Thursday, April 30, 2009

Small Things (a poem)

Small Things

Swine flu is in the air.
CNN promises not to fear-monger as the word “pandemic”
flashes across the screen.
I think of the Mexican peso first, then of the Mexican people dying.
It occurs to me my priorities are screwed up.

But then I realize that’s the point--the constant scramble
to survive
to make money
to take care of your family,
It re-arranges everyone’s priorities,
forces people to think ahead, not backwards,
and it seems to work, until it doesn’t.

President Obama’s on the screen now,
talking about that flu again.
I think of the Mexican people first this time.
I think about the American schools shutting down,
and American kids happy to stay home.
I think of how a small thing can multiply into a big thing
and make its way up here without warning.

And then I realize a good thing can also multiply
And come here,
Something we’d never thought about before
until it came here
and changed our lives.

Small things, like six-year old Pierre Omidyar,
arriving in America from France,
his parents from Iran,
Not knowing their little boy would create eBay.

Small things, like Paul and Clara Jobs
adopting a little half-Syrian boy
born in Milwaukee
and bringing him to Mountain View, California,
where he would grow up and give us Apple Computers.

Smaller things, too, like 27 dollars loaned by a man in Bangladesh
who spoke at Stanford in 2003
and caught the ears of Matt and Jessica Flannery,
who then founded
Soon came millions of dollars to help the poor.

Small things become big when they cross borders
undeterred by risk, failure, or fear.
They come, these small things,
flu particles, yes, but also the seeds of a bright future,
Burrowing their way forward.


Tuesday, April 28, 2009

Wells Fargo Shareholder Meeting (2009): the Age of Uncertainty

I attended Wells Fargo's 2009 annual meeting today in San Francisco, California. Wells Fargo (WFC) did not seem to anticipate such a large crowd attending its meeting. It had to scramble to set up more chairs in an adjacent viewing area where shareholders could view the meeting on a large video screen. In a scene reminiscent of a Friday night club, some shareholders (including myself) had to wait downstairs before security allowed us to take the elevator to enter the meeting. Per its conservative image, Wells Fargo did not offer any coffee or refreshments. I asked an employee whether Wells Fargo had served coffee or refreshments at last year's meeting, and she said she didn't remember Wells Fargo serving food or drinks at any annual shareholder meeting.

Chairman Richard "Dick" Kovacevich spoke first and appeared in a good mood, making several well-received jokes. He earned my respect for being forthright in this earlier speech, where he stated, "We [the financial sector] really caused this crisis."

After the formal portion of the meeting had concluded, he turned the meeting over to President and CEO John Stumpf. First, let me give you some visuals. Mr. Kovacevich is a tall man who exudes confidence in a friendly way. Mr. Stumpf, on the other hand, is shorter, more intense, and much more brusque. I would almost compare them to Robert DeNiro and Joe Pesci (Goodfellas or Casino, take your pick)--effective men, each in his own way.

Mr. Stumpf delivered a short presentation. He began by rattling off all the names of failed financial institutions--AIG, Bear Stearns, Countrywide, Fannie Mae, Lehman Brothers, Merrill Lynch, and WaMu. These are "difficult times," he said. He went through some slides showing that Wells Fargo had made money and continues to grow. One slide was confusing--it showed WFC reporting $0.70 of diluted EPS, but had a shadow area that added $1.51 in EPS, which assumed the inclusion of credit reserves. Including the credit reserve build, the additional EPS would have brought the numbers in line with previous earnings. I did not understand what the additional EPS meant, and even after I asked Mr. Stumpf to explain it again during the Q&A, I still didn't fully understand it. (My current understanding is that Wells Fargo had set aside billions of dollars to cover expected future loan losses, especially due to the Wachovia acquisition, and had it not been forced to account for its expected losses, its earnings per share would have increased.)

Mr. Stumpf talked about the dividend and the "difficult decision" to cut it. He indicated WFC would increase the dividend when "practicable" to do so. Wells Fargo's cutting of its dividend signals a tectonic shift. If you go back to a time when banks were staid creatures, people would buy banking shares for the dividend. They expected that a bank would slowly and conservatively increase deposits and make more loans over time, allowing the bank to steadily increase its dividend. As a result of their consistent dividends, banking stocks were called "widows and orphans" stocks--held by husbands to protect their families when they died. That age is over. Banks have lost the public's trust, and with it, we have entered a new world of uncertainty. This change is shocking because even banks that acted conservatively, like Wells Fargo, had to cut their dividends, breaking their implicit promise to maintain steady payouts. If there is one unfortunate lesson to be learned from this crisis, it's that being good didn't pay off. As a result of widespread and creative financial engineering, the good banks got sucked into the morass created by bad banks like Citigroup (C) and Bank of America (BAC). Now, senior citizens looking for income have few places to invest. Even preferred shares are suspect.

Mr. Stumpf returned to his theme of consistent growth. He said that even during this tough time, WFC "grew revenues by 6%" while reducing expenses by 1%. He said the amounts loaned also increased, although most of that increase came from the commercial and wholesale areas, not the consumer. Deposits also increased as a result of the "flight to quality."

Mr. Stumpf then talked about Wells Fargo's two major events: Wachovia and the government's $25 billion investment in Wells Fargo. He said the Wachovia acquisition was going well, and Wells Fargo would pay back the government as soon as practicable. He said companies fail when they confuse their mission with the results. WFC's mission was to help people succeed financially, and the result was that "we make money." Bad companies, he said, mix these up and focus on making money over serving their customers. Mr. Stumpf ended his presentation by pointing out Wells Fargo's charitable contributions, which were impressive.

The Q&A session was longer than usual, and most shareholders had interesting questions. One thing about Mr. Stumpf, though--if he doesn't like your question, he'll give you a quick answer and expect you to move on. Several times, he avoided answering questions by using humor to deflect the question (Those of you who remember my Joe Pesci comparison can start visualizing him saying, "Funny? Funny how?").

One shareholder asked about Citibank's (C) lawsuit against Wells Fargo (which relates to the Wachovia acquisition). Mr. Stumpf said Wells Fargo would defend itself vigorously.

I asked whether the government forced Wells Fargo to take TARP money. After all, if Wells Fargo didn't need it, why didn't they reject it? Mr. Stumpf tried to avoid answering the question, so I asked Mr. Kovacevich directly for an answer. He said government negotiations were confidential, but added, "We did not ask for the money." He said he took the money because it was in the best interests of the company at the time.

Another shareholder talked about a personal issue. Apparently, Wells Fargo had increased his interest rate. The shareholder complained about Wells Fargo's customer service. At first, Mr. Stumpf asked whether the shareholder had a question. (At this point, I started thinking Mr. Stumpf might take a bat to this guy's knees.) After the shareholder meekly said, "I guess I don't have a question," Mr. Stumpf wisely turned on the charm. He said, "I'm sorry," and directed the shareholder to a specific Wells Fargo employee for further assistance.

Another shareholder praised the bank. He was a former employee who had held Wells Fargo shares since at least 1998.

Another shareholder talked about zombie banks and whether nationalization would be a good idea. Mr. Stumpf replied, "We are solvent" and "clearly not a zombie bank." He said his understanding was that the President and Congress had rejected nationalization.

Another shareholder asked whether Wells Fargo anticipated raising its capital base, thereby diluting its common equity shareholders. In a telling sign of how uncertain the current environment is, Mr. Stumpf refused to comment one way or another. When you strip down the optimism, no one really knows. Look at page 78 of Wells Fargo's 10K:

Under SOP 030-3 (Accounting for Certain Loans or Debt Securities Acquired in a Transfer), we recorded at fair value all credit-impaired loans acquired in the merger based on the present value of the expected cash flows...using assumptions about matters that are inherently uncertain.

Essentially, Wells Fargo itself admits its numbers are "inherently uncertain." The only thing we know for sure is that Wells Fargo's earnings received a boost from a recent loosening of the mark-to-market accounting rules. Still, regardless of any accounting changes, at the end of the day, no one really knows anything, because there are too many unknown variables. That's why Wells Fargo accepted $25 billion of our money--it doesn't really know, either, and if it did, it would have paid back the government already. [Update: some banks have already paid back TARP funds. See here.] So of course the CEO can't promise to avoid further capital injections. Of course the CEO can't promise to avoid diluting the common equity shareholders. Like everyone else, he doesn't really know what's around the corner. When historians study this current time period, the honest ones will admit no one really knew anything. It's sheer hope and faith that's driving many Americans, and, by extension, the banks to which they owe money.

I went up to the mic one last time. I told Mr. Stumpf some people think that "too big to fail" should be "too big to exist." I implied that we weren't addressing any of the root causes of our current problems and that this crisis could happen again. I said it was frightening to see the stock market go up and down based on the appearance of the banking sector's good or bad health. I indicated that banks, a relatively small group, had tremendous power over the average Joe's 401k. I said that Wells Fargo had spoken against some regulation, such as executive pay restrictions (see also 10K: page 78), but it hadn't talked about what regulation it favored. I asked Mr. Stumpf to talk about what regulations he favored so that we could avoid another crisis.

Mr. Stumpf had a two-part answer. He said that only 22% of financial assets are held in commercial banks. He said most financial assets are held by unregulated entities, such as AIG (and others who thought credit default swaps were a great idea). At this point, his answer became somewhat confusing. From what I understood (and discussed with an Aussie couple after the meeting), Mr. Stumpf implied that we should expand financial regulation, but without adding another government agency. He did not favor the current situation, where multiple regulatory bodies cover select financial entities while excluding other major financial players. (Or, according to the Aussie gentleman, "Don't go swimmin' without your trunks"--demand everyone have some covering if they want to play in the pool.)

Mr. Stumpf also suggested we should try to minimize systemic risk. He seemed to indicate that all of the banks' assets should come under one umbrella so that the overall risk of the banking sector could be easily ascertained. Again, I am not certain this is what he said, because Mr. Stumpf talks quickly. While he clearly understands complex financial terms and ideas, he seems to have a hard time communicating those ideas to the general public. (This is why WFC needs Mr. Kovacevich--his easygoing, amiable style balances Mr. Stumpf's abrupt demeanor.) From what I heard, however, it sounded like even the banking sector's head honchos acknowledged that greater transparency and governmental involvement were necessary to minimize systemic risk. Perhaps thinking he'd said too much, Mr. Stumpf stopped. That's when I realized the point and theme of the meeting was to project confidence, because at the end of the day, that's what America needs, especially from the banking sector. I think Wells Fargo did an admirable job at the meeting, but again, no one knows anything. Only time will tell whether America exits this banking crisis stronger.

The AP's Michael Liedtke's review of the meeting can be found here. As of the record date, I had 9000 WFC shares. I used margin and felt uncomfortable with the volatility, selling all my shares at around $14/share. Investors who bought Wells Fargo stock recently and had the fortitude to hold on have been rewarded. As I wrote here earlier, an investor could have made 46% had s/he timed the market properly.

Random fact: Warren Buffett owns approximately 7.4% of WFC common shares. See page 13 of Wells Fargo's 2009 proxy statement.

Bonus: The Economist has an interesting article (May 14, 2009: "Three trillion dollars later...") on banking:

Monday, April 27, 2009

Institutional Analysts are Almost Worthless

On December 18, 2008, I bought Maxim at 12.00/share and told my readers about my buy. Maxim is now selling for $13.70/share--a 14.1% increase in four months. The S&P 500 declined 3.1% during this same time period.

At the time I bought Maxim, JP Morgan disagreed with me. On December 16, 2008, JP Morgan's Christopher Danely downgraded Maxim stock to "underweight." In response, I wrote, "Almost all these these analyst downgrades come after the bad news has already been released. Consequently, when a major firm issues a 'sell' or 'underweight' rating, that's when contrarians and value investors should take a closer look at a stock."

My call was obviously correct, but what's really frustrating is that now, after the run-up in the stock price, several analysts are recommending Maxim.

On March 14, 2009, Canaccord Adams upgraded Maxim. Maxim's stock price was $14.05/share.

On March 15, 2009, Citigroup (C) upgraded Maxim. Maxim's stock price was $14.12/share.

If you had listened to these two analysts, you would be losing money right now. I don't disagree with the analysts' upgrades, assuming a long term horizon. I still think Maxim is somewhat undervalued, but I have considerably reduced my holdings and am waiting to re-enter at a lower price.

I continue to be skeptical of institutional analysts and their ratings. We need an independent website that ranks firms and their analysts based on their actual performance over three, twelve, and twenty four month horizons. The website should follow various analysts and rank them based on stock performance following an upgrade or downgrade. Hedge funds or well-off investors have access to such information, but the ordinary public is left in the dark when ascertaining analysts' credibility. That's a shame, because the public's relatively short term memory allows most analysts and their firms to avoid accountability. The Motley Fool has tried to create something along the lines of what I've suggested, but it doesn't track professional analysts.

I have been told that FusionIQ's proprietary software does rank analysts. I have been given complimentary access to the software, but have not had the time to actually sign on and evaluate it. I hope to provide a report on FusionIQ at some point in the future.

Disclosure: I own Maxim shares, and a family member works for Maxim.

Mexico Peso Devaluation

Holy cow, Mexico's currency declined 4.59% against the U.S. dollar in one day. That swine flu...

You can buy Mexico's peso through CurrencyShares Mexican Peso Trust (FXM).

Annual Reports: Part 2

I've been reading my annual reports and wanted to share the items I found interesting:

CME Group, Inc. (CME): this company generates revenues primarily from its clearing and transaction fees. (10K: page 31). In other words, it's a clearinghouse. [Update on 4/27/09: CME also "operates two self-regulatory futures exchanges" and offers information products--I did not mean to imply that CME is only a clearinghouse.] "Many clearing firms [CME's major customers] have expressed the view that...clearing houses should be operated as utilities rather than part of for-profit enterprises." (10K: page 41). Read that again--CME's customers are trying to lower their costs and will pressure CME on its margins.

Also, who's running this show? CME has 33 directors on its board. (10K: page 33) Of these 33 directors, 20--a majority--own trading rights on CME's exchange. CME is "dependent on the revenues from the trading and clearing activities of its members. This dependence may give them substantial influence over how we [CME] operate our business." (10K: page 33)

Duke Energy Corporation (DUK): Duke Energy's primary currency rate exposure is to the Brazilian real. A 10% devaluation in the currency exchange rate in all of Duke Energy's exposure currencies would result in a net after-tax loss on the translation of local currency earnings of approximately $10 million in 2009. (10K: page 31).

Interesting partnership with Walmart (WMT): "In a unique agreement with Wal-Mart, beginning in the second quarter of 2009 and for the next four years, our Texas facility will supply wind energy for a portion of the total energy used by more than 350 stores." (Shareholder Letter: page 7)

Goldman Sachs (GS): on the very last page of its 10K, Goldman Sachs lists its "Business Principles." Definitely worth a read, although I choked a little when I got to, "Integrity and honesty are the heart of our business." You can read the list of principles here.

Google Corporation, Inc. (GOOG):

International influence: "when Venezuelan broadcaster El Observador was shut down by the government, it started broadcasting on YouTube." (Shareholder letter)

Hear that, Microsoft?: More than one million organizations use Google Apps today. (Shareholder letter)

The future: "Computers will be 100 times faster still and storage will be 100 times cheaper." (Shareholder letter)

Holy cow, did Google just admit its P/E is too high?: "We believe our revenue growth rate will generally decline as a result of a number of factors including increasing competition, the inevitable decline in growth rates as our revenues increase to higher levels and the increasing maturity of the online advertising market. We believe our operating margin will experience downward pressure..." (10K, page 19).

Despite all its cool programs, Google is basically an advertising company: "Advertising revenues made up 99% of our revenues in 2006 and 2007 and 97% of our revenues in 2008." I wonder what caused that that 2% difference? DoubleClick?

Harvest Energy Trust (HTE): this stock is not a currency hedge. A lower Canadian dollar (relative to the U.S. dollar) actually helps the company's bottom line.

Jack in the Box, Inc. (JACK): first, kudos to JACK for maintaining its stock price. If you had bought and held JACK from January 2008 until now, you'd be about even. In a market where most stocks have dropped 30%-45% in that same time period, JACK and CEO Linda Lang deserve recognition. By the way, to those companies who claim they cannot find women to be on their Boards, how about Ms. Linda Lang? She's the closest thing to a miracle worker you can find right now.

Here's one reason JACK has done well: "Our focus continues to be on premium products versus deep value or discounting messages." (Shareholder letter)

Move towards franchising: "Jack in the Box transitions to a new business model comprised of predominantly franchised restaurant locations." "Our long-term goal is to increase the percentage of franchise ownership to the 70% to 80% range by the end of fiscal year 2013." (Shareholder letter) I hope this doesn't diminish JACK's brand. In my experience, franchisees tend to have worse customer service compared to company-owned locations.

Morton's Restaurant Group (MRT): Anyone with an extra invite to a Boardroom event, let me know: "Morton's continued to aggressively promote private dining for meetings and special occasion events in our private dining Boardrooms...Boardrooms generated approximately 19% of Morton's revenues in fiscal 2008." (Shareholder letter)

New York Times (NYT): "More than 40% of our full-time work force is unionized." (10K: page 11); "As of December 28, 2008, the underfunded pension obligation for our qualified pension plans was approximately $643 million." (10K: page 44).

Panera Bread Co. (PNRA): this one has nothing to do with PNRA's annual report. I just wanted to thank PNRA for its customer service. I recently lost a gift card at Panera Bread's Campbell, CA location. It had about 75 dollars left on it. I spoke to the local manager, who told me to call another PNRA representative. I got in touch with Robert J. and explained what happened. I faxed him my last two receipts (I keep my last two receipts to keep a record of transactions).

Robert told me PNRA couldn't track down the card without the full number on the back of the card, but he would see what he could do. He told me he'd get back to me within a few days. He actually did. Despite PNRA's and most companies' policies that the value of their gift cards will not be replaced if lost or stolen, he re-issued me the card. Now that's good customer service.

Word to the wise: whenever you get a gift card, write down and save the full number on the back, or register it online. Many companies allow an outside contractor to handle gift cards, so there's little communication in how to track the card. As a result, even with the most recent receipt, it's difficult to track down a lost gift card.

Customer service is important. In fact, it's the main way food retailers can differentiate their product. I used to go to McDonald's (MCD), because I really liked their coffee. Over time, some McDonald's locations got lazy. Some of its franchised locations would not offer half-and-half or sugar, or their half-and-half would be left on the counter, unchilled for hours. (This didn't seem to happen at non-franchised locations.) Anyway, when I wrote McDonald's customer service, they apologized and said they would fix it. After some follow-up communications, they contacted the supervisor at the location and copied my entire email to her. I was really upset--I had thought my complaint was anonymous--what customer in a food establishment wants the staff to know he's complained about them? Here is a snippet from my email to McDonald's, in case readers are interested:

The eggnog shake machine wasn't working, so I got a vanilla shake with gunks of yellow in it, rather than a smooth yellow shake. To the manager's credit, she allowed me to substitute another sundae for the eggnog shake, but she didn't seem to understand that my large shake was more expensive than a sundae. I know these are minor complaints, but McDonald's has more competition these days. You are competing against Starbucks and Panera, not just BK and Taco Bell. You are failing miserably in terms of service.

You need to analyze more why workers at Panera and Starbucks are more courteous than McDonald's and take action. Although your products and prices are competitive, you will lose market share if customers feel they can get better service elsewhere.

I've stopped going to McDonald's, even though I like their coffee. And I don't own McDonald's stock.

Pepsico, Inc. (PEP): Kudos to Pepsi for its colorful, descriptive 10K. After seeing page after page of different Pepsi products, I started wondering if Pepsi was the world's main supplier of food and drink.

Pepsi's motto: "joy, optimism and energy" (10K: page 6).

Walmart's influence: "In 2008, sales to Wal-Mart Stores, Inc. (Wal-Mart), including Sam's Club, represented approximately 12% of our total net revenue." (10K: page 45).

Playboy Enterprises (PLA): some interesting acronyms: PPM (per per month); VOD (video on demand); and SVOD (subscription package). Apparently, most companies are focusing on VOD. (10K: page 9).

Best summary of a company ever: "Playboy magazine is a general-interest magazine, targeted to men, with a reputation for excellence founded on its high-quality photography, entertainment, humor, cartoons, and articles on current issues, interests, and trends." (10K: page 9). Perhaps Playboy's corporate lawyers really do read Playboy for the articles.

Demographic of Playboy subscribers: median age is 35, with a median annual household income of approximately $59,000. (10K: page 9).

It's a small company: Playboy only has 626 full-time employees, at least as of February 27, 2009. (10K: page 12).

Also, in case you didn't already know, Hugh Hefner essentially owns the company. Mr. Hefner owns 69.53% of the Class A voting shares (10K: page 20). Class B shareholders--apparently, most of the shares owned by the average Joe--cannot vote, although they can come to the annual meeting in Illinois.

Wesco Financial Corporation (WSC): Charles Munger compares his company with Berkshire and basically tells the public to buy Berkshire instead of Wesco: "Business and human quality in place continues to be not nearly as good, all factors considered, as that in place at Berkshire Hathaway. Wesco is not an equally-good-but-smaller version of Berkshire Hathaway, better because its small size makes growth easier." (10K: page 7)

Wynn Resorts (WYNN): some internal family drama: "Elaine P. Wynn is married to Stephen A. Wynn, but an action to dissolve their marriage has been filed."

At least the nephew's doing all right: "Andrew Pascal is the President of Wynn Las Vegas LLC...Mr. Pascal is the nephew of Mr. and Mrs. Wynn." (page 8, proxy statement)

Macau is where it's at: "Macau generated approximately $13.6 billion in gaming revenue in 2008...making Macau the largest gaming market in the world." (10K: page 6)

SJM in Macau: "SJM, which is controlled by Stanley Ho, operates 19 of the 31 existing casinos [in Macau]." (10K: page 6).

Sharing the wealth: Wynn is charged a special gaming tax of 35% of gross gaming revenue and "must also make an annual contribution of up to 4% of gross gaming revenue for the promotion of public interests, social security, infrastructure and tourism." (10K: page 13) Is it just me, or does that 4% look like a source of kickback money to government officials and their friends? I also like the language of "up to" 4%. Who determines the actual percentage? Seems like a material point.

Bring cash, please: for purposes of the gaming tax, Wynn cannot include deductions for gaming bad debt. (10K: page 22)

A pet peeve from a former English major: does anyone at Wynn own a Strunk and White style guide? In some places, the period or comma was placed outside the quotation marks, instead of inside. (10K: pages 4, 6) This ain't the U.K., buddy.

Note: Part 1 is here.

Sunday, April 26, 2009

Torture Still up for Debate, and a Bill Maher Joke

From "The Issue of Torture is not about its Efficacy":

I never really imagined in all of my 49 years on the planet that there would seriously be a debate in the United States about whether it is alright to torture a prisoner. I don't think of myself as naive or unjaded, but it just always seemed pretty clear to me that American political culture would not sanction the overt use of torture as a legitimate means of intelligence gathering or war fighting.

The NYT's Frank Rich talks about torture here. And he makes so much sense, you will ask yourself, "Where was he six years ago?"

Ah, the days of innocence.

Here's something funny to balance out the bitter. Bill Maher mentioned California's beauty pageant contestant, who may have lost the crown because of her opposition to gay marriage. (She said she favored "opposite marriage.") Here's what Bill Maher had to say:

She's extremely Christian, kind of hot, and she's dumb...It looks like the Republicans have a new Vice Presidential candidate.

I think the GOP might be considering it. Sigh. Where's a Barry Goldwater when you need one?

Saturday, April 25, 2009

O'Neill on Social Security/Medicare: Ponzi Scheme

Paul O'Neill on Social Security and Medicare:

We've been spending money all along. It's a giant fraud; it's a giant Ponzi scheme. Every year we took the money and we spent it on other things.

There's a so-called famous lockbox in West Virginia I went to look at when I was secretary of the Treasury. You know what's in the lockbox? Actually it's a filing cabinet, and there are some pieces of paper that say, "We owe you." There's no money there; there are no investments there. There's nothing there but a piece of paper. That's a fraud.

People think, "Hey, I put money all my life in Social Security and Medicare." You didn't really. The government just took it and spent it on something else. There's no money there.

More here.

Friday, April 24, 2009

Rafat's Law of Diversity

Here is what I call "Rafat's Law of Diversity": 

1. One constant variable in life is that change will occur.
Jim Rogers, Street Smarts (2013)
2. The ability to keep up with change and adapt to changing environments provides a competitive advantage.

3. Entities and people who adapt the quickest to change will have an advantage and will be ahead of their competition. In economic terms, this is called the ability to adapt to "creative destruction" (See Joseph Schumpeter).

4. As of 2009, the world population is becoming and has become more and more inter-linked. Globalization is occurring rapidly, causing persons who would have never interacted fifty years ago to now interact and to engage in numerous economic and social transactions.

5. In short, due to globalization, countries and entities are becoming more diverse.

6. Entities that have the ability to interact on a positive basis with numerous cultures will have an advantage over entities that either lack this ability or have less of it.

7. Entities that lack diversity appear to be slower to adapt to change.

8. Entities lacking diversity as their surrounding local or non-local environment becomes more diverse show their internal culture is more resistant to change or that they are unable to gain talent from a diverse range of sources.

9. Entities unable to draw talent from a diverse range of places or resistant to change will be disadvantaged against more fluid, diverse entities.

10. As globalization increases, entities that are more diverse will have both tangible and non-tangible advantages over non-diverse entities.

11. Therefore, more diverse entities will be more competitive than non-diverse entities.

12. As of 2009, Asians are approximately 60% of the world population. As of 2009, persons of African descent are approximately 20% of the world population. As of 2009, the United States has only 5% of the world population. Mandarin and Spanish are more commonly spoken worldwide than English.

13. The United States is a consumer-based economy that relies on domestic and international consumption of its products to increase growth, profits, and influence.

14. To fully maximize one's successful interactions with worldwide entities, one must be fluent in more than one language and well-versed in several cultures.

15. Multinational entities that fully maximize their ability to engage with several cultures will maximize their ability to gain new customers and allies.

16. Entities that fail to maximize their ability to engage with several cultures will be disadvantaged against multinational entities.

17. Familiarity with different cultures and languages will maximize a multinational entity's ability to compete globally, providing it an advantage over entities that fail to maximize their ability to compete globally.

18. "Familiarity with different cultures and languages" may be called "diversity."

19. Multinational entities that favor diversity will be more competitive than entities that do not favor diversity.

© Matthew Rafat

Update on May 14, 2012: according to an April 2012 McKinsey Quarterly report ("Is there a payoff from top-team diversity?" by Thomas Barta, Markus Kleiner, and Tilo Neumann), U.S. companies with the highest executive-board diversity had returns on equity 95% higher and earnings margins 58% higher, on average, than those with the least executive diversity.

Bonus: Individuals or groups speaking on issues is not a free speech problem. Problems arise when individuals use their free speech to gang up on private individuals or politically-disconnected minorities. Such a "minority classification" will vary based on geography. A transsexual in SF would present a different analysis than one in rural Wyoming and still another in the college town of Bloomington, IN, depending on the reach and power of the group. To smooth out such differences in power, the fed gov may and should intervene when speech presents the likelihood of physical harm to an individual targeted by "gang speech." If physical harm is not likely but access to equal protection and provision of gov services is affected, there is still a role, albeit a lesser one, for the fed gov, though in such cases, a "restitution fund" allowing the individual to move elsewhere may be the best solution. "Gang speech" may take many forms, and may include unions, corporations, or any group of powerful individuals targeting a private individual because of the private individual's speech or non-violent but non-conformist behavior. If America is to continue building on diversity as one of its strengths, it must allocate resources to maintaining this unique advantage. Just as freedom is not free, neither is diversity.

Update on January 15, 2017: "When disagreement comes from a socially different person, we are prompted to work harder. Diversity jolts us into cognitive action in ways that homogeneity simply does not." -- Katherine W. Phillips

Update on June 2017: I have created another "law" here: 

Thursday, April 23, 2009

Brocade Communications Shareholder Meeting (2009)

Brocade Communications Systems, Inc. (BRCD) had its 2009 annual meeting on April 15, 2009. The day after the meeting, Brocade announced closer ties to IBM. There was no informal presentation. 

Although the meeting itself was bare bones, Brocade's Shareholder Relations team did a fantastic job. I don't think I've ever praised a company's investor relations team before, but Brocade's team deserves special recognition. 

First, they used a portable miniature microphone. A company representative went around the room offering the microphone to whomever had the floor. You would be surprised at the number of companies which use no microphones at all, forcing shareholders to speak very loudly or requiring executives to repeat questions. Most large shareholder meetings have one or two standing microphones where people can stand to ask questions. This works well for larger meetings. For smaller meetings held in a conference room, a portable microphone works best. 

Second, the food was fantastic without being ostentatious. In these hard times, companies need to balance saving shareholder money with projecting a strong, healthy image. No food or coffee at the annual meeting indicates a company that either doesn't care about its shareholders or is trying to cut costs to the bone. Brocade had coffee and mineral water--the basics--but it also had some of the best chocolate chip cookies I've ever had. These cookies were so thick, they looked like scones. If my mother hadn't taught me basic manners, I would have stuffed about 20 of them in my pockets. I asked someone who made the cookies. She told me it was Gunther's Catering

I called Gunther's and confirmed they made the cookies. He said it was his mother's recipe, and they baked them fresh every day. The company has been around for 39 years and specializes in wedding receptions. If you like chocolate chip cookies, get thee to Gunther's. 

Lest you think it was just the cookies that won my heart, I assure you that's not the case. Shareholder relations personnel handled themselves professionally. They did not treat me or other shareholders like unwanted guests crashing an internal company party. You'd be surprised at how poorly many shareholder relations treat ordinary shareholders--read my Visa post, for example, where a shareholder relations person tried to stop me from taking a picture with the CEO, who was actually happy to have his picture taken, and then demanded my contact information. 

Lacking a presentation, the meeting would have been over had shareholders not asked questions. CalSTRS and CalPERS representatives appeared at the meeting to check on their shareholder proposals. Prior to voting, the company did not allow any comments to be made on their proposals. A shareholder attempted to make some comments, but Brocade's executives refused to allow him a microphone. Their refusal seemed unprofessional, because disallowing comments on specific proposals stifles the flow of potentially unbiased information to shareholders. Although most companies will tell you to make your comments at the end of the formal meeting, polls are closed by that time. Strike one against Brocade's management team. 

After the formal portion of the meeting concluded, the California representatives asked for a preliminary tally of the votes. Brocade didn't have one. I've never seen this happen before at any major company. Strike two against Brocade's management team. 

I asked a few questions. I asked how the company was managing the integration of Foundry Networks (FDRY). CEO Michael Klayko said the acquisition was going well. I asked what specific gap in Brocade's (BRCD) products the acquisition fulfilled. Many times, companies will acquire another company to boost revenue but will lack a real need for an acquisition. CEO Klayko said that Brocade found it cheaper to buy the company than to create the technology in-house. Foundry, he said, had "more connectivity products." Also, Foundry had just released a new chipset/product the prior Tuesday, showing that the acquisition was going smoothly. 

I asked what problems, if any, Brocade had discovered in the course of integrating Foundry. CEO Klayko said that Foundry Networks' distribution channels needed work, and its "marketing was suspect." Brocade's marketing, however, was very good, and that's why the two companies would work well together. 

I asked how Brocade expected to compete with Cisco (CSCO) and Nortel (NT). Here's where CEO Klayko shined. He said that Nortel might not be the best example to raise, because of its bankruptcy. As far as Cisco--Brocade's main competition--was concerned, CEO Klayko said that Brocade offers "cost advantages." In other words, Brocade offered similar products but at a lower cost. CEO Klayko also said the marketplace wants an alternative. Only near-sighted customers want to encourage a monopoly, because maintaining the status quo would allow Cisco to keep its high margins and relatively higher prices. Another shareholder, who worked for an investment firm, asked about analyst reports relating to IBM. 

CEO Klayko said there were lots of rumors out there and deflected the question. (The very next day, IBM and Brocade announced they would be working together on various products.) 

Another shareholder asked about Brocade's real estate strategy (buying vs. leasing property) and received a vague answer. 

Another shareholder was unhappy about the lack of a presentation. He also criticized the in-person absence of 50% of the directors. In what was the most memorable line of the day, he told Brocade's management, "Make us feel like you give a damn about us [small shareholders]." 

CEO Klayko responded that all the directors were present, but some were present by teleconference. He told this shareholder that he'd seen him present at various meetings throughout the year, so the company did communicate with its shareholders. I may have misheard the next response, but the shareholder responded that the only reason he was able to get access to those meetings was as a client of a brokerage firm. In my mind, if any company is restricting or selectively disclosing material information only to analysts or major shareholders, it would be violating Regulation FD. Please note: I do not have any information about whether any violation of Regulation FD is occurring, and I am not making any allegation of securities law violations. I would be very upset, however, if any company communicated relevant information only to major shareholders post-Regulation FD. 

I asked the CEO about complacency. I asked what the CEO was afraid of or concerned about. The CEO gave me a five item list: 

1. Access to capital. 
2. New technology (which makes current technology obsolete). 
3. Acquisitions that change the competitive landscape. 
4. Innovative quality (how to maintain quality). 
5. Cost (keeping costs low to attract customers). 

CEO Klayko also talked about the "entitlement mentality." He seemed to be channeling one of my favorite CEOs, Cypress Semi's (CY) T.J. Rodgers. 

I asked about various memorabilia in the room, which included a jersey from The City that Shall Not be Named (at least according to ESPN's Bill Simmons) and a signed Hootie and the Blowfish guitar. The CEO didn't know about the stories behind any of the memorabilia. 

Here's where things got a little interesting. I pointed out that Brocade had presented itself as an all-white, all-male company. All four persons at the front of the room representing Brocade appeared to be older Caucasian men. There's nothing inherently wrong with that, and diversity does not guarantee success. At the same time, almost all successful global companies present themselves as non-monolithic. (Pepsi (PEP) and Coke (KO) are way ahead of the game in this aspect.) I also said the executive team's lack of diversity was strange because the company was based in Santa Clara County, where 40% of the population is born outside the U.S. 

One of America's greatest attributes is its ability to project an open, tolerant image, which has attracted many ambitious, diverse people. As a result, we have the Blackberry (Canadian); Yahoo (Taiwanese); Google (Russian); eBay (French Iranian); and so on. Companies and countries that fail to project an open, tolerant image will be disadvantaged as world economies become more globalized, allowing talent and money to move elsewhere. In a nutshell, Brocade appeared to be violating Rafat's Law of Diversity

When I mentioned Brocade's appearance of having a 100% native-born Caucasian male executive team, the one and only female on the Board of Directors, Judy Bruner, raised her hand with a smile. Ms. Bruner is probably a great person. She received her MBA from Santa Clara University, my alma mater, and Santa Clara University strives to produce ethical, well-rounded graduates. However, when the only female on a company's Board happily raises her hand to demonstrate diversity, it's hard not to think that the corporate culture is irretrievably monolithic. From my perspective, having only one female on an entire Board is not cause for happiness or active disclosure. Even North Dakota's MDU Resources, Inc. (MDU) has more females on its board (25% of its directors are female) than Brocade. Thus, to me, Ms. Bruner's reaction--immediately identifying herself as the one and only non-male Director, instead of letting the CEO acknowledge the company's lack of diversity--felt strange. By the way, with the exception of perhaps three or four people in the entire room, everyone else present appeared to be native-born Caucasian also, which isn't an inherent problem, but still unusual in a diverse city like San Jose, California. 

CEO Klayko did not acknowledge his management team's lack of diversity. Instead, he said that we needed to create better educational opportunities here in the United States, and we were falling behind in science and math. He said Brocade was participating in the Tech Challenge, which encouraged children to pursue careers in math and science. In other words, Brocade was actively working at the local level to attract diversity. CEO Klayko joked that he was recruiting [minorities] at the 5th grade level. In response to my comment that we lived in a county that where 40% of the residents were immigrants, he said Brocade was a global company, not a local one. 

Unfortunately, his response confirmed my belief that Brocade's management culture is monolithic. Most studies show that Caucasians are only 20% of the world population. Assuming a 50/50 split in females and males, only 10% of the world contains Caucasian men--which indicates the CEO's response wasn't statistically sound. Again, there's nothing wrong with having 90% or 100% of any race on a management team. In fact, after the meeting, Investor Relations pointed out that of the 8 directors, one was a female and one was Indian--not a bad percentage. It's culture I am concerned with, not race. From what I saw at the meeting, Brocade's management team seems to lack cultural diversity. Strike three against Brocade's management team. After the IBM news was released publicly, I sold all but one of my shares. If Brocade works well with IBM, its shares may go higher in value; however, Brocade's relatively high debt load may inhibit its shares' forward progression. 

I really enjoyed listening to the CEO. He appeared energetic, strong-willed, charismatic, opinionated without being crass, diligent, goal-oriented, and knowledgeable--in other words, someone born to be a leader. I could immediately see why he ascended the corporate ranks. At the same time, passionate CEOs generally need a Board and executive team willing to speak up and provide a voice of caution. I'm not sure that's going to happen. Strong-willed leaders tend to unintentionally crowd out dissent, especially when their companies lack a substantial number of women in the upper ranks. With only one female and one Indian-American on the Board, I don't see Brocade's current management team as being sufficiently diverse. Perhaps I am wrong. On my way out, I passed by a room with many busy workers. Everyone in that room appeared to be of Indian descent. 

Note: Brocade has a blog. CEO Klayko's most recent post is here. The first line of his post is this: 

We are a nation and an industry curled up in the fetal position. 

It's hard not to like someone so direct, passionate, and intelligent.

Vampire Pensions

As if we didn't have enough to worry about, the FT's Charles Millard warns us about "vampire pensions":

While economists worry about “zombie” banks holding back lending, vampire pension plans may soon be stalking a company near you. The underfunding of America’s corporate defined benefit pensions poses a daunting challenge, threatening not only their 40m beneficiaries but the entire US economy.

Oh, the many unfunded obligations.

Wednesday, April 22, 2009

Cash is King

Just keeping my readers posted. I sold most of my stocks and mutual funds today. Tomorrow, April 23, 2009, the government will release two sets of important numbers: one, unemployment claims; and two, Existing Home Sales. It is possible these numbers will be quite good. I doubt it.

On April 1, 2009, I told my readers that government action would make the market rise. As I predicted, it did. The S&P 500 rose from 811.08 to 843.55, a gain of 4% in just three weeks.

I still believe the S&P 500 will, sometime this year, hit my original target of between 920 and 950; however, I don't see much point in being in this market right this second. My personal risk analysis can't countenance holding mostly equities for a potential 10% gain over the next six months. I believe I will have another opportunity to jump back into the market.

If the numbers released tomorrow are good, the market will continue to rise, and I will have missed out on potentially major gains. That is a risk I am willing to take. Staying mostly in equities right now, without knowing the home sales numbers, seems too dangerous.

My short-term trading strategy has limited my losses. My retirement funds have declined approximately 14% from December 7, 2007 to April 22, 2009. (I don't know the exact percentage. Throughout the year, I deposit additional monies in my retirement accounts, which distorts the ultimate percentage even after accounting for the new deposits.) The S&P 500 has declined around 44% during this same time period. Perhaps buy-and-hold investors will laugh last, but for active traders, cash seems like a safer place to be right now than equities.

The information on this site is provided for discussion purposes only. Under no circumstances do any statements here represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence. To summarize, I do not provide investment advice, nor do I make any claims or promises that any information here will lead to a profit, loss, or any other result.

Ayn Rand's The Fountainhead

I recently watched Ayn Rand's film, The Fountainhead. Overall, the film was excellent. To get a view of Ms. Rand's philosophy, you can read Howard Roark's closing argument to the jury here.

I liked the film, but disliked Ms. Rand's character, Dominique Francon. Ms. Francon seems sexually and emotionally repressed, mostly because her existence seems geared towards achieving an absence of emotional attachment or passion. For example, she destroys a statute she enjoys, and she marries a man she does not love. Gary Cooper, on the other hand, does a fantastic job playing Rand's ideal man, Howard Roark. Part of this may be individualism's bias towards men. Men, more so than women, do well under an individualist philosophy. After all, most women, because of biology, have to think of children. Unsurprisingly, Rand never had children:

It was a responsibility that she was not interested in assuming. When she was writing Atlas [Shrugged], she would sometimes say that she was "with book." The only children she wanted were her books.

And therein we see the problem with too much individualism. Child-rearing is fundamentally a self-less act. It is true that many parents wish to live second lives through their children or have them for other selfish reasons, but at least for the first six years, there is a tremendous amount of sacrifice inherent in being a parent. Thus, when you factor child-bearing and child-rearing, Rand's philosophy doesn't translate well to a growing population or to one where mothers are given additional support.

Yet, it is true that most inventions and advancements have come from a few people. Without Galileo, Marie Curie, Einstein, and other famous scientists, it is unclear how advanced humankind would be at this point. Due to its rigor, science--like writing and other productive enterprises--requires a level of introversion that overwhelms a desire subjugate one's selfish enterprise to others' desires. We can look to the term, "mad scientist," to understand that scientists are generally misunderstood, because most people prefer to spend time with people, not abstract concepts. Indeed, almost every film about scientists depicts them as crazy or eccentric. So Ayn's basic point is true--scientists need to shut out the world and be intellectually independent to achieve results. Societies that protect the scientist and/or the independent intellectual's work create better opportunities for overall advancement (for example, attitudes towards stem cell research may be used as a test study of a society's willingness to allow scientific progress). It is unclear, however, whether selfishness and intellectual independence and progress are necessarily intertwined.

Regardless of the answer to whether selfishness is the sine qua non of progress, there is a balance that must be achieved, and Rand does not seem to know how to achieve it. In fact, there is no greater argument against pure individualism than Dominique Francon, who is made up to look like Rand herself in the film. To see Francon's internal writhing on her own forced island, torn between complete independence and submission to her desires, is to understand that Rand's philosophy is a recipe for unhappiness.

It is possible to have a society that protects mothers, that views child-rearing and child-bearing as honorable acts, and one that also respects the intellectual solitude/selfishness of the scientist or entrepreneur. It is also possible to argue that altruism has an important place in society and is not superfluous. Intelligent libertarians, for example, do not argue that no laws are necessary to protect selfish or independent behavior--just that the least number of laws necessary to achieve stability is desirable. In other words, society needs to establish a balance between selfishness and societal obligation by the least coercive mechanisms possible.

Rand's philosophy of pure selfishness doesn't do much for balancing generally desirable traits, such as altruism, with other desirable goals, such as freedom. As a result, Rand makes it difficult for reasonable people to support her absolutist views.

TurboTax Blog

TurboTax has a blog:

Definitely worth a look-see.

On Pakistan: Guest Writer Javed Ellahie

While the American media focus on Iran and sometimes on North Korea, Pakistan is looking more and more like the next danger zone. The Pakistani government recently appeased the Taliban by allowing them to enforce "Islamic" law in various parts of the country. Realizing the danger of allowing the Taliban to take over an entire state, various countries pledged billions of dollars to Pakistan to bolster faith in the state's existing government. Will it work? My guest writer, Javed Ellahie, a local Pakistani-American attorney, does not believe so.

I asked Mr. Ellahie for his input on the situation after watching a chilling Frontline episode, "Children of the Taliban," which can be found here. Mr. Ellahie's response to me was not something I've seen in the mainstream media, so I asked his permission to share it. He agreed. His response is below.

U.S. Aid to Pakistan - Billions of Dollars in Paper Cannot Undo Billions of Dollars in Bombs

Pakistan is going through a very trying time. It is a country that lives in a part of the world where China, Russia and India were the neighborhood bullies. With the rise of Al Qaeda and the tit-for-tat response of “take no prisoners” by the U.S., the whole neighborhood has gone bully-whack.

Pakistan’s frontier province has always been a no-man’s land. Pakistan’s control consisted on having the tribal chiefs on her side. This could continue as long as Pakistan was the toughest kid on the block. Now, the tribal chiefs have taken on the Americans and no longer need to bow to Pakistan or anyone else. They believe that they control their own destiny and Pakistan is nothing but a pet of the U.S.

While the U.S. has announced billions in aid, it will go to waste. U.S. Aid is channeled through consultants and corrupt politicians. By the time it gets to the target, it is worth no more than a piece of shrapnel that started as a million dollar cruise missile and now lies in between the blown out limbs of the unsuspecting as they slept in their two dollar mud house.

Pakistan's civil movement holds promise, but it must not be directed at fighting a battle which, by its continuation, will destroy the country. Its energy must be channeled into efforts towards building a civil and just society in Pakistan.
The best the U.S. can do is not to send billions into Pakistan but to leave and let Pakistanis and the frontier men run their own lives.

The U.S. and Pakistan's bombing of the tribal areas destroys the village where these fearless frontier men have dwelled for hundreds of years. Having lost their homes, these proud, angry mountain men, whose pride demands that every death be avenged, are descending to the valleys and cities of Pakistan and exacting revenge. How can you convince them that it is wrong to brazenly kill innocent civilians when they themselves have witnessed the wholesale deaths of their innocent family members by unseen (cowardly) drones?

The people of Afghanistan did not consider the U.S. its enemy--Al Qaeda did. By attacking an entire swath of Afghanistan, the U.S. now has made an entire population its enemy and turned ordinary Afghans (and now frontier Pakistanis) into Taliban.

by Javed Ellahie, Esq.

One may call my colleague a cynic. Yet, his plea for the world to let Pakistan alone must appeal to anyone who believes in a nation's right to control its own destiny. In addition, outside interference may encourage more support for the Taliban. It is hard to see how anyone can join such a backwards, violent group. I only understood it after watching the Frontline episode I mentioned above, "Children of the Taliban." I strongly encourage my readers to watch the episode, which can be found on PBS's website.

Monday, April 20, 2009

The Banality of Evil: It Could Happen in America

I recently had lunch in a restaurant and started chatting with three women near my table. I ordered too much food and offered them some of mine, and they invited me to sit with them. After they found out I was a lawyer, they asked me some questions about a fire in their apartment, and I tried to help them out. (They did not have renters' insurance.) At some point, the conversation moved into religion after they asked about my ethnicity.

I know lots of Mormons, lots of Catholics, and lots of people of other faiths who take their religion seriously. I may not agree with everything my friends say, but I respect their beliefs. I am very thankful to live in a country where reasonable people can agree to disagree, and where I can ignore ignorant bombasts. I've never had substantive discussions with fundamentalist Christians before, and after some time, it became apparent all three women were very conservative and very religious Republicans.

These women looked like your average Californians. One was 22 years old, half-white, half-Mexican, and had some streaks of red dyed into her hair. The other was a 26 years old light-skinned African-American. Her father was a pastor. The last woman was a 30 years old Jamaican-American married to a Laotian with a 8 years old daughter. As far as Americans go, this was a pretty diverse group of people.

We talked about George W. Bush, and all three of them liked him. They said you could not blame all of America's problems on one man. I agreed, saying that it was the entire Bush administration that created major problems, including unnecessarily invading Iraq. (I should have mentioned the compliant Democrats, too.) They said they supported President Obama, and even though they did not vote for him, he was now their president and they would try to support him, too. I thought their attitude was very honorable.

On Iraq, I said it was tragic that 100,000 innocent civilians and 3000+ Americans had died. The women responded that Iraq was not a mistake. I confirmed that they understood Iraq had nothing to do with 9/11. Trying to come to a middle ground, I said that perhaps at the time of the invasion, some evidence justified going into the country, but now, it's clear Iraq was never a threat to us. Assuming the only justified war is a defensive war based on defending your people and your country, the Iraq war was unjustified. I asked them again if they agreed invading Iraq was a mistake, based on current information. They still said Iraq was not a mistake.

I then said the war created more enemies. When an errant missile blows up your village, are you going to be pro-American or anti-American? In response to this, one of the women told me, "Why are you hating America? You're here now." I was stunned. I knew some people equated patriotism with total acceptance of everything about one's country, good or bad, but I didn't realize how ingrained this blind allegiance could be. I also didn't realize how many Americans felt that any dissent was somehow unAmerican. It is useful to remind ourselves that America's founding document, the Declaration of Independence, was an act of dissent against America's occupiers, the British.

Thomas Jefferson, for example, said the following:

What country can preserve its liberties if its rulers are not warned from time to time that their people preserve the spirit of resistance?

Most codes extend their definitions of treason to acts not really against one’s country. They do not distinguish between acts against the government, and acts against the oppressions of the government. The latter are virtues, yet have furnished more victims to the executioner than the former, because real treasons are rare; oppressions frequent. The unsuccessful strugglers against tyranny have been the chief martyrs of treason laws in all countries.

John Adams, if alive today, might have said the following about President G.W. Bush:

There is danger from all men. The only maxim of a free government ought to be to trust no man living with power to endanger the public liberty.

Alexander Hamilton, on fighting against one's own government (Hamilton is arguing for federalism, but he implicitly accepts the notion that Americans can use self-defense against their own government when it betrays them):

If the representatives of the people betray their constituents, there is then no recourse left but in the exertion of that original right of self-defense which is paramount to all positive forms of government, and which against the usurpations of the national rulers may be exerted with infinitely better prospect of success than against those of the rulers of an individual State. In a single State, if the persons entrusted with supreme power become usurpers, the different parcels, subdivisions, or districts of which it consists, having no distinct government in each, can take no regular measures for defense. The citizens must rush tumultuously to arms, without concert, without system, without resource; except in their courage and despair.

In short, dissent is American--blind patriotism is not.

On invading Iraq, the women said that we went there to help them. "They [Iraqis] asked for our help." Again, I was stunned. I thought we invaded Iraq to protect Americans from being attacked on American soil and to force the terrorists to fight "over there." In other words, assuming a finite number of terrorists, if we concentrated the war against them in the Middle East, they would have to expend resources fighting there and would be diverted from spending time plotting against Americans on American soil. No one said anything in response. I had in front of me three normally functioning people who believed that causing the deaths of 100,000+ civilians was our way of helping the Iraqis, and also, that they had asked for it.

The only time I got their attention was when I mentioned the 3000+ Americans who died. I told them why they would want to put Americans' lives at risk when it was clear now Iraq was never a threat to Americans. 100,000+ human beings didn't seem human to them because they lived in a different place, spoke a different language, and believed in a different religion--but mentioning 3000+ Americans made the death toll seem more real to them.

I tried a different approach: I asked them if they had to do it all over again, knowing what they know now, would they still have invaded Iraq? I was essentially asking them whether they'd save the lives of 3000+ Americans and 100,000+ Iraqis. After all, we know now that neither Iraqis nor Saddam Hussein posed an imminent threat to America. We know now that the war cost trillions of unnecessary dollars, which has reduced our ability to fight the current recession. The women said they would go to war again if given the chance.

That's when it hit me: normal people will believe and do terrible things, as long as they don't see the direct consequences of their beliefs. Like Germans in 1941 who silently accepted their government's gassing of millions of Jews, my American Christian companions believed that their government was doing the right thing to protect them. Most Germans never saw someone getting gassed and then having their teeth pulled. Most Americans have never seen a bomb land on a village, causing a child's family to be wiped out, severed limbs falling everywhere. It's almost like death has become so routine, our brains digest images as if they were from a Hollywood film (with a happy ending, of course). Even thinking about severed children's limbs, I think of an American film, and then of a PBS documentary showing dead children. Even in my own mind, an imaginary death takes precedence over real ones. So when I mentioned a child dying to my lunch companion, she immediately had to block the image by changing the subject into whether I loved America. The real image interfered with her idea of being involved in a just war. It was her own self-defense mechanism.

Blind patriotism makes no room for mistakes--these women were convinced that our country could do no wrong. After the WMD argument was destroyed and the connection to 9/11 absent--what else could they think of to justify their support of the war, but to assign an altruistic motive to the deaths of 3000+ Americans and over 100,000 Iraqi civilians? Their limited viewpoint--the one where 100,000 people were too far away to be real, and yet real enough to ask for "help"--could not handle any unfavorable information. Their mental paradigm required them to believe that their government, as an extension of themselves, was unable to do anything wrong. I've concluded that the most dangerous people are blind patriots. Whenever you refuse to call the unnecessary deaths of 103,000+ human beings a mistake, there is evil there somewhere. And it's utterly, tragically banal.

After my conversation with these women was finished and they had left, another woman told me she had overheard our conversation. Years ago, she had been in a U.N. refugee camp on the border of Cambodia and Thailand. In the camp she was in, Thai troops would come and shoot anyone who didn't have an ID. With only three or four U.N. personnel there to supervise the camp, these executions occurred on a more than rare basis.

She said that some Americans don't get it. The U.S. military, during Nixon's time, bombed Cambodia, which led to the Khmer Rouge, the opposition political party, becoming popular and gaining power (A similar course of events happened with the Nazi Party in Germany). See "Operation Menu," Nixon's 1969-1973 bombing campaign. As we now know, Pol Pot's Khmer Rouge wiped out Cambodia, which, up to that point, had been a peaceful nation for centuries. Like the Iraqis, the U.S. government saw the people of Cambodia as nothing more than faceless pawns in a grander scheme. I am sure the American government wanted to help Cambodians, too.

Few people will kill another human being without some kind of greater ideal at work; however, it is the duty of responsible, educated people to remember the ravages of war and to demand that an actual threat exists before advocating war. Americans used to be responsible. When we found out about Nixon's bombing campaign, which killed 100,000+ Cambodians, protests broke out all over America's college campuses. College students died at Kent State. Even Congress acted, passing the Cooper-Church Amendment, which was supposed to limit Nixon's activities. (It did not. Like Bush II, Nixon did what he wanted to do, critics and other government branches be damned.)

Today, Americans have either forgotten history or are willfully ignoring it. My three companions, like the young students in the 1960's, should have been protesting the war once they realized Iraq posed little threat to the United States. Yet, even with the benefit of hindsight, they are willing to allow the deaths of 100,000+ civilians and 3000+ American soldiers. These are normal, sane Americans. They go to church, believe in God, and have families. They will not commit any crimes. They are some of the most dangerous people in America today.

We are so fortunate to live in a country with two vast oceans to protect us against invasion and with two allies as neighbors. We should not spoil our good fortune by allowing average or bloodthirsty Americans to dictate foreign policy. The reality of war--with its torn limbs, dead dreams, and dead bodies--will never fully register as long as most Americans continue to view executions on a big screen instead of next door. Our fortunate distance between death and reality should cause us to be more, not less, wary whenever our leaders argue that 100 or 100,000+ people need to die so that we can be safe.

Furthermore, it is every non-native American's duty to try to interact more with native-born Americans in a respectful manner. Most Americans have not traveled outside of North America. Therefore, the only avenue most Americans have to interact with other cultures is through non-native American residents. It is our duty to try to humanize other cultures for native-born Americans. It is our duty to reach out. It is our duty not to be banal.

Civilizations die from suicide, not by murder. -- Arnold J. Toynbee

Bonus: more here

John C. Goodman on Health Care

John Goodman (Imprimis, 3/09) delivers a common sense speech about America's financial obligations:

He starts off with a bang:

The first of the Baby Boomers started signing up for early retirement under Social Security last year. Two years from now they will start signing up for Medicare. All told, 78 million people are going to stop working, stop paying taxes, stop paying into retirement programs, and start drawing benefits. The problem is, neither Social Security nor Medicare is ready for them. The federal government has made explicit and implicit promises to millions of people, but has put no money aside in order to keep those promises. Some of you may wonder where Bernie Madoff got the idea for his Ponzi scheme. Clearly he was studying federal entitlement policy.

It gets better--well, actually it gets worse:

The Trustees of Social Security estimate a current unfunded liability in excess of $100 trillion in 2009 dollars. This means that the federal government has promised more than $100 trillion over and above any taxes or premiums it expects to receive. In other words, for Social Security to be financially sound, the federal government should have $100 trillion—a sum of money six-and-a-half times the size of our entire economy—in the bank and earning interest right now. But it doesn’t. And while many believe that Social Security represents our greatest entitlement problem, Medicare is six times larger in terms of unfunded obligations.

How much do we owe? Mr. Goodman answers that, too:

[I]f the federal government suddenly closed down Social Security and Medicare, how much would be owed in terms of benefits already earned? The answer is $52 trillion, an amount several times the size of the U.S. economy.

52 trillion dollars. Look at that number again. Fifty two trillion dollars, with a "t."

What makes Mr. Goodman different from most writers is that he actually offers solutions. That's the second part. You can click on the link below for his full speech:

One of the Best Films Ever Made

I've just seen a wonderful Swedish film, Pelle the Conqueror. In 1988, it won an Academy Award for best foreign language film. The following year, it won a Golden Globe.

Pelle tells the story of two Swedish immigrants, an old father and his young son, who immigrate to Denmark around 1900. Like many immigrants, they dream of a better life, but are met with obstacle after obstacle. The world will not allow the father even the smallest of victories--whether it's a second job offer, a home to sleep in with coffee on Sundays, or the power to protect his son from bullies. Yet, somehow, the film manages to avoid being overly sentimental. If you're looking for a classic tale of a father and his son, you should not miss this film.

Esther Ting

I didn't know Esther Ting. I don't usually read the obits, but this one caught my eye, and by the time I was done reading it, I was tearing up. Here is the obit:

A friend's posts on Esther:

According to the above link (posted by Esther's friend on April 17, 2009), Esther died from a drug-related heart attack:

Now many of you are all wondering, how did Esther pass? What happened? Where, when, who..and so on...Wednesday April 8th, Esther overdosed on drugs which led to a heart attack. From what I heard from the nurse, she told me that they were able to resuscitate her, but her heart failed again and that’s when she passed.

Why would the world take a woman a few weeks before her 19th birthday? This makes no sense. It just makes no sense. May God help her family and those who were fortunate enough to know her.

NYT Immigration: "Remade in America"

The entire NYT series on immigration--called "Remade in America"--is fascinating. The link is below:

Here's a so-so link linking countries and occupations:

Some interesting points: Iran is under Asia rather than Middle East; and sales-related professions seem to be the most popular occupation.

Sunday, April 19, 2009

NYT Immigration Chart

I am having way too much fun with this NYT immigration chart:

You can get stats based on year (as far back as the 1800's!) and country.

Thanks to the NYT's Matthew Bloch and Robert Gebeloff.

Saturday, April 18, 2009

Amica and Renter's Insurance

So it's 2AM on Saturday morning, I've just finished watching a terrible movie (Love, Honour and Obey, a BBC flick that came out in 2000), and I remember that a friend of mine told me to get renter's insurance.

Not being a materialistic type of person, I don't own that much expensive stuff, so I never bothered with renter's insurance. Well, as it turns out, renter's insurance is helpful because it also contains other components, like liability insurance. As my friend said, if you are walking and you accidentally bump an old lady into the street, causing her to die, your personal assets are at risk. That's where renter's insurance apparently comes in, to protect your personal assets. (Note: I do not own a home; otherwise, homeowner's insurance may have covered me.) It all seems counter-intuitive, but I guess it makes sense in the crazy world of insurance.

My friend recommended buying renter's insurance from my auto insurer to get a discount, but I decided to go with a different company. My auto insurer is Progressive, and they're not known for anything other than auto insurance. He also recommended buying an umbrella policy, but I forgot about that.

Anyway, I go online to find a good insurance company, and I stumble upon this website:

I find that Chubb and Amica have good rankings (I'm not eligible for USAA, and Erie reminds me too much of a Civ Pro case), and I go with Amica. I log onto their website and use Amica's "live chat" feature. I get this great customer service rep who guides me through the process. Throughout the whole exchange, I am thinking, "This is great. It's almost 3:00AM right now, and this guy is alert and on the ball." Because of the time difference, I thought maybe the customer service rep was in India. At the end of the whole thing, I ask where he's from. Turns out he's from Spokane, WA.

Here's the exchange:

Matt: Given the time diff, I assume you're in India. What part of India are you in?

Matt: Gu[j]arat?

Joseph N.: Spokane, WA.

Matt: Oh, wow.

Matt: Very cool.

Joseph N.: We do it the hard way, graveyard, old fashioned right?

Matt: No wonder your English was perfect :-)

Matt: Damn good customer service, buddy.

Joseph N.: Thank you! We have people for you 24/7, so if you ever want to look at switching your auto let us know ;)

Joseph N.: I appreciate it!

Matt: Don't stay up too late. Have a good night.

Matt: Bye.

Joseph N.: You as well, goodbye.

I've always wondered if outsourcing customer service results in less overall quality. Of course, it depends on the individual, but perhaps there's something to be said for encouraging live, domestic customer service. I ended up buying the policy. I pay by credit card on Monday.

Oh, I learned a new word, too: "binding." A verbal confirmation of insurance coverage is called "binding"--as in, "I can bind the policy effective today." Who knew?

I am off to bed.

Update: the NYT just had an interesting article on insurance:

Friday, April 17, 2009

Blog Referral

I'm still recovering from tax day, so not much writing for me today. But here's a blog I just found:

It's mainly about econ, of course.

Thursday, April 16, 2009

Susan Boyle

Susan Boyle's excellent rendition of a Les Miserables song has made her popular beyond her wildest imagination. It strikes me as odd why no one is mentioning the sad lyrics to her song. I've included the lyrics below. If one reason for Ms. Boyle's excellent performance is that the lyrics hold some truth for her, then I would feel quite sad. Having said that, I hope Ms. Boyle wins.

Lyrics to "I Dreamed a Dream"

I dreamed a dream in time gone by
When hope was high
And life worth living
I dreamed that love would never die
I dreamed that God would be forgiving.

Then I was young and unafraid
And dreams were made and used
And wasted
There was no ransom to be paid
No song unsung
No wine untasted.

But the tigers come at night
With their voices soft as thunder
As they tear your hope apart
As they turn your dream to shame.

And still
I dream he'll come to me
That we will live the years together
But there are dreams that cannot be
And there are storms
We cannot weather...

I had a dream my life would be
So different form this hell I'm living
so different now from what it seemed
Now life has killed
The dream I dreamed.


Another singer of the same song is here: