The Big Picture

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• Corruption Threatens BRIC Giants
• The Price of ‘Attention Unworthies’ . . . ?
• Global Trend Indicators
• Measuring our way to future success
• Non-Political Lessons from 2012 Election
• 10 Sunday Reads

Corruption Threatens BRIC Giants Posted: 11 Nov 2012 10:30 PM PST Corruption Threatens to Bring Down China and Russia   We pointed out last year that China is plagued by corruption and phony bookkeeping. Reuters notes: President Hu Jintao warned China's incoming leaders on Thursday that corruption threatened the ruling Communist Party and the state …. Hu acknowledged that public anger over graft and issues like environmental degradation had undermined the party's support and led to surging numbers of protests. "Combating corruption and promoting political integrity, which is a major political issue of great concern to the people, is a clear-cut and long-term political commitment of the party," Hu said. "If we fail to handle this issue well, it could prove fatal to the party, and even cause the collapse of the party and the fall of the state. We must thus make unremitting efforts to combat corruption." *** The run-up to the carefully choreographed meeting, at which Hu will hand over his post as party chief to anointed successor Vice President Xi Jinping, has been overshadowed by a corruption scandal involving one-time high-flying politician Bo Xilai. *** "All those who violate party discipline and state laws, whoever they are and whatever power or official positions they have, must be brought to justice without mercy," Hu told delegates, one of whom was his predecessor, Jiang Zemin. "Leading officials, especially high-ranking officials, must … exercise strict self-discipline and strengthen education and supervision over their families and their staff; and they should never seek any privilege." The New York Times said last month that the family of Premier Wen Jiabao had accumulated at least $2.7 billion in "hidden riches", a report China labeled a smear. We have no idea whether Wen Jiabao's family really has $2.7 billion stashed away. But given that the family of Egyptian dictator Mubarak holds $40-70 billion, and Libya's Moammar Gaddafi was worth$200 billion, it is within the realm of possibility. Russia is facing its own corruption problems: Putin just fired his defense minister and chief of the armed forces' General Staff for fraud Several senior officials at the Russian Space Systems company are suspected of involvement in a number of fraudulent schemes Russian voters have  videotaped numerous forms of voter fraud – including ballot-stuffing, erasable ink, carrousel voting and other shenanigans – in recent elections University World News noted in 2010: The level of corruption in Russian universities is steadily growing despite the efforts of local authorities to eradicate it. According to necessarily rough estimates, bribes paid for admission to Russian universities in 2009 totaled $1 billion. This is 40% more than in 2007, with the average bribe rocketing five times higher in just the last two years. *** Mark Levin, a professor at the Higher School of Economics in Moscow who has studied the issue, said corruption in universities took place not only during the entrance examinations but also those at the end of semesters. Levin said some students preferred to pay money to pass examinations and obtain a diploma. Radio Free Europe reported in 2009: Sixty percent of Russians admitted to giving bribes in a recent poll. Earlier this year,President Dmitry Medvedev said corruption is so bad it threatens Russia'svery stability. And Time reported last year: "Russia has 140 million hardworking people and 1 million people who want to steal from them," says William Browder, CEO of Hermitage Capital Management, a London-based investment fund. Browder should know. The American-born financier has been at the center of one of several high-profile controversies that have exposed parts of the Russian bureaucracy as something akin to an organized-crime family. Once the largest foreign portfolio investor in Russia, he created a stir by confronting corporate managers over shady dealings. That led to his banishment from the country and a scam in which, Browder claims, government officials used his corporate documents to steal $230 million in tax revenue. One of his lawyers died suspiciously while in pretrial detention. (The Russian government is investigating the death, as well as a tax-evasion case against Browder.) Billionaire Alexander Lebedev, who controls the National Reserve Bank and the country's most popular opposition newspaper, has publicly accused a cabal of police and secret-service agents of seeking to seize his assets through an intricate conspiracy, which he has linked to recent police raids at his offices, intimidation of his staff and alleged demands for multimillion-dollar bribes. Earlier this year, he wrote an open letter to Putin appealing for an investigation of these "werewolves in epaulets." Without curtailing corruption and strengthening the legal system, Lebedev says, Russia can't compete with China or India. "The political system here is an impediment to economic growth," he says. "You can hardly find an aspect of life that cannot be explained by the huge dominance of corruption at the highest echelons. It has come to the point that it couldn't get worse." Actually, it could. The corrupt and intrusive state is scaring off what the Russian economy needs most: investment. Over the past six quarters, a net $65 billion of private capital flowed out of the country. Without that cash, Russia can't spur growth, rebuild decrepit infrastructure, upgrade its industrial base or create jobs for college graduates. In a March speech, Medvedev admitted that the investment climate "is very bad, very bad" and corruption had "a stranglehold" on the economy. "We cannot let this situation continue," he warned. *** In part, the roadblock may be a resistant bureaucracy still not detached from its Soviet roots. "There is no respect for private property and economy in the minds of the majority of bureaucrats," Dvorkovich complains. The biggest obstacle might be Putin.Medvedev sits in the Kremlin, but Putin remains the ultimate arbiter in the economy, and there is little to suggest he has joined the small-government tea party. "He believes in the traditional Russian way — the state should be the biggest player in everything," says Maria Lipman, a political analyst at the Carnegie Endowment for International Peace in Moscow. The sort of liberalization propounded by Medvedev would threaten the sources of patronage and control that ensure Putin's position. [Putin has since replaced Medvedev as president.] Of course Putin doesn't want real reform … instead, the man wants to expand his current net worth of$40 billion.

The Price of ‘Attention Unworthies’ . . . ? Posted: 11 Nov 2012 03:00 PM PST While I was working on my collection of lessons for my WaPo column this week, I ended up finding all manner of interesting, amusing but ultimately unusable items. Some of these were ironic and funny and snarly, but I did not want the column to be “The Schadenfreude Chronicles.”  Rather, I wanted to find real lessons that were usable for investor and business types. However, lots of this stuff was too good to just throw away. So as a wrap up to this week’s theme of Lessons of the election, I’d like to point out some of the folks who distinguished themselves, but mostly in the wrong way. As per last weekend’s discussion on info sources, these are the methodologies, organizations, and yes, people whom you should quarantine as dangerous to your wealth. They have poor long term track records, (pretty awful is a fair descriptor). Their approaches favor wants and hope over data, confirmation bias over mathematics, and cognitive dissonance over objective reality. If you can recognize this sort of foolishness in real time, you can avoid allowing these folks to help you lose money. Perhaps we can start giving out awards for this kinda stuff: ~~~ • Big Money Loser (Institutional): Wall Street Wall Street bet heavily on a Romney victory, and lost. Not only is Dodd Frank and the Volcker rule going to be a thorn in their paw for the foreseeable future, but Senator Elect Elizabeth Warren is going to haunt them for at least 6 years. Bonus stupidity: Hasn’t anyone on Wall Street ever heard of Hedging?   Source: Quartz   -Honorable Mention: Intrade, whose numbers were consistently less accurate than Betfair and other prediction markets. I don’t know why, but they were much less accurate, and not nearly as reliable as other sites. ~~~ • Big Money Loser, Super Pac edition: American Crossroads Karl Rove’s Superpac spent over $300 million dollars — net results were a loss of 2 senate seats, 1 house seat — oh, and the Presidency. Whoever gives this guy money might as well burn the cash for kindling.   Source: ‏@bendimiero ~~~ • The Stating the Obvious Award: XKCD: Math Matters   The delightful nerd comic xkcd tickled my funny bone with this instant classic: Source: xkcd ~~~ • Innumeracy Award for most Mathematically Incompetent: UnskewedPolls.com I dont know if they simply made up their own numbers of just cherry picked what they liked (Selection Bias, Confirmation Bias). Nearly every data point they ran was wrong. This screenshot shows their Ohio exit polling data — and it was simply delusional:     ~~~ • The ‘Not Nate Silver’ but Close Award: Votamatic Every one has been talking about 538, but Simon Jackson’s Votamatic predicted 91.4% Chance Obama Wins with 332 electoral college votes.     Nicely done! ~~~ • Right Wing Can’t Be Wrong All the Time Award: While much of the conservative movement were happily living in their artificial bubble, one right wing pundit made the early call in February 2011: “Ann Coulter says that if we don't run Chris Christie for President, then Romney will win the nomination and we'll lose in 2012.” I have to chalk this one up to luck, as she is so often wrong about, well practically everything else she ever writes, speaks or I assume, thinks. Bonus: Bruce Bartlett nailed it as well — Why Romney Can’t Beat Obama in 2012 — but since he is rational and not criminally insane, its less notable. ~~~ • Most Notable Election Jackass: Donald Trump The Donald’s election night meltdown was consistent with his persona of a self promotional blowhard assclown. Brian Williams summed up the Tweets, by broadcasting “Donald Trump, who has driven well past the last exit to relevance and veered into something closer to irresponsible here is Tweeting tonight.”   Source: Daily Mail   A fledgling movement has begun — trying to get his horrific MensWear removed from Macy*s and a boycott of his inane show on NBC. And while I never followed him, today, I blocked @realDonaldTrump — It felt great! Trump: The only business person who has managed to lose money in both NYC Real Estate AND casinos is now well past his Sell By Date. ~~~   My advice to you goes well beyond politics: It does not matter if they are left, right center or far right — note who has a process that works, and bookmark their site. Note who does not, and throw da bums out. These are the money losers, and The Price of Paying Attention to them is simply too great. Delete the bookmark, quarantine them and move on. Your portfolio will thank you . . .     Previously: The Price of Paying Attention (November 2012) Information Triage (April 2011)

Global Trend Indicators Posted: 11 Nov 2012 12:05 PM PST       (click here if charts are not observable)

Measuring our way to future success Posted: 11 Nov 2012 09:30 AM PST Are our blinders keeping us from seeing new opportunities, and / or following our customers as they move on? The presentation looks at how we measure online activities, and if this is limiting our perspective. Measuring our way to future success from Helge Tennø

Non-Political Lessons from 2012 Election Posted: 11 Nov 2012 07:00 AM PST > On Wednesday, I jotted down a few takeaways from the election that were applicable to investors and people running businesses. Really, it was for any one with an interest in learning from the misstep of others. I liked the idea so much I decided to expand it for my Sunday Washington Post Business Section column. It was not about schadenfreude; rather, this is an inexpensive form of tuition, letting other organizations make strategic, cognitive and tactical errors that you can learn from. These include both of the candidates, the media, the consultants, the GOP primary candidates, some of the major memes of the campaign, a bit of philosophy, and a few words about money. Called simply Lessons from 2012 Election, it discusses the various non-political lessons that can be derived from the entire season and applied to investors and business leaders. Here are the 10 : Lessons from 2012 Election 1. Process, not outcome, is what matters 2. Do your homework and practice 3. Think deeply before you speak 4. Avoid clichés 5. Don't live in a bubble 6. Have influential allies 7. Be true to yourself 8. Choose your business partners well 9. It takes more than money 10. It helps to make your own luck Note the focus is Non-Political lessons; I will let the politicos handle the specific getting elected related takeaways themselves. > I still cannot access the print version, so if anyone can send me a PDF of G6, it would be appreciated. I’d like to see what the Post did with the dead tree version of it.>   Source: Lessons from the 2012 election Barry Ritholtz Washington Post, November 11, 2012   http://www.washingtonpost.com/business/lessons-from-the-2012-election/2012/11/09/a347e922-29d3-11e2-bab2-eda299503684_story.html

10 Sunday Reads Posted: 11 Nov 2012 04:30 AM PST Some pre-football, early morning reads for your Sunday pleasure: • Investor Doomsday? Not Necessarily (NYT) but see also Here’s An Insane Chart Showing Just How Much The Fiscal Cliff Is Being Hyped (Business Insider) • Europe, Inflation & Export Weakness Matter, too (Marketwatch) • Stocks Are Oversold (Bespoke) see also VIX Move Is Muted Amid Competing Pressures (MarketBeat) • Rebalancing: Winning It by Trimming It (WSJ) • Buffett’s Latest Bargain: Berkshire Hathaway  (Barron’s) • Innovation Is America's Key Problem — Not Uncertainty (Slant) • Stanford-Rooted Companies Would Form World-Sized Economy (BusinessWeek) • Occupy’s new mission: Forgiving peoples’ debt  (Fortune) • Top Ohio Republicans Ask Why Party Lost (WSJ) see also Demographic Shift Brings New Worry for Republicans (NYT) • Apple, HTC Settle Patent Dispute, Sign Licensing Pact  (WSJ) What are you reading?   Cracks in Fortress Balance Sheets    Source: WSJ

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