Wednesday, October 29, 2008

Arizona's Twin Tragedies

October has been a cruel month for a broad range of people. But it has been particularly brutal for those of us who live in Tucson, Arizona.

We have participated fully in the worldwide stock market meltdown which has come on top of major problems in the real estate market which have hit our Sun Belt city pretty hard. Virtually nothing is manufactured in Tucson. Many of the people who have made money here have made it in real estate as the population has exploded from 250,000 to more than a million residents in just 40 years.

But for many in southern Arizona, twin insults have been added to injury in a major way.

First, our own John McCain has seen what once was a close presidential election turn into a landslide victory for the other guy. Now the polls show that Obama is not only winning all the toss-up states, he might even carry Arizona as well.

Second, our own Lute Olson who brought a national championship to Tucson and put the University of Arizona basketball program on the map suddenly announced his retirement from coaching just a couple of weeks before the season is about to begin.

There is a sad similarity to the way in which these stories have played out over the last year.

In the first place, each of these men is in his 70s and they are somewhat similar in appearance with distinctive white hair that each has had for a very long time.

But what is truly striking is that each of them spent their entire lives in the service of others and earned the admiration and adoration of thousands of people for their accomplishments.

John McCain was a true American hero who had earned the respect of millions of people for his heroism and public service. Lute Olsen was the most loved and respected sports figure I have ever known. Over a 25 year period, he brought the U. of A. basketball program from the outhouse to the penthouse. His team won the NCAA basketball championship in 1997 and over a 15 year period the Wildcats were a perpetual contender.

He and his late wife Bobbi became local legends in Tucson known for their warmth and civic-minded community service.

In short these are two men who became deservedly known throughout Arizona and the country for their great abilities, competence, and values.

That's what makes the events of the last year so tragic. And there seems to be a spooky and instructive set of similarities to the story lines.

The McCain situation is pretty well known by now. He came from way behind to win the Republican nomination. In May, he staked out the moral high ground promising to run a clean campaign. His theme was that he had a history of putting Country First and that he had the experience and the temperament to be president and commander in chief on Day One.

But, as we all know, McCain lost his way. He made a series of decisions that flew in the face of his principles and now he is in a position to not only lose the election but to lose his legacy.

Instead of being remembered as war hero and a maverick, he will be remembered as a confused and angry old man wandering around the stage during the debates and for picking the least experienced, least "Ready on Day One" running mate in history.

Lute also has lost his way. When I moved to Tucson seven years ago, a good year for U. of A. basketball was measured by whether they reached the Final Four. A couple years later, it was measured by whether they made the Sweet Sixteen. For the last two years, it has been measured by whether they made the NCAA tournament at all. The program has clearly been in decline.

Like McCain, Olson always claimed that he would put the interests of the program ahead of his own private agenda. But a year ago,a couple weeks into the basketball season, he suddenly announced that he needed to take a leave of absence and he put an assistant coach in charge of the team. No details were given other than to assure people that the leave had nothing to do with his health.

Against all odds, the team made the NCAA tournament. Then, a week before the tournament, Olson announced that his problems WERE health related but that he would be coming back next year.

The team lost recruits and had a hard time retaining some of their current players but Lute assured them and us that things would be fine. Now, a week before the start of this year's season, Lute has announced his retirement effective immediately--for health reasons.

More recruits have already walked away and it is clear that the program will have to rebuild itself from square one.

One man is in the sports world and the other is in politics. But their situations are sadly connected in that they both show how quickly a lifetime of good work and a great legacy can be destroyed when people get let their selfish desires to overwhelm the greater good.

It is not Olson's fault that he got sick and McCain is not to blame for running into the Obama juggernaut.

But each man seemed to lose his compass. Each of them developed a sense of entitlement due to their seniority and feeling of being above the constraints that mere mortals have to deal with. And now each will be remembered as much for the way in which they limped off the field long after their prime had passed and dragged thousands--or millions--of people who were counting on them down with them. That's sad because each of them has accomplished so much and deserved better.

I'm sure my mother told me many wise things over the years. Somehow I don't remember most of them. But one that has stuck in my mind forever is that you should leave the party while you're still having a good time.

After watching the sad story lines of Lute Olson and John McCain unfold this year, I would expand that advice to include everyone else who is at the party. If you hang around and are still having a good time but you're making everyone around you miserable then you stayed too long.

Sunday, October 26, 2008

Time To Take a Xanax and Chill Out

Every day I receive four or five emails from my Republican friends to make sure I haven't forgotten what a horrible socialist terrorist liar Barack Obama is and how the Democrats--who have had essentially no power since 2000--are really responsible for everything that's wrong with America.

I appreciate that. Occasionally I forget. I hope and assume that in a week or so when the election is over that those emails will stop. I have already noticed that some of my friends have started to lose a little of their energy as it has become increasingly clear that the presidential race is already decided and Obama has not only won--he has won in a landslide. Those who disagree are in luck. They can get 8-1 odds on McCain on right now so if they bet enough, they can make back what they've lost in the stock market this month.

There are some diehards and true believers who think the game isn't over. That's fine. This is America. That doesn't bother me a bit. What does scare me are the vicious and hateful attacks against Obama that seem to be gaining in frequency and toxicity on Fox News,, and talk radio even as the math makes a McCain win a virtual impossibility.

When the McCain campaign first started going negative a few months ago, the party line was that Obama was too risky and inexperienced. He sat in a church for 20 years and listened to hateful sermons, he used to hang out with shady guys, but mainly he was not ready to be president or commander in chief on day one and McCain was. Obama put politics before country while McCain put "Country First" all the time. Many people found that to be both a compelling and encouraging sales pitch.

But look what has happened as the Straight Talk Express has become a train wreck. First McCain started calling Obama a traitor who tried to lose a war. Then Obama played the race card. Then Obama palled around with terrorists. Now, depending on which furious true believer you listen to, Obama is a foreign socialist agent who was not born here and wants to destroy America, Obama is a terrorist, Obama is a liar, Obama is a criminal, Obama supporters are big black guys who attack and carve their initials in the faces of McCain supporters, and so on.

Meanwhile, McCain has steadily frittered away all of his credibility. His "Country First" and "ready on Day One" credentials went out the window with his pick of Sarah Palin. Then he came across as frantic and very confused about the economy. In August and September, he echoed President Bush 17 times stating that the economy was fundamentally strong.

He proudly called himself a deregulator and stated firmly that he was against "the bailout of AIG or anyone else." Then two days later, he said we were facing the greatest economic crisis in 75 years and that he supported the bailout of AIG, the $700 billion rescue plan, and promised more regulation when he's president. Right after voting to socialize our banking system, he started accusing Obama of being a socialist.

During the three debates, he looked angry and confused while Obama looked controlled and presidential. All the polls showed voters thought Obama won each of the debates by a margin of 2-1.

Then, as a perfect metaphor for the whole campaign, McCain introduced us to Joe the Plumber, a guy who owns a business, makes more than $250,000 a year, and is upset that Obama will make him pay more taxes. Of course the guy's name isn't Joe, he's not a licensed plumber, he doesn't own a business, he doesn't make $250,000 a year, he is delinquent in his current taxes, and under Obama's plan he would get a tax cut. Other than that, McCain nailed it perfectly--the new Straight Talk Express.

McCain hasn't been done in by the Left Wing media or by ACORN or by the economy or because he's a Republican in a bad year. Obama has had his own challenges since 33 percent of all voters have said they know someone who won't vote for Obama because he's Black.

Obama has won the election fair and square because he has been the more appealing candidate to most Americans and McCain has lost it. There are dozens of Republican and Conservative newspapers, public figures, and columnists who have announced during the last few weeks that they are supporting Obama or that they simply can't support McCain-Palin. They have all cited the sleaziness of McCain's campaign and the poor judgment he has shown on the economy and with his pick of Palin. There have been no such defections from the ranks of Obama supporters because they have no reason to defect. Obama has delivered and McCain has not.

It's over. The American people have spoken. If this was a basketball game, it would be time to clear the benches and let the subs play out the clock.

But instead, the fanatics on the Right--particularly on Fox and the radio--are committing hard fouls and trying to injure the winner. It's ironic since these are the people who claim to be pro-America patriots. Where I come from, patriots fight hard but when the game's over, they unite behind the winner and work hard to help him succeed. We're all Americans and in this together.

Because of all this hate and ugliness, what was shaping up as a Republican defeat is turning into a Democratic landslide that is spreading to Congress and might give the winners a filibuster-proof super majority in the Senate. If that happens--a thought that scares me as an Independent--it will be a harvest reaped by the voices of hate. They have turned off, frightened, and disgusted not just the Left but also virtually every Independent and moderate Republican voter in the country. And it's getting worse by the day. The more vicious and loud they become, the further behind the Republicans fall in the polls.

I worry about the country and I also worry about Obama's safety.

Many of my Republican friends are also staunch supporters of Israel. When they are not reminding me how horrible Obama is, they are making sure I realize what a threat Islamic terrorism poses to Israel and Jews everywhere. There is certainly a lot of truth in what they say.

But what they seem to have forgotten is that the only Israeli prime minister ever assassinated was not killed by an Arab or a Palestinian terrorist. Yitzhak Rabin was murdered by a ritually-observant Jew named Yigal Amir--a young yeshiva honor student who listened attentively when his rabbis told him that Rabin was a traitor for negotiating with the enemy. So Amir--a Jewish Israeli patriot in his own mind--murdered Rabin.

Today, 12 years later, recent polls have shown that 38 percent of religious Israeli Jews consider Amir a hero and rallies demanding his release are held on a regular basis.

It's one thing to say the other candidate is not ready or experienced enough to lead our country. It's another thing to call him a traitor, a socialist foreign agent, a terrorist, and a person who wants to destroy our country.

This has been a tough and energizing campaign and it's about to be over. Isn't it time to start chilling out and cutting back on the most extreme and inflammatory of rhetoric and to get about the business of rebuilding and reuniting our country? Isn't it time for Hannity and Friends to go back on their meds?

All the pro-America patriots I know feel that way. There's probably a name for people who feel differently, but they're not patriots. Not even close.

Some Thoughts on the Stock Market

As we approach yet another week, I wanted to share some thoughts regarding
the recent volatility in the financial markets and what investors
should do going forward.

Until a few weeks ago, there were two significant groups of investors
out there. The "proactive" ones were those who rightfully determined
that our financial system would go through a major shock due to the
excesses of lenders and financial institutions and the "buy and hold"
investors who believe that you just buy good companies, be patient,
and the market will take of itself.

The proactive investors did well during the first part of the year.
They invested in cash, short positions, and commodities which were
considered a store of value. They did well on both a relative and
absolute basis while the buy and hold investors were down anywhere
from 10-30 percent on the year depending up what they had bought and
were holding.

But all that has changed during the month of October. The energy,
commodity, and agriculture related companies that had soared during
the first nine months of the year have come crashing down hard in the
last few weeks. Oil has gone from $147 a barrel to around $60. Gold,
metals, and agricultural commodities have been in free fall across the
board. The other smart folks who had been cautious have mainly become
more aggressive during the last two weeks and have now lost almost as
much as those of us who have been more fully invested all year long.
Warren Buffett is down about 30 percent for the year while some of
the most successful and legendary hedge fund managers have blown up

High quality corporate and municipal bonds have been hammered as well
as investors have flocked exclusively to U.S. Government-guaranteed
short term debt which is literally yielding next to nothing. The
yields on short term treasuries are well under 1 percent across the
board while intermediate term AAA-rated municipal bonds are providing
after-tax returns of more than 9 percent.

Some stocks are now trading at very low multiples of seemingly
reliable earnings and many high quality companies are paying yields
well above 5 percent. None of it seems to make any sense and in spite
of it all stocks here and around the world keep dropping.

So what's going on here and what should a reasonable person do?

As always, people should always keep cash they know or suspect they
will need in the near future out of harm's way. That is true no
matter what the prospects for the stock market might be.

Beyond that it is important that people understand that much of the
selling is coming from hedge funds and mutual funds that are facing
severe liquidations, margin calls, and in some cases are going out of
business. As was the case with the banks and insurance companies, the
amount of leverage in the hedge fund system has been underestimated
and the selling has persisted far beyond what was expected. That is
in part because hedge funds are unregulated and don't have to report
their holdings so no one really knows how much they have to sell
before they're done. Suffice it to say that it has proven to be a lot
more than anyone thought was possible.

It is telling that on most down days in the market, the selling
intensity has picked up dramatically in the afternoon as fund trading
desks get the word from the front office how much cash they need to
raise by the close. In the case of margin calls, stocks and other
holdings are simply sold out from under them at whatever price they
can get. As hedge funds go out of business and frightened investors
decide to bail out of the market in their 401-K's and mutual funds,
the need to raise cash has been widespread and non-negotiable. Hedge
funds were the biggest investors in hard assets and foreign markets as
well so it is not surprising that those asset classes have been hit
the hardest but they're clearly selling other more marketable assets,
including U.S. stocks, as well.

I have linked you to Warren Buffett's article in the New York Times
and some recent reports by Riverfront Investment Group that suggest
that these aberrations have created outstanding opportunities to pick
up quality assets at very low prices. They also make the case that
while there is no way of telling where the bottom is, we are in a
period of enormous potential for long term returns due to the market

For those of us who have been strapped in and ready for the ride
upward to begin for a while, it means that it just makes sense to gut
it out and wait for some sense of normalcy to return to the markets.
We expect that to happen sooner rather than later. When I woke up at
3 a.m. today the markets were melting down overseas and it was
expected that the Dow Jones Average would open down 1,000 points here.
As we approach the close of trading today, the markets are down but
by "just" a couple percent. Maybe that's a positive sign.

There are those who believe that the financial world as we know it is
coming to an end and the is the beginning of the end of days. Those
people could be right. Even if they're wrong, there is little doubt
that we are in for a prolonged stretch of economic contraction for a
variety of reasons that are now pretty well known.

But it continues to be my belief that a long deep recession is
reflected in today's stock prices and better times lie ahead for those
who can afford to be patient.

Here are the links I referred to:

Sunday, October 19, 2008

Will the Republican Party Survive--And Does Anybody Care Anymore?

Just two months ago, I talked with John McCain in Aspen. Since moving to Arizona seven years ago, I have voted for and supported McCain for Senate and always admired his independence and willingness to cross party lines to do the right thing. I asked him why he had suddenly aligned himself with the most Right Wing, scariest people in the Republican Party and had named the same people who smeared him so viciously in the 2000 primary to run his campaign.

"The Republican Party is a big tent." he told me. "There's room for everyone."

In recent weeks, that tent seems to have gotten much, much smaller as some people have gotten disgusted and left and others have been thrown out. And, as many Republicans and Conservatives have recently pointed out, it's a neighborhood that very few people want to live in any more.

The water carriers of the Right--particularly Fox News, bloggers on, and the dozens of talk radio hosts who call themselves Conservative--have always been biased. But as McCain has fallen farther behind in the polls their shows and blogs have become cesspools of hatred, anger, lies, distortion and vitriol which are liberally spewed on Democrats, Obama, and anyone who would vote for either.

In their passionate determination to vilify Obama and the Left, they have ignored the fact that the most devastating critiques of McCain and Palin have come from their own ranks. Conservatives and Republicans such as Charles Krauthammer, David Brooks, Kathleen Parker, George Will, and Christopher Buckley have all expressed their disgust with McCain's selection of Palin, his gutter campaign tactics, and his lack of the temperament, judgment, and ability to be president.

The coup de grace came Sunday when General Colin Powell--a Republican--announced his endorsement of Obama for president. Powell cited a wide variety of reasons that he was excited about Obama, disappointed in McCain himself and disgusted with the way he has run his campaign. Powell was precise, logical, and objective. His criticism of McCain was well thought out and devastating.

After hearing Powell, I immediately switched over to Fox News in time to get their reaction which was entirely critical and dismissive of Powell. One "analyst" speculated this was Powell's way of getting even with McCain for not selecting Powell to be his running mate. Another focused on how unfair it is for anyone to criticize McCain or his campaign since McCain is honest and righteous and Obama is so much worse. No one mentioned the merit or accuracy of Powell's statements. Later on MSNBC, Republican Pat Buchanan speculated that Powell picked Obama because he was just anxious to endorse a fellow Black guy.

Meanwhile, the Rush Limbaugh, Sean Hannity, Mark Levin, Hugh Hewitt, Michael Medved, Dennis Prager radio crowd has gone non-stop venal and ballistic over the airwaves this month. Their entire programs are filled with lies, distortions, and partial truths about Obama and his positions. He is freely and constantly called anti-American, a traitor, a socialist, a terrorist, a friend of terrorists, a liar, a thief, a criminal, and a "bloodsucker" who wants to take every hard-working citizen's money--all of it--and distribute it to his liberal, radical, good-for-nothing friends.

This is not just about politics or an election. This has become a Holy War with these guys. My longtime friend Dennis Prager told me last year that unless I had learned to loathe the Left, then I had learned nothing from him in the 20 years I have regarded him as a teacher. He recently wrote a column on in which he explains the difference between people on the Left and people on the Right. Apparently being a pluralist or an independent--trying to learn from all people--is no longer an option.

This latest descent completes the utter destruction of the Republican party as a force for good in this country. Until eight years ago, Republicans had a deserved reputation for being more socially and fiscally conservative and responsible. When the party culture became infected with the Bush/Rove/Cheney virus, it began to morph into a divisive force that possessed none of those qualities.

Now the mass exodus is underway. Anyone who is fiscally conservative can't call himself a Republican anymore. Anyone who is a religious Christian can't honestly be part of this since Jesus preached about caring for the sick and the poor--not about eliminating reproductive choice or issues related to same-sex marriage. There's nothing Christian about the agenda of the Religious Right--it's a totally political movement focused on issues that Jesus never mentioned and they ignore the issues about which Jesus preached constantly.

Anyone who believes in honesty or competence in government wouldn't call themselves a Republican after Bush. And now, no one who is not a committed soldier in the Holy War against the Left is welcome either.

The only ones left inside the tent are people who don't want to vote for a Black person, those who mistakenly believe they have been better off financially over the last eight years than they'd be under Obama, or those who are driven by a complete and unwavering hatred of liberals, Democrats, and the Left. It doesn't take a lot of room to accommodate that crowd and who would want to be in that tent anyway?

I find all this frustrating and it makes me sad. I liked being an independent. More important--we need the old Republican party--the one that thought the only thing worse than taxing and spending was borrowing and spending which is what the Bush/DeLay crowd has done for years in the name of Conservatism.

I hope the recent meltdown will set the stage for a revival of something we all need now more than ever--a viable intelligent alternative to complete control by the Democrats. As much as I like Obama, the thought of either party having that much power still scares me. Reed and Pelosi scare me much more than Obama does. I think Obama is smart, presidential, and will surround himself with smart, good people.

It's time for a change.

Wednesday, October 15, 2008

Sarah Palin and Her Pals--The Real Unrepentant Terrorists

You can learn a lot about a person's agenda by looking at the terms they use to describe others.

I first learned this many years ago from my friend and radio talk show host Dennis Prager. He was cynically amused at the fact that Rodney King--a car thief with a criminal past who violently resisted arrest by four Los Angeles police officers before they subdued him and beat him to a pulp--was always referred to as "motorist" or "black motorist" Rodney King by the news media covering the story. Dennis accurately pointed out that the media wanted to focus on the police brutality in the case so they came up with a term that essentially ignored everything about King that might distract attention from the point they wanted to make.

I was reminded of this in recent weeks as the McCain campaign and the water carriers on the Right (including Prager himself) have honed in on Barack Obama's relationship with "unrepentant terrorist" William Ayers. I am cynically amused for a number of reasons.

First, Dr. Ayers probably doesn't have that title on his business card. He is a few other things that are perhaps more currently relevant. He is a Distinguished Professor of Education at the University of Illinois-Chicago. He has been such an important force in improving the Chicago public schools that he has been effusively praised by Mayor Richard Daley and was also named Chicago Citizen of the Year in 1997--the year held a fundraiser for Obama.

On top of that, it could be argued that he is neither unrepentant nor a terrorist.

For guidance on the first point, I refer as usual to my religious tradition. Last week, Jews around the world observed Yom Kippur--the Day of Atonement. On that holiest day of the year we are commanded to repent for our sins against God and other people and commit ourselves to do better during the coming year.

In our tradition, the way we determine true repentance is not by what we say but rather by how we behave going forward. One of the values I like best about Judaism is its focus on actions. Doing the right thing means everything. Saying the right thing means nothing. If you talk the talk, you get no credit unless you walk the walk.

Years ago a wise Jewish commentator said true repentance is having the opportunity to commit the same sin over again but resisting that temptation and doing the right thing instead.

By that standard, Ayers has fully repented for whatever sins he might have committed 40 years ago. After his run-in with the law while protesting the Vietnam War, he has gone on to dedicate himself to teaching and making Chicago and its education system a better place for tens of thousands of students and families. As far as I know, he was never convicted of a crime during his Weather Underground days and has been totally law abiding ever since.

Although I was familiar with Ayers since I too worked and spoke out against the Vietnam War 40 years ago, I never heard the term "terrorist" applied to him or anyone else who opposed the war until this campaign season.

My dictionary defines a terrorist as someone who "uses violence or threats to intimidate or create a state of fear and submission."

While the activities of the Weathermen were clearly illegal and in some cases violent, they were a targeted response against the U.S. government. They were never designed to instill fear--they were designed to hamper the U.S. government's effort to prosecute the war. By no definition were those actions ever considered terrorism and even though most Americans (including me) felt they were wrong,over the line, and illegal no one ever called them acts of terror--until McCain came along.

In addition, even McCain supporters concede that Obama and Ayers have never been close and that the two men have essentially had no relationship at all over the last ten years.

One of the presidential candidates HAS been palling around with unrepentant terrorists very recently but it's not Barack Obama. That candidate is John McCain and the terrorists are his running mate and his increasingly angry and desperate supporters on Fox News and the radio.

Sarah Palin and her broadcast partners in crime have been spending virtually all their time trying to intimidate, coerce, and create a state of fear and submission among U.S. voters. Although John McCain has tried to stay above the fray by trying to calm down his most rabid fans at a recent rally, the very reason his supporters are screaming for blood--literally--is because they are being whipped into vengeful frenzy by the terrorists of the Right.

During the last couple of months, McCain has called Obama a traitor who's willing to lose a war for political gain, said Obama pals around with terrorists, that Obama has blown off the troops in Germany due to lack of press coverage, that Obama wants to raise taxes, that Obama lies, that Obama has sold his soul to Fannie Mae, and that he's not "like us." These are all points designed to cast serious doubts on Obama's character and fitness to serve. According to McCain's actions, we should all be very afraid of an Obama presidency.

Palin doesn't even pretend to be repentant. When Rush Limbaugh asked her if she was going to stay on the attack, she replied "Of course I will--what do I have to lose?" The fact that the inflammatory rhetotic used by her and the people who introduce her at rallies have prompted screams of "traitor," "terrorist," and "kill him (Obama)" doesn't seem to bother her.

All of these developments are sad and somewhat predictable. Fortunately they are also irrelevant since the duration of this campaign and new technology have enabled voters to view speeches and articles on demand. Most voters will make up their own minds about the candidates based on hearing and seeing them live and in action.

It is also encouraging that most Americans are clearly not giving in to the terrorists and seem to understand exactly what is going on. Since the McCain campaign promised and delivered on their stepped-up smear campaign two weeks ago, his popularity and poll numbers have dropped like a rock and his negative ratings have been soaring. The campaign is over, Obama has won, and we need to move on as a country. If anyone doubts that assessment and wants to bet on McCain, they can get better than 6-1 odds on Intrade

Still, it's ironic and disappointing that the McCain campaign can continue to stand the truth on its head and go unchallenged by the media. Fortunately, they are being challenged by the voters who know a terrorist when they see one and certainly recognize people who are unrepentant for their sins.

Monday, October 6, 2008

Stock Market Foreclosures--The Whole World Is For Sale

I have tried traveling around the world in search of the solution to
the meltdown in the financial system and stocks markets everywhere and
I am sad to report that I haven't found it yet.

I was in Hong Kong last week ushering in the Jewish new year with my
son Sam who works for Goldman Sachs there and we not only had to watch
the market collapse, we had to do it in a state of exhaustion in the
middle of the night. We Jews view the ten days between Rosh
Hashanah and Yom Kippur as the Days of Repentance. The holiday spirit
is truly upon us.

This has been a horrible year for the stock market with all of the
major averages down well over 20 percent and as I sit here on Monday morning,
all the Asian and European markets are down another 6 to 8 percent and our
market is trading down dramatically as well. As bad as it has seemed
for most of the year, the truth is that most of the damage has been
done over the last few weeks.

The depth and magnitude of the financial crisis has certainly come
into sharper focus in recent weeks. I sat in Hong Kong at 3 a.m. last
Monday as Congress voted down the rescue plan and $1 trillion in
wealth vaporized in an hour. On Friday I sat in Tucson at noon as
Congress approved the rescue plan and $500 billion in wealth vaporized
in an hour. It seems pretty clear that neither the facts on the
ground nor time of day nor geography seem to matter much in this

All this leads me to the point I want to make about what's really
going on. The gut-wrenching drops in stock prices are not related any
more to economic prospects or the decisions of Congress. Stocks, like
real estate prices before them, are in a foreclosure mode and values
have been destroyed by forced selling--major repentance for past sins.

We have all heard a great deal about the impact of massive foreclosures
on the housing market. We understand that the price of a house can drop
dramatically in foreclosure because it immediately goes for sale on
the market without regard to price. It doesn't mean that there is
anything wrong with the house. It just means that the owner is in the
horrible position of having to take whatever he can get.

In many markets around the country--and particularly here in
Arizona--many homes have lost 20-40 percent of their value during the
last year due to forced sales. Since most investors put 10 percent
down or less, they have lost their entire investment and the banks are
on the hook for the rest.

We have heard virtually nothing about a similar phenomenon that is
taking place in the hedge fund world. Hedge funds are private
investment funds which in many cases are not hedged at all. When I
started the Gellman Growth Partners 13 years ago, there were a few
hundred such funds in the world. Now there are thousands.

The managers of these funds now typically receive 2 percent of the
assets as an annual fees and 20 percent of the profits as a bonus. As
a result, the managers of these funds often take on great risks since
they don't personally participate in the losses but they get a big
chunk of the profits. To enhance those returns, virtually all these
funds--like our recently failed financial institutions--take on huge

Many of them are down 30 percent or more for the year and are now
either suffering through massive redemptions or going out of business
altogether. As a result, they are selling anything and everything
they have to raise cash before either shutting down completely or
sending big chunks of their remaining capital back to dissatisfied

What's the proof that this is going on? Look at where the huge losses
are being suffered in the market over the last couple months. They're
coming in the sectors that were the best performers over the last few
years where all the hedgies plowed in. Energy, commodities, global
infrastructure plays, technology, basic materials and emerging markets
stocks are all down between 40-60 percent in recent months. The BRIC
complex (Brazil, Russia, India, and China) markets are down an average
of 50 percent this year.

Meanwhile, against all logic, the home builders and many
financials--those that haven't gone broke--are trading at or near
their 52-week highs even as the fundamental news
about those sectors has been just horrible. That's because most of
the hedge funds either didn't own those sectors or, more likely, were
short them and have been buying those stocks to cover their positions.

So what is a person to do in this environment?

I can tell you that the smartest real estate people I know are
selectively buying properties at foreclosure sales confident that over
time they will do extremely well. I believe they are right, but they
may have to watch prices decline ever more before the market gets
flushed out.

I feel the same way about the stock market. Incredible opportunities
present themselves during times such as this because the markets
become so inefficient. But they are opportunities that are only
appropriate for those investors who are willing to take a long term perspective. The forced selling could end tomorrow or it could end weeks or months from now at lower levels. But when it does, the turn will come.

The biggest problem most of us face is that technology now enables us
to watch our portfolios on a real time basis all day long. During
times like this, the drops in value can keep us awake at night and
cause us to cry "uncle" at the worst possible time.

There is no doubt that our economy faces problems that won't go away for a long time. But there is also no doubt that this wave of forced liquidations is creating outstanding long term opportunities for patient investors. The only question is how patient we will have to be. I'd like it to happen in my lifetime.

One thing's for certain. There will be plenty to think about on Yom Kippur this week.

Wednesday, October 1, 2008

The Whole World is Watching--and It's Not Pretty


Like an impressionist painting, the political and financial mess that is besieging the U.S. seems much clearer from a distance.

I have spent the last week visiting my son here in Hong Kong where interest in our election campaign and economic meltdown are both intense and very personal. As in the U.S., wealth and jobs have been disappearing here at an alarming rate as the financial crisis that began in our country has spread throughout the world like an epidemic.

I have been hanging out with smart, ambitious young professionals who are really struggling to understand the seemingly bizarre behavior and suicidal choices that are coming from America’s political leaders. They all had the same question:

“How can a country that is so smart choose people who are so stupid to be their leaders?”

It has popped up in one form or another all week long. During that week, we sat together and watched the Katie Couric-Sarah Palin interviews. You can imagine how that went. Actually, no one said much. People were just searching for some explanation that would cause Palin’s candidacy to make sense. They want it to be less outrageous and frightening than it is.

We saw McCain suddenly promise to suspend his campaign (he didn’t) and suggest that his debate with Obama be delayed for no credible reason, much in the way Bush and Cheney were cancelled from the Republican Convention due to a weather forecast. We saw Bush and McCain then strongly urge their Republican followers in Congress to support the Paulson rescue plan. Then they assured Nancy Pelosi and the country that they had enough Republican votes to bring the matter to a successful vote.

We then watched in disbelief as two-thirds of the Republicans voted against the plan, their president, and their nominee less than 24 hours later. They precipitated a market panic that cost investors $1 trillion in the U.S. alone in just a few hours. After the vote, GOP leaders said they had been all set to vote for the plan they had agreed to support but then Pelosi got them all upset with her speech so they decided to get even with her by trying to destroy our financial system.

It really makes one proud to be an American.

So how do we get back on track? We need to stop defining ourselves and our political leaders in black and white terms based on party and ideology and instead look to be guided by truth and wisdom without regard to the source.

People are labeled and label themselves as either being on the Left or the Right, Democrat or Republican, liberal or conservative, for higher taxes or against them, for more regulation or for free markets, and so on.

This labeling has dumbed down both the level of conversation and the people themselves.. Our leaders have trapped themselves in ideological boxes which keep them from making intelligent decisions.

Don’t get me wrong. It’s important for people to have values and to stand for something. But they also need to be pluralistic and anxious to learn from and incorporate the best aspects of positions from the other sides because life is just too complex and nuanced to be an ideologue. As with most things, pluralism is the key to success.

In business we call pluralism using “best practices.” In sports we call it “cross training.” The top performers in every field use the approach to get even better at what they do. We desperately need it in political discourse because we just can’t afford to act this stupid any longer. There’s way too much at stake.

We can’t afford to continue the dishonest luxury of blaming “Washington” for our problems. In a democracy, we elect leaders to act on our behalf. If they decide that we need to fight wars, improve security, provide health care and social security, build bridges and roads, then we should insist that they make us pay enough in taxes to pay for them. If we don’t want the stuff they are buying on our behalf or it we can’t or don’t want to pay bill, then we should let them know or replace them.

Free markets are preferable but we can't afford to be stupid.

If our financial system is too important to the welfare of our country to be allowed to fail, then we need to create and enforce regulations to make sure that we never again come close to the position we find ourselves in now.

We need to preserve unfettered free market capitalism but only in those areas where success is desired and failure can be tolerated. That’s the essence of the entrepreneurial system that has made our country great. But at the same time, we can’t have Congress approving huge deficit spending and allowing system-threatening practices to run amok on Wall Street and then acting outraged at anyone but themselves when the taxpayers have to intervene to prevent a collapse.

When a criminal escapes from jail because the guard fell asleep with the cell door open, it’s the guard’s fault. Criminals are criminals—they do what criminals do. Wall Street is greedy. That’s what Wall Street does and is rewarded for. That’s why we have guards and regulators and a president and Congress to maintain control. When the guard falls asleep and things get out of control, the outrage should be directed at the guard and he should feel terrible about letting us down. We have seen none of that. On Capital Hill, it’s the Congressmen who fell asleep at the switch who are expressing all the outrage.

Where is the pluralism, the outreach, the self-examination? Is there anything about this that is complicated or hard to understand?

Viewing it from halfway around the world it all seems pretty simple. The only real question is if we as a country are ready to start acting like grownups or if we’re going to keep blaming Washington, illegal immigrants, liberals, conservatives, Wall Street, mortgage lenders—everybody but ourselves—for our problems. We know what we need to do. The only question is if and when we’re going to make it happen.