby its students. In the middle, universities like Arizona State U., may be in trouble – offering neither the advantage of brand name nor close-by geography.
In future all higher education will be a complex blend of conventional classroom courses and on-line courses. The universities that prepare best and fastest for this development will come out ahead. But most of them seem to be asleep.
The Obama Excuse
By Shlomo Maital
President Obama, and the Democratic Party, appear to be headed for a larger-than-usual mid-term election defeat on Nov. 4, with the Republicans gaining control of the Senate and retaining control of the House. But for America, this may not (believe it or not) be a bad thing.
Obama and the Democrats have often used the obstructionist Republican-controlled House as the excuse for their lack of achievements. And indeed, the approval rating of Congress is abysmally low, lower than Obama’s! Americans are simply fed up with Washington and with both political parties. Contrast this with German Chancellor Merkel’s 78 per cent approval rating, one other leaders can only dream about.
But a chart in the recent issue of The Economist sheds some light on the Obama excuse. President Ronald Reagan faced a Democratic House and Senate in 1986-88, yet as a lame duck president in his last two years, passed a major tax cut bill. President George H.W. Bush faced a hostile House and Senate in 1988-90. Bill Clinton had a Republican House and Senate in 1994-2000, for fully six of his eight years as president, yet got the U.S. economy rolling. George Bush faced a hostile House and Senate in 2006-8…. And Obama had both House and Senate FOR him in 2008-10, controlled by Democrats, and… achieved, well, achieved…. Uh…..?
To be an effective president and leader, in the face of House and Senate opposition, you need to be very skillful at compromise, at dialogue and at collaboration. Some U.S. presidents were. Obama wasn’t. It is not too late. He may yet learn, and may yet leverage the fact that if the Republicans do win control of Congress, and continue to obstruct, they will be severely blamed by the American electorate, and may lose any chance of regaining the Presidency in 2016.
In President Lyndon Johnson, America had a president with long long experience in the Senate, who knew how to compromise and how to deal. In President Obama, America has an inexperienced President who is just now beginning to understand how to work with Congress. It has been six wasted years.
Ebola — Fact vs Fiction
By Shlomo Maital
As a would-be journalist, I’ve followed closely how the media report on the Ebola virus epidemic in Africa. America’s NPR (National Public Radio) is excellent – but even NPR has spread hysteria and has reported very badly on the issue. There is something about this deadly little virus that kills half the people it afflicts, that frightens people. And the media play into these fears, by amplifying them. Shame on them.
The Economist rides to the rescue. As always it brings us the truth, with the facts well explained. In the Oct. 18 issue, here is what The Economist explains:
- The number of infections (in West Africa – mainly Sierra Leone, Guinea and Liberia) is doubling every 2-4 weeks. Meanwhile, though, Senegal and Nigeria have been declared ebola free. So it is possible to stamp it out.
- If something doubles every, say, 3 weeks, then in 10 doublings (30 weeks, or about half a year), it is 1,024 times greater. So if 10,000 people have Ebola virus today in West Africa, 10 million will have it in half a year. This is why it is so urgent to come to the rescue of these three countries.
- If the West does wake up and send help, the goal is simple: Get the infectious rate down, in West Africa, from 1.5 to 2.2 persons per infected person (i.e. every person who has Ebola infects 1.5 to 2.2 other persons, today), to less than 1. If this ratio, known as Ro, is less than one, then the power of compounding works to our favor. Soon, Ebola disappears. You can only get the Ro number down by having more hospitals, more trained health workers, faster medical care, etc. Get people infected to quarantine quickly. This is done instantly in the West, but West Africa does not have the means.
- This is not a Western problem YET. The West has a moral obligation to help West Africa, whose economies have been devastated. But it WILL be a Western problem, if a half year goes by and the Ro remains at around 2. Then the Ebola will simply not be capable of being stamped out.
- Why is Ebola so fatal and so dangerous? Because it is fiendishly clever, even though of course it does not have a brain. Ebola virus invades a cell, and makes it produce more viruses instead of the cell’s own DNA. Ebola has sugars on the outside coating of the virus, making it tough for the body’s immune system to attack it (antibodies stick to the glycoprotein instead of to the virus). The immune cells that the virus attacks race to the spleen, liver and lymph nodes and thus carry the infection there. Soon, the body over-reacts, and blood vessel walls become leaky, organs fail and the body goes into shock. President Obama has sent 3,000 U.S. soldiers to help Liberia. Much more is needed. Europe, of course, is sound asleep. And a lot of the money promised to West Africa remains just that – a promise. Unless the rich countries wake up, they will find themselves dealing with a problem that is one hundred times harder to solve.
- All this – from a tiny virus! How did it get so smart? It evolved – nature’s accidents created viruses that survive to procreate.
Find Meaning – Even Kids Seek It
By Shlomo Maital
Writing in the New York Times’ Sunday magazine (Oct. 19 issue), KONIKA BANERJEE (Yale grad student in psychology) and PAUL BLOOM (Yale psychology professor) make a powerful, simple point. It is a basic fundamental human drive, to seek meaning – to find meaning in the events that happen to us, right from early childhood.
In research to be published in the leading journal Child Development, the scholars found that: “even young children show a bias to believe that life events happen for a reason — to “send a sign” or “to teach a lesson.” This belief exists regardless of how much exposure the children have had to religion at home, and even if they’ve had none at all.” Other studies confirm that our search for meaning is independent of religious belief. Atheists, too, need to find meaning.”
The researchers caution us that this desperate search for meaning – the belief that there is order and purpose in the world, that it is not ‘aleatoric’ (random) – can lead us into error:
“But it can lead us into error when we overextend it, causing us to infer psychological states even when none exist. This fosters the illusion that the world itself is full of purpose and design.”
Sometimes, life is indeed random. Take the stock market, for instance. A lot of its movements are random. But ‘experts’ always find an explanation, mostly wrong.
In his book Man’s Search for Meaning, Victor E. Frankl showed how finding meaning in the most desperate context (in his case, a concentration camp) can keep us alive. I often quote Apple guru and VC Guy Kawasaki, who counsels entrepreneurs to “Make meaning, not money”. In other words: Create value in the world, and the money will probably follow.
People who have serious illnesses, for instance, often seek (and find) meaning in their suffering. They emerge from the illness resilient, strong and hopeful. Meaning creates hope. And hope creates strength, often beyond what we could previously imagine.
So, continue to seek meaning. Find meaning in your life, in your relationships, in your startup. And frankly, it doesn’t matter that much if you’re right or wrong about your theory. And recall the two scholars’ last line — finding meaning does not mean you become passive. The opposite – we MAKE meaning by our actions:
“ … the events of human life unfold in a fair and just manner only when individuals and society work hard to make this happen.”
Stock Prices Plummet in October
By Shlomo Maital
On Sept. 13, in a blog titled “the coming meltdown”, I noted signs that the world economy was weakening.
Now, in this the middle of October, stocks have declined sharply. For the month, U.S. stocks are down 5 per cent, German stocks are down 9 per cent and French stocks are down 11 per cent. There are a number of causes. Believe it or not, Ebola has created a negative mindset. Oil prices are down, slashing profits for many big companies and nations. Demand appears to be weakening in Europe, raising fears of a third recession since 2009. Geopolitics are highly unstable, with problems in Ukraine, the Mideast and elsewhere.
At the same time, there is a flight to ‘safety’. Bond prices are up, as demand increases, with investors willing and even eager to take low yields in return for safety.
The bright spot is the U.S. economy. Falling gasoline prices, often below $3 a gallon, have put money into working people’s pockets and they are spending it. This is a natural experiment. It amazes me how economists and policymakers are ignoring this simple evidence — spurring demand helps the economy! America’s economy is doing better than Europe’s as a result.
October is an awful month for stock prices, for some reason. In October 1987, the market fell 20 per cent on a single day, but that was due to computer trading and a doom loop link between spot and future prices.
The mindset of global investors continues to be shaky. In the end, it is the confidence, or lack of it, of global investors that drives equity and bond prices. When world headlines are terrible, as they are now, investors run for cover.
Kansas City Royals (Baseball) Send a Message
By Shlomo Maital
Most of you readers probably do not follow American major-league baseball. It’s a slow game, complicated, a game can take six hours to complete (the 18-inning game between San Francisco and Washington, longest in post-season history) and there is almost no physical contact (except when players slide into second base or home plate).
This year, the Kansas City Royals are the team to watch. And as in all aspects of life, there is much to be learned from baseball. For 2014, the Los Angeles Dodgers, a team that plays in a huge ‘media’ market, spent $235 million on its players! In contrast, the Royals spent less than half that, about $92 million. They ranked only 19th in spending. Yet, the Dodgers were eliminated and the Royals are going to the World Series, winning decisively in four games (out of seven) against the Baltimore Orioles, in the American League finals. KC could well be the best team in baseball.
How did they do it? By, as Steve Jobs loved to say, “think different”.
KC Royals hit the fewest home runs of any team in major league baseball this year. That alone should eliminate them. But, they stole more bases than any team and got many many singles. What’s the strategy? Patience. Winning games one single run at a time. Winning close games with singles. This was the Royals’ manager’s strategy, and he stuck to it, and built the team based on it. He had to. If you cannot afford to pay the big bucks that home run hitters get, you have to go for less sexy singles hitters, and speedy base runners, many of them young Latin American players.
Kansas City has not been in a World Series since 1985, almost 30 years. Well, they’re back! And I’m happy, because they prove that big-time sports are not solely a matter of money and budgets. And yes, again, the high-spending Yankees failed to make the playoffs. How great is that!
From KC, we learn — patience, creativity, persistence, resilience, and above all, believing in yourself. They believes — and are on the way to the World Series.
Strategic Coffee Machines: Creativity Through Chance Conversations
By Shlomo Maital
The latest issue of Harvard Business Review (October) has an interesting article by Ben Waber, Jennifer Magnolfi and Greg Lindsay, “Workspaces That Move People”. In it is an idea you can perhaps use. It’s called Strategic Coffee Machines. Here is the story:
Jon Fredrik Baksaas, CEO of Telenor, a Norwegian telecom company, thinks that the strategic placement of coffee machines helped the company shift from a state-run monopoly to a competitive company with 150 million subscribers.
Once, the company had roughly one coffee machine for every six employees. The same people used the same machines every day. Sales people talked to each other. Marketing talked to each other. The coffee was terrible – how can you afford good coffee when you need hundreds of machines?
The company ripped out the coffee stations and built a few big ones – one for every 120 employees. It also created a big cafeteria for all employees, rather than a series of smaller ones. In the quarter after the coffee-and-cafeteria switch, sales rose by 20 percent, or $200 m. Pretty good return on investment!
The basic principle here is simple: People in companies, or even in cities or in neighborhoods, just don’t talk to one another. Especially people who don’t normally need to, in the course of their work. Find ways to get them to rub elbows, and chat, and you can boost creativity.
I know of a case, told to me by MIT Professor Tom Allen, of a company with four labs, at the four corners of a floor. Each lab had a small office attached to it for doing paperwork. Simply by moving the offices to the diagonally opposite corners forced people in Lab A to chat with those in Lab B, C and D (they met at the intersections of the floor).
Can you use the Telenor method? Can you use strategic coffee machines to boost creativity in your organization?
What’s Wrong with the World? Ask Paul Krugman..and Road Runner
By Shlomo Maital
Remember the Road Runner cartoons? Wile E. Coyote continually is duped into running off very high cliffs by the clever elusive Road Runner.
Well, I think this captures the advice economists have been giving policymakers worldwide, as the world economy again weakens (according to the IMF). We keep running off the cliff, like Coyote. And for evidence, I call to the stand Nobel laureate and New York Times columnist Paul Krugman. I will quote Krugman’s latest Op-Ed, (Oct. 12), it is rather lengthy, but provides a clear accurate and fairly concise diagnosis. It causes me to lose sleep – it may do the same to you too, so…beware, before you read on. Krugman’s words are in quotation marks. Again, this analysis is long – but essential, if you want to really understand what in the world is going on: [If you want to stop here, and seek a one – sentence summary: We’re being killed by high debt, we need to forgive it, wipe it out and start fresh – there’s no other way].
- Analysis: Where we stand: “The world economy appears to be stumbling. For a while, things seemed to be looking up, and there was talk about green shoots of recovery. But now growth is stalling, and the specter of deflation looms.”
- We’re fulfilling Einstein’s definition of insanity: Doing the same thing and expecting different results. “If this story sounds familiar, it should; it has played out repeatedly since 2008. As in previous episodes, the worst news is coming from Europe, but this time there is also a clear slowdown in emerging markets — and there are even warning signs in the United States, despite pretty good job growth at the moment.”
- But WHY are we in this mess, that began 6 years ago? “Why does this keep happening? After all, the events that brought on the Great Recession — the housing bust, the banking crisis — took place a long time ago. Why can’t we escape their legacy? The proximate answer lies in a series of policy mistakes: Austerity when economies needed stimulus, paranoia about inflation when the real risk is deflation, and so on.”
- What is the basic problem? “What, after all, is our fundamental economic problem? A simplified but broadly correct account of what went wrong goes like this: In the years leading up to the Great Recession, we had an explosion of credit (mainly to the private sector). Old notions of prudence, for both lenders and borrowers, were cast aside; debt levels that would once have been considered deeply unsound became the norm. Then the music stopped, the money stopped flowing, and everyone began trying to “deleverage,” to reduce the level of debt. For each individual, this was prudent. But my spending is your income and your spending is my income, so when everyone tries to pay down debt at the same time, you get a depressed economy.”
- What can be done? “Historically, the solution to high levels of debt has often involved writing off and forgiving much of that debt. Sometimes this happens explicitly: In the 1930s F.D.R. helped borrowers refinance with much cheaper mortgages, while in this crisis Iceland is outright canceling a significant part of the debt households ran up during the bubble years. More often, debt relief takes place implicitly, through “financial repression”: government policies hold interest rates down, while inflation erodes the real value of debt. What’s striking about the past few years, however, is how little debt relief has actually taken place. Yes, there’s Iceland — but it’s tiny. Yes, Greek creditors took a significant “haircut” — but Greece is still a small player (and still hopelessly in debt). In major economies, very few debtors have received a break. And far from being inflated away, the burden of debt has been aggravated by falling inflation, which is running well below target in America and near zero in Europe. Why are debtors receiving so little relief? As I said, it’s about righteousness — the sense that any kind of debt forgiveness would involve rewarding bad behavior. In America, the famous Rick Santelli rant that gave birth to the Tea Party wasn’t about taxes or spending — it was a furious denunciation of proposals to help troubled homeowners. In Europe, austerity policies have been driven less by economic analysis than by Germany’s moral indignation over the notion that irresponsible borrowers might not face the full consequences of their actions. So the policy response to a crisis of excessive debt has, in effect, been a demand that debtors pay off their debts in full. What does history say about that strategy? That’s easy: It doesn’t work. Whatever progress debtors make through suffering and saving is more than offset through depression and deflation. That is, for example, what happened to Britain after World War I, when it tried to pay off its debt with huge budget surpluses while returning to the gold standard: Despite years of sacrifice, it made almost no progress in bringing down the ratio of debt to G.D.P.”
- So, how do we move ahead? “A recent comprehensive report on debt is titled “Deleveraging, what deleveraging?”; despite private cutbacks and public austerity, debt levels are rising thanks to poor economic performance. And we are arguably no closer to escaping our debt trap than we were five years ago. But it has been very hard to get either the policy elite or the public to understand that sometimes debt relief is in everyone’s interest. Instead, the response to poor economic performance has essentially been that the beatings will continue until morale improves. Maybe, just maybe, bad news — say, a recession in Germany — will finally bring an end to this destructive reign of virtue. But don’t count on it.”