|Man Without Qualities|
Friday, July 01, 2005
The Washington Post reports:
One possibility is Attorney General Alberto Gonzales, the former White House counsel and a longtime Bush aide dating back to when Bush was governor of Texas. Bush may want to make history by selecting the first Hispanic American for the Supreme Court.Whatever else may come of this appointment, President Bush apparently CANNOT make history by selecting the first Hispanic American for the Supreme Court. That honor goes to Herbert Hoover, with his 1932 appointment of Benjamin Cardozo. Although there are those who question Cardozo's Hispanic bona fides, a major biography of Justice Cardozo says:
Cardozo family tradition holds that their ancestors were Portuguese Marranos--Jews who practiced Judaism secretly after forced conversion to Christianity--who fled the Inquisition in the seventeenth century. They took refuge first in Holland and then in London. Later members of the family emigrated to the New World. Aaron Cardozo, was the first Cardozo to settle in the American colonies, arriving in New York from London in 1752. He lived in Wilton, Connecticut, during the Revolution and later resided in Richmond, Virginia. He married Sarah Nunez, his double first cousin. In the small Sephardic community, marriage of close relations was common.Justice Cardozo's family had not only been in North America for a very long time, but they were present at important events. For example, his great-great-uncle Rabbi Gershom Mendes Seixas attended George Washington's presidential inauguration.
If the Washington Post wants to accept the "not-proved-Hispanic" argument, the paper should at least say so. But one gets the impression that this article was written by someone who didn't even know about the issue. This article reminds me of something a very Italian-American friend who moved to Texas used to say: "I had to move to Austin from Brooklyn just to find some place where I could be an 'Anglo.'"
Wednesday, June 29, 2005
This is a pretty cool site.
Once the map has loaded with its little dots for cities, you move your cursor over a dot to get an image of the current page of that city's local newspaper and a link to its website.
Legendary II(0) comments
For the past month (here and here and here), the Man Without Qualities has been intrigued by the likelihood that Warren Buffett, now largely a forex speculator posing as a value investor, may steer his Berkshire-Hathaway corporation into gigantic short-term losses in the currency markets (known as the "casinos of the very rich" on Wall Street). Now, even TIME magazine is waking up to this likelihood:
The buy-and-hold billionaire is up to his ears in ... derivatives... Buffett once called derivatives "financial weapons of mass destruction," so you'd think he would steer clear. But his company, Berkshire Hathaway, has acknowledged a $307 million pretax loss in the first three months of this year that's due to a $21.4 billion position in "currency contracts," which are derivatives that hit pay dirt when the dollar falls. Problem is, the dollar is rallying. The greenback--up 4% against the euro in the first quarter and an additional 8% since then--shows no signs of stalling, and Jim Bianco of Bianco Research estimates that Buffett's losses this year have surpassed $1 billion.The $1 billion-plus losses to which Mr. Bianco refers are only Berkshire-Hathaway's direct currency derivatives losses. Berkshire-Hathaway also holds lots of euro-denominated securities, which carry indirect exposure. Mr. Buffett has made clear in interviews that Berkshire-Hathaway has additional huge embedded currency exposure in its portfolio companies:
Now some of those [Berkshire-Hathaway] assets are antidollar assets. Example: In 2002 he bought bonds of Level 3, a telecom company, that were denominated in euros. In 2000 Berkshire picked up MidAmerican Energy, a gas pipeline company. By doing so, Berkshire indirectly acquired the assets of Northern Electric, a utility in England, at a time when the pound was worth $1.58. Now it's worth $1.94, so Berkshire has a paper gain irrespective of any appreciation in the electric company's pound-denominated earning power.None of this is intended to disparage the long term negative effects of the United States trade deficit on the dollar. But currency markets move on the basis of much more than trade deficits. Political risks - of which Mr. Buffett can claim no particular history of perspicacity - are very big factors. Relatedly, unpredictable international events - the intervention of a George Soros, a decision of some obscure Chinese politicians or some persnickety actions of French voters - can have dramatic consequences in the currency markets that don't figure so large in the domestic equities markets with which Mr. Buffett established his very considerable, even legendary, reputation.
What would be the effect of a huge currency market loss on the now quite aged Mr. Buffett's reputation and, concomitantly, on Berkshire-Hathaway's stock price? It would not be pretty. In fact, it might help investors to bring into perspective many other troubling developments in Mr. Buffett's world: His grossly inconsistent stance on derivatives is just one of many hypocrisies that litter his path these days. I have already mentioned his mutation into uber-forex speculator while maintaining the garb of a value investor. Then there are his pretensions to good corporate governance policies, juxtaposed with his failure to maintain systems to control the rampant fraud facilitation at General Re as well as his failure to designate and groom his own successor (in part a consequence of his refusal to pay his people well enough to attract and hold a good potential successor). Then there is that huge quantity of Berkshire-Hathaway cash (about $40 billion) that seems to be creating mischievous desires on Mr. Buffett's part to make big, problematic buys in the energy sector (some of which are inconsistent with the Public Utilities Holding Company Act). The list could be made much longer.
UPDATE: In terms of unexpected international developments and their possible effects on the euro (say), consider the recent actions of the clown troupe posing as the current French government, as detailed here:
A French charm offensive aimed at driving a wedge between Britain and new EU member states ran into early trouble yesterday after bullying from top French ministers.So that's what the French government thinks of as a "charm offensive" in connection with a "crucial summit?" Clearly, emphasis was put on the "offensive" bit. Maybe the French were trying to provoke a re-enactment of the Defenestration of Prague?
Does reading this article make the reader just want to jump up, run to the phone and put in an order to buy and hold euros long term? - just like Mr. Buffett says Berkshire-Hathaway is doing?
The Most Important Export Of The United States II
There has been much speculation over the persistent United States trade deficit and the corresponding relatively high level of the dollar against Asian currencies. In that regard, it is interesting to ask how much a wealthy Chinese person might be willing to pay to escape from this political risk by placing assets in the United States and holding American currency:
BEIJING - Thousands of Chinese rioted in a dispute sparked by a lopsided roadside brawl, set fire to cars and wounded six police officers in an outburst likely to worry communist leaders in Beijing desperate to cling on to power. ....The violence was the latest in a series of protests which the Communist Party, in power since 1949, fears could spin out of control and become a channel for anger over corruption and a growing gap between rich and poor..... The local Chizhou Daily newspaper reported six policemen were injured by stones, news Web site www.sina.com.cn said.I continue to believe that the element of developing third world political risk has been given far too little emphasis in most analyses of the United States trade deficit and the strength of the dollar.
Moreover, the questions raised in this arena lead to the potentially fundamental question: Is there a (possibly subtle and non-standard) form of Japanese political risk that has been, and is being, largely ignored in connection with the persistent Japanese trade surplus with the United States? My guess is that the correct answer is "yes."
Tuesday, June 28, 2005
Grokster II(0) comments
Thomas W. Hazlett, a former chief economist at the FCC now a professor of law and economics at George Mason University and a senior fellow at the Manhattan Institute writes in the Wall Street Journal:
It is interesting that so many of the blogosphere's critics of the Supreme Court's recent, dreadful Kelo decision don the garb of robust protectors of natural property rights, arguing that the rights of a landowner are entitled to great respect (which the Court did not grant). But I also think it is unsightly, to say the least, that when the issue is copyright and other forms of intellectual property, many of the same critics are suddenly blathering elaborate explanations of how intellectual property rights are all about "balancing incentives," a "balancing" in which the creator of the property at issue often becomes - shall we say - a rather small player in the great utilitarian calculus. Of course, there is quite of lot of natural law embedded in intellectual property rights, but those natural rights just don't seem to count for much to the GREAT CONCEPTUALISTS AND VISIONARIES of the blogosphere.
One could easily get the impression that for many of such (what seem to me to be pseudo-libertarian) critics of the Court, it is just nasty, nasty, nasty for governments to take private property for mere public (utilitarian) purposes even for fair compensation. But when it comes to those who facilitate outright thefts of private intellectual property, the whole question is just whether those property owners have to move over and make way for the Creative Commons! One can almost hear such critics gently explain themselves to the Old Believers and intellectual property owners:
Hey, bozo, get the hell out of the way! Can't you see that the future is arriving here? You don't want to abort the revolution, do you? You just don't get it! YOU'RE NOT AN ENEMY OF THE REVOLUTION, ARE YOU!!??A little bit of Dr. Zhivago right here in Silicon Valley! But, hey, who's keeping track?
Last December, the Man Without Qualities suggested:
[The Ninth Circuit] opinion in MGM v. Grokster reflects an appalling fixation of the importance of centralized servers and other centralized features in applying the Supreme Court's 1984 Sony-Betamax decision, the high court's last major decision regarding the scope if copyright protection in connection with electronic copying technology. .... The file-sharing software provided by Grockster and the like is nothing more - and was specifically intended by their creators to be nothing more - than a decentralized, grid computing version of the old, discredited Napster scam. So don't be surprised if the Supreme Court fix takes the form of yet another dismissive, unanimous, per curium reversal of the Ninth Circuit by a high court that can barely conceal its contempt.Well, of course, I was wrong: The Supreme Court decision is not per curium! However, the Supreme Court decision is yet another dismissive, unanimous, reversal of the Ninth Circuit by a high court that can barely conceal its contempt, at least with respect to the issues of whether a "centralized server" much mattered and the importance of intentional inducement to infringe (which the Ninth Circuit had ignored).
But what to make of Justice Breyer's concurrence? Here, Justice Breyer is writing in a case in which only three out of the total of nine Justices can agree to any one of the three competing and inconsistent interpretations of the Sony rule. Yet Justice Breyer writes:
Sony's rule, as I interpret it, has provided entrepreneurs with needed assurance that they will be shielded from copyright liability as they bring valuable new technologies to market. Sony's rule is clear. That clarity allows those who develop new products that are capable of substantial noninfringing uses to know, ex ante, that distribution of their product will not yield massive monetary liability. At the same time, it helps deter them from distributing products that have no other real function than--or that are specifically intended for--copyright infringement, deterrence that the Court's holding today reinforces (by adding a weapon to the copyright holder's legal arsenal).What can he possibly be talking about here? Napster, Grokster and all such enterprises have been created in an environment of gross uncertainty born of Sony - that's why Justice Breyer had to hear this case. Sony has not generally been construed as Justice Breyer interprets it in his concurrence, and those who have chosen to construe the case in that way have not done so with any high degree of certainty. And no other construction of Sony has prevailed, either. The mounds of inconsistent briefs that have been filed with the Court include many different interpretations of the Sony rule.
That means that regardless of what rule ought to apply in Grokster, and regardless of whether Sony should be overturned or construed, Sony definitely has not provided entrepreneurs with needed assurance that they will be shielded from copyright liability as they bring valuable new technologies to market. Justice Breyer may think that if his view were adopted, such needed assurance would follow in the future, but such assurance has definitely not been a feature of the past. Indeed, Sony deliberately withheld the kind of certainty Justice Breyer says it provided, as when Sony refused to (in the words of that case) "give precise content to the question of how much [actual or potential] use is commercially significant."
Perhaps Justice Breyer means that there have been some entrepreneurs who have, with great subjective certainty, given Sony Justice Breyer's meaning and thereby obtained in their own minds "needed assurance that they will be shielded from copyright liability?" - or perhaps he means to refer to entrepreneurs whose products are far afield from software of the type under consideration in this case? In that case his claim would take on a kind of religious tone ("Accept my teachings and achieve necessary assurances and peace of mind!") or collapse into a contentless tautology or into simple irrelevancy. What difference does it make if hardware makers, for example, achieved peace of mind through Sony? (And, if any event, it certainly wasn't the difference between Juestice Breyer's reading of that case and those of Justices Ginsburg and Souter that made the difference.) Was Justice Breyer appointed to the Court to write pseudo-religious pap or contentless tautologies or irrelevancies? Just asking. Of course, it's sad that with this Supreme Court decision any entrepreneurs who had sought necessary assurances by accepting Justice Breyer's construction of Sony have now gone the way of the 29-year-olds seeking renewed life through the fiery ritual of carrousel in Logan's Run.
And then there is the weird way he counts. Even if Justice Breyer's construction of Sony were accepted, the courts would still have to flesh out what "commercially significant" noninfringing use is. And whatever "commercially significant" means it does not mean a percentage of actual uses. For example, suppose 50% of all uses of a particular technology were noninfringing, but the aggregate value of those uses was .0000001% of the value of the total uses. Obviously, the noninfringing uses would not be commercially significant. Yet, Justice Breyer writes:
Grokster passes Sony's test--that is, whether the company's product is capable of substantial or commercially significant noninfringing uses. ... [S]ome number of files near 10% ... apparently are noninfringing, a figure very similar to the 9% or so of authorized time-shifting uses of the VCR that the Court faced in Sony.But does Justice Breyer actually believe that the commercial value of all Grokster downloads of free electronic books, public domain and authorized software, licensed music videos and the like are now anything like 10% of value of the total, including all of the pirated songs and videos that are the actual targets of Grokster users (and, I believe, Grokster)? I don't know which is more frightening: That a Supreme Court Justice could actually believe that, or that he doesn't believe it - but wrote this concurrence anyway.
POSTSCRIPT: The New York Times reports:
Gigi B. Sohn, the director of Public Knowledge, a public interest advocacy group focusing on intellectual property, said there was cause for optimism because the court "reaffirmed the core position of the Sony Betamax case ..."Is Ms. Sohn correct? Of course not. Only three Justices signed Justice Breyer's concurrence, which was the only Grokster opinion that asserted that Sony does not need to be "revisited" - that is, overturned. Six Justices signed opinions saying that there is no need now to revisit Sony. In other words, those six Justices may well want to revisit Sony in the near future.
My guess is that the Court will seriously revise Sony in the near future. In particular, the basic Sony standard is just wrong in the software arena. That standard is adopted (but not very well adapted) from the patent law doctrine that allows "imputed intent infringement" actions against a technology purveyor if the only use for the technology is to facilitate infringement.
In my opinion, copyright law will have to adopt (either by court or Congressional action) a broader doctrine that allows copyright actions against those who market technologies which would not be commercially viable but for infringing uses to which the technology is put by third party customers of the technology owner. In other words, under the rule I propose, BitTorrent's owners would be liable for contributory infringement if BitTorrent would not be commercially viable but for the infringing uses to which it is put even if the noninfringing uses are "commercially substantial." There is no good reason why a technology should be allowed to facilitate copyright infringement if the legitimate uses of that technology are not sufficient to make its distribution commercially viable - even if some substantial legitimate use for the technology exists.
To see this, just consider the example of a hypothetical Microsoft software development effort that would cost, say,$100 million. Suppose Microsoft knows that there will be substantial noninfringing uses for the proposed software but that such legitimate uses will bring only $50 million to Microsoft, with infringing uses bringing $1 billion. Under the Sony rule (especially as misconceived by Justice Breyer, but also in its proper form), absent actual intent to facilitate infringement, Microsoft would not be liable for developing and distributing its proposed product - even though Microsoft knows that its product can only be economically justified by the thefts to which it is to be put. Can any reasonable person (never mind pseudo-visionaries like Professor Lessig) think that copyright law is going to tolerate such a thing on a continuing, major, corporate scale? Of course not. But already major players - like Goldman Sachs - have been nosing around Napster and its cousins. Some of them seem to be looking for the US intellectual property rights equivalent of the post-Soviet breakdown kleptocratic property rights free-for-all that occurred in Boris Yeltsin's Russia.
What about patent law? Why doesn't patent law have such a broader doctrine? Probably because it's a lot harder and unpredictable to create technology that would not be commercially viable but for patent infringing uses than it is to create cheesy, cheap (or at least cost-predictable) Grokster and BitTorrent type programs whose economic justification is copyright infringement (that is, theft). But if it became possible to do such things with patents, and there was a sufficient body of existing patented wealth to steal to economically justify such efforts, then patent law would adjust, too. And with the recent huge expansion in the scope of patent law, don't be surprised if such a change is soon effected.
What about other areas of law, like guns? Guns - even handguns - have many obvious legitimate uses, including self protection and protection of one's family and property - and the maintenance of a well-regulated militia. The gun trade would exist and be quite viable without any criminal uses of guns at all. If that were not the case, and the entire gun trade depended for its viability on prohibited use of guns, the law of gun liability would be very different than it is now. A proper interpretation of the Second Amendment makes it all but impossible for the legitimate gun trade to become non-viable.
And I do not think the scope of contributory copyright expansion will or should stop with my proposed revision of Sony, either.
On a separate note: It's ironic that the supporters of file sharing technology repeatedly resort to criticisms of studios, music companies and other big commercial copyright owners for bringing multiple law suits against 20 year old down loaders - since the down loaders are essentially the only players in file sharing that file sharing enthusiasts would allow copyright owners to sue. Copyright owners would be much happier suing (and shutting down) a few, centralized copyright-infringement-facilitators like Grokster than an amorphous hoard of students. The new Supreme Court decision will now allow the big copyright owners to do just that, which will likely lead to fewer expensive, not-very-effective suits against students.
Responding to the earlier post And The Number One Cancer Myth Is ... , an astute reader e-mails:
[O]ne proposed mechanism for the “paradoxical” finding of accelerated post-surgery metastasis is the release of angiostatic signals by the primary tumor. It’s no surprise that Folkman would be involved in this area, but you may be interested to learn that one Gianni Bonadonna, one of the great innovators of chemotherapy treatment, has also long endorsed this hypothesis. A recent paper (coauthored with Folkman) is cited below.
Hypothesis: Induced angiogenesis after surgery in premenopausal node-positive breast cancer patients is a major underlying reason why adjuvant chemotherapy works particularly well for those patients.
Retsky M, Bonadonna G, Demicheli R, Folkman J, Hrushesky W, Valagussa P.
Flicking Thetans II
Matt Drudge runs a transcript of a Cruise/Lauer wrangle regarding Mr. Cruise's comments on Brooke Shield's recourse to psychiatry and anti-depressants following the birth of her child:
MATT LAUER: So, postpartum depression to you is .... googley-gook? ....Now, this is a dust-up over Scientology and its beliefs - so Mr. Cruise's reference to the various things that can be done to relieve depression is intended by him to include the Scientology practice of flicking off those nasty body Thetans that are causing the depression by distracting the new mother from her natural understanding that she should be happy. It's Mr. Cruise who's push Scientology here:
Cruise, who zealously preaches the Church of Scientology's hatred of all mind-altering drugs, tells [Billy] Bush: "Here is a woman, and I care about Brooke Shields because I think she is an incredibly talented woman. You look at, where has her career gone?" .... She's currently starring in the London production of "Chicago." .... "These drugs are dangerous. I have actually helped people come off," Cruise maintains to Bush. "When you talk about postpartum, you can take people today, women, and what you do is you use vitamins. There is a hormonal thing that is going on, scientifically, you can prove that. But when you talk about emotional, chemical imbalances in people, there is no science behind that. You can use vitamins to help a woman through those things."And he has apparently caused Shields some real pain:
"Tom Cruise's comments are irresponsible and dangerous," Shields said in London last week. "Tom should stick to saving the world from aliens and let women who are experiencing postpartum depression decide what treatment options are best for them." Shields recently published Down Came the Rain, a personal chronicle of her struggle with depression following the 2003 birth of her daughter, Rowan.So why is it that Mr. Lauer can't bring himself to ask the very aggressive and opinionated Mr. Cruise about the alien Thetans? Suppose Mr. Lauer had been interviewing, say, a serious Christian politician who was publicly criticising some movie starlet for having an abortion on the grounds that all it does is mask the problem. I'm saying that abortion isn't the answer, that procedure is are very dangerous. And there are ways of doing it without that so that we don't end up in a brave new world. Or suppose Mr. Lauer had been interviewing an Orthodox Jewish or Muslim guest who maintained that all mosques or synagogues, respectively, in Jerusalem must be torn down as a matter of keeping "faith." Does anyone doubt that Mr. Lauer would then proceed to ask his guest exactly what aspect of "faith" he was talking about? Of course Mr. Lauer would do that!
In this case, Mr. Cruise is even appearing on the Lauer show exactly to pump a movie about an alien invasion - and he is pushing his "faith" in that connection. So why not ask about the alien body Thetans, how they cause postnatal depression, and what "practical approaches" Scientology has to get rid of the nasty little buggers?
An earlier version of this post included some insufficiently bracketed references to this parody site (which I think is hilarious). I apologise for any confusion.
Monday, June 27, 2005
... accepted as a well known fact among cancer surgeons and leading cancer researchers at Harvard Medical School?
I haven't read through the original paper, but Reuters reports:
When US adults were polled about certain erroneous cancer 'myths', the most widely believed misconception was that surgical removal of a cancer can cause it to spread throughout the body. .... The new findings, which appear in the medical journal Cancer, come from a telephone survey of 957 randomly selected adults who reported never having been diagnosed with cancer. Forty-one percent of subjects believed that surgery could, in fact, spread a malignancy to other regions of the body, lead author Dr. Ted Gansler, from the American Cancer Society in Atlanta, and colleagues note.
And that deranged 41% apparently includes Judah Folkman, one of the country's leading cancer researchers, and, if Dr. Folkman is correct, most cancer surgeons. In his 2003 paper Fundamental Concepts of the Angiogenic Process, Dr. Folkman, who works at Boston's Children's Hospital and Harvard Medical School, wrote this:
It is well known among surgeons that removal of certain primary tumors may lead to rapid growth of secondary metastases, reviewed in [O'Reilly, M.S., Holmgren, L., Shing, Y., Chen, C., Rosenthal, R.A., Moses, M., Lane, W.S., Cao, Y., Sage, E.H. and Folkman, J. (1994) Cell 79, 315-328.].Well, that's how some medical "myths" get around so fast and wide. The leading faculty at Harvard Medical School is spreading them in leading medical journals!
UPDATE: I have now read through the original paper, and the most relevant paragraph appears to be this (omitting footnotes):
The most common misconception in our study was the third statement (Treating cancer with surgery can cause it to spread throughout the body). Only 46% of respondents recognized this statement as incorrect. Surgery is a highly effective treatment for localized cancer and an important part of multimodal therapy for many advanced-stage cancers. Approximately 75% of patients with cancer undergo a major surgical procedure as a part of their treatment, and nearly all have undergone a biopsy before definitive surgical, medical, or radiation therapy. Certain surgical procedures have been shown to increase the risk of local spread of some cancers, such as ovarian and testicular cancers. However, surgical oncologists are aware of these issues and plan surgical therapy of these diseases to minimize this risk. A probable origin of this misconception is that until the past several decades, most cancers were detected at an advanced stage when prognosis was very unfavorable. Without modern imaging techniques, patients often underwent exploratory surgery, after which their poor outcomes were attributed to the surgery rather than to the advanced stage disease at the time of diagnosis. The consequence of this misconception is that patients who believe this may forego or delay surgery that might improve the length and/or quality of their lives.What is perhaps most curious about this discussion is its lack of any reference to Dr. Folkman's claim that it is "well known among surgeons that removal of certain primary tumors may lead to rapid growth of secondary metastases." Yet Dr. Folkman's claim is pretty close to the survey's formulation of the first erroneous cancer "myth," and very close in layman's terms. Nor in the survey's analysis is there any discussion of Dr. Folkman's suggestion that angiogenic processes may explain this "well known fact" or "most common myth" - the choice of phrasing apparently depending on what top refereed medical journal one happens to be reading.
And the "first myth" keeps spreading! Dr. Folkman isn't the only one writing about such matters, as in this US government paper:
A growing body of clinical data links the degree of angiogenesis in the primary tumor to the risk of developing metastatic disease, and more importantly to duration of disease-free and overall survival.Darn those cancer myths!
Sunday, June 26, 2005
One of the odder features of many articles dealing with "legendary" investor Warren Buffett is that they come with charts showing the undeniably impressive rise of Berkshire-Hathaway stock since 1965 or so.
But many current investors weren't even alive in 1965, and most current investors surely weren't investing heavily then. Articles on the "legendary" Roman Trajan complete with maps showing how he expanded his empire would be about as relevant. Worse, unlike Trajan, Mr. Buffett is still active, so focusing investors on his antique performance days is seriously misleading. Suppose one compares Berkshire-Hathaway's performance with that of an even larger investment behemoth, like, say, Citigroup (market capitalization $249,354.09 million as of June 1, 2005), and since, say, 1990?
Somehow Mr. Buffett doesn't look so legendary in that comparison, does he?
In the mean time, there's Mr. Buffett's curious inattention to the fact that an investment horizon of five years is a very considerable portion of the remaining life expectancy of a man of his now very advanced age (although he makes folksy references to his age, essentially to distract from it), as well as his long term approach to the currency markets, as if they were like the American equities markets. But currency markets are not like the equities markets, and reports like this June 20 item should be troubling Buffett watchers everywhere:
Warren Buffett ... still believes the swelling U.S. trade deficit will cause the U.S. dollar to decline over the long term.In other words, Berkshire-Hathaway is expecting to report a huge currency-trading quarterly loss (which has been noted here in the past) and Mr. Buffett is trying to groom the market by arguing that investors should not be paying attention to such short-term performance problems because his emphasis is on the long term decline of the dollar. Mr. Buffett has posed as a "value investor" for many years. Now he is up to his eyeballs in currency speculation trying to disguise it as long term investing. But currency speculation is not value investing, not even close. It's a field abandoned by the likes of the Quantum Fund on the grounds that it is just too risky and unstable. For example, a long term bet against the dollar in favor of the euro includes (among a whole lot more) confidence that the euro will survive in the long term. Perhaps it will, although more people have more doubts than a month ago. But does any sensible person think that Mr. Buffett has any particular insight into whether the political situation in Europe will allow the euro to continue to exist - or even allow the EU to continue to exist as we know it? More disturbingly, does Warren Buffett think he has any such insight? And, if he doesn't think that, what the heck is he doing betting "long term" against the dollar in favor of the euro? Can it really be that the man pretending to be Warren Buffett is really George Soros in disguise and on steroids?
The Soros/Buffett confusion is not the only example of Mr. Buffett's bilocating. On the one hand, he assured his investors that he, personally, was deeply involved in General Re's restructuring - including every major contract General Re wrote - and that he is a champion of good corporate management and controls! But when it came to light that General Re and much of its senior management had been heavily involved in facilitating insurance regulatory frauds and insurance company failures from Virginia to Australia, suddenly Mr. Buffett was "revealed" as only having been "generally informed" of the relevant fraudulent relationships, and unaware of their gross improprieties.
Sure, Mr. Buffett. And you can be in Omaha and Laguna Beach at the same time, too.
Berkshire-Hathaway and its stock price enjoy what one might call a "legendary performer" edge, an edge that I believe is completely unwarranted on the basis of recent company performance and the personal performance of its management - especially including Messrs. Buffett and Munger. The reasons for that "legend" to be debunked by hard facts are coming faster and more furiously every day. If anything, the price of the company's stock is much more precarious than the price of the dollar against the euro, in my opinion.
Glenn Hubbard writes at length in the Wall Street Journal about his belief that a big reason American interest rates are low is that Asians are investing in the United States because the weakness of Asian financial systems suppresses Asian ability to absorb and use their own savings. This article has a lot to recommend it, but I have a few observations:
The Man Without Qualities has some experience dealing with wealthy, third-world foreigners investing big sums in the United States. But Professor Hubbard (who is a very bright man) makes one wonder if he has had such experience. One striking aspect of such third-world investors is often their comparative insensitivity to expected rate of return from their United States investments. In this respect wealthy third world investors in America are often far different than, say, British, French or Australian investors. Third world investors - such as middle eastern oil interests and Chinese exporters - are different because third world investors are often mostly buying political security with the American investments - not because of any perceived differential in return or a weakness in their domestic financial systems. Contrary to what Mr. Hubbard suggests, the Chinese economy - for example - is growing fast enough, has sufficient capital needs and promises high enough returns to absorb every bit of Chinese savings. Indeed, China is absorbing vast quantities of foreign investment right now - which could in theory be displaced by Chinese domestic investment. Wealthy Chinese people won't do that because they want a good part of their assets separated from Chinese political risk. Professor Hubbard's suggestion that the scale of Chinese overseas investment is somehow largely a mere side effect of Chinese government policy seems naive. Yes, Chinese government economic policy is consistent with Chinese investment actions - but Chinese government economic policy is broadly consistent with the needs, desires and actions of wealthy Chinese people.
By way of example: Many a billionaire family keeps essentially every asset in the United States (consider billionaire American real estate or technology investors, for example). But no wealthy Chinese family would keep all of its assets in that country. It is curious that some economists - such as Paul Krugman - focus excessively on American political risks (the possibility that the United States might deliberately inflate it currency to address its debts, for example, seems to prey on his gnomishly handsome mind), but pay essentially no attention to the vastly more significant Chinese and developing third world political risk as a reason for the American trade deficit.
In my opinion, political risk matters a lot more than most commentators have been allowing, at least before the risk condenses into something obvious and immediate. Consider the effect of the recent dollop of political risk on the euro, a risk essentially ignored until a few weeks before the French referendum - although the structural issues now identified as the causes of the French rejection have long been present. In fact, it is possible that many wealthy third world investors would be willing to accept negative returns on their American investments for a very long time. Which, of course, would mean that American interest rates could stay low or even become negative during that period - even if (especially if) the United States runs a gigantic trade deficit and the dollar "should," by some schools of rational economics applied absent adequate political risk considerations, fall radically.
Normally, nominal interest rates cannot be negative. But that normal argument rests on the assumption that negative nominal interest rates would cause investors to substitute currency for interest-bearing assets, and that the demand for currency would be perfectly elastic at zero nominal interest rates. However, in the presence of transaction costs, investors might be prepared to hold cash even at negative interest rates. For example, Swiss nominal money market rates briefly fell below zero in 1979. Suppose political risk for wealthy people in Asia rose and such people decided (for whatever reasons) to hold a good deal of currency. What currency could they hold and where would they hold it? Obviously, currency could not be held domestically in the third world country - that's what the political risk is all about. So it has to go overseas in some form. That means the overseas jurisdiction is providing a service - political insurance, if you will - for which wealthy, third world people will pay for if necessary. That "payment" could, in my view, take the form of negative nominal interest rates (and equity returns) for as long as the political risk lasts at a sufficiently high level.
How long could that be? That is difficult to predict, but one might start by considering how long it would take to fix the sources of the potential Chinese (for example) political instability, even assuming anyone wanted to do so and was in a position to do so. It is no secret that a huge economic class disparity has opened up in China, and with it the potential for truly gigantic political repercussions. While there is much free market activity in China, there is also a huge amount of cronyism and corruption connected with the recent and rather concentrated growth of wealth in that country. Development seems to be taking place without much regard to economic externalities, including pollution. There is no democratic political system. Indeed, the country is still nominally Communist - and the legacy of the hard Communist era is not fully past or repudiated in all quarters. There is no deep, stable or reliable property rights system or broadly meritocratic educational system. The courts are unreliable. Nor does China possess any deep, liquid, transparent national securities system or a sensible bankruptcy code. In general, China seems to lack a great many of the features that relieve political stress in other countries. But each of these factors appears to be, if anything, worsening yearly - although the main countervailing factor, Chinese prosperity, is increasing (although a significant positive factor, memories of the insanities of the hard Communist era, are receding). How much weight each of these factors should be given in China, and how much weight wealthy Chinese people actually put on any of them in evaluating Chinese political risk to their fortunes, is hard to tell. But one need only spend some time east of Los Angeles in the San Gabriel Valley, for example, where billions of dollars of Chinese money is being deployed - and thousands of young Chinese children of wealthy Chinese families are being Americanized - to get some feeling that the Chinese, at least, are willing to pay quite a lot for what may be America's most important export service: political and property security. What would the Constitutional framers think of that?
Japan, of course, is another story. Professor Hubbard's list of Asian countries with "weak" financial systems includes Japan. The political and development gaps between Japan and China may give some idea of how long the Asian low-interest rate effect may last. Japan is far in advance of China on all fronts, both political and economic (although it is my belief that the Chinese are "more natural" capitalists, and that may make a big difference eventually). It will likely take China quite a while to "catch up." But, as Professor Hubbard notes, Japan is still locked into a system that subsidizes American interest rates and prosperity. That may suggest that China will be doing the same for a very, very long time - much longer than most current commentators are now suggesting. Japan still has a thin bond market and impacted, politicized banking system. Japanese is a very clever, rich, democratic country, whose leaders (I absolutely guaranty) fully understand the nature of their domestic financial system, how it is "weak," and how it could be changed. Indeed, even if they did not originally have that understanding, they have it now as the result of many years of American hectoring. Why don't the Japanese "strengthen" their financial system? That's a difficult question - but the fact that the Japanese system remains so "weak" suggests that China may have a tough time "strengthening" it's system any time soon.
UPDATE: A perceptive reader e-mails:
The comments you make about China are, for somewhat different reasons equally applicable to Latin America, which is why Miami is often referred to as "the financial capital of Latin America". The amount of Latiin American AUMs (assets under management), almost all of which are dollar denominated and all of which are held outside of Latin America, managed by Miami based private bankers/broker-dealers must be several hundred billion dollars. And of course a lot of the really big Latin American money goes to New York, not Miami