Offshoring Our Way to Utopia?

The topic of offshoring has become quite hot lately. Offshoring means to shift the labor process related to either manufacturing or service provision from a domestic site to a site in a foreign country. I first encountered offshoring in my twenties when I was in the import-export and clothing manufacturing (a small scale sweatshop, but a sweatshop nevertheless) business in Portland, Oregon. My partner and I contracted with businesses in West Africa to produce some items and I personally had two agents working for me in Abidjan, Ivory Coast buying items for resale in the U.S.A., Canada, and Britain. These are both examples of offshoring, although the former example is the type most often focused upon -- manufacturing goods in a foreign locale for a domestically based firm. However, from my standpoint no distinction between these different types of offshoring was necessary -- these were simply means for using people to make money and sometimes the people who could make me the most money were in places far from my home base. After all, when you're trying to make money (especially if you take profit maximization seriously, either because you studied economics or just because of your own internal wiring), then it doesn't matter what country you do things in, only the results are important.

Indeed, offshoring has been an important process for businesses for centuries. It was important in slavery long before capitalism became the dominant way of economic life in the United States, the United Kingdom, and Europe. U.S., U.K., and Euroland slavers subcontracted with "firms" on the West Coast of Africa, as well as other foreign entities, to acquire slaves and sometimes to directly produce or acquire commodities on the African continent or associated islands. Offshoring is a way of creating potable wealth, so to speak. Wealth generated by the labor of people in foreign lands is embodied in forms that can ultimately be captured by domestic based firms and individuals. This is the case today, as well. So why has it become a big deal in the media and around the watercooler?

Offshoring is hitting home to many "white collar" workers who now face the possibility of their jobs being offshored (often through a process that may be more clumsily described as offshore outsourcing). These are better educated and higher income individuals than the manufacturing workers who were the disposable parts being discarded in most previous iterations of the process. The media folk who think about what stories are worth writing about or disseminating feel a good deal closer to the former than the latter. After all, they, too, tend to wear white collars to work. So that's probably part of the reason it's talked about so much more these days.

I encountered this offshoring in another intimate way recently when my publisher offshore outsourced the printing of my book, Chinese Capitalism and the Modernist Vision to a printer in India. In the last stage of publication most of my contact was with this printer, not my editor (or anyone else at the publisher) in London. Increasingly, we live in a world where our relationship to firms based in one country are mediated through other firms (or individuals in subsidiaries) in another country altogether. When it works smoothly, one doesn't even notice.

Part of the reason it works smoothly a lot of the time is the availability of technological means for rapid communication across vast geographic space. We can even move huge amounts of data almost instantaneously (the human perception of the instant being what it is). This makes it possible to do all sorts of things at a geographic distance. Eventually we could be looking at technology that is close to the Star Trek's holographic reproductions, allowing humans in one location to interact in a virtual reality space with humans far distant in real spatial terms. What will all of this mean for economic and, more generally, social life? How will it change capitalism? Will these technological changes trigger (or contribute to the triggering of) changes in class processes, such that capitalism is displaced by some new (or old) class process?

Of course, these restructurings in the site of economic activity are not the only changes occurring in society. It is the gestalt of changes that will drive the way society "evolves" in future. Based on current trajectories, we may be on the road to some sort of cyborg future where communication is not even mediated by external devices but incorporated into our new and improved brains. The cell phone, pager, wirelessly enabled PDA may be unnecessary when these capabilities can be surgically implanted within the corpus of the homo sapien sapiens (or whatever we will be called once that is the case, perhaps homo technus). In that brave new world, perhaps the Marxian notion of a teleological advance to communism would have been achieved but on the basis of something like the Borg, rather than Marx's more ideal visions (mostly unwritten about) that might have more in common with the Paris Commune and more contemporary kibbutz structures than where we're actually headed. (Shrug)

I guess the point (if there is one in this particular blog entry) is that the direction things are going isn't necessarily planned, nor is it governed by humanist notions, by any concern for the freeing of human creativity and the cultivation of compassion, empathy, and other "higher" forms of human being, but are more likely linked to notions of efficiency, getting more output from a given level of inputs, where humans have become nothing more or less than inputs, either on the production/service side of the equation or the revenue side of the equation (nodes of sales -- the customer is not only not always right, but who the Hades cares about any individual customer in a mass market world).

As humans we have this capacity to think in fantastically creative ways, to plan things, to implement our plans, to connect each others abilities, even across time and space, but capitalism is pushing us to give up our individuality, our individual creativity and rebelliousness in favor of highly specialized machine-like cooperation and conformity controlled by centralized nodes, like the world of ants or bees. Is this de-evolution (from what makes us unique as humans) to something more like the ants and bees? Utopia as an ant farm where the ants have physically embedded iPods and cell phones?

China's air is closer than you think (AP Story) -- Link

Recognition that we live in an overdetermined reality, where all processes are ultimately interrelated, would have led one to see this connection between China's industrial revolution and global air quality long ago. In any event, here's the article by Terence Chea of Associated Press (AP):

MOUNT TAMALPAIS STATE PARK - On a mountaintop overlooking the Pacific Ocean, Steven Cliff collects evidence of an industrial revolution taking place thousands of miles away.

The tiny airborne particles Cliff gathers at an air monitoring station just north of San Francisco drifted over the ocean from coal-fired power plants, smelters, dust storms and diesel trucks in China and other Asian countries.

Researchers say the environmental impact of China's breakneck economic growth is being felt well beyond its borders. They worry that as China consumes more fossil fuels to feed its energy-hungry economy, the United States could see a sharp increase in trans-Pacific pollution that could affect human health, worsen air quality and alter climate patterns.

"We're going to see increased particulate pollution from the expansion of China for the foreseeable future," said Cliff, a research engineer at UC Davis.

He has monitoring stations on Mount Tamalpais, Donner Summit near Lake Tahoe and Mount Lassen in far Northern California. Those sites see little pollution from local sources, and the composition of the dust particles matches that of the Gobi Desert and other Asian sites, Cliff said.

About one-third of the Asian pollution is dust, which is increasing due to drought and deforestation, Cliff said. The rest is composed of sulfur, soot and trace metals from the burning of coal, diesel and other fossil fuels.

Cliff is studying whether transported particulate matter could affect climate by trapping heat, reflecting light or changing rainfall patterns.

Most air pollution in U.S. cities is generated locally, but that could change if citizens in China, India and other developing nations adopt American-style consumption patterns, researchers say.

The U.S. Environmental Protection Agency estimates on certain days nearly 25 percent of the particulate matter in the skies above Los Angeles can be traced to China. Some experts predict China could one day account for a third of all California's air pollution.

Dan Jaffe, an atmospheric scientist at the University of Washington, said he has detected ozone, carbon monoxide, mercury and particulate matter from Asia at monitoring sites on Mount Bachelor in Oregon and Cheeka Peak in Washington state.

"There is some amount of the pollution in the air we breathe coming from halfway around the world," Jaffe said. "There ultimately is no `away.' There is no place where you can put away your pollution anymore."

If current trends continue, China will surpass the United States as the world's largest emitter of greenhouse gases in the next decade, said Barbara Finamore, who heads the Natural Resources Defense Council's China Clean Energy program, which is helping the country boost its energy efficiency.

"China's staggering economic growth is an environmental time bomb that, unless defused, threatens to convulse the entire planet regardless of progress in all other nations," Finamore said.

Even Chinese environmental officials warn that pollution levels could quadruple over the next 15 years if the country doesn't curb energy use and emissions.

"When you look at China's population growth and industrial growth, it's hard to imagine how air quality could improve in the near future," said Ruby Leung, a researcher at the Energy Department's Pacific Northwest National Laboratory in Richland, Wash., which collaborates with Chinese government scientists on atmospheric research.

Earlier this year, Leung and her colleagues published a study that found particulate pollution has darkened China's skies over the past 50 years by absorbing and deflecting the sun's rays.

U.S. scientists have recently found that Asian pollution is consistently transported across the Pacific on air currents and it can take anywhere from five days to two weeks for particles to cross the ocean.

A war without borders in the making By Kaveh L Afrasiabi

A war without borders in the making By Kaveh L Afrasiabi in Asia Times

Israel's secret war: the humanitarian disaster unfolding in Palestine -- Link

Israel's secret war: the humanitarian disaster unfolding in Palestine
By Anne Penketh in Gaza City for The Independent

Does anyone care what happens to innocent Palestinians? Collective punishment is, by definition, racist (as is the absence of empathy for a person simply because the person has been socially defined/constructed as a Palestinian). It ultimately opens the door to and is certainly within the same ontological framework as genocide. International law and human rights seem increasingly hollow. We are living in the Dark Ages.

An impediment to globalization by Aruni Mukherjee

Aruni Mukherjee in Asia Times

An impediment to globalization
By Aruni Mukherjee

It is not an exaggeration to declare that the Doha Round of negotiations at the World Trade Organization has comprehensively failed. Whether the inflexibility of the US position contributed primarily to this failure matters little, for whoever is to be blamed, the fact of the matter is that there is no deal on the table. The key issue lies elsewhere, and is noted by WTO director general Pascal Lamy: "We have missed a very important opportunity to prove that multilateralism works."

The failure of multilateral trade negotiations has been followed by announcements from a number of WTO member countries suggesting that they intend to pursue bilateral deals instead, while paying lip service to the long-term agenda of the global body. For instance, India - one of the chief perpetrators of the breakdown in talks - is already mulling free-trade deals with the European Union and Japan. France - another culprit supreme - has already shown receptiveness to more openness in trade between the EU and India on a bilateral level.

Such instances are not one-offs. After the breakdown of each round of meetings, such deals are often announced between countries. Often the developed countries have used offers for bilateral deals as an incentive to break the unified agenda of the developing countries at the WTO.

There have been arguments put forward by such people as Kenichi Ohmae that regionalism frees up at least some of the world trade and is hence a facilitator to large-scale globalization. However, it hardly seems a coincidence that most recent regionalist projects have been mulled precisely after the failure of a wider and much more ambitious global agenda. Examples include the US-Middle East Partnership Initiative and the EU-Mediterranean free-trade agreement (FTA). Moreover, there are certain characteristics of regionalist projects that make it a bulwark against globalization, and not a catalyst for quickening it.

First, many of the preferential trading regimes across the world are highly selective in nature. The Association of Southeast Asian Nations has recently suspended free-trade talks with India on grounds that the latter was being highly selective about removing import tariffs. Under the Common Agricultural Policy of the EU, certain subsidized items were excluded from the FTA it signed with South Africa. Under the North American Free Trade Agreement (NAFTA), Canada has opted out of freely trading in sugar, poultry and dairy products.

Second, whether regionalism has resulted in a globalization of trade is highly doubtful. For instance, in 2004 intra-EU trade stood at US$2.5 trillion vis-a-vis $180 billion for EU-Africa trade. Taking a cue from the world systems theory of Immanuel Wallerstein, we can argue that the world is increasingly being divided into "cores and peripheries" as far as concentration of trade is concerned.

Third, we must always ask ourselves whether regionalism facilitates trade, or whether it encourages a fortress-type mentality among the participants. From WTO figures, we can calculate that while the trade among the Andean group of countries grew by 461% between 1990 and 2004, their trade with the rest of the world only grew by a mere 136% over the same period. Similarly, while intra-Mercosur (Mercado Comun del Cono Sur, or Southern Cone Common Market) trade grew by 318% over this period, its trade with the extra-Mercosur world grew by 188% only.

We could make the point without citing statistics. Take a look at the defensive nature of key sectors in countries within the EU and NAFTA (eg the French farm lobby) and the issue will be quite clear. Inter-regional disputes such as between the US and the EU over subsidies are another point to note here.

What can be agreed is that globalization has managed to thwart proactive protectionism. But regionalism has provided ample opportunities for self-interested, inward-looking states (which liberals wish they could wish away) to introduce reactive protectionism. The hostile reaction of the EU to China's alleged "dumping tactics" is a recent example. What has taken place, therefore, is not "globalization of trade" but "globalization of trade regionalization". The basic defensive character of these trading blocs remains. As Columbia University Professor Jagdish Bhagwati has argued, the regionalization tendency is "a Trojan horse masquerading as a gift horse".

So when India, China, Brazil or the US ink the next FTA with a country or a group of countries, look for the small print - look for areas where these countries are planning to exclude competitors from extra-regional countries.

Aruni Mukherjee is based at the University of Warwick, England.

(Copyright 2006 Aruni Mukherjee.)

Understanding China, Socialism, and Communism: An Early Morning Comment

How can any social scientists hope to understand China and the Communist Party of China (CPC) without without understanding Marxian theoretical traditions? I review a large number of texts every year and remain perplexed that so many of the the authors are ignorant of Marxism/Marxian theory. This ignorance leads to all sorts of misunderstandings, faulty premises, and flawed conclusions. And the problem is not only that these theorists do not understand Marxian theory(ies), but that some subset of them have such simplistic and incorrect understanding that their arguments start badly and get worse from there. Nevertheless, I try to be as forgiving as possible in my reviews, although it sometimes stretches the kindness muscles to their limits. (By the way, this problem does not permeate what used to be called the Directorate of Intelligence at the C.I.A., where knowledge of Marxian theory is an important asset for any top flight analyst working on China.) These misunderstandings are also reproduced within popular discourse (and all the talking heads on the boob tube who feed popular discourse), where many analysts seem completely clueless about the relationship between capitalism as a social relationship (in fact, they don't even know what Marxian theorists mean by capitalism, despite the fact that it was in that theoretical tradition that the phrase "capitalist system" was invented and elaborated) and Marxian theory as a social science (as opposed to Marxist political practices -- the meaning of which I'm actually not completely clear about). Marxian theory is primarily a social science of capitalism, grounded in an understanding of social dynamics that depends upon the existence of capitalism as driving force, and within which an understanding of transition has always been vital. And there are a lot of different Marxian theories out there, even within the CPC (a critical point in my text, Chinese Capitalism and the Modernist Vision). In order to understand the debates within the CPC and the direction of public policy in China, one needs an understanding of these Marxian theories, and particularly of the modernist version of Marxian theory that has come to prevail in the CPC and which is most closely associated with Zhou Enlai and Deng Xiaoping, as well as the group of leaders ("the engineers") who have followed Deng Xiaoping. Have these leaders abandoned communism? Again, it is important to know what communism means within Marxian theory(ies). No political leader or social scientist trained in Marxian theory (in China or any of the other countries that we called "communist") ever claimed that their societies had achieved communism. Communism was the social formation to come, the goal, the end of the rainbow of the revolutions (and non-revolutions). It was a society grounded in the democratic control by workers of the profits/surplus values generated by their labor. No such society had actually been created in China or the USSR or Bulgaria or North Korea or Cuba. Workers in these societies continue to toil under the control of other people. Their liberation is a dream deferred, so to speak, something to be aspired to, at least in political rhetoric, if not in political practices. Instead, these societies are called "socialist," meaning social formations that continue to be based on capitalism and other non-communist class processes but directed by a political leadership (a vanguard party) that has communism as the ultimate goal (with no real check on whether or not these political leaders are really trying to achieve such a society or have provided any time table for its establishment and the people being led are not usually in a position to fire them for mal- or misfeasance). Thus, the rise of capitalism in China today in no way contradicts the underlying theoretical understanding of socialism by the spinners of CPC ideology or other like-minded thinkers. China remains socialist (socialism with Chinese characteristics, as it were), in some ways precisely because capitalism is ascendent, given that modernist Marxists believe that the establishment of capitalism is a precondition for the ultimate achievement of communism. The strange irony of this teleological way of thinking is that it actually makes the United States appear closer to communism (a more advanced form of capitalism is necessarily closer to communism in this modernist teleology) than countries governed by communist parties, including China. Okay, that's a bit too strange for this early in the morning, so I'll stop there and go have a cup of tea and wait for the sunrise.

Bobcats in Massachusetts

Bobcats are common in this part of Massachusetts, but not well understood. Here is a link (clink on the photo below) to the Mass Wildlife page on bobcats:

Exit Stage Right: I'm Out of the Market

I've sold just about everything and I'm now standing pat until something interesting happens or at least until I have a chance to take a real vacation and finish some academic/creative projects. I expect there will be a good money making opportunity of some sort in the not too distant future (when I'm back). Soooo, I'm off to work on academic stuff (my son says I must be ADD, given the number of projects I'm working on simultaneously) and enjoy the sunshine (it is unlikely to appear often here in Western Massachusetts, so we'll just have to go on the road and find it). I'll go back into the market (not including retirement money, which remains invested) when the dust settles and the printer cartridge runs out.

China and India and the Global Political Economy

A lot of comparisons have been made between the rapid economic growth in China and India. However, significant differences in the nature of the growth in these two giants are worth noting. China's growth is far more balanced than that in India, covering the broad range of industry and services, export and domestic oriented, while India's growth has been more service and export oriented. The potential for China to sustain rapid growth through its domestic economy, even if there is a slowdown in exports, is greater than the similar potential in India. Nevertheless, the fact that China is growing in excess of 10% per annum (latest numbers were in excess of 11%) and India at about 8% means that the global political economy is undergoing a major alteration in structure, with natural resource demands in these two giants growing faster than the global economy is likely to be able to keep up, meaning that there are inflationary pressures that must impact life in the United States and other high income economies. To the extent central banks attempt to moderate inflation, they may be fighting a battle that will become increasingly difficult to win, at least without triggering a global economic downturn with unanticipated consequences. IMHO.

Crater Lake (USGS Photo)

Another fond memory from my life in Oregon. Okay, okay, I know, enough with the homesickness thing. Live in the HERE and NOW.

Sell on XLNX Triggered at 20.63

That was awfully fast. Must be short covering rally. I'm now out of XLNX. I want it back!!! (But at a much lower price, of course.)

XLNX @ 18.60, Covered AMZN Short

I had an appointment this morning at 9:30, but it seems that an open buy order on XLNX at 18.60 triggered. I came back from the appointment and sold 60% of the position at 19.30 and kept the rest. I've also just covered my AMZN short. AMZN is still overvalued, but greed can be costly. I'm not sure where this market is going today, but if I get my prices I'll buy.

China to test its 'artificial sun' -- Link

UPI: China to test its 'artificial sun'

MRK Beats -- Why This Was Predictable

Allergies are getting worse in the U.S. Probably a result of pollution and weather related worsening mold conditions (another side effect of global warming). Merck's Singulair. Sales much higher than expected. Bingo.

Last week of July. Condeleeza Rice in Middle East. Everything pointing higher.

Prescription Pain Killers Are Involved In More Drug Overdose Deaths Than Either Cocaine Or Heroin In U.S. -- Link

Science Daily: Prescription Pain Killers Are Involved In More Drug Overdose Deaths Than Either Cocaine Or Heroin In U.S.

Black Bears in Massachusetts -- Link

Black bears are relatively common in Western Mass., although they generally avoid contact with humans. Nevertheless, I've talked to a number of people who have had them on their property, including a couple of people who have had close encounters. If you encounter a black bear, they can usually be encouraged to take off by simply standing your ground. Don't play dead with a black bear under any circumstances! If you see a black bear in a densely populated area, call the Environmental Police Radio Room at 1/800-632-8075 (24 hours). Click on the banner below for more info from Mass Wildlife:

Chinese Currency Manipulation?

The Chinese economic planners are following a similar tact to U.S., European, and Japanese economic planners. They are all trying to gingerly tap on the breaks, although for varying reasons. China is using both the credit markets (and relationships) and the currency markets. The yuan is now trading below 8 to 1 U.S.$ and the trend should keep the ratio moving in the direction of a weaker dollar/stronger yuan. This won't stop the "China's manipulating it's currency" mantra. I think that's really all a smokescreen anyway. A lot of people are just really scared by China's rapid growth and the implications this has for geo-politics. The reality is that they have no idea how the currency impacts the rest of an economy, much less global markets and productive relationships. It's just one of those easy things to say. "China's manipulating it's currency." Funny thing was, they started saying this while the Chinese economic planners were doing absolutely nothing (one way or the other) with their exchange rate. It was fixed. It had been fixed for a number of years. They didn't even move it when the rest of Asia was suffering catastropic devaluations. But here's the irony part, China's authorities are NOW manipulating their currency by gradually revaluing it higher against the U.S. dollar.

Put-Call Ratio Bullish

The number of puts purchased divided by the number of calls purchased is a contrary indicator for the market. As pessimism grows, the put-call ratio rises and the possibilities of a rally increase (because pessimism results in selling and eventually the sellers run out of ammunition, leaving a market weighted in favor of the buyers). Nevertheless, unless you have a friend in the Israeli government or IDF, then this may not be sufficient information to time this market. All the same, volatility can be a good environment to make money, so long as you ground your market activities in the fundamentals (buy cheap stocks of good quality companies and you run less risk).

TSM Participates in Historic Cargo Flight from Taiwan to Mainland China -- Link

Techworld Article

Microsoft Zune versus Apple iPod -- Link

Fried and Terdiman of CNET, "Microsoft's Zune to rival Apple's iPod"

TSM WHR

I bought TSM back today at 8. I had it before and got the cash plus shares dividend. Now people are dumping it. Very undervalued, nice fundamentals, good growth prospects, even with a possible slowdown. Also, would like to get Whirlpool today, but I'm being greedy and can't seem to get the price I want. Earnings come out next week. Should be very good. The stock is undervalued, in any event. This one will suffer if we go into a recession, but, hey, that won't happen next week. As you can see, I got out of the market (for the most part) and I'm just not smart enough to stay out. I assume as long as Israel is pummeling Lebanon and there is a perceived risk of a wider war (perhaps even World War III), then there's room for yet another major short-term rally at some point (or we're all going to Hell in a war basket). Speaking of war, all this bombing should only add to climate change, no? How do we make money on that?

What's Wrong with DELL?

The same thing that is wrong with WalMart and Target. Dell sucks. It didn't always. I remember once buying a Dell for my daughter, even though I like building computers from scratch. Dell made good computers (and the parts worked well together, unlike some of the ones I built). Dell had good customer service. You had a complaint, they tried to fix it. Not anymore. Now Dell sucks. And so it should be no surprise that DELL, the stock, sucks, too. They can't sell enough computers because the company doesn't make people who have spent money with them in the past feel good about the purchase. Apple, on the other hand, keeps surprising people with its innovativeness, aesthetics, and cult of the machine (all hail iPod). People feel good about their powerbooks, macs, and ipods. They even like Steve Jobs! Nevertheless, I wouldn't buy APPL any more than I'd buy DELL, but just thought I'd throw a bit of the APPL rah, rah in for good measure (I do not own any of their products, by the way, but my wife is a charter member of the Apple cult). In the end, Apple and Dell both just make boxes with lots of dowickees inside (usually made by someone else), although Apple does have the advantage of sort of being a software company (which, as Microsoft has demonstrated, is a lot better than being a box maker). Nevertheless, stick to this simple rule (that usually works): steer clear of retailers, box makers, and sociopaths and you'll have a better life. By the way, WalMart, grungy as it is, has better customer service than Target, which has learned to create a pretty façade to hide its monstrously bad customer service ("service," now that's a misnomer). Target's "customer service" should greet you with a screwdriver held high. More on Target later, but I'm waiting for a reply (or not) from their CEO before I start venting.

Speaking of bad customer service, we need a networked army of consumers who will take action against companies that forget why they are business (to serve the consumer, not to just take her/his money), although you can usually take more of her/his money when you are nice to her/him.

Scientists Strengthen Case For Life On Earth More Than 3.8 Billion Years Ago -- LINK

Science Daily

Turn the Other Middle Eastern Cheek? Any takers?

If you want to understand the great geopolitical tragedies of the past, just take a step back (so to speak) and look as objectively as you can manage at the current situation in the Middle East (and at American public opinion regarding it) and you get a pretty fair understanding of the way such tragedies happened. What are the possible solutions? One side could annihilate the other. They could simply return to a status quo of mutual hatred. Or a solution could be worked out that saves face and lives on all sides, creating the basis for not only lasting peace but eventual friendship. That last word probably caused a few raised eyebrows and thoughts of how completely out of touch with reality is the writer of the word. Well, perhaps. After all, during my college days (as a "student leader") I tried to talk the head of the Jewish Student Union into debating the head of the Palestinian youth organization on campus.

Report: Apple Preparing Movie Rentals

Click Here to Read BetaNews Report

11.3% Growth in China in the Last Quarter

The Chinese growth machine not only shows no signs of slowing, but speeded up in the last quarter. Growth in the economy of the People's Republic will continue to put upward pressure on commodity prices, but also drive growth in the United States and throughout the rest of the world.

TWX: What Should Parsons Do with AOL?

I've been saying for years (well, at least since Steve Case's clever use of inflated AOL stock to finance the merger) that AOL is a drag on the value of Time Warner. If I were CEO of TWX, I would have asked the board to either approve a spin-off or a very serious search for a buyer. Word is that Time Warner execs are, indeed, shopping around parts of AOL, and that Rupert Murdoch's BSkyB may be interested in some of the pieces, particularly AOL's British operations. This would fit with Murdoch's attempt to get serious about the Internet as a media portal (as with his surprise purchase of MySpace). Can Time Warner make AOL into a more powerful player on the Web, perhaps a real competitor with Google and Yahoo (after all, AOL is one of the old timers of the Internet and had a head start -- although it is unclear that this "advantage" was ever used properly)? Remains to be seen. I'd still prefer the spin-off option (or sale, if a good price could be had).

Hu Meets with Putin

Chinese President Hu Jintao met with President Vladimir Putin of Russia during the G8 summit. The primary topic of that meeting seems to have been the possibility of China buying more oil and gas from Russia and the two countries cooperating on the development of energy resources and infrastructure. This makes sense, given that China has growing needs for energy sources and Russia is one of the world's most important sources of energy. The pursuit of energy and control over energy sources has long been an important factor in geopolitical strategies. It is likely that the competition between the United States, Europe, and China will only intensify over time.

Israel and the Buying Opportunity of the Year

Okay, this is one of those sick investor statements, but the fact is the Israeli government has created a very good buying opportunity for portfolio managers, particularly for tech stocks. July is usually a bad month for tech stocks, but this is extraordinary.

CSCO, MSFT

Not quite on margin yet, but still accumulating CSCO and MSFT. I've actually pruned my non-tech holdings (and dropped INTC) to allow more flexibility. I'm now moving my retirement portfolio into stocks (so far its gone from 0.34% stocks to almost 30%).

EMC

So far the best I've done is 9.59. I'm accelerating purchases at lower prices in order to lower my average. I'm confident enough to overweight this stock. My most conservative valuation places EMC at $10.42. The company has about $3 per share in cash. My most optimistic valuation (which is below S&P's most recent valuation) is $17.30.

In the short term, valuation has been cast aside in favor of emotion. EMC warned that its numbers would be, essentially, exactly where they reported them. However, the stock tanked on the warning and then again on the earnings report. Did investors think they were underestimating with the warning? Or is it simply irrationality? I've seen this happen countless times. Unless there is something more serious amiss with the company, the stocks always rebound. Panic, then recovery.

I suspect very few will be willing to go into this weekend on margin. Therefore, I'm going to keep buying until I'm very leveraged today. If WWIII happens over the weekend, one of my portfolios will be decimated. (Of course, if WWIII happens over the weekend, I doubt I'll care much about what happened to that portfolio.)

Continuing to Buy EMC

It's clear that I will not be completely out of this market at the end of today. I plan to continue buying EMC as it falls.

Bank of Japan Rate Hike

The BOJ raised the discount rate from 0.1 to 0.4% and provided guidance that rate increases would not be consecutive. This was less contractionary than anticipated and the yen fell against the dollar. This move was largely symbolic. The BOJ members wanted to validate the recent (though modest) growth in the Japanese economy, but also did not want to contribute to any slowdown that might be triggered by the U.S. Fed's rate increases on the other side of the Pacific. These central planners do not really know what they are doing. It's not an exact science. Why not let the market (even if it is somewhat inefficient) determine interest rates?

Efficient Market?

The efficient market hypothesis, which represents the neoclassical (economic theory) virus within the corpus of corporate finance, presumes that market participants behave like computers, using a form of rationality that is devoid of fickleness, hubris, fear and other such emotions, with each computer programmed in a similar fashion (with modest variability in risk preferences) but with virtually identical information and decision-making algorithms occurring in an environment where lies are absent. If such was the case, then how does one explain the confusion, herd behavior, and searching for direction in all the wrong places that epitomized today's trading (and trading on many other days, as well)? How can rational economic agents overweight the events in the Middle East in a broad swath of stocks, many of which are the stocks of companies that would not likely be negatively impacted (in cash flow terms) by any resolution short of nuclear war (much less the tendency towards "herd" behavior in which no rational calculation whatsoever is involved), panic over a few earnings warnings (some of which were only modestly divergent from expectations) and negatively revalue another broad swath of stocks, many having already been discounted (such as Pfizer), and suddenly revalue most stocks dramatically downward? And even if the fears are correct, market participants are likely to change their minds about stock prices (and bid them up again) without any positive change in these "fundamentals," which further demonstrates that the reaction is not rational but emotional. So what's going on here with our efficient market? The answer is that the market is simply NOT a market of rational computer-like (neoclassical) beings. It is populated by human beings, who are social, subject to emotional swings, strongly influenced by group behavior, and capable of not even listening to their own rational calculations on the rare occasion when such a calculation is present. The fact that the market is not efficient does not, however, mean it is totally irrational or not a relatively efficient means of generating information (that may be useful in all sorts of ways, including for economic decision-making). The problem with mainstream economic theory is that it is mostly a lot of mumbo jumbo designed to justify the status quo, when what we should be trying to do is understand the way real markets (and other social institutions) function (and sometimes malfunction). Fortunately, there are a fairly large number of finance theorists and practitioners who make an effort to do just that, particularly those investigating behavioral finance, an increasingly popular sub-field.

Link to an Interesting Post on the Israeli Government's Recent Actions

Just Observing: Israel: Strategy and Tactics

Margin Selling Time

Get ready for some of the best sales of the day.

I Dropped the Ball on Mittal This Morning

Sold my holding in MT at 31.93, thinking it would go down and I would buy it back cheaper. Looks like it just ran away. Such is life.

Disney Cutting Film Production? Good or Not?

The word on the street is that Disney will cut film production by more than half. Is this a prudent financial move for the corporation? Probably not. The reason it is not likely to be a positive move is that these studios are notorious for not knowing which of their movies will make money. They just can't gauge the public (or have no taste, your choice) and so the more movies they produce, the more likely they will find that gem that makes a ton of money for the $$$ that went into production. On the other hand, cutting back movie production is likely to result in more mega-big-budget films, which are riskier because of the need to recoup much larger production and promotion costs.

EMC -- What Happens When You're Not Watching

Took a break from trading, came back and was planning to raise one of my limit sell orders on EMC but it had already triggered at 10.12. Oh well, made some money and will try to buy the shares back and restore the full position if it falls back below 10.05. This is one funny market today.

By the way, if any of my former students reads this and is shocked that I'm buying so many tech stocks (when I usually avoid them), this is an indication of how far they are trading below fair value. As you know, I don't buy anything that isn't selling at least 20% below the intrinsic value calculated with my proprietary model.

Bought EMC, MSFT, CSCO Pre-Market

Lowering average of EMC and MSFT, and finally getting into CSCO in pre-market trading. As I wrote earlier, I am at risk of getting trapped in this market, well after I'd planned to be completely on the sidelines. If this goes on much longer, I may start putting some of my retirement back into the market (it's totally cash, bonds, and real estate at the moment).

Microsoft Virtual PC is now Free

Download Page at Microsoft for Virtual PC

Buying More EMC

$10.10. Lowered the average price of EMC in the portfolio to $10.118. I adjusted downward the cash flow growth numbers for EMC before determining that the current discount from fair value (which remains substantial).

EMC

I've been waiting to buy EMC below $10.25. Bought at $10.16. I'm continuing with bargain hunting and trading on rebounds (selling part of all of the shares then buying them back when the big discounts return, as with INTC today). This strategy reduces risk because I book profits to protect against potential future losses in the same stock (should something catastrophic hit the entire market). Tech stocks make good trading vehicles in environments like this. I'm still planning to be completely out (or as close as I'm ever completely out) of the market by the end of this month (if not earlier). I won't buy anything that isn't undervalued, based on best estimates of future cash flows, discount rates based on interest rate trends, my macroeconomic model, and risk parameters.

Buying more TWX and INTC

The reaction to Time Warner's decision to try to turn AOL into more of an ad-based asset would seem to be positive, but not according to the stock market. I've always told my finance students that AOL is, if anything, a negative drag on Time Warner (in other words that this is an asset with negative net present value). The choices were to spin it off, sell it, or try to find a business plan by which AOL would become NPV positive. The management and board seem to have chosen this last option. Given the valuation placed on Google and Yahoo, one might surmise that this would be the option the market would support, as well. However, such is not the case, at least in the short term. Nevertheless, I got a ton of TWX at 16.27, what I regard as a significantly below fair value price (try just about any discounted cash flow model to see for yourself). This undervaluation is compounded when one values TWX's library of media "software," takes into consideration the fact that TWX cash flow is more recession resistant than tech stocks or industrials (earnings growth over the past year was in double digits) and is engaged in an aggressive stock repurchase strategy, which will raise the cash flow per share. If you want more evidence, consider TWX's cable assets and the typical valuation placed on such properties (see Comcast). Speaking of cable assets, TWX is adding assets acquired at a very good price from Adelphia's bankruptcy. Does this mean the stock will turn on a dime and go up? Who knows. The market has its own ceremony in situations such as these (and the ceremony involves a lot more than TWX). At present, the most popular dance tune is sell.

INTC for 18.02? Okay, I'll take it. Based on cash flow expectations, adjusted downward, it is a good buy, and this price allowed me to lower my average cost of INTC to about 18.08. I like these discount days.

Zidane Bashing

Just read the Seattle Post-Intelligencer article World Cup: Le butthead. Okay, enough with the Zinedine Zidane bashing. Yes, he should NOT have lost him temper, no matter what Marco Materazzi said. On the other hand, if it is true that Materazzi called him "a dirty terrorist" then the burst of anger is not completely beyond understanding. One would hope that Zidane, who came out of retirement to captain a team that was on the verge of making history (perhaps just getting to the final was enough to make history), would have had the internal constitution to turn his anger into brilliant plays, perhaps a goal, rather than a head to the villain's chest, but we can't all be saints and martyrs. And, yes, if Materazzi made this vile comment then he is the villain and Italy's win is tainted by it. I'd like to hear Materazzi address this issue, but in the meantime it would be nice if people would lighten up on Zidane until all the facts are out.

TWX Too Cheap to Resist

Okay, I wanted to get out and stay out of the market for a while, but I feel like Al Pacino as Michael Corleone in the Godfather: "Just when I thought I was out, they pull me back in." I just couldn't say no to 16.59 for Time Warner, just like I couldn't say no yesterday to getting back into Taiwan Semiconductor. I also bought INTC at 18.15. No matter what, I do not want to be in this market in August! So let's have a good strong rally and get one last summer celebration out of the way, so we can start planning for the fall. (Course, if I'm stupid and try to be too cute with these trades I'll get trapped.)

Italy v France Today

If you want to see the best goalkeeper on the planet, keep an eye on Gianluigi Buffon. On the French side, look for brilliant play from Zidane and Henry. Italy is particularly dangerous on corners and other set pieces. France is most dangerous when on a fast break with Zidane feeding the ball to Henry (or the impetuous Ribery taking the ball in unexpectedly). Should be a good contest. The drama of sports is, of course, that no one knows before hand how it unfolds or how it ends. This is unique in the world of ceremony. Thus, an excellent sports contest (particularly football, given its constant movement, team dynamics, and potential for the electric moment) can far exceed the dramatic appeal of an excellent stage performance, although these events are radically different in other ways. In particular, the stage performance allows for a sort of intimacy of discourse (and explication of philosophical notions and contradictions) that is absent from the more visceral world of sports. This is only partly made up for in football by the complexity of the dynamics, the chess-like nature of the choreography combined with the chaos and serendipity of having two teams, with opposed objectives, clashing (trying to undo the other's choreographed moves and forcing invention or failure). In any event, I look forward to today's match.

Target: Speaking of Bad Service

I encountered one of the rudest managers ever in a recent visit to Customer Service in the Target in Hadley, Massachusetts. It was rather bizarre. A $19.99 return. If the profit Target makes from our monthly household purchases in their store was an orchestra, this $19.99 wouldn't even make the sound of a double bass. Yet the manager (or so she said she was a manager -- said her name was Laurie) went out of her way to make us feel unwelcome in the store. Oh well, guess we'll save some money not spending at Target. If more people took this attitude, perhaps good service would return to style. As it is, these big store chains seem to think they're doing us a favor taking our money. (Since I spent a lot of years in Asia and have experienced the Hong Kong and mainland China style of service -- the latter is improving, by the way -- then I suppose this may simply be some sort of global convergence toward bad/rude service as competitive merchanting gives way to more oligopolistic big merchanting.

Here's some other folk who have had unpleasant experiences at Target:

Target's Customer's Take on Service

Still Haven't Received those Packages from Amazon

tic toc tic toc At least they provided a great idea for a stock short. Paid the cost. Nevertheless, it is a bit disconcerting. Bad service has become di rigeur.

Italy v Germany

I thoroughly enjoyed the game. Both teams deserved to win. In fact, I felt like this was, in a way, the real final game. As much as I admire Thierry Henry's character and style of play (arguably the best striker in the game) and not wanting to denigrate the French or Portugese squads (although I must admit that I don't like the tendency of the Portugese team to commit flagrant and often dangerous fouls), I think Italy and Germany were the best two teams in the semifinals. It would have been better if Italy had played Portugal and Germany played France, but such is life. This way, there's a chance for a Italy-France final, and that's enough for me. It could be billed (in usual hyperbolic fashion) as the world's greatest goalkeeper against the world's best striker or something like that. (Never mind that the Brazilian squad had the best all around footballer, Ronaldinho, but couldn't play as a coherent team and ended up watching the game like the rest of us. In other words, in the end, the best team (including the tactical and motivational skills of the coach) is likely to win.

Link: Propaganda, American-Style by Noam Chomsky

People who don't like it when you think really hate Noam Chomsky. Reading Chomsky's work changed my politics years ago (woke me up), so I'm deeply indebted to him. He's got that Northeast snootiness about him, but it doesn't detract from his tendency to tell the truth.

Propaganda, American-Style

Mexico Taking Democracy Lessons from US?

Word from South of the border is that millions of voters were disenfranchised in the recent election, mostly poor voters likely to cast ballots for the opposition candidate. Did the governing party rig the election, copying GOP tactics that worked so effectively in the past couple of U.S. presidential elections? After all, the lesson of the U.S. elections is clear, whoever has the power and the will to disenfranchise voters likely to support the other candidate gets to be the chief executive officer and provide all sorts of direct monetary (and other) benefits to their cronies. Quite an incentive for those not stymied by moral impediments.

Here Comes the Sun

Happy birthday, sunshine!