Tuesday, 30 December 2008

Reading List

One of my many issues, is that I have too many hobbies, too much interest in a multitude of things, too little time and too short of an attention span. Although, reading, is one of my more enduring hobbies, that has yet to fall of the wagon - no reference to party related wagons ha ha ho ho.....

Anyway, I try to keep a list of the books i've read online (usually on my facebook) , because I just simply forget what I read and I am too lazy to actually keep the books themselves or a physical list of them. Seinfeld was kind of right when he wondered why George wanted his books back from his ex-girlfriend, when he has already read them!

True, although, it's nice to have a library- we have a huge one at my Dad's place, and I try to send him the books I read to store them, coz I tend to loose, or spill coffee on them - and one can always go back to them. Techie or no techie I am not into these e-books crap, I still enjoy flipping through pages , and having a room full of books and papers and scribbles - well, at least until I move again.

So here is my list: (I forgot some books, and some of the authors, so take this with a pinch of salt)

• Nasser, the Last Arab – Anne Alexandre (Biography)
• Seeds of Hate - Lawrence Pintack (Politics, Lebanon & USA)
• The Four Seasons - Faisal Ziadeh (Arabic, Biography of Lebanese Author)
• To Kill a Mocking Bird - Harper Lee (Story on Black Oppression in USA)
• The Republic - Plato (Classic)
• The Epic of Gilgamesh - (Classic)
• A Cage without Bars - Ibrahim Yared (Memoirs)
• The Odysse - Homer (Classic)
• Confessions - St. Augustine (Classic)
• 20,000 Leagues under the Sea - Jules Verne (French, Fiction - Classic)
• Fermat's Enigma - John Lynch (Mathematics, Science and History)
• E= mc2 - David Bodannis (Science and History)
• The Strategy of Games Theory (Mathematics)
• David Cooperfield - Charles Dickens (Classic)
• Les Miserables - (Classic)
• Out of Place - Edward Said ( Autobiography)
• War and Peace – Edward Said (Politics)
• The Secrets of World Espionage - **** (Research)
• The Muslim Christian-Tarif Khalidi (Arabic - Research)
• Islam - A. Guillaume (English, Research)
• Sunday, Friday - *** (Culture and Religion)
• Lebanon - A quintessential culture - *** (Culture)
• Above the Rim - Nelson George - (History of the USA)
• Selected Articles on the History of the United States - (Politics)
• Away from My Desk- Rif K. Haffar (Adventure, Personal Experience)
• Michelle Aoun, Dream or Fantasy - Sarkis Naoum (Politics, Lebanon)
• No More Leaning On Lamp posts - Managing Uncertainty the Nick Charles Way - By Ian O. Angell (Business)
• Free Software, Free Society - By Richard M. Stallman (Computer Science, Philosophy)
• Does IT Matter?: Information Technology and the Corrosion of Competitive Advantage - By: Nicholas G. Carr (Business and Information)
• The Oligarchs: Wealth and Power in the New Russia - By David Hoffman (Political Economics)
• In Search of Memory: The Emergence of a New Science of Mind - by Eric R. Kandel (Science)
• Listen Rida – Anis Freiha (Culture, Lebanon)
• Before I forget – Anis Freiha (Culture, Lebanon)
• Cross Roads to Civil War - Kamal Salibi (Politics,Lebanon)
• Global Political Economy - Robert Gilpin (Political Economy)
• The Road Ahead - Bill Gates (Technology)
• This Side of Peace - Hannan Ashrawi (Politics, Palestine and the Middle East)
• My Life - Ahmad Amin (Biography)
• Assad , The Struggle for the Middle East - Patrick Seal (Politics, Biography of Syrian President Hafez el-Assad)
• The World Is Flat: The Globalized World in the Twenty-first Century - Thomas L. Friedman (Politics, Economics )
• The Google Story - by David A. Vise (Business)
• The Man Who Knew Too Much: Alan Turing and the Invention of the Computer- by D. Leavitt (Biography)
• Democratizing Innovation - By Eric Von Hippel (Economics)
• From Beirut to Jerusalem - by Thomas L. Freidman (Politics)
• When Genius Failed: The Rise and Fall of Long Term Capital Management - By Roger E. Lowenstein (Finance)
• The New Barbarian Manifesto: How to Survive the Information Age - Ian O. Angell (Business and Information )
• Rafic Hariri and the Fate of Lebanon - Marwan Iskandar (politics)
• China Inc - David A. Friedman (Economics)
• 50 Years with the People - Youssef Salem
• Software as Capital
• Fooled By Randomness - Nicholas Nassim Taleb (Finance )
• The English : A portrait of a People - Jeremy Paxman
• The God Delusion - Richard Dawkins
• The Last Lecture - Randy Paush (Memoir)
• Bear-Trap: The Fall of Bear Stearns and the Panic of 2008 (Finance)
• Beiurt I Love You - Zena El-Khalil (Memoir)
• Lord of The Flies (G. Golding)

and I already have these books in my room, and yet to be read, hoping 2009 will see them covered!

• Catch 22 - Joseph Heller (Satire)
• The Black Swan - Nassim Taleb (Finance)
• The Wealth of Nations- Adam Smith (Classic)
• Killing Mr. Lebanon - Nicholas Blanford (Politics)
• Rafic El-Hariri - The Phenomenon - (Biography)
• Welcome to Everytown - Julian Baginni (Culture)
• Six Days - How the 1967 War Shapped the Middle East - Jeremy Bowen (Politics)

and a whole load of books I need to read! My Italian seriously needs to be attended to, and so does my C++ skills, so that calls for some readings, besides my already well blogged (blabbered) about tri-interests to which this infamous blog is entitled.

50+ books isn't much is it? I quote my good man Prof. Carsten Sorensen when he said "Some of you will read more books in a year that people would read in a lifetime" - well, I dread being the latter, and strive to be in the latter, every year. Although, on the flip side, I had a joke with another former professor of mine, Prof. Yahya Sadowski, when I walked into his office stacked with a wealth of books,

Me: "Doc, you read all these books right?"

Doc: "No, I just don't like empty shelves."

Yeah, I need three lifetimes and a time capsule to catch with his readings!

2008 Re-visited

It's 1:30 am , as the last 24 hours of 2008 start ticking away. I'll be stumbling off a boat at this time tomorrow, as I am taking a boat trip on the Thames for new year. Today, though, I was doing my last 2008 wander around London, and I ended up picking up a few books to add to my already big pile of unread books.

When it comes to books, I tend to buy more books than I can read, but considering the fact that everything I own fits in two suitcases, the one thing a man can never have too little of, is books, even though if he doesnt end up reading all of them, but at least he always motivated to read more and more, but the more you crave books, the more books you buy and the more books you read and so on and so forth, so its like a positive feedback loop.

The same can't be said about 2008. Rather, its the complete opposite. A vicious circle.

Where can we start? The Bear Stearns debacle, Jerome Kerviel, the housing market crash, Northern Rock, Bradford & Bingley-Loyds, the 500bn£ bailout, the 700bn$ bad asset plan, Lehman going bust, Merril being bought out, and Citigroup on the brink.

This is a funny video.

"This crisis is not comparable to 1982 banking crisis, the savings and loans crisis of 1986, the portfolio insurance debacle of 1987 , the failure of kidder peabody in 1997 or LTCM in 1998, or the technology bubble of 2000. The crisis is not confined to a particular section of the financial system but has brought the entire system to the brink of breakdown." (Soros 2008)

The stock markets worldwide have lost anything between 10% and 45% of their value, and they are still declinining, with no sign of solid recovery anywhere in site. But to say recovery, is, in my opinion, wrong. Each of the crisis mentioned above, were what you can call bubles, and bubles grow until they burst. The credit crisis, is somewhat of a super-bubble. It's size really was far larger than any other buble. That's really because of two things: deregulation, and greed. One must give the good and the bad sides of things, though. The good thing starts with the beginning of the maturity of the banking system, that in my opinion, we are just beginning to understand what it means "money is a commodity" , and that money is just like raw material, oil etc. Banking, is just like any other industry, a producer, and their product is money. Yet, because money is a lubricant for transactions, and having it is vital, its actual value was greatly inflated that with all this credit derivatives, credit swaps, leveraging, shorting, spreads and all these nitty gritty terms that any financier will throw in your face, was all based on perception. Perceived, or, to a lesser term, estimated value of this product called money, which was, in theory, backed by "real" assets. When spreads for lending reach 40$ against 1$, there must have been some problem with the "product" : money.

When bankers can come up with a financial product within an hour, sell it, break it up, re-package it, re-sell it, at some point, something was bound to go wrong.

And its usually humans that go wrong, not the system, not the markets, and definitely not any electronic trading system.

Economics is not a science, simply because economics has an element of human intervention, which is why it is a social science, when pure science is simply the explanation of natural phenomena. (Now the LSE being a social sciences institution makes a whole lot more sense). Nick Taleb mentioned that bankers have been fooled by randomness in thinking that there actual study of the markets behavior over a certain period, can help them estimate how the market will behave in the future, and bet on that.

This is a nice pic.

I dont say markets are completely unpredictable, but i am not saying they are predictable either. It's just like people, you can have a fairly good estimate about how people will behave, but there is always this X-factor, a black swan, that can negate everything, and as long as people are the ones driving the markets there will always be that element, and the more we give the people in charge this liberty, the higher risk we run on another crash. Crashes will continue to happen, but you dont want another one of this scale, which is why I agree with Mr. Brown on more regulation. Regulation will bring a better understanding of the "money product".

The Germans and the Italians have a fairly good idea on how to build a car, but with a monolith lik GM in trouble of collapse, even well understood legacy products, and how to deal with them, will always remain as an element of risk. Why? Simply because of people. Some people just don't like driving, if you catch my drift.

Anyway, I quote George Soros when I say "History does not repeat itself [at least in finance]. The collapse of the banking system in 1929 was the cause that lead to the Great Depression, and that is why governments will not allow the banking system to collapse."

So, as gloomy as 2008 was, we'll come back, stronger, better, faster. .....I hope!

Wednesday, 24 December 2008

Breaking the AdSense model?

I am a bit tipsy at the moment, but I was having this idea. With my techie mind and my position in the midst of the financial industry, worrying about the recession can become quite interesting of a conversation after a few pints....

Anyway, we were talking that innovation is the only way to get the economy moving. Innovation, is new ideas, which create new businesses, demand new skills, and move the investors and the entrepreneurs.

Well my brilliant - well brilliant if you were reverse brainstorming- idea was to start a social movement to urge people to start clicking on all these ads you see everywhere on the internet. In 2007, Google had almost 18 trillion clicks. That's alot of clicks, considering that companies that run ads online pay per-click, and the clicks themselves can become quite pricey, with up to 5$/click. The idea behind that, is that if so much users click on these ads, some of them will eventually become customers. i.e. the traffic on that website will be increased, and the more traffic you get to your website, the more you sell stuff. The click itself, is completely free from the user/surfer's end, as all they do is click. The idea is that if we start that social movement to urge people to start clicking more on these adds, Google, or people behind the Ads, will start making much more money if , for example, the clicks jump to like 30-40 trillion clicks, the size of the AdSense market will double or triple. Be it an already huge market, in the 100+ Billion dollars, then tripling it, from the user end, is a free contribution of throwing like 200 billion dollars into the markets. Well, that's bigger than alot of bailout packages governments are dishing out, combined!

Wait a minute, but wouldn't that break the Google business model, and collapse the AdSense? The idea that more clicks would bring more customers, and bring more business, based on the assumption that if one tenth of the people visiting there site will buy something, that's great! But, what if the users in this alleged social movement are just clicking at random without actually looking at what they are clicking? This means that more traffic isn't really getting more customers. At that point, the advertisers themselves will start complaining and would want the AdSense prices slashed by the same ratio of customer/visitor was reduced. The bad thing about that, is that the market will shrink back to its original size, and our social movement is rendered useless, and they revert to stupid suckers clicking without a cause. (Then they establish a charity and get government benefits). The loser in this game, is that the AdSense business mode will collapse to the extent that its become commodetized and it doesn't really derive serious revenue like it does now, and a new innovation will be needed.

The only upside of this, is that even if these members of the social movement are still to determine whether they are smart geeks or a bunch of suckers, pshychology is on the market's side is that no matter how indiffirent you will be to what you are clicking, you will eventually find yourself stopping at one of the random links you clicked, because something caught your eye. Probability is also on psychology's side- because girls will always stop at the word chocolate, as well as the guys will pause on a lingerie picture. (Did I just make a girl/guy psychoanalysis? Sorry!)

I started an internet movement, financed it, and completely broke down my business model. So I guess I still don't have my winner tech-business idea.......

Damn it!

The Oligarchs?

The thing about writing is that you often don't feel like it. When it comes to bloggin, well, writers block looks like a walk in the park, coz for me, it's often more ideas that I believe deserve a blog post than it is writing the post itself.

Yet one of those things that stopped me the other day, is that New York City is back on top of the list of the city with the most billionaires, regaining that position from Moscow. Especially that all these oligarchs really piss me off because it's just the result of an exploitation of a system that is not open enough, and if it wasn't for their political connections they wouldn't be dreaming of this kind of money. (Yeah ok, dating a Russian hottie who was also stupid as fuck and wanted the shinny things contributed to my dislike of the oligarchs, but anyway).

It all started with Anatoly Chubais (I think it was him), who introduced just a small clause into the Communist party manifesto (or the equivalent of whatever constitution they have), which allowed the establishment of small business desks for individuals. Of course this was done the communist way, with businesses being given one name, and numbered like "Communist Bank 1", "Communist Bank 2" etc... yeah, it looked like communism unchanged, but those who knew the system, like Khodrovsky, knew how to exploit it. Once, Gorbachev, who history will one day recall as a great leader, not one who failed in the communist realm, but someone who understood that the fall of the USSR was imminent and he just let it happen. He didn't care it happened on his watch (in 1989, there was more firepower and army troops in Moscow to smash the protesters, but Gorbachev didn't really see the point in that). Well come capitalism into Russia, when the government decided to sell of its state owned businesses, factories, resource etc, the oligarchs were already very well positioned, with the rubles (which they then miraculously switched to dollars) and the small "businesses" that Chubais allowed, as well as their political connections to buy out the state at a something that the word "bargain" is just too weak to describe. Think adding zeroes to your bank account with a scratch of a pen. It's like you have an auction, yet the only bidders are those making the sale, and want to get it for the cheapest possible.

It's really simple. The government under the communist state, had already footed the bill to build all the infrastructure, the pipelines, the roads, the factories and steel mills, etc, and then simply was too bankrupt to run it themselves. It just needed someone with a little cash, to lubricate the process and get the wheel turning again. Surprisingly (not really) those with the cash, where those oligarchs that took it from the state (when they played the devaluation game (chech this ) : take the money, buy dollars, devalue the currency and you are the only one left with any real money to do anything, then swoop in and buy out all the assets, and pocket pure profit.

This is particularly interesting, because something similar exists in Saudi Arabia, yet another oil rich country. For example, Saudi Telecom, the biggest telecom operator in the Middle East, and formerly the 13th largest telecom companies in the world, was one very profitable company (at least when I was in the region, and before global recession and the decline of oil prices), simply because the whole telecom infrastructure, the base stations, the transmission dishes, the relay stations, the switch boards, routers etc, was all paid for by the government. It wasn't subsidized, it was PAID for, by the government. And then what happens? They privatize Saudi Telecom into STC, and throw it on the stock market, as a purely profitable company. Of course it is, they don't have any running costs or debt service. Operations costs? pfffffffff that's nothing.

Yeah well think of the Oligarchs of the private owners of such government institutions. Now that's what I call big money.

The only twist in all this, and I don't know if this really is the way things work in Russia, but I know one thing: Don't piss off one certain ex-KGB agent, with a black belt in Judo.

Now, Boris Beresovsky knows this very well, so does Khodorvsky, and Abramovich sure does. I guess now, they are laughing- well, at least Abramovich is. Beresovsky, although equally a London billionaire, would probably do anything for some real Russian vodka, but I guess he isn't dropping into Moscow anytime soon. Khodrovsky, in a 4x3 , probably is enjoying the vodka, but probably not much more.

......there is really only one oligarch, and his name is Vladimir Puttin.

I recommend Hoffman's book "The Oligarchs: Wealth and Power in the New Russia", yet I'd like to read "Putin's Russia" but my shelves are stacked with enough unread books already.

Sunday, 21 December 2008

Finance for Engineers - The Basic Jargon

I hardly need to explain: trading desks, stock exchanges, papers flying, phones ringing, mice clicking. Its a crazy industry you have to be deranged to understand it. Well, not really. Except if you are Alistair Darling and you just issued the British Government annual budget, but had to review it after the credit mess. Being an engineer, a few "keywords" can help in debugging some terms:

The Basics

  • Buy Side: People that buy stocks (securities) in order to make a profit, either from dividends or returns. Ex: All kinds of funds: pension funds, holding companies, corporations.
  • Sell Side: People that advise the buy side on what to buy, by doing research, expert analysis and coming up with investment ideas. They effectively don't buy the stocks/securities, but rather advise the buy side on what to buy, charging a fee for service, and/or a percentage of the profit. (usually measured in basis points) Ex: Investment banks and brokerage firms.
  • Hedge Funds: An institution that holds a bulk of money for very wealthy individuals and/or companies, that allows them to create large scale investments that can yield higher return than individual investments. Hedge funds, unlike mutual funds, are exempt from a number of regulations that allow them to apply more aggressive (yet riskier) investment deals.
  • Mutual Funds: An institution that has shareholders, who invest money in that fund, which is run by an investment company. This money is then used to buy or sell shares, bonds or assets (businesses, equity, technology, etc..), according to a set objective, which is the reason the shareholders have invested. Mutual funds, unlike Hedge funds, are governed by rules and regulations against things like monopolies, unfair advantage, business disruption, etc., but on the flip side, are more liquid and shareholders can opt out at any time.<>
  • Commercial Banks: A bank in the usual sense where everyone can have an account deposit money and do transactions. Many of the commercial banks (UBS, Chase,Citi), due to immense wealth, create their own Investment banking arm, as well as their own internal funds (because they can!)
  • Investment Banks: An investment bank is everything a commercial bank is not. Fewer employees, different operations, and, in most cases, less money. (yep, amazingly so). Investment banks are underwriters, or agents for businesses and corporations issuing securities and stock. i.e. if a company wants to go public, it hires an investment bank to handle it's IPO. Investment banks employee loads of analysts that do alot of market research, to which then the associates and higher ranked employees, advise the investors (funds, corporations, businesses, and in some cases, rich individuals). The investment banks extend their functionality to so many other different areas, such as trading, with trading desks as big as football fields!
  • Traders : People who do the actual buying and selling of stocks on behalf of clients. Traders that work on the stock market are required to have a securities trading license (these are the people that throw papers and smoke outside the stock exchange and are constantly on the phone). Traders usually buy and sell in short periods of time to make profit on changing stock prices.
  • Brokers: Brokers are intermediaries between buyers and sellers. They also are sales people who would talk to clients and advise them (based on their own, or market research) on what securities to buy and sell, and charging comission.
  • Equity: Equity is the value of the securities in a given investor's account assuming that the account is liquidated at the current price. An account can have multiple stocks across industries.
  • M&A : Mergers and Acquisitions. Investment banks usually offer companies with advice on whether or not to acquire other companies and/or merge with them. Briefly, and acquisition is when a company buys-out another (usually smaller) company and incorporates its products into its own. The bottom line of an acquisition is that the bought-out company seizes to exist. Employees either become employees of the acquiring company, or are laid off. As for a merger, is when two (or more) companies merge to form a new company, with both businesses remaining servicing their primary business, but with new money, new management and refactoring. The main difference between a merger and acquisition is strategy, that mergers usually introduce strategy changes to the merging parties, while an acquisiton, is because the parent company thought that buying the acquired company fits into its strategy and growth! Merger example: Reuter-Thomson.
  • Public Companies: Companies traded on the stock exchange, in which any member of the public can buy shares in that company. The one important issue about public companies is that they are required to release financial and business details to the general public.
  • Private Companies: Privately held companies, that do not issue public stock. This frees them from the obligation to release details about the business, beyond what is general information. This makes them like a black box, and to some extent, a competitive advantage. Ex: Bloomberg
  • Portfolios: The combination of bonds, stocks , equities etc... held by a person and/or company. A portfolio usually is diversified over a number of industries, and combinations, to minimize risk. (i.e. don't put all your eggs in one basket).
  • Revenue: The total return the company made from its operations throughout a fiscal year. i.e. before deduction of tax, expenses, salaries etc...
  • Profit: What is left of the revenue after what needs to be paid is paid.
  • Dividends: The return of a given stock. The profits of a company are divided on the number of stocks, and paid out to the shareholders, either in cash, or otherwise (goes beyond my scope :))
  • Market Cap: The product of the value of an individual share by the total number of shares.
  • Income Statement: An income statement is a document that analyzes a company's revenue (not profit) and expenses over a given period of time. In the US, this is usually done on a quarterly basis (i.e. every 3 months).
  • Balance Sheet: An overview of a company's financial situation. i.e. what is in red and what is in green. What does the company has in assets (green) and what it has in liabilities (red). The gold equation of a company situation is : Assets = Liabilities + Equity
  • News: Anything released by companies to the press - this is directly related to what classifies as public information and private and confidential information- related to insider trading.
  • Price to Earnings: a measure of value of a stock. i.e. how much a stock costs compared to its return.
  • Estimates: An estimation of the potential earnings of a current investment.
  • Stocks - Outstanding/Common: Common stocks issued by the company held by the public and give holders the right to vote and claim to dividends (although the dividends are dependent on the performance of the company).
  • Stocks - Preferred : Stocks that do not give the holders voting right, and pay a fixed dividend (if any), regardless of the company performance. (not quite, but this is the general idea)
  • Bonds : A bond is basically an "I owe You" document that a government issues to raise money from the people. i.e. Someone can purchase a bond for a certain amount of money, and the government or bond issuer (not always, but usually) promises to pay back the money with interest, either at one specific date, or at set period (frequency) of time. These bonds are themselves tradeable, in which bond holders can sell these bonds before they are due. This is when a bond is sold at a premium. Government bonds are important, because, supposedly, it is zero risk and governments usually pay back the money. i.e. guaranteed money back - an alternative way of investing. (unless the government defaults on it bonds , which happens rarely, but can happen. ex: Russian government defaulted on its bonds in the 90s).
  • Analyst: The lower chain of the finance echelon. Analysts (ref. investment banks) are the people who do the grind work of research on companies and businesses.
  • Associate: Usually post-MBA employees who are the people that make the investment/brokerage decision based on research done by the analysts.
  • Rating Agency: Such as S&P that rate bonds' likelihood of default. (as in bond issuers not paying back the bond).

Oh yeah, and these are entirely my notes.....or my fault!

Friday, 19 December 2008

Tales from the Basement - Mergers and Acquisitons (2)

So in a previous post, I talked about M&A and how difficult it can be for someone to be M&A'd, because that requires a lengthy and tiresome process of integration and people shuffling and most importantly, resource allocation.

Well when it comes to technology, acquiring companies is a way of living, or to be more exact, a survival tool. Talking to someone at IBM, who's been there for 25 years, and is now on the Domino project, he said that today, on average IBM acquires a company every three months. that's in line with Domino, which is a meta software, I.e. a software that manages software. Well, wat is important in this point is the managing software bit. For a company like IBM, which is, according to my friend Kags (an IBM alum), is that the company is just too corporate, and that it takes a lot of effort and people to get the ball rolling on a project from scratch. So sometimes, its just easier to just buy a company with a working product.

But when they do that, there are 4 decision

1) business as usual: the small company has a good idea, its working and its staff are performing. With a little more push, resources and money, they can go to the next level,. The aquiring company can take them there, and everyone shares the profit. Example : Smith Barney

2) the idea: the aquiring company just wants the idea, with its patents and copyrights, when it can use its own staff to gut it and rebuild it. This is when it gets ugly, because that means people will be fired, job description will be rewritten and previous work may be chucked out.

3) client base : sometimes the company just want the clients and exposure to the market , throwing money at it, allocating engineers and staff, and providing with a wealth of resources. Example: YouTube. (Google just wanted the exposure and retaining as much users in its realm as possible)

4) Hostile Markets: Sometimes, small companies are like little thorns in a bigger company's side, and they are stealing clients from them, and well, that company is running the risk of loosing some clients, and if that company gains enough momentum, or enough small companies spring up and start merging, small fish may become bigger and evolve into serious threats. So, for the monolith company, its just easier to buy out the smaller company out of the market. Often, this is the whole point of the small fish anyway, is to be bought out, because they got the idea, and they really want to get more money for it, because it's not really there intention to make a long term business, but rather just cash in now on their idea. So, they come up with the idea, build something around, get a proof of concept going, and sell it to the highest bidder. (My style of companies) . Example of a killer whale: Microsoft. Example of small threats becoming a risk: Intel and AMD.

So basically that is the logic behind M&A, from a managerial side. I am not talking about M&As at banks, because these idiots are just out to make the cut on the sale and the aftermath is least of their concern. (Much like consulting, which I also hate).

Street Smarts

I was up to my old habit of wandering around the city, alone with my thoughts. Walking down one of the streets in East London, I notice an attractive young blonde kind of strolling around, except she wasn't exactly walking in a straight line. As I get closer, I relaize that she actually didn't look normal, turning around as if looking for something. Passing by, there was a car with two guys also looking at the blonde with a bit of a surprise. As we both become aware of each other looking at her, I make the gesture and the dude in the car goes "Oh right", as we both realize the woman is obviously on crack, as he almost climbed into the back seat to get a last glimpse of her curves as the car pulled away and I keept walking.....

I keep wondering what it takes to be an entrepreuneur, like the Richard Bransons, the Donald Trumps and the Alan Sugars. I am not talking about the Larry Pages and the Mark Zuckerbergs, or the John Paulsons, Vladimir Potanins, or the Rothschilds , because all those people started from something: The Stanfords and Harvards, or the Politics and the Connections. Am talking about those people who cam from mediocre, or just plain ordinary backgrounds, and made their way, all by themselves, to the top. The husslers, the streak entrepreuneurs, the capitalists. I guess it takes a lot of things, and a shit load of luck, but all these people have one thing in common:

Street smarts.

They say a great salesman can sell t0 water to a fish. These people know all about grass roots- and grass roots is where it all is, because that's where the real hunger starts. It's a jungle out there, and everyone is out to get theirs, and if that's what it takes, get you along the way. It's a competitive world, and in order to survive it, one should know his way around things and people. You can have all the degrees in the world, all the money and all the connections, but to be a player (Billy Harris RIP), you have to be street smart. A street smart person knows how to operate with very little, in a cut-throat environment.

When everyone was a kid, we went through high school. We were all bullied at some point, we got into trouble, we got ratted out, but people survive. Although that's where you start finding your route: some take the bullying and the crap, and stick to the books. Others bully and are on the opposite end, but in the middle you got a few who are a bit of both, the role players. This is when they learn what it means to be on each end, and to survive, they do the talking, the walking, and try to make the best out any situation. In high school, it's all in the open. You know who the nerds are, and you know who the bullies are. You have rules, and you have enforcers. Well identified.

In the real world, this, sadly isn't the case. It's all fair game, and you don't always know who you are playing with. Street smart people can operate in any environment, because, they know how to work the players. It's a business man or a car dealer, they do the sweet talking, they do the bullshiting, they know the math, and they understand the psychic (and if they are good, the women, too). They can lunch it in Hackney or the Bronx tonight, catch the subway to Chez Charles and catch the stretch ride to the Ritz. It's all people, you just have to know who and what the person you are dealing with.

The one thing that defines street smarts, is to be able to think on your feet, literally. Not in the comfort of the boardrom or on a noisy trading floor, but when your wallet was stolen and your phone battery is dead......in the Saudi desert. The street smart, is the dude who can catch a camel ride, dine with the nomads, and find a charger for his phone. What people like Richard Branson can do, is not only that get to that boardroom meeting, but make friends with the nomad, who in some crazy twist of event, can end up being the heir Prince of Arabia, and send some some serious bailout money to one of your credit-crunched companies.
That LSE degree sure is essential in that board meeting, but that means jack all in the desert! That's when street smarts comes into play. The degrees and the money work for alot of cases, but when that no longer does, the street smart man, knows that when they are gone, he still has something to work with, because he has....the grass roots savvy, and knows, that his biggest asset, are the people.

No refs, no rules.........no problem................

Monday, 15 December 2008

The Fed Secrets

The Federal Reserve bank of the United States is, in theory the biggest bank in the world, since it is the central bank of the biggest economy in the world. This bank, currently chaired by Ben Bernanke, monitors the economic activity of the USA, and is supposedly the regulating body of the markets. Although, this sometimes can be challenged, and the Fed is not exactly a good samaritan.

Before I dive into why that is, there is something important to mention, which was brought to my attention by my former professor, Ian Angell, in his book "The New Barbarian Manifesto".

Rating Agencies.

Rating agencies such as Moody's and S&P , are agencies that rate credit. This is important because it allows investors to assess whether a certain institution is likely to default on its debts. It is of particular importance in tough times, because its a good indicator for investors. The weird thing about these times, is that rating agencies seem to have acquired considerable power influence, because they also rate treasury bonds. You know the AA, AAA, B ratings etc... But the trick here is that when Moody's rate treasury bonds, its as if its rating a country, whether the country/government will default on its treasury bonds. Now that's like a private institution rating a country. Well, in retrospect, can't that pass as to be such a powerful institution that it can affect how governments are perceived by the internation community? That's quite a thing...

Anyway, the reason the Fed isn't exactly a good Samaritan, is for example, they do tend to keep secrets, like who they are giving aid to. Check this . The issue about this is that when a Central bank doesn't reveal who it is dishing out aid to, its affecting the transperancy of markets, as well as their operation, because when a company needs aid, its really an indicator that they are in trouble, and when someone is in trouble its usually reflected on the stock price, and investor confidence, and may dilude investors into investing in a dying company.

Which is unfair.

But a small story, is that the Fed often has favoritism, and we all know that the world is not really fair (haha that's a laugh), and people often favor people.

At least Bear Stearns know that. There is something called a discount window, which allows banks to take money from the Federal Reserve with a reduced interest rate, to service debts for a short period to avoid a liquidity problem. This is open for commercial banks, because commercial banks, although technically less active on the lending and investment scence for business, are crucial because they hold the people's money : savings, running accounts, etc., and if any of the commercial banks go into liquidity or financial troubles this can mean big trouble on an individual scale, because this doesn't mean that business will be affected, but directly the individuals, and not one or two, but thousands, if not millions. Imagine if Bank of America went bust, and all its customers lost their money, or part of it. That means riots, toppling of governments, demonstrations, big big trouble because that's going directly to the people. If an i-bank goes bust, the government can still somewhat handle the bankcruptcy without huge trouble, because hardly anyone will be instantly fucked. i.e. investors and business will probably go bust and employees fired, but imagine if 100,000 people no longer could afford to eat the next day, because their bank accounts were cleaned out. Lots of trouble.

Anyway, the discount window was , exceptionally open to investment banks, because the crisis was so grave, they just had to do it. Although, because of an old quarrel, and the reputation of Bear Stearns being the sharp elbowed rebels of Wall Street, the Fed only opened the discount window for the i-banks, after Bear Stearns (or stare burns like my friend now calls it), was already finished, and could not benefit from the discount window.....

Goldman Sachs and Morgan Stanley, were more lucky than that, and managed to benefit from this move, although, this came at a pretty high cost, because the Fed forced them to convert into retail banks. This move, brings them within a realm of more strict regulation and less freedom in investment and sell-side activities.

At least the Bear guys would never have to say "Hi, and thank you for calling Goldman Sachs. How can I help you today? Would you like to hear about our new mortgage deal?"

hehe. Live free or die fighting.....

MS retail bank