Volatility is a Wonderful Thing
Volatility is a wonderful thing. It not only brings profits to some willing to take risk, it punishes the foolish and teaches them lessons that make them stronger. Some days just aren’t that great in times of volatility, but we keep going because we believe that tomorrow will be better, that we will be wiser the next time, and it reminds us of the values and principles that ground us to reality. That is the natural optimist in each of us, but it also works for companies and countries too.
We are living through one of those funky periods where life seems out of control and surreal. Just when we think things are getting better something completely unexpected like a ‘flash crash’ of 1000 points happens on Wall Street. Just when we think our energy situation is improving because advanced technology has enabled domestic production to go up, BP blows it and mucks up the Gulf of Mexico. Just when the global markets show signs of growth Greece bleeds red ink and threatens to take the rest of the PIIGs or even the Euro with it.
Volatility teaches us lessons the hard way so we remember them.
What are you talking about, you ask?
- EURO RESPONSIBILITY. After months of finger pointing by European leaders that the world’s economic problems were caused by those nasty American bankers and shady credit default swaps and other instruments of financial torture, we learn that ancient Greece has been up to its ancient ways cooking its books to hide its budget deficit borrowing money like Wall Street speculators from European banks eager for the transaction fees. As Bogart said best “I’m shocked to hear that gambling is going on here!” But this time it was the GERMAN sheriff stepping in to break up the mayhem and restore order.
- GHOST OF CALIFORNIA’S CHRISTMAS FUTURE. For California, living near the edge is not something we learned from Greece but our fate could be similar to Athens when judgment day arrives. Those Greeks rioting because their pensions, salaries and spending irresponsibility was purchased with borrowed money look a lot like the California state employees, CALPERS, and the feckless State Legislature.
- ARIZONA, MEXICO, DRUGS AND CONTROL OF THE BORDER. Drug cartels fight for control of markets and supply routes leaving a trail of violence and lawlessness sweeping Mexico. Now that violence spills over the US border but the Federal Government does little to stop it. Arizona’s Governor is appointed Secretary of Homeland Security and its expectations that the Feds will help are raised then dashed when nothing happens. After years of writing letters to Republican Feds, Secretary Napolitano now ignores the same plaintive letters from her successor as Governor. The parties switched places but the results are the same—NOTHING! So Arizona ups the ante by adopting SB1070—a virtual mirror of Federal law except it prohibits racial profiling (something not prohibited in Federal law) in an effort to get the Feds to act. President Obama then accuses Arizona of racial profiling intentions. President Calderon correctly points out that drugs are a problem because of US drug demand. While he disses Arizona for SB1070 in a state visit Mexico’s own immigration law is much more onerous than the Arizona law. Mexico depends upon the remittances from Mexicans working in the US to family back home to help prop up its failing economy. There are immigration issues which must be addressed, but this is political malfeasance where both Democrats and Republicans seek to use a divisive issue to score political points. Shame on both of them!
- A POX ON BOTH PARTIES! Republicans hope for an election bloodletting as Americans recoil from the stunning overreach of Democrats misreading their mandate and misusing the recession and economic volatility to impose a program of deficits spending, vast intrusions into business and daily life, and a blitzkrieg of legislation with little transparency hoping to enact their agenda before midterm elections. But as voters it seems like we just kicked out the Republicans for the same reasons—they forgot who they work for! Now we are unsure that returning them to majorities will be much of an improvement.
- CHANGE WE DON’T BELIEVE IN ANYMORE. The president’s popularity was born of Americans joy at his election as a symbol to the world of our redemption from discrimination past and our belief in the principles of the founders that “all men are created equal” for the future. But the celebration has turned moody feeling deceived that this change is not really what we expected. Americans see little difference between the Democrats overreach in power today rewarding their friends and the Republicans overreach in power yesterday doing the same. Sometimes those friends are the same bankers, unions and lobbyists pouring money into the political accounts of politicians to gain favor. The Tea Party movement is a powerful and terrifying symbol of American dedication to its Constitutional values for our political class and due notice that the revenge of the voters will be exacted on both parties before it runs its course.
So why am I optimistic?
The genius of America has always been our ability to adapt to change and reinvent ourselves to take advantage of opportunities presented. The volatility and economic shock we have experienced combined with the political wake-up call we are experiencing now are the best evidence of that American renewal process at work today.
The midterm elections will punish incumbents in both parties. But we hope it will bring in new blood with a deeper commitment to the values we seek to advance and less partisanship. We have learned as voters that we get better results in Congress when both parties fear us. Giving big majorities to either party rarely works out well for us so we need to keep them evenly balanced and have good “adult supervision” from our president to set a wise course.
So far Obama is not winning any ‘Rookie of the Year’ awards but we still hope he can turn things around. But as insurance we are likely to take away his majority in at least one house of Congress this November. And if his performance does not improve we may not renew his contract in 2012.
Volatility separates those with a future from those with just a past.
The difference between America and Greece is while we both celebrate our past, America lives into its future. Our manifest destiny was reinvented from a quest for control of our continent to a quest to project our values of liberty, competitive markets and the rule of law into a world that craves each.
We won the cold war and now are completing the circle of the end of that long struggle. Had America as the sole superpower after the Cold War sought to preserve its hegemony we would not have seen the rise of China as a great economic power, the integration of Europe, the natural spread of democracy and thirst for freedom all celebrated as global progress. But progress also brings problems we now share with a more integrated world including the struggle to deal with Islamic terrorism, bad boy countries in the continental neighborhoods that must be policed, and the unintended consequences of global markets and trade. But that interdependence is also strength since the consequence of not working together is worse than the price of compromise.
The world still needs American leadership but what it wants is American resolve to live into its core values and act predictably to advance them. The world worries when America’s President apologizes for America’s values or advancing America’s self interest. In a choice between having the world love us and having them respect us take the latter every time.
When we live into our American values we set the global compass to true north and enable others to act in their self interest in ways that are either deliberately in concert with our own or—if they feel daring opposed to them. If America wimps out and lets such challenges pass we only invite more dangerous behaviors. But when we stand up for our values—and for our friends and allies—we don’t need to apologize for our behavior.
Volatility is a wonderful thing because it separates the brave from the bullies.
The best way to deal with bullies has always been to confront them face to face and expose them for what they are. Bravery is learned from experience and is born of self confidence and values that are stronger than the fears we face.
That is why I have faith in America’s future! But I am still going to enjoy kicking both Democrat and Republican butts this election. I am not a Libertarian like Rand Paul but he said it for all of us election night in Kentucky:
“We are coming to take back out country!”
The Good News about Immigration
It has been a week of drama and politics, of emotion and reaction, of hype and hysteria about the issues of the steady stream of people seeking to come to America. The fears of Arizona and other border states are real from bearing the brunt of the influx and the increasing problems of crime, drug cartel violence and the fear of the insecurity of the border which Americans rightly expect should protect us.
The reaction to those fears has sharpened because this is an election year and the illegal immigration issue is being used by both Democrats and Republicans seeking to have it both ways appealing to our insecurities by talking tough while appealing to the growing Hispanic voting block to join the party.
The Lesson
As I sat in church today, the lesson appointed was from The Acts of the Apostles, 11:1-18, spoke to me about this immigration issue we face. It tells the story of the Apostles traveling in Judea when Peter invites some Gentiles to eat with him. This was a scandal because the Jews regarded the Gentiles as “unclean” and the meal served was not kosher and thus also unclean. Peter was berated for such behavior—“why did you eat with them!”
Peter tells them that he saw a vision and a voice telling him to eat with the Gentiles and accept them as fellow believers. Peter said he protested saying he had never eaten unclean food with unclean people. But the voice did not accept this and told Peter “what God has made clean, you must not call profane.” This happened three times until Peter realized it was the Holy Spirit telling him to do as he was told.
Then three men came upon Peter and the voice of the Holy Spirit told him to go with them to the house of a Roman Centurion, a Gentile, and to “make no distinction between them and us.” The Centurion told Peter that an angel had been sent from God telling him to seek out Peter who would give him a message from God “by which your entire household will be saved.” The Centurion said as the voice spoke to him the Holy Spirit descended upon him—just as it had done to Peter and the Apostles themselves. It said, “John baptized with water, but you will be baptized with the Holy Spirit.” Peter told the crowd that if God had given the Gentiles the same gift of grace that He had given the Apostles who were they to reject them.
So what?
- So how many nations of this world have the problem of people “breaking into the country” seeing it as a place of safety, of opportunity, of truth, of justice and hope for a better future for themselves and their children?
- So how many nations can truly claim that they are a melting pot of people of every nation, every faith, every language, every race and color all assimilated and made one by the American experience?
- What other nation celebrates the rule of law, lives into its Constitution and its Bill of Rights as profound and celebrated as the Laws of Moses, and declares for all in the same words as our Founders that all men and women are created equal in this land of the People, by the People and for the People?
America has an immigration problem because the orderly process of welcoming, processing, integrating and assimilating newcomers is mismanaged by the Federal Government and allowed to fester into a political problem because of the adverse impacts on states and local communities.
The Gift of Immigration
Remember not so long ago, that the high tech companies of America were scrambling for the math, science and other skills needed to produce the products and develop the technology that drives our economy? Our response? We hassled them with onerous H1-B visa requirements depriving America of some of the world’s best minds, many educated in America’s best universities seeking to use those skills to advance our American economy and live the American way of life.
Remember the message of the managers of Social Security and Medicare that the funds are running short of money because today fewer workers are paying into them and the baby boomers are beginning to collect benefits. A growing economy is the only way to change that balance bringing more workers into the workplace.
America has been a magnet for workers from Mexico because the economy of that country is broken and opportunities are limited. Remittances from relatives working in the US and profits from drug demand by Americans sustains the Mexican economy and allows it to avoid facing the economic problems it faces. America bears some responsibility for the Mexican problems because we have enabled them or tolerated them on our borders.
It is time—well past time that both the US and Mexico face these issues head-on. Here is my proposal:
- Secure the Border. Build the fence and staff it appropriately on both sides of the border to enforce it. Those who enter the country illegally would be barred from the guest worker or H1-B skilled worker program for five years.
- Create a Registered Guest Worker Program. Allow non-H1B workers in approved countries that would include Mexico and other countries with whom the US has free trade or open markets agreements to register to be guest workers to legitimize their work status whether they are currently in the US legally or not. These permits would be annually renewed automatically for those currently employed with no criminal record. A guest worker who works in America for five years with no criminal record would automatically be eligible for a green card and fast track to citizenship.
- Make America a Magnet for the Skilled Workforce of the Future. Use the H1-B visa application process to define the skills needed by America’s businesses and streamline the process of granting such visas so that a decision is made within a reasonable 30 to 90 days. A H1-B worker who works in America for five years with no criminal record would automatically get a green card and fast track to citizenship.
- Citizenship Process. Make the process of becoming a citizen a national experience by authorizing community colleges, colleges and universities to offer programs resulting in preparation, testing and qualification for citizenship. Completion of such a program would lead to an automatic path to citizenship for those with no criminal background or not on a security restricted list.
- American-Mexico Economic Development Strategy. The US and Mexico should engage in discussions leading to a strategy to promote economic growth and diversification to make Mexico an attractive place for business. Mexico should its revisit its restrictions on investment in its energy industry and other parts of its economy in an effort to jump start its economic growth.
The New Colossus
Not like the brazen giant of Greek fame with conquering limbs astride from land to land; here at our sea-washed, sunset gates shall stand a mighty woman with a torch, whose flame is the imprisoned lightning, and her name Mother of Exiles.
From her beacon-hand glows world-wide welcome; her mild eyes command the air-bridged harbor that twin cities frame. “Keep ancient lands, your storied pomp!” cries she with silent lips.
“Give me your tired, your poor, your huddled masses yearning to breathe free, the wretched refuse of your teeming shore. Send these, the homeless, tempest-tost to me, I lift my lamp beside the golden door!” —-Emma Lazarus
Will our Workforce be Ready for Smart Grid?
The economic reports continue to trickle in and fears of a double dip recession are abating. Too bad it does not yet feel like recovery. Economists tell us that employment growth is typically a lagging indicator and so it is this time as well. There are enough data points for experts to characterize this recovery and compare it to past experience, and some things are different and worth noting.
The Good, the OK and the Still Ugly
The Conference Board Leading Economic Index (LEI) for the U.S. gained 1.4% in March, 0.4% in February, and 0.6%in January. The LEI rose at a 5.2% annual rate between September 2009 and March 2010, slightly slower than the increase of 6.2% (12.8% annual rate) for the previous six months. Meanwhile, the Coincident Economic Index (CEI) for the U.S. rose 0.1% in March, 0.1% increase in February, and no change in January. The Lagging Economic Index (LAG) grew 0.2% in March, following a 0.1%increase in February, and declined -0.3% in January.
That is good news according to John Silvia, Chief Economist at Wells Fargo Securities Economics Group writing in a newly released report entitled, “Character of Recovery II: Differences Persist” [1] is that while industrial production fell sharply in the recession the recovery which began last June is more robust than in the past seven recessions he studied. He said that the March Institute of Supply Management, one of those closely watched leading indicators, showed expansion in orders, production and employment along with longer delivery times suggesting spending on more durable goods. Over the first three months of 2010 manufacturing overall grew 8.7% and high tech spending was up double digits. Taken together the durable and longer term nature of spending suggests the threat of a double dip recession has abated.
Real manufacturing and trade sales are OK tracking the pattern of the past seven recoveries even though they are below the historic trend lines. The reasons are thought to be the deleveraging going on across the economy and the real or self imposed limitations of credit. Wells Fargo Economics’ forecast of 2010 real final sales growth is less than 2% compared to the pre-recession 2.5% in 2007 caused primarily by the drop in consumer spending.
Jobs growth remains the ugly spot in the economic prospect reports and here the demographics of the employment base do not necessary help since the US has had an oversupply of low and semi-skilled workers and become much more dependent on H1-B visa required science, math, engineering and quantitative talent for software and high tech jobs. This is different form past recoveries when is a less high tech market with more manufacturing jobs we produced more of the talented skills we needed. This supply and demand imbalance is a problem—big problem—going forward for the American economy and argues for a different approach to immigration to make the US more attractive for the skilled talent we need even while we manage the influx of low skill workers to create a sustainable balance. The impact on today’s recovery of this demographics change is that those unemployed will likely stay that way longer than the historic trend and when the market demand for high tech skills rebounds at a faster pace those workers with such skills will be in big demand.
So what?
So more than 40% of the work force of the typical utility including all those focused on smart grid deployment are approaching retirement age in the next five years. The good news is this provides a good opportunity to update the work force skills needed for the smart grid future as replacements are sought and we do have a younger overall demographic profile than many other countries including China. The bad news is there may not be enough of those new skills to go around when we need them most because we do not train enough high skilled workers for the digital transformation of our energy industry let alone our other high tech needs. From electrical engineers focused on power flow analysis, to software developers and data analysts for the tsunami of smart grid data coming our way, to applications developers and product managers to turn geek speak into simple English so that customers can turn “Huh?” into “Ah-Ha!” Work force readiness is a big problem not just for utilities but the entire technology sector. Smart grid technologies increase the demand but do nothing to improve the supply of talent needed to effect this transformation.
Our immigration laws are not our friend because they constrain our talent base (remember the hassles getting H1-B visas in the last boom period?) and our economic competitiveness is likely to weaken if the cost of the current entitlement programs like social security and Medicare fall on a smaller workforce of lower wage workers for the twenty years or more it will take for the Baby Boomer wave to pass. This is especially true if we don’t do something to reduce our looming national deficit.
The consequence of slow jobs growth in the period ahead will make this talent deficiency more acute and the practical impact is that we will become more dependent on other countries for the technical skills that have traditionally driven American’s economic competitiveness. The answer is to make America a magnet for high tech skills, well educated foreign workers eager for the American way of life, and to reinvest in science, math and technology training at the University and high school levels to build into our workforce readiness need on the horizon.
[1] Wells Fargo Economics Groups, April 19, 2010. Get the reports at:
https://wachovia.mworld.com/Econ/alerts.asp
Turning Convergence to Strategic Advantage
As the feed-in-tariff problems of Spain and, more recently, Germany caused major ripple effects around the world for renewable energy especially solar photovoltaic technology players, the United States has become the market of choice for global players in renewable energy. The most recent evidence of that is the outpouring of capital from China being investing in establishing market share in the space.
Why?
Because these global players see the convergence of state renewable portfolio standards, Federal stimulus money, investment tax credits and loan guarantees, and America’s insatiable appetite for technology and innovation as solution to a wide range of problems including greenhouse gas emissions reduction. It is convergence and the welcoming of disruptive technology change that is part of the American genius for continually reinventing itself. While many nations criticize America, our culture, our economic freedom, or respect for the rule of law and opportunity quotient means that people around the world wants to be part of the action in America.
A New World Economic Order Taking Shape
Since World War II America has leveraged its capital and power to help nations and continents recover from the ravages of war, disaster, internal conflicts and other calamities as American treasure was used to rebuild and American power to defend against the Axis power, against Communism, and now Islamic extremism. We should celebrate the success of these achievements and wish our friends the very best in using them for their future economic growth and self interest.
Today, the results of those American efforts combined with the resourcefulness of Europe, Japan, Asia and elsewhere have brought us to a world where American military power is just as strong but America’s lessons in economic power has been multiplied in the faster growing economic miracles of Korea, the leverage of capitalism in China to raise up a great and proud nation, in Brazil and elsewhere.
I am not claiming American credit for these economic miracles, but let’s face it Communism and Socialism did not produce those results. So today in the early stages of recovery from this great recession we have faced, is it time for America to think about how to point the way for the next stage of global economic growth and renewal?
Time to Emancipate the Children!
Is it time to emancipate the kids and tell them how proud we are of their accomplishments, but now it’s time to buy your own insurance, build your own house, and take responsibility for your own future. We will help you and love you as always, but it is time for you to be independent.
This is NOT a sign of American weakness or isolation, but a symbol of strength and confidence.
Just as that idea was ruminating around in my head while reading about some of the problems in Europe, along comes an article from Rand Corp about Korea and whether the South is adequately preparing for what might happen in the North.[1] It said that South Korea has relied on American power to defend it for so long that it is failing to take the actions needed to prepare for the potential for either a North Korean attack or worse a North Korean collapse in the future. Rand says that America is not helping Korea prepare because it is not forcing Korea to accept its adult responsibilities for its own future.
In Loco parentis!
We see that same phenomenon at work in Europe, I think. I was reminded of that recently when the French were critical of American efforts to help Haiti as being inadequate. Someone quipped that the French are “always there when they need us.” It’s true isn’t it? Europe is proud and haughty but dreadfully ineffective in making decisions, acting in its strategic best interests or projecting its potential power as a global player in the world. It often acts like a teenager quick to anger but short on common sense. There always seems to be time to fire off a ‘wise-ass’ text message slamming America, but never time to do their own homework!
The best evidence of that in recent years is the incredibly stupid growth in European dependence on Russian gas when they know that Russia will shut off the gas without a second’s hesitation if doing so achieves some tactical or strategic goal. Europe dithers in admitting Turkey to the EU because of its angst over Turkey’s Muslim heritage yet many European nations having allowed Muslim immigration for years now refuse to assimilate them into the population so they can become members of the European family because they are not French-enough, German-enough.
Time to Focus on Economic Growth and Revival
America is coming out of recession and despite the rocky road to recovery ahead has great potential for growth and economic revival. It is time for America to seize its opportunities and project its strengths to achieve that great revival.
Here are some ideas to consider:
- Send Me Your Smart and Eager Yearning to Breathe Free! The greatest strategic risk in the world today is not the current economy, or security or terrorism it is demographics. In Europe, Japan, China and elsewhere the population is aging and birth rates are low. Immigration to America has produced a younger population so our aging problem is not as severe. But our immigration problem is we are restricting access to America for the very people we most want and need—the bright, educated, smart, technology saavy H1-B dreamers and inventors of tomorrow. Instead our lack of action has allowed America to be the safe haven of millions of poor seeking a better life. While the latter are a source of immense talent, we also need the former better educated professionals. Other rich and powerful countries facing a threat of population decline they cannot stop without changing demographics but their cultures prevent them from doing so. So they seek to grow fast economically today hoping for a long, graceful decline. The American tradition of multi-cultural assimilation of immigrants is one of our greatest accomplishments and one of our strategic advantages for the future. Use It! The US should open the doors to immigration targeting students and well educated professionals eager for a vibrant place to expand their knowledge, take advantage of opportunities for better lives for their families and live the American dream. If America can reinvest in its population of young, smart, talented and skilled to build a vibrant multi-cultural workforce from that melting pot it will remain the technology leader of the global economy and engine of economic growth for a long, long time. The US should make strategic immigration reform a high priority.
- Join in the Dance of Freedom and Self Discovery! The most pernicious and effective threat to tyrants around the world is the effective export of American culture, ideas, technology and example. America should celebrate its way of life by sharing it with the world through open communications, unrestricted internet access and technology investments to defeat the best hackers and thought police from blocking access to the world’s ideas. Google should be shamed into rejection of every attempt to restrict access to the world’s information by China and other countries. And if it goes along with such shameful behavior others should challenge it by redoubling their efforts to fill the gap in access to the free flow of ideas. America’s gift to the world is the spirit of freedom, the first amendment writ largely, and the welcoming of many voices. Just do it!
- Tough Love for the Emancipated Kids! I seek an America capable of projecting its ideas and its power anywhere in the world and make no apologies for that view. It is what we do to be who we are. For that reason I would say to South Korea that we expect you to step up and prepare to defend yourself and spend your own money doing so. America will be there for strategic backup, for logistics, for projection of power and deterrence, but we are not going to permit you to off-load your defense responsibilities to us. In effect, buy your own insurance! We should tell the Europeans the same thing. You can’t have it both ways, American defense and America to criticize as cover for your own weaknesses. If you fear the Russians, quit buying so dang much of their natural gas! I could rant on, but you get the point!
Looking out for America’s strategic interests
I do not want to sound like an isolationist and do not, for one moment, want to suggest that America should withdraw from the world or not face squarely the strategic challenges ahead. I simply think we should be more deliberate and less apologetic about doing so. The recovery period ahead offers America a unique opportunity to get our act together domestically and we should do so internationally as well. Our strategic interests are changing and so must our strategic priorities.
Will this make us more popular around the world? Don’t bet on it! The kids are going to be shocked that Mom & Dad are setting them free to get a job, find a place to live and buy their own insurance. Maturity is a wonderful thing for kids—and spoiled nations. Besides, the ‘old folks’ still have a lot of life left in us and we intend to make the most of it. If we do well enough, we might just leave a little of that good life capital behind for the kids after we’re gone! Our kids will do fine in this tough love environment and get stronger in the process—we’re focused on assuring the best place on earth to protect the freedom and opportunity for our grandchildren.
[1]
http://www.rand.org/commentary/2010/01/21/KH.html
