Life takes us in many strange directions and wonderful discoveries. It never turns out the way we thought it would.
Monday, May 31, 2010
Mocambique's Magical Beaches
Mozambique’s empty beaches
By Sally Raikes
Published: May 29 2010 00:25 | Last updated: May 29 2010 00:25
The beach at Tofo on the Indian Ocean, Mozambique
Whatever World Cup surprises await fans in Johannesburg next month, one thing may catch tourists unawares: the temperature. Flying in to a draughty airport and drizzle a few weeks ago, it was hard to believe that our onward destination – Maputo, less than an hour’s flight east – could be much warmer.
But the capital of Mozambique has tropical sunshine, and plenty more besides, to tempt travellers to extend their holiday after the World Cup. The city centre, where modern high-rise office blocks stand alongside elegant 1920s buildings with wrought-iron balconies, has an almost cosmopolitan feel. A bag of Portuguese pastéis de nata (cinnamon-dusted custard tarts), from the Café Continental is a reminder of Maputo’s colonial years; its airy railway station (built in 1910 by Gustave Eiffel – he of the Eiffel Tower) – is another mark of that bygone era. Today, the trains leaving the station are slow and far between; road links (some better than others) are the main way to reach the north of the country.
It is also worth spending an evening at the Costa do Sol to see Maputo’s expatriate scene in full swing. The veranda of this beachside hotel and restaurant – reminiscent of a scene from a Gabriel García Márquez novel – overflows with NGO workers and engineers exchanging gossip over cocktails and plates of giant prawns. The art deco-style rooms upstairs have seen better days but are still a welcome retreat after one too many caipirinhas.
There are convenient and direct flights from Maputo to Mozambique’s islands, such as the five that make up the Bazaruto archipelago in the south, but if you don’t mind a day spent bumping along the dusty EN1 national highway and swerving to avoid potholes, exploring by car is an experience not to be forgotten – even if you travel a mere fraction of the country as a result. Part-Tarmac, part red earth, the road is a constant work-in-progress, much of it financed by the Chinese government, who are backing a variety of infrastructure projects in Mozambique (including the construction of a national football stadium on the outskirts of Maputo). Tree branches used as traffic cones alert drivers to the sections under construction, but just as hazardous are the overloaded trucks that thunder by and stop for no one, and by night the cars missing a headlight (or two).
Roadside hawkers sell cashew nuts, passion fruit, bottles of “peri peri” chilli sauce, fiery enough to singe your lips on first impact and avocados the size of small footballs (the latter two were excellent on oatcakes brought from Britain). And beyond the sugar cane plantations and coconut palms is a sight to soothe the senses: the sea, intermittently visible on the right as you inch further north. With 2,500km of coastline, Mozambique is renowned for its huge, empty sandy beaches, their development impeded by 17 years of bloody civil war following independence from Portugal in 1975.
Beyond Xai-Xai, 200km north of Maputo, a chorus of chirping frogs accompanies us as we drive our 4x4 through thick overgrowth along a 10km-long sand road to Nascer do Sol, a collection of thatched wooden chalets set among sand dunes. Apart from the occasional fisherman, the beach is deserted; fierce surf washes away the grime of a four-hour drive and the lodge’s restaurant, which has plentiful supplies of grilled fish and gin and tonic, has a further restorative effect.
Inaccessibility makes Nascer a place for the quietest of beach holidays: the chalets have no television or mobile phone coverage, there are no bars and, with the exception of fishing and whale watching, limited watersports. Our first day’s entertainment consists of watching the sun rise and set, and a chance encounter with a monkey on the veranda.
A livelier beach scene can be found a few hours’ drive further north, at Barra and Tofo. These adjacent destinations sit on a peninsula about 20km from the town of Inhambane – itself worth a look for its lively market and wide, tree-lined avenues. With soft white sand that squeaks underfoot and a calmer, more emerald sea, it is obvious why these villages have grown. Travellers who visited a decade ago reminisce about having it all to themselves; today builders are busy constructing accommodation for the influx of holidaymakers who arrive at Christmas and New Year. At this time of year, however, most of the lodges are empty, and in Barra, where we are staying at Makolo Bay, a series of newly finished and spotless lodges, we are prime targets for a stream of young vendors selling fruit, bread and “fishy prawns” (fresh, but sold by weight and often bulked out with blocks of ice, so be prepared to weigh your own measures).
Charter a boat and you can catch your own supper to braai (barbecue) in the evening. There is decent, though not spectacular, snorkelling and picnic trips to Pansy Island, a large sandbank with an abundance of fragile “pansy shells” – etched with a natural flower print and bleached white by the sun.
While Barra is more spread out, Tofo has a focal point with a market, restaurants and bars (at Dino’s Beach Bar, the cocktails come in giant jam jars and the “Bloody Mozzies” – bloody Marys – are alcoholic enough to numb any “mozzie” bites). If, after one of these, you are still standing, the candle-lit Casa de Comer has good French-Mozambican food, albeit with slow service.
Rushed waiters, however, would not suit Tofo or Barra. Such is the relaxed pace on the peninsula that many travellers apparently arrive intending to stay a few days, and leave weeks later. This is not an option in our case, but as we begin the bumpy return journey to Maputo, it occurs to me that we are lucky to have seen Mozambique’s beaches so quiet and pristine. Once the upgrade of the main highway is complete, with Tarmac paving the way for regular tour buses, its spectacular coastline will be accessible to many, many more.
........................................
Details
Costa do Sol Hotel, Maputo, double rooms from R300 (£27) per night, tel: +258 214 50038, www.mozcon.com/costadosol
Nascer do Sol, from MZN3,365 (£68) per night for a two-person lodge, tel: +258 282 64500, www.nascer.co.za
Makolo Bay, Barra, rooms from R200 (£18) per night, tel: +2735 550 0592, www.makolobay.co.za
........................................
After the big game – big game
Swaziland
Sandwiched between Mozambique and South Africa, this landlocked country – roughly the size of Wales – is worth a visit for its spectacular mountain scenery. Near its capital Mbabane, a four-hour drive east of Johannesburg, is Sibebe Rock, locally claimed to be the largest granite rock in the world. It’s a steep climb but there are caves and pools in which to cool off en route. The Milwane Wildlife Sanctuary (www.biggameparks.org), the largest national park in Swaziland, offers guided walks, safaris and cycling.
Swaziland’s roads are tarred and in good condition, making possible a tour of its excellent handicraft shops in the Malkerns and Elzuwini valleys, both within easy reach of Mbabane. Coral Stephens (www.coralstephens.com) sells mohair and cotton throws; glass-blowing can be seen at Ngwenya Glass (www.ngwenyaglass.co.sz), and there is also a workshop at Swazi Candles (www.swazicandles.com), which produces candles that burn to create hollow lanterns. Not far from here is House on Fire (www.house-on-fire.com), an arts venue with theatre, live music, poetry, dance and film, much of it shown in an 800-seat amphitheatre.
Kruger National Park
Kruger National Park
Over three days in Kruger, one of the biggest game reserves in the whole of Africa (www.krugerpark.co.za), we saw countless elephants, giraffes and hippos, and four out of the Big Five (only the leopard proved elusive). Other visitors may be less fortunate but patience (drive slowly and stop often), strategically timed safaris (sunrise and sunset) and binoculars will aid your chances. A guided night drive (160 rand, or £14) is a chance to star-gaze and listen to the nocturnal sounds of the park.
There are 13 rest camps in Kruger, with well-equipped shops and facilities ranging from swimming pools to open-air film screenings and a small airport. The daily conservation fee at Kruger is 160 rand for foreigners and a night’s accommodation in a two-person cabin at a rest camp typically costs 315 rand (£28). Southern Kruger is about three hours’ drive from Maputo, or six hours from Johannesburg.
By Sally Raikes
Published: May 29 2010 00:25 | Last updated: May 29 2010 00:25
The beach at Tofo on the Indian Ocean, Mozambique
Whatever World Cup surprises await fans in Johannesburg next month, one thing may catch tourists unawares: the temperature. Flying in to a draughty airport and drizzle a few weeks ago, it was hard to believe that our onward destination – Maputo, less than an hour’s flight east – could be much warmer.
But the capital of Mozambique has tropical sunshine, and plenty more besides, to tempt travellers to extend their holiday after the World Cup. The city centre, where modern high-rise office blocks stand alongside elegant 1920s buildings with wrought-iron balconies, has an almost cosmopolitan feel. A bag of Portuguese pastéis de nata (cinnamon-dusted custard tarts), from the Café Continental is a reminder of Maputo’s colonial years; its airy railway station (built in 1910 by Gustave Eiffel – he of the Eiffel Tower) – is another mark of that bygone era. Today, the trains leaving the station are slow and far between; road links (some better than others) are the main way to reach the north of the country.
It is also worth spending an evening at the Costa do Sol to see Maputo’s expatriate scene in full swing. The veranda of this beachside hotel and restaurant – reminiscent of a scene from a Gabriel García Márquez novel – overflows with NGO workers and engineers exchanging gossip over cocktails and plates of giant prawns. The art deco-style rooms upstairs have seen better days but are still a welcome retreat after one too many caipirinhas.
There are convenient and direct flights from Maputo to Mozambique’s islands, such as the five that make up the Bazaruto archipelago in the south, but if you don’t mind a day spent bumping along the dusty EN1 national highway and swerving to avoid potholes, exploring by car is an experience not to be forgotten – even if you travel a mere fraction of the country as a result. Part-Tarmac, part red earth, the road is a constant work-in-progress, much of it financed by the Chinese government, who are backing a variety of infrastructure projects in Mozambique (including the construction of a national football stadium on the outskirts of Maputo). Tree branches used as traffic cones alert drivers to the sections under construction, but just as hazardous are the overloaded trucks that thunder by and stop for no one, and by night the cars missing a headlight (or two).
Roadside hawkers sell cashew nuts, passion fruit, bottles of “peri peri” chilli sauce, fiery enough to singe your lips on first impact and avocados the size of small footballs (the latter two were excellent on oatcakes brought from Britain). And beyond the sugar cane plantations and coconut palms is a sight to soothe the senses: the sea, intermittently visible on the right as you inch further north. With 2,500km of coastline, Mozambique is renowned for its huge, empty sandy beaches, their development impeded by 17 years of bloody civil war following independence from Portugal in 1975.
Beyond Xai-Xai, 200km north of Maputo, a chorus of chirping frogs accompanies us as we drive our 4x4 through thick overgrowth along a 10km-long sand road to Nascer do Sol, a collection of thatched wooden chalets set among sand dunes. Apart from the occasional fisherman, the beach is deserted; fierce surf washes away the grime of a four-hour drive and the lodge’s restaurant, which has plentiful supplies of grilled fish and gin and tonic, has a further restorative effect.
Inaccessibility makes Nascer a place for the quietest of beach holidays: the chalets have no television or mobile phone coverage, there are no bars and, with the exception of fishing and whale watching, limited watersports. Our first day’s entertainment consists of watching the sun rise and set, and a chance encounter with a monkey on the veranda.
A livelier beach scene can be found a few hours’ drive further north, at Barra and Tofo. These adjacent destinations sit on a peninsula about 20km from the town of Inhambane – itself worth a look for its lively market and wide, tree-lined avenues. With soft white sand that squeaks underfoot and a calmer, more emerald sea, it is obvious why these villages have grown. Travellers who visited a decade ago reminisce about having it all to themselves; today builders are busy constructing accommodation for the influx of holidaymakers who arrive at Christmas and New Year. At this time of year, however, most of the lodges are empty, and in Barra, where we are staying at Makolo Bay, a series of newly finished and spotless lodges, we are prime targets for a stream of young vendors selling fruit, bread and “fishy prawns” (fresh, but sold by weight and often bulked out with blocks of ice, so be prepared to weigh your own measures).
Charter a boat and you can catch your own supper to braai (barbecue) in the evening. There is decent, though not spectacular, snorkelling and picnic trips to Pansy Island, a large sandbank with an abundance of fragile “pansy shells” – etched with a natural flower print and bleached white by the sun.
While Barra is more spread out, Tofo has a focal point with a market, restaurants and bars (at Dino’s Beach Bar, the cocktails come in giant jam jars and the “Bloody Mozzies” – bloody Marys – are alcoholic enough to numb any “mozzie” bites). If, after one of these, you are still standing, the candle-lit Casa de Comer has good French-Mozambican food, albeit with slow service.
Rushed waiters, however, would not suit Tofo or Barra. Such is the relaxed pace on the peninsula that many travellers apparently arrive intending to stay a few days, and leave weeks later. This is not an option in our case, but as we begin the bumpy return journey to Maputo, it occurs to me that we are lucky to have seen Mozambique’s beaches so quiet and pristine. Once the upgrade of the main highway is complete, with Tarmac paving the way for regular tour buses, its spectacular coastline will be accessible to many, many more.
........................................
Details
Costa do Sol Hotel, Maputo, double rooms from R300 (£27) per night, tel: +258 214 50038, www.mozcon.com/costadosol
Nascer do Sol, from MZN3,365 (£68) per night for a two-person lodge, tel: +258 282 64500, www.nascer.co.za
Makolo Bay, Barra, rooms from R200 (£18) per night, tel: +2735 550 0592, www.makolobay.co.za
........................................
After the big game – big game
Swaziland
Sandwiched between Mozambique and South Africa, this landlocked country – roughly the size of Wales – is worth a visit for its spectacular mountain scenery. Near its capital Mbabane, a four-hour drive east of Johannesburg, is Sibebe Rock, locally claimed to be the largest granite rock in the world. It’s a steep climb but there are caves and pools in which to cool off en route. The Milwane Wildlife Sanctuary (www.biggameparks.org), the largest national park in Swaziland, offers guided walks, safaris and cycling.
Swaziland’s roads are tarred and in good condition, making possible a tour of its excellent handicraft shops in the Malkerns and Elzuwini valleys, both within easy reach of Mbabane. Coral Stephens (www.coralstephens.com) sells mohair and cotton throws; glass-blowing can be seen at Ngwenya Glass (www.ngwenyaglass.co.sz), and there is also a workshop at Swazi Candles (www.swazicandles.com), which produces candles that burn to create hollow lanterns. Not far from here is House on Fire (www.house-on-fire.com), an arts venue with theatre, live music, poetry, dance and film, much of it shown in an 800-seat amphitheatre.
Kruger National Park
Kruger National Park
Over three days in Kruger, one of the biggest game reserves in the whole of Africa (www.krugerpark.co.za), we saw countless elephants, giraffes and hippos, and four out of the Big Five (only the leopard proved elusive). Other visitors may be less fortunate but patience (drive slowly and stop often), strategically timed safaris (sunrise and sunset) and binoculars will aid your chances. A guided night drive (160 rand, or £14) is a chance to star-gaze and listen to the nocturnal sounds of the park.
There are 13 rest camps in Kruger, with well-equipped shops and facilities ranging from swimming pools to open-air film screenings and a small airport. The daily conservation fee at Kruger is 160 rand for foreigners and a night’s accommodation in a two-person cabin at a rest camp typically costs 315 rand (£28). Southern Kruger is about three hours’ drive from Maputo, or six hours from Johannesburg.
Sunday, May 30, 2010
Italian Women Are The Most Beautiful In The World; I know! I Married One!
http://letterdash.com/Tatamkulu/italian-women-are-the-most-beautiful-in-the-world-i-know-i-married-one
From Californian's DNA; A Giant Genome Project
From Californians’ DNA, a Giant Genome Project
Peter DaSilva for The New York Times
Sheryl Connell, a lab coordinator for Kaiser Permanente in Oakland, scanned bar codes last week on vials for saliva samples.
By SABIN RUSSELL
Published: May 28, 2010
Still in fine fettle at the age of 87, Ruth Young, a retired Oakland school nurse, jumped at the chance, she said, to “spit for the cause.”
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Peter DaSilva for The New York Times
Samples have been donated by thousands of Kaiser members.
Mrs. Young is one of more than 130,000 members of Kaiser Permanente in Northern California who have volunteered to have their DNA scanned by robotic, high-speed gene-reading machines as part of the largest human genome study of its kind ever attempted.
The goal of the study they are participating in is to help scientists uncover the genetic roots of chronic disease and, perhaps, to find out why some people live longer than others.
This month, researchers at Kaiser Permanente in Oakland and the University of California, San Francisco began the highly automated, large-scale process of analyzing that DNA, which is being extracted from tens of thousands of saliva samples donated by Kaiser members in Northern California since 2008.
Each sample of ordinary spit is laden with cells containing the volunteer’s entire set of genes, their genomes, which carry in sequences of DNA the coded instructions for building and maintaining life. The hope for this so-called genome-wide association study is that, when the genes of people with diseases like cancer and multiple sclerosis are compared with the genes of those in good health, computer analysis will pinpoint genes responsible for the illnesses.
With a speed that would have seemed preposterous to contemplate a decade ago, the work of collecting, purifying and digitizing billions of discrete bits of chemical information will be finished in less than 18 months, providing a rich resource for scientists to analyze for decades to come.
Winifred K. Rossi, who is managing the project for the National Institute on Aging, said most genome-wide association studies scan between 5,000 and 8,000 participants, although data from multiple, smaller studies can be pooled to form a larger group. What makes the Kaiser study unique is that members of a single, colossal cohort will have their genomes scanned uniformly, then paired with their medical histories. “It is absolutely the largest study of its kind, and it has enormous statistical power.” Ms. Rossi said.
Mrs. Young, a Kaiser member for 63 years, suffers from arthritic knees and Type II diabetes, which took her father’s life at an early age. “I’m conscientious about my diet, but I do love sweets,” she said.
She had originally been one of nearly two million patients asked in 2007 about participating in the Kaiser study. A huge group of volunteers, ranging in age from 18 to 107, filled out questionnaires. Tens of thousands of them, like Mrs. Young, were asked for specimens.
Following instructions found in a kit mailed to her Oakland home, Mrs. Young deposited the requested spit into a special plastic cup. She sealed it with a blue lid fitted with a built-in preservative and sent it back to Kaiser. Along with her saliva, the samples from the other 130,000 people began arriving in Kaiser’s mailbox.
Experiments like this one underscore how quickly gene-scanning technology is moving from the lab to the home. Last week, officials of the University of California, Berkeley, disclosed that 6,000 incoming freshman and transfer students will be asked to swab their cheeks at home for DNA, to participate in a collective lesson in genetics and a preview of the predicted era when medicine will be tailored to each person’s genetic makeup.
Each student who agrees to participate will be able to tap in a security code on a laptop and check whether they carry gene variants that might affect their ability to process lactose, alcohol or folate, a vitamin found in leafy greens. The Kaiser study participants will not have the same option. Their names are scrubbed from their samples, and only researchers — working with codes instead of names — will be able to link the gene scans to medical histories. Their goal is to discern the larger picture, hoping to spot associations between genes and health that would not show up until very large numbers of individuals are compared at once.
Although this vast experiment has been contemplated for years, it was given a boost last year when Kaiser and the university won a $25 million grant from the National Institutes of Health as part of the stimulus package.
However, the study has begun just as some scientists have started to question the value of these experiments, and when private ventures, like 23andMe, are struggling to find a consumer market for gene tests.
David B. Goldstein, a Duke University researcher, said he believed “interesting and valuable information” would come from the Kaiser study, but he questioned whether it was the most efficient way to gather information about the genetic links to disease. “It’s an awfully expensive study,” Dr. Goldstein said in an e-mail message.
He added, “We have literally hundreds of genome-wide association studies for common diseases, and in most cases we are having trouble making much use of them.” While Dr. Goldstein stresses that discoveries are being made using that technique, he believes that a different approach — sequencing the entire genetic code of fewer patients rather than scanning the genome for variations — “is likely to yield more useful returns.”
For Kaiser, the federal grant is just the beginning of a long-term endeavor.
In the coming years, 400,000 more members will be asked to contribute their DNA to the project when they come in for routine blood work. Kaiser is spending $9 million to build a repository for the blood samples.
“It’s an idea whose time has come,” said Dr. Pui-Yan Kwok, an investigator at the Institute for Human Genetics at the University of California, San Francisco, where the genes are being scanned. “The genotyping technology is here, the electronic medical records are here.”
Using high-precision robots to process each sample, the genomes of 2,500 participants are being analyzed each week. The genetic information will be stored in computers for future studies by scientists all over the globe.
At the same time, Elizabeth Blackburn, a Nobel-prize winning biologist at the university, and her lab will be conducting a mass experiment on a separate set of 100,000 samples of DNA from the Kaiser patients. They will be measuring the length of telomeres — wads of DNA at the top and bottom of every chromosome that, like shoelace tips, keep them from unraveling when a cell divides. Telomere length tends to shorten with age, and shorter telomeres tend to be linked with shorter life spans.
“Telomere length is more reflective of things that happen in your life than the genetic hand you are born with,” said Dr. Blackburn.
She said that the Kaiser patients are a valuable resource for science because their detailed medical histories can be matched with the varied measurements of telomere length and matched to the gene scans that will be done for each participant as well. Her targets are the three top diseases that kill the elderly: cancer, cardiovascular disease and diabetes.
At the Kaiser research lab, a production line of robotic equipment has been set up to process the 130,000 cups of saliva that have been mailed by patients and stored, at room temperature, in racks of cardboard “pizza boxes,” 50 cups to a box. Here, the robots draw out a sample of spit, and chemically process it to extract the donor’s DNA.
One set of Mrs. Young’s DNA will be sent to Dr. Blackburn’s lab, where the length of its telomeres will be measured. A second set will arrive at Dr. Kwok’s newly equipped facility, where the genome of each Kaiser participant will be scanned using an array of robots, each costing about a quarter million dollars.
At Dr. Kwok’s ninth-floor lab, three sets of robots prepare the DNA samples shipped from Oakland. The full complement of DNA from each volunteer is washed over a custom-designed silicon chip about this size of small fingernail. Microscopic wells etched into the chip are each engineered to pluck out one of 675,000 possible gene variants.
“Our biggest fear is a power-failure,” said Dr. Kwok. Each array, filled with 96 processed DNA samples, costs $10,000.
A version of this article appeared in print on May 30, 2010, on page A21A of the National edition.
Peter DaSilva for The New York Times
Sheryl Connell, a lab coordinator for Kaiser Permanente in Oakland, scanned bar codes last week on vials for saliva samples.
By SABIN RUSSELL
Published: May 28, 2010
Still in fine fettle at the age of 87, Ruth Young, a retired Oakland school nurse, jumped at the chance, she said, to “spit for the cause.”
RSS Feed
Get Science News From The New York Times »
Enlarge This Image
Peter DaSilva for The New York Times
Samples have been donated by thousands of Kaiser members.
Mrs. Young is one of more than 130,000 members of Kaiser Permanente in Northern California who have volunteered to have their DNA scanned by robotic, high-speed gene-reading machines as part of the largest human genome study of its kind ever attempted.
The goal of the study they are participating in is to help scientists uncover the genetic roots of chronic disease and, perhaps, to find out why some people live longer than others.
This month, researchers at Kaiser Permanente in Oakland and the University of California, San Francisco began the highly automated, large-scale process of analyzing that DNA, which is being extracted from tens of thousands of saliva samples donated by Kaiser members in Northern California since 2008.
Each sample of ordinary spit is laden with cells containing the volunteer’s entire set of genes, their genomes, which carry in sequences of DNA the coded instructions for building and maintaining life. The hope for this so-called genome-wide association study is that, when the genes of people with diseases like cancer and multiple sclerosis are compared with the genes of those in good health, computer analysis will pinpoint genes responsible for the illnesses.
With a speed that would have seemed preposterous to contemplate a decade ago, the work of collecting, purifying and digitizing billions of discrete bits of chemical information will be finished in less than 18 months, providing a rich resource for scientists to analyze for decades to come.
Winifred K. Rossi, who is managing the project for the National Institute on Aging, said most genome-wide association studies scan between 5,000 and 8,000 participants, although data from multiple, smaller studies can be pooled to form a larger group. What makes the Kaiser study unique is that members of a single, colossal cohort will have their genomes scanned uniformly, then paired with their medical histories. “It is absolutely the largest study of its kind, and it has enormous statistical power.” Ms. Rossi said.
Mrs. Young, a Kaiser member for 63 years, suffers from arthritic knees and Type II diabetes, which took her father’s life at an early age. “I’m conscientious about my diet, but I do love sweets,” she said.
She had originally been one of nearly two million patients asked in 2007 about participating in the Kaiser study. A huge group of volunteers, ranging in age from 18 to 107, filled out questionnaires. Tens of thousands of them, like Mrs. Young, were asked for specimens.
Following instructions found in a kit mailed to her Oakland home, Mrs. Young deposited the requested spit into a special plastic cup. She sealed it with a blue lid fitted with a built-in preservative and sent it back to Kaiser. Along with her saliva, the samples from the other 130,000 people began arriving in Kaiser’s mailbox.
Experiments like this one underscore how quickly gene-scanning technology is moving from the lab to the home. Last week, officials of the University of California, Berkeley, disclosed that 6,000 incoming freshman and transfer students will be asked to swab their cheeks at home for DNA, to participate in a collective lesson in genetics and a preview of the predicted era when medicine will be tailored to each person’s genetic makeup.
Each student who agrees to participate will be able to tap in a security code on a laptop and check whether they carry gene variants that might affect their ability to process lactose, alcohol or folate, a vitamin found in leafy greens. The Kaiser study participants will not have the same option. Their names are scrubbed from their samples, and only researchers — working with codes instead of names — will be able to link the gene scans to medical histories. Their goal is to discern the larger picture, hoping to spot associations between genes and health that would not show up until very large numbers of individuals are compared at once.
Although this vast experiment has been contemplated for years, it was given a boost last year when Kaiser and the university won a $25 million grant from the National Institutes of Health as part of the stimulus package.
However, the study has begun just as some scientists have started to question the value of these experiments, and when private ventures, like 23andMe, are struggling to find a consumer market for gene tests.
David B. Goldstein, a Duke University researcher, said he believed “interesting and valuable information” would come from the Kaiser study, but he questioned whether it was the most efficient way to gather information about the genetic links to disease. “It’s an awfully expensive study,” Dr. Goldstein said in an e-mail message.
He added, “We have literally hundreds of genome-wide association studies for common diseases, and in most cases we are having trouble making much use of them.” While Dr. Goldstein stresses that discoveries are being made using that technique, he believes that a different approach — sequencing the entire genetic code of fewer patients rather than scanning the genome for variations — “is likely to yield more useful returns.”
For Kaiser, the federal grant is just the beginning of a long-term endeavor.
In the coming years, 400,000 more members will be asked to contribute their DNA to the project when they come in for routine blood work. Kaiser is spending $9 million to build a repository for the blood samples.
“It’s an idea whose time has come,” said Dr. Pui-Yan Kwok, an investigator at the Institute for Human Genetics at the University of California, San Francisco, where the genes are being scanned. “The genotyping technology is here, the electronic medical records are here.”
Using high-precision robots to process each sample, the genomes of 2,500 participants are being analyzed each week. The genetic information will be stored in computers for future studies by scientists all over the globe.
At the same time, Elizabeth Blackburn, a Nobel-prize winning biologist at the university, and her lab will be conducting a mass experiment on a separate set of 100,000 samples of DNA from the Kaiser patients. They will be measuring the length of telomeres — wads of DNA at the top and bottom of every chromosome that, like shoelace tips, keep them from unraveling when a cell divides. Telomere length tends to shorten with age, and shorter telomeres tend to be linked with shorter life spans.
“Telomere length is more reflective of things that happen in your life than the genetic hand you are born with,” said Dr. Blackburn.
She said that the Kaiser patients are a valuable resource for science because their detailed medical histories can be matched with the varied measurements of telomere length and matched to the gene scans that will be done for each participant as well. Her targets are the three top diseases that kill the elderly: cancer, cardiovascular disease and diabetes.
At the Kaiser research lab, a production line of robotic equipment has been set up to process the 130,000 cups of saliva that have been mailed by patients and stored, at room temperature, in racks of cardboard “pizza boxes,” 50 cups to a box. Here, the robots draw out a sample of spit, and chemically process it to extract the donor’s DNA.
One set of Mrs. Young’s DNA will be sent to Dr. Blackburn’s lab, where the length of its telomeres will be measured. A second set will arrive at Dr. Kwok’s newly equipped facility, where the genome of each Kaiser participant will be scanned using an array of robots, each costing about a quarter million dollars.
At Dr. Kwok’s ninth-floor lab, three sets of robots prepare the DNA samples shipped from Oakland. The full complement of DNA from each volunteer is washed over a custom-designed silicon chip about this size of small fingernail. Microscopic wells etched into the chip are each engineered to pluck out one of 675,000 possible gene variants.
“Our biggest fear is a power-failure,” said Dr. Kwok. Each array, filled with 96 processed DNA samples, costs $10,000.
A version of this article appeared in print on May 30, 2010, on page A21A of the National edition.
Saturday, May 29, 2010
Friday, May 28, 2010
The US Debt Bomb
OP-ED CONTRIBUTOR
Easy Money, Hard Truths
By DAVID EINHORN
Published: May 26, 2010
Are you worried that we are passing our debt on to future generations? Well, you need not worry.
Enlarge This Image
Harry Campbell
Before this recession it appeared that absent action, the government’s long-term commitments would become a problem in a few decades. I believe the government response to the recession has created budgetary stress sufficient to bring about the crisis much sooner. Our generation — not our grandchildren’s — will have to deal with the consequences.
According to the Bank for International Settlements, the United States’ structural deficit — the amount of our deficit adjusted for the economic cycle — has increased from 3.1 percent of gross domestic product in 2007 to 9.2 percent in 2010. This does not take into account the very large liabilities the government has taken on by socializing losses in the housing market. We have not seen the bills for bailing out Fannie Mae and Freddie Mac and even more so the Federal Housing Administration, which is issuing government-guaranteed loans to non-creditworthy borrowers on terms easier than anything offered during the housing bubble. Government accounting is done on a cash basis, so promises to pay in the future — whether Social Security benefits or loan guarantees — do not count in the budget until the money goes out the door.
A good percentage of the structural increase in the deficit is because last year’s “stimulus” was not stimulus in the traditional sense. Rather than a one-time injection of spending to replace a cyclical reduction in private demand, the vast majority of the stimulus has been a permanent increase in the base level of government spending — including spending on federal jobs. How different is the government today from what General Motors was a decade ago? Government employees are expensive and difficult to fire. Bloomberg News reported that from the last peak businesses have let go 8.5 million people, or 7.4 percent of the work force, while local governments have cut only 141,000 workers, or less than 1 percent.
Public sector jobs used to offer greater job security but lower pay. Not anymore. In 2008, according to the Cato Institute, the average federal civilian salary with benefits was $119,982, compared with $59,909 for the average private sector worker; the disparity has grown enormously over the last decade.
The question we need to ask is this: If we don’t change direction, how long can we travel down this path without having a crisis? The answer lies in two critical issues. First, how long will the capital markets continue to finance government borrowings that may be refinanced but never repaid on reasonable terms? And second, to what extent can obligations that are not financed through traditional fiscal means be satisfied through central bank monetization of debts — that is, by the printing of money?
•
The recent United States credit crisis was attributable in large measure to capital requirements and risk models that incorrectly assumed AAA-rated securities were exempt from default risk. We learned the hard way that when the market ignores credit risk, the behavior of borrowers and lenders becomes distorted.
It was once unthinkable that “risk-free” institutions could fail — so unthinkable that the chief executives of the companies that recently did fail probably didn’t realize when they crossed the line from highly creditworthy to eventually insolvent. Surely, had they seen the line, they would, to a man, have stopped on the solvent side.
Our government leaders are faced with the same risk today. At what level of government debt and future commitments does government default go from being unthinkable to inevitable, and how does our government think about that risk?
I recently posed this question to one of the president’s senior economic advisers. He answered that the government is different from financial institutions because it can print money, and statistically the United States is not as bad off as some other countries. For an investor, these responses do not inspire confidence.
He went on to say that the government needs to focus on jobs now, because without an economic recovery, the rest does not matter. It’s a valid point, but an insufficient excuse for holding off on addressing the long-term structural deficit. If we are going to spend more now, it is imperative that we lay out a credible plan to avoid falling into a debt trap. Even using the administration’s optimistic 10-year forecast, it is clear that we will have problematic deficits for the next decade, which ends just as our commitments to baby boomers accelerate.
Modern Keynesianism works great until it doesn’t. No one really knows where the line is. One obvious lesson from the economic crisis is that we should get rid of the official credit ratings that inspire false confidence and, worse, are pro-cyclical, aggravating slowdowns and inflating booms. Congress has a rare opportunity in the current regulatory reform effort to eliminate the rating system. For now, it does not appear interested in taking sufficiently aggressive action. The big banks and bond buyers have told Congress they want to continue the current system.
As William Gross, the managing director of the bond management company Pimco, put it in his last newsletter, “Firms such as Pimco with large credit staffs of their own can bypass, anticipate and front run all three [rating agencies], benefiting from their timidity and lack of common sense.”
Given how sophisticated bond buyers use the credit rating system to take advantage of more passive market participants, it is no wonder they stress the continued need to preserve the status quo.
It would be better to have each investor individually assess credit-seeking entities. Certainly, the creditworthiness of governments should not be determined by a couple of rating agency committees.
Consider this: When Treasury Secretary Timothy Geithner promises that the United States will never lose its AAA rating, he chooses to become dependent on the whims of the Standard & Poor’s ratings committee rather than the diverse views of the many participants in the capital markets. It is not hard to imagine a crisis where just as the Treasury secretary seeks buyers of government debt in the face of deteriorating market confidence, a rating agency issues an untimely downgrade, setting off a rush of sales by existing bondholders. This has been the experience of many troubled corporations, where downgrades served as the coup de grâce.
The current upset in the European sovereign debt market is a prequel to what might happen here. Banks can hold government debt with a so-called zero-risk weighting, which means zero capital requirements. As a result, European banks stocked up on Greek debt, and sold sovereign credit default swaps, and now need to be bailed out to avoid another banking crisis.
As we saw first in Dubai and now in Greece, it appears that governments’ response to the failure of Lehman Brothers is to use any means necessary to avoid another Lehman-like event. This policy transfers risk from the weak to the strong — or at least the less weak — setting up the possibility of the crisis ultimately spreading from the “too small to fails,” like Greece, to “too big to bails,” like members of the Group of 7 industrialized nations.
We should have learned by now that each credit — no matter how unthinkable its failure would be — has risk and requires capital. Just as trivial capital charges encouraged lenders and borrowers to overdo it with AAA-rated collateral debt obligations, the same flawed structure in the government debt market encourages and therefore practically ensures a repeat of this behavior — leading to an even larger crisis.
•
I don’t believe a United States debt default is inevitable. On the other hand, I don’t see the political will to steer the country away from crisis. If we wait until the markets force action, as they have in Greece, we might find ourselves negotiating austerity programs with foreign creditors.
Some believe this could be avoided by printing money. Despite the promises by the Federal Reserve chairman, Ben Bernanke, not to print money or “monetize” the debt, when push comes to shove, there is a good chance the Fed will do so, at least to the point where significant inflation shows up even in government statistics.
That the recent round of money printing has not led to headline inflation may give central bankers the confidence that they can pursue this course without inflationary consequences. However, printing money can go only so far without creating inflation.
Government statistics are about the last place one should look to find inflation, as they are designed to not show much. Over the last 35 years the government has changed the way it calculates inflation several times. According to the Web site Shadow Government Statistics, using the pre-1980 method, the Consumer Price Index would be over 9 percent, compared with about 2 percent in the official statistics today.
While the truth probably lies somewhere in the middle, this doesn’t even take into account inflation we ignore by using a basket of goods that don’t match the real-world cost of living. (For example, health care costs are one-sixth of G.D.P. but only one-sixteenth of the price index, and rising income and payroll taxes do not count as inflation at all.)
Why does the government understate rising costs? Low official inflation benefits the government by reducing inflation-indexed payments, including Social Security. Lower official inflation means higher reported real G.D.P., higher reported real income and higher reported productivity.
Subdued reported inflation also enables the Fed to rationalize easy money. The Fed wants to have low interest rates to fight unemployment, which, in a new version of the trickle-down theory, it believes can be addressed through higher stock prices. The Fed hopes that by denying savers an adequate return in risk-free assets like savings deposits, it will force them to speculate in stocks and other “risky assets.” This speculation drives stock prices higher, which creates a “wealth effect” when the lucky speculators spend some of their gains on goods and services. The purchases increase aggregate demand and lead to job creation.
Easy money also aids the banks, helping them earn back their still unacknowledged losses. This has the perverse effect of discouraging banks from making new loans. If banks can lend to the government, with no capital charge and no perceived risk and earn an adequate spread, then they have little incentive to lend to small businesses or consumers. (For this reason, higher short-term rates could very well stimulate additional lending to the private sector.)
Easy money also helps the fiscal position of the government. Lower borrowing costs mean lower deficits. In effect, negative real interest rates are indirect debt monetization. Allowing borrowers, including the government, to get addicted to unsustainably low rates creates enormous solvency risks when rates eventually rise.
While one can debate where we are in the recovery, one thing is clear — the worst of the last crisis has passed. Nominal G.D.P. growth is running in the mid-single digits. The emergency has passed and yet the Fed continues with an emergency zero-interest rate policy. Perhaps easy money is still appropriate — but a zero-rate policy creates enormous distortions in incentives and increases the likelihood of a significant crisis later. It was not lost on the market that during this month’s sell-off, with rates around zero, there is no room for further cuts should the economy roll over.
EASY money has negative consequences in addition to the risk of inflation and devaluing the dollar. It can also feed asset bubbles. In recent years, we have gone from one bubble and bailout to the next. Each bailout has rewarded those who acted imprudently. This has encouraged additional risky behavior, feeding the creation of new, larger bubbles.
The Fed bailed out the equity markets after the crash of 1987, which fed a boom ending with the Mexican crisis and bailout. That Treasury-financed bailout started a bubble in emerging market debt, which ended with the Asian currency crisis and Russian default. The resulting organized rescue of Long-Term Capital Management’s counterparties spurred the Internet bubble. After that popped, the rescue led to the housing and credit bubble. The deflationary aspects of that bubble popping created a bubble in sovereign debt, despite the fiscal strains created by the bailouts. The Greek crisis may be the first sign of the sovereign debt bubble bursting.
Though we don’t know what’s going to happen next, the good news for our grandchildren is that we will have to face our own debts. If we realize that our own future is at risk, we might be more serious about changing course. If we don’t, Mr. Geithner and others might regret having never said never about America’s rating.
David Einhorn is the president of Greenlight Capital, a hedge fund, and the author of “Fooling Some of the People All of the Time.” Investment accounts managed by Greenlight may have a position (long or short) in the securities discussed in this article.
A version of this op-ed appeared in print on May 27, 2010, on page A35
Easy Money, Hard Truths
By DAVID EINHORN
Published: May 26, 2010
Are you worried that we are passing our debt on to future generations? Well, you need not worry.
Enlarge This Image
Harry Campbell
Before this recession it appeared that absent action, the government’s long-term commitments would become a problem in a few decades. I believe the government response to the recession has created budgetary stress sufficient to bring about the crisis much sooner. Our generation — not our grandchildren’s — will have to deal with the consequences.
According to the Bank for International Settlements, the United States’ structural deficit — the amount of our deficit adjusted for the economic cycle — has increased from 3.1 percent of gross domestic product in 2007 to 9.2 percent in 2010. This does not take into account the very large liabilities the government has taken on by socializing losses in the housing market. We have not seen the bills for bailing out Fannie Mae and Freddie Mac and even more so the Federal Housing Administration, which is issuing government-guaranteed loans to non-creditworthy borrowers on terms easier than anything offered during the housing bubble. Government accounting is done on a cash basis, so promises to pay in the future — whether Social Security benefits or loan guarantees — do not count in the budget until the money goes out the door.
A good percentage of the structural increase in the deficit is because last year’s “stimulus” was not stimulus in the traditional sense. Rather than a one-time injection of spending to replace a cyclical reduction in private demand, the vast majority of the stimulus has been a permanent increase in the base level of government spending — including spending on federal jobs. How different is the government today from what General Motors was a decade ago? Government employees are expensive and difficult to fire. Bloomberg News reported that from the last peak businesses have let go 8.5 million people, or 7.4 percent of the work force, while local governments have cut only 141,000 workers, or less than 1 percent.
Public sector jobs used to offer greater job security but lower pay. Not anymore. In 2008, according to the Cato Institute, the average federal civilian salary with benefits was $119,982, compared with $59,909 for the average private sector worker; the disparity has grown enormously over the last decade.
The question we need to ask is this: If we don’t change direction, how long can we travel down this path without having a crisis? The answer lies in two critical issues. First, how long will the capital markets continue to finance government borrowings that may be refinanced but never repaid on reasonable terms? And second, to what extent can obligations that are not financed through traditional fiscal means be satisfied through central bank monetization of debts — that is, by the printing of money?
•
The recent United States credit crisis was attributable in large measure to capital requirements and risk models that incorrectly assumed AAA-rated securities were exempt from default risk. We learned the hard way that when the market ignores credit risk, the behavior of borrowers and lenders becomes distorted.
It was once unthinkable that “risk-free” institutions could fail — so unthinkable that the chief executives of the companies that recently did fail probably didn’t realize when they crossed the line from highly creditworthy to eventually insolvent. Surely, had they seen the line, they would, to a man, have stopped on the solvent side.
Our government leaders are faced with the same risk today. At what level of government debt and future commitments does government default go from being unthinkable to inevitable, and how does our government think about that risk?
I recently posed this question to one of the president’s senior economic advisers. He answered that the government is different from financial institutions because it can print money, and statistically the United States is not as bad off as some other countries. For an investor, these responses do not inspire confidence.
He went on to say that the government needs to focus on jobs now, because without an economic recovery, the rest does not matter. It’s a valid point, but an insufficient excuse for holding off on addressing the long-term structural deficit. If we are going to spend more now, it is imperative that we lay out a credible plan to avoid falling into a debt trap. Even using the administration’s optimistic 10-year forecast, it is clear that we will have problematic deficits for the next decade, which ends just as our commitments to baby boomers accelerate.
Modern Keynesianism works great until it doesn’t. No one really knows where the line is. One obvious lesson from the economic crisis is that we should get rid of the official credit ratings that inspire false confidence and, worse, are pro-cyclical, aggravating slowdowns and inflating booms. Congress has a rare opportunity in the current regulatory reform effort to eliminate the rating system. For now, it does not appear interested in taking sufficiently aggressive action. The big banks and bond buyers have told Congress they want to continue the current system.
As William Gross, the managing director of the bond management company Pimco, put it in his last newsletter, “Firms such as Pimco with large credit staffs of their own can bypass, anticipate and front run all three [rating agencies], benefiting from their timidity and lack of common sense.”
Given how sophisticated bond buyers use the credit rating system to take advantage of more passive market participants, it is no wonder they stress the continued need to preserve the status quo.
It would be better to have each investor individually assess credit-seeking entities. Certainly, the creditworthiness of governments should not be determined by a couple of rating agency committees.
Consider this: When Treasury Secretary Timothy Geithner promises that the United States will never lose its AAA rating, he chooses to become dependent on the whims of the Standard & Poor’s ratings committee rather than the diverse views of the many participants in the capital markets. It is not hard to imagine a crisis where just as the Treasury secretary seeks buyers of government debt in the face of deteriorating market confidence, a rating agency issues an untimely downgrade, setting off a rush of sales by existing bondholders. This has been the experience of many troubled corporations, where downgrades served as the coup de grâce.
The current upset in the European sovereign debt market is a prequel to what might happen here. Banks can hold government debt with a so-called zero-risk weighting, which means zero capital requirements. As a result, European banks stocked up on Greek debt, and sold sovereign credit default swaps, and now need to be bailed out to avoid another banking crisis.
As we saw first in Dubai and now in Greece, it appears that governments’ response to the failure of Lehman Brothers is to use any means necessary to avoid another Lehman-like event. This policy transfers risk from the weak to the strong — or at least the less weak — setting up the possibility of the crisis ultimately spreading from the “too small to fails,” like Greece, to “too big to bails,” like members of the Group of 7 industrialized nations.
We should have learned by now that each credit — no matter how unthinkable its failure would be — has risk and requires capital. Just as trivial capital charges encouraged lenders and borrowers to overdo it with AAA-rated collateral debt obligations, the same flawed structure in the government debt market encourages and therefore practically ensures a repeat of this behavior — leading to an even larger crisis.
•
I don’t believe a United States debt default is inevitable. On the other hand, I don’t see the political will to steer the country away from crisis. If we wait until the markets force action, as they have in Greece, we might find ourselves negotiating austerity programs with foreign creditors.
Some believe this could be avoided by printing money. Despite the promises by the Federal Reserve chairman, Ben Bernanke, not to print money or “monetize” the debt, when push comes to shove, there is a good chance the Fed will do so, at least to the point where significant inflation shows up even in government statistics.
That the recent round of money printing has not led to headline inflation may give central bankers the confidence that they can pursue this course without inflationary consequences. However, printing money can go only so far without creating inflation.
Government statistics are about the last place one should look to find inflation, as they are designed to not show much. Over the last 35 years the government has changed the way it calculates inflation several times. According to the Web site Shadow Government Statistics, using the pre-1980 method, the Consumer Price Index would be over 9 percent, compared with about 2 percent in the official statistics today.
While the truth probably lies somewhere in the middle, this doesn’t even take into account inflation we ignore by using a basket of goods that don’t match the real-world cost of living. (For example, health care costs are one-sixth of G.D.P. but only one-sixteenth of the price index, and rising income and payroll taxes do not count as inflation at all.)
Why does the government understate rising costs? Low official inflation benefits the government by reducing inflation-indexed payments, including Social Security. Lower official inflation means higher reported real G.D.P., higher reported real income and higher reported productivity.
Subdued reported inflation also enables the Fed to rationalize easy money. The Fed wants to have low interest rates to fight unemployment, which, in a new version of the trickle-down theory, it believes can be addressed through higher stock prices. The Fed hopes that by denying savers an adequate return in risk-free assets like savings deposits, it will force them to speculate in stocks and other “risky assets.” This speculation drives stock prices higher, which creates a “wealth effect” when the lucky speculators spend some of their gains on goods and services. The purchases increase aggregate demand and lead to job creation.
Easy money also aids the banks, helping them earn back their still unacknowledged losses. This has the perverse effect of discouraging banks from making new loans. If banks can lend to the government, with no capital charge and no perceived risk and earn an adequate spread, then they have little incentive to lend to small businesses or consumers. (For this reason, higher short-term rates could very well stimulate additional lending to the private sector.)
Easy money also helps the fiscal position of the government. Lower borrowing costs mean lower deficits. In effect, negative real interest rates are indirect debt monetization. Allowing borrowers, including the government, to get addicted to unsustainably low rates creates enormous solvency risks when rates eventually rise.
While one can debate where we are in the recovery, one thing is clear — the worst of the last crisis has passed. Nominal G.D.P. growth is running in the mid-single digits. The emergency has passed and yet the Fed continues with an emergency zero-interest rate policy. Perhaps easy money is still appropriate — but a zero-rate policy creates enormous distortions in incentives and increases the likelihood of a significant crisis later. It was not lost on the market that during this month’s sell-off, with rates around zero, there is no room for further cuts should the economy roll over.
EASY money has negative consequences in addition to the risk of inflation and devaluing the dollar. It can also feed asset bubbles. In recent years, we have gone from one bubble and bailout to the next. Each bailout has rewarded those who acted imprudently. This has encouraged additional risky behavior, feeding the creation of new, larger bubbles.
The Fed bailed out the equity markets after the crash of 1987, which fed a boom ending with the Mexican crisis and bailout. That Treasury-financed bailout started a bubble in emerging market debt, which ended with the Asian currency crisis and Russian default. The resulting organized rescue of Long-Term Capital Management’s counterparties spurred the Internet bubble. After that popped, the rescue led to the housing and credit bubble. The deflationary aspects of that bubble popping created a bubble in sovereign debt, despite the fiscal strains created by the bailouts. The Greek crisis may be the first sign of the sovereign debt bubble bursting.
Though we don’t know what’s going to happen next, the good news for our grandchildren is that we will have to face our own debts. If we realize that our own future is at risk, we might be more serious about changing course. If we don’t, Mr. Geithner and others might regret having never said never about America’s rating.
David Einhorn is the president of Greenlight Capital, a hedge fund, and the author of “Fooling Some of the People All of the Time.” Investment accounts managed by Greenlight may have a position (long or short) in the securities discussed in this article.
A version of this op-ed appeared in print on May 27, 2010, on page A35
Sudan's Al Bashit Faces Arrest If He Shows Up At The WOrld Cup
Business Day (Johannesburg)
South Africa/Sudan: Arrest Threat for Sudan's Al-Bashir
Wyndham Hartley
28 May 2010
Cape Town — Sudan's recently re-elected President Omar al-Bashir faces arrest if he visits SA for the World Cup after President Jacob Zuma 's pledge yesterday to abide by international law.
Al-Bashir, who was sworn in for a further term as president yesterday, is wanted by the International Criminal Court (ICC) for war crimes. A warrant for his arrest has been issued.
SA is a signatory to the court's statute. All signatory states have to arrest such wanted individuals if they visit their countries.
This is the second time SA has tied itself in a diplomatic knot over al-Bashir. He was asked to stay away from Zuma's inauguration last year as the controversy threatened to overshadow the event.
During presidential question time in the National Assembly yesterday, Zuma was asked if al- Bashir would be arrested if he responded positively to the invitation sent to all African leaders to attend the World Cup opening.
In response to a question from Democratic Alliance MP Kenneth Mubu, Zuma said he respected international law, and would abide by the law.
Mubu repeated the question, and was given the same answer. If al-Bashir does visit, it will be SA's responsibility to arrest him.
Department of International Relations and Co-operation spokesman Saul Molobi could not say yesterday if al-Bashir had confirmed his attendance.
Zuma muddied the water a little when he said that he thought the African Union's decision to request the ICC to postpone its decision to issue an arrest warrant was the correct one.
This was because the issuing of the warrant could have further inflamed tension in Sudan, and made matters worse. The ICC has not withdrawn its arrest warrant for al-Bashir.
Zuma also failed again to repudiate ANC Youth League leader Julius Malema firmly, insisting that Malema's controversial visit to Zimbabwe and his open support for Zanu (PF) leader Robert Mugabe and the nationalisation of land had not undermined SA's mediation efforts in that country.
It was widely speculated recently that there was considerable anger in the ruling party over Malema's visit to Zimbabwe and the damage that it had done to SA's efforts to get all parties there to implement a global political agreement fully.
Zuma told MPs, in reply to a question by Inkatha Freedom Party MP Velaphi Ndlovu, that SA's role as an impartial mediator and facilitator still enjoyed the confidence of all parties involved.
"Neither the visit nor the statements to which the honourable member refers have hampered SA in the performance of this responsibility."
DA MP James Selfe then asked if, in the light of Malema's claim that the ANC Youth League's views had always prevailed, he would give an "unequivocal assurance" there would be no nationalisation of land or mines in SA.
Zuma said that the ANC had no policy for nationalisation, but he did not say it could never have such policies. He then again urged MPs to enter into the debate with Malema.
Zuma was jeered when he said that there was no fight going on in Zimbabwe. African Christian Democratic Party MP Cheryllyn Dudley had asked him if peacekeepers would be sent to Zimbabwe when they next went to the polls. To the astonishment of MPs, Zuma replied that peacekeepers were needed only where there "is a fight, and there is no fight in Zimbabwe".
The election would be monitored as usual, he said.
With Loyiso Langeni
South Africa/Sudan: Arrest Threat for Sudan's Al-Bashir
Wyndham Hartley
28 May 2010
Cape Town — Sudan's recently re-elected President Omar al-Bashir faces arrest if he visits SA for the World Cup after President Jacob Zuma 's pledge yesterday to abide by international law.
Al-Bashir, who was sworn in for a further term as president yesterday, is wanted by the International Criminal Court (ICC) for war crimes. A warrant for his arrest has been issued.
SA is a signatory to the court's statute. All signatory states have to arrest such wanted individuals if they visit their countries.
This is the second time SA has tied itself in a diplomatic knot over al-Bashir. He was asked to stay away from Zuma's inauguration last year as the controversy threatened to overshadow the event.
During presidential question time in the National Assembly yesterday, Zuma was asked if al- Bashir would be arrested if he responded positively to the invitation sent to all African leaders to attend the World Cup opening.
In response to a question from Democratic Alliance MP Kenneth Mubu, Zuma said he respected international law, and would abide by the law.
Mubu repeated the question, and was given the same answer. If al-Bashir does visit, it will be SA's responsibility to arrest him.
Department of International Relations and Co-operation spokesman Saul Molobi could not say yesterday if al-Bashir had confirmed his attendance.
Zuma muddied the water a little when he said that he thought the African Union's decision to request the ICC to postpone its decision to issue an arrest warrant was the correct one.
This was because the issuing of the warrant could have further inflamed tension in Sudan, and made matters worse. The ICC has not withdrawn its arrest warrant for al-Bashir.
Zuma also failed again to repudiate ANC Youth League leader Julius Malema firmly, insisting that Malema's controversial visit to Zimbabwe and his open support for Zanu (PF) leader Robert Mugabe and the nationalisation of land had not undermined SA's mediation efforts in that country.
It was widely speculated recently that there was considerable anger in the ruling party over Malema's visit to Zimbabwe and the damage that it had done to SA's efforts to get all parties there to implement a global political agreement fully.
Zuma told MPs, in reply to a question by Inkatha Freedom Party MP Velaphi Ndlovu, that SA's role as an impartial mediator and facilitator still enjoyed the confidence of all parties involved.
"Neither the visit nor the statements to which the honourable member refers have hampered SA in the performance of this responsibility."
DA MP James Selfe then asked if, in the light of Malema's claim that the ANC Youth League's views had always prevailed, he would give an "unequivocal assurance" there would be no nationalisation of land or mines in SA.
Zuma said that the ANC had no policy for nationalisation, but he did not say it could never have such policies. He then again urged MPs to enter into the debate with Malema.
Zuma was jeered when he said that there was no fight going on in Zimbabwe. African Christian Democratic Party MP Cheryllyn Dudley had asked him if peacekeepers would be sent to Zimbabwe when they next went to the polls. To the astonishment of MPs, Zuma replied that peacekeepers were needed only where there "is a fight, and there is no fight in Zimbabwe".
The election would be monitored as usual, he said.
With Loyiso Langeni
Thursday, May 27, 2010
The Amazing Japanese
New JASDF Stealth Fighter Jet to be "Made In Japan"
by Steve Levenstein
Share
6
Not your grandfather's Mitsubishi...
The words "Mitsubishi fighter" still have the power to send a chill down the spines of American war history buffs. It was, after all, just 65 years ago that the Mitsubishi A6M "Zero" ruled the skies over the Pacific by outclassing the vast majority of Allied WW2 fighter planes sent to oppose it. (above drawing by J. P. Santiago)
...but gramps sure would be proud!
Now it seems that a descendant of the legendary Zero fighter may soon be stretching its wings across the skies of Japan - and perhaps further afield. Alarmed by new developments in stealth fighter aircraft technology displayed by traditional adversaries China and Russia, JASDF (Japan Air Self-Defense Forces) planners have been attempting to acquire the American F-22 Raptor jet fighter to replace their current F-15 Eagle fighter planes.
The F-22 Raptor is packed with the latest avionics and stealth technology but its high tech features have the Pentagon concerned about security leaks.
Stealthy, speedy and made in Japan
Even though the United States would lose out financially by not selling Japan the F-22, security issues are front & center these days and Japan is now looking to its own aircraft designers to provide a home-grown solution.
If the history of Japan is any guide, we can expect a more than respectable match for the F-22, F-19 or other state of the art jet fighters to eventually roll off the Mitsubishi production lines.
"Son of Zero", resplendent in carbon fiber
The process may already be in motion - on August 9, the above photo was taken of what may be Japan's next-generation stealth fighter jet. The 46 foot long carbon fiber mock-up was designed and built by Mitsubishi Heavy Industries, builder of the Zero and many other WW2 fighter planes, at their Komakiminami Factory in Aichi prefecture.
Freshly returned from France where it had undergone testing of its stealth technology, this sleek mock-up foreshadows what just might be the future of Japanese military aviation. (via News On Japan and newsinfo.inquirer, Zero image c/o murphybytes)
Steve Levenstein
Japanese Innovations Writer
InventorSpot.com
Japan Draws Plans To Build Research Center On Moon
File image.
by Staff Writers
Tokyo, Japan (RIA Novosti) May 27, 2010
Japan is developing a program to build a scientific research base on the moon, Yomiuri Shimbun reported on Wednesday. The Japanese government plans to invest some 200 billion yen ($2.2 bln) on lunar research up to 2020, and will include robots operating on the moon's surface, according to the news agency.
Japan's strategy for exploring the moon's surface will be carried out in two phases. The first phase of sending a mobile robot to the moon is to be completed by 2015. The robot is to send video images of the surface as well as conduct seismographic research on the moon's composition.
The following five years, according to the program, the Japanese plan to build a scientific research center on the moon's South Pole in order to study the surface within a 100-kilometer radius. The station will be able to produce its own electricity and take surface samples. Some samples will then be sent back to Earth for further study.
Lunar projects were actively discussed under former Japanese Prime Minister Taro Aso's government and former U.S. President George Bush's administration. However, Barack Obama's administration has put more emphasis on exploring Mars. Under Prime Minister Yukio Hatoyama's administration, Japan will continue its lunar research projects.
Japan is striving to secure its position on the moon before China and India, who are also interested in lunar research, are able to complete their programs.
Source: RIA Novosti
by Steve Levenstein
Share
6
Not your grandfather's Mitsubishi...
The words "Mitsubishi fighter" still have the power to send a chill down the spines of American war history buffs. It was, after all, just 65 years ago that the Mitsubishi A6M "Zero" ruled the skies over the Pacific by outclassing the vast majority of Allied WW2 fighter planes sent to oppose it. (above drawing by J. P. Santiago)
...but gramps sure would be proud!
Now it seems that a descendant of the legendary Zero fighter may soon be stretching its wings across the skies of Japan - and perhaps further afield. Alarmed by new developments in stealth fighter aircraft technology displayed by traditional adversaries China and Russia, JASDF (Japan Air Self-Defense Forces) planners have been attempting to acquire the American F-22 Raptor jet fighter to replace their current F-15 Eagle fighter planes.
The F-22 Raptor is packed with the latest avionics and stealth technology but its high tech features have the Pentagon concerned about security leaks.
Stealthy, speedy and made in Japan
Even though the United States would lose out financially by not selling Japan the F-22, security issues are front & center these days and Japan is now looking to its own aircraft designers to provide a home-grown solution.
If the history of Japan is any guide, we can expect a more than respectable match for the F-22, F-19 or other state of the art jet fighters to eventually roll off the Mitsubishi production lines.
"Son of Zero", resplendent in carbon fiber
The process may already be in motion - on August 9, the above photo was taken of what may be Japan's next-generation stealth fighter jet. The 46 foot long carbon fiber mock-up was designed and built by Mitsubishi Heavy Industries, builder of the Zero and many other WW2 fighter planes, at their Komakiminami Factory in Aichi prefecture.
Freshly returned from France where it had undergone testing of its stealth technology, this sleek mock-up foreshadows what just might be the future of Japanese military aviation. (via News On Japan and newsinfo.inquirer, Zero image c/o murphybytes)
Steve Levenstein
Japanese Innovations Writer
InventorSpot.com
Japan Draws Plans To Build Research Center On Moon
File image.
by Staff Writers
Tokyo, Japan (RIA Novosti) May 27, 2010
Japan is developing a program to build a scientific research base on the moon, Yomiuri Shimbun reported on Wednesday. The Japanese government plans to invest some 200 billion yen ($2.2 bln) on lunar research up to 2020, and will include robots operating on the moon's surface, according to the news agency.
Japan's strategy for exploring the moon's surface will be carried out in two phases. The first phase of sending a mobile robot to the moon is to be completed by 2015. The robot is to send video images of the surface as well as conduct seismographic research on the moon's composition.
The following five years, according to the program, the Japanese plan to build a scientific research center on the moon's South Pole in order to study the surface within a 100-kilometer radius. The station will be able to produce its own electricity and take surface samples. Some samples will then be sent back to Earth for further study.
Lunar projects were actively discussed under former Japanese Prime Minister Taro Aso's government and former U.S. President George Bush's administration. However, Barack Obama's administration has put more emphasis on exploring Mars. Under Prime Minister Yukio Hatoyama's administration, Japan will continue its lunar research projects.
Japan is striving to secure its position on the moon before China and India, who are also interested in lunar research, are able to complete their programs.
Source: RIA Novosti
Wednesday, May 26, 2010
Warning Crash Ahead-Sell Now And Get Liquid
Warning: Crash dead ahead. Sell. Get liquid. Now.
Commentary: 'Game's in the refrigerator.' Power's turning off. Dow sinking below 6,470
View all Paul B. Farrell ›
‹ Previous Column
12 ways to cash in on the 'collapse of Eaarth'
First Take ›
BP in deep water
STORYCOMMENTS SCREENER (588)
AlertEmailPrintShare By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- "This game's in the refrigerator! The door's closed, the lights are out, the eggs are cooling, the butter's getting hard and the Jell-O is jiggling ..."
That was legendary Lakers' radio announcer Chick Hearn's signature way of calling a game early, telling fans the home team won ... you can head for the exits before the final buzzer. Chick wrote the book with popular sports phrases like "slam dunk," "air ball," "charity stripe," and a "bunny hop in the pea patch" for a traveling violation.
Niall Ferguson: Investing amid uncertainty
Economic historian and author of The Ascent of Money: A Financial History of the World, Niall Ferguson gives his predictions on gold prices, emerging markets and the Swiss franc. Ferguson also tells Dow Jones Veronica Dagher where he's investing his money amid the uncertainty.
Chick's our inspiration today: Last March I wrote "6 reasons I'm calling a bottom and a new bull." Today it's time for a new call. We've had a good year. Net gains over 50% in 2009. But now: "Game over, head for the exits." Bears beating bulls.
No, no, "it's a buying opportunity," says another legend, hedge fund manager, Barton Biggs. Buying opportunity? For who? Remember, Biggs isn't advising Joe Lunchbox about what to do with his little 401(k). Biggs' customers are mega-millionaires in his $1.5 billion Traxis Partners Fund. Main Street investors like Joe are prey in his casino.
Read on, you decide: As you stare from high up in the nose-bleed bleachers watching the game, staring at a Dow that not long ago was above 11,000 and heading for 12,000. Now the Dow's sitting on the bench, ready for the showers, weak after a couple air balls around 10,000. No more timeouts. "This game's in the refrigerator."
How bad is your bookie's point spread in this game? A blowout? Will the Dow drop below 9,000 again? Now that it's broken technical supports, will it drop below 6,470, where the last bull rally started in early 2009? Can you handle the nerve-racking volatility generated by Wall Street's high-frequency traders playing the game at warp-speed with algorithms making thousands of micro-bets in milliseconds, betting billions daily?
So who should you listen to? Barton and I arrived at Morgan Stanley about the same time. He stayed decades longer, became one of the world's leading strategists, advising the kind of high-rollers who also bet at private tables in a Vegas casino.
You remember Biggs: In his book "Wealth, War & Wisdom" he advises his high rollers to prepare for a "breakdown of the civilized infrastructure." Buy a farm: "Your safe haven must be self-sufficient and capable of growing some kind of food ... It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc. Think Swiss Family Robinson." Biggs is not advising small investors on what to do with their 401(k)s.
If you're gambling at Wall Street's casino, folks, the odds-makers are betting against Biggs. It's "game over."
Main Street lost 20% last decade ... yet like sheep keep going back
Yes, if you're channeling Chick, here's your "mixed metaphor" cue card: "This game's in the refrigerator ... Wall Street won (proof, Goldman's $100-million-profit trading days and Blankfein's $68 million bonus) ... Main Street's headed for another losing streak ... Congress' lights are out ... the refrigerator door's closing on financial reforms ... the lobbyists are laying some rotten eggs, poisoning capitalism ... the Tea Party-of-No-No ideologies are hardening ... the bull's Jell-O is jiggling to a flat line ... and this market's going into hibernation, with the bears ... run, don't walk, to the exits, folks."
But will Main Street exit? Will we ever learn? No. The Wall Street casino makes mega-billions for insiders like Blankfein and the Goldman Conspiracy. Yet "The Casino" is still below the 2000 record of 11,722. So after accounting for inflation, Wall Street lost over 20% of Main Street's 401(k) retirement money between 2000 and 2010. Yes, Wall Street's a big loser the past decade. Their advice is self-serving. Period.
Given their miserable track record, only a fool would bet with Wall Street. Betting odds are Wall Street will lose another 20% in the next decade from 2010-2020. Yes, today's market is a "buying opportunity," but only for Wall Street casino insiders like Biggs, Blankfein and even low-level staffers inside "The Casino." But not for our 95 million Main Street investors, there's more pain ahead, this market's dropping.
Correction? New crash imminent, worse than 2008
More proof: Earlier economist Gary Shilling said price-to-earnings ratios are at a "nosebleed 22.5 level." The Dow was around 11,000. Money manager Jeremy Grantham recently said the market's overvalued 40%. That could mean a collapse to 6,600. Last week in Reuters' "Markets Could Be Derailed Again," George Soros echoed a "game over" warning with a "stark warning ... that the financial world is on the wrong track and that we may be hurtling towards an even bigger boom and bust than in the credit crisis."
Now Dow Theory's Richard Russell is warning the public of an imminent crash: "Sell ... get liquid ... by the end of this year they won't recognize the country."
A bigger meltdown than the credit crisis? Yes, Bush's team drove America into a ditch. But now Obama and his money men, Summers, Geithner, Bernanke, are digging the hole deeper. Soros says we have not learned "the lessons that markets are inherently unstable." As a result, "the success in bailing out the system on the previous occasion led to a super-bubble." Now "we are facing a yet larger bubble." Worse than 2008?
Yes, the game may be "in the refrigerator," the lights will go out, but as Soros hints, the electricity may get turned off too. Get it? This may not be a correction. Not even a bear. What's coming could be worse than the 2000 dot-com crash and the 2008 meltdown combined, a "Super-Bubble" says Soros. And the biggest reason, Nouriel Roubini and Stephen Mihm tell Newsweek, is that "the president's half-measures won't fix our failed financial system" because he refuses to "bust up the too-big-to-fail banks."
Yes, Congress will pass something. But unfortunately, as reported on MSNBC, Senator Dodd, the reform bill's sponsor, is a turncoat, working overtime with Wall Street lobbyists "to weaken financial reform," leave us vulnerable to a new, bigger crash in the near future. And Wall Street lobbyists are spending hundreds of millions to kill reform.
'White Swans:' 2000 and 2008 crashes were predictable, next one too
Recently Roubini was interviewed by Charlie Rose in BusinessWeek. His message confirms the worst. Roubini was questioned about his new book, "Crisis Economics." Rose began by asking, "what have we learned from these crises of capitalism?" Roubini could easily have said, "nothing, we learned nothing." His actual reply:
"The first lesson is that crises are not 'black swan' events ... they're not just random outcomes. They are the result of a buildup of financial and policy vulnerability and mistakes -- excessive risk-taking, leverage, debt, and so on." They are 'White Swans' "because these events are predictable. But generation after generation, we seem to forget the past. When there's a bubble, there's euphoria. There's irrational exuberance. Consumers can use their homes like ATM machines. Governments and policy makers are happy because they get reelected. Wall Street makes billions of dollars of profits. Everybody's delusional."
Sound familiar? Yes indeed, in "This Time Is Different: Eight Centuries of Financial Folly," economists Carmen Reinhart and Kenneth Rogoff pinpoint the key signal that will blow the whistle and call the game: The "90% ratio of government debt to GDP is a tipping point in economic growth." For 800 years "you increase it over and beyond a high threshold, and boom!"
Warning, fans, the numbers on the game-clock are flashing wildly. America's ratio is now 92%, thanks to Obama's $1.7 trillion budget, future deficits, exploding debt. Soon, Ka-Booom! Another great nation bites the dust. Depression follows. Goodbye retirement.
Warning: 800 years of history are calling 'game over'
But can't we change destiny? Or are Dodd, Congress, Obama, Wall Street, the Party of No-No and 300 million Americans all just playing their parts in a historical script well-known to historians like Reinhart and Rogoff, Kevin Phillips, Niall Ferguson and others? The message of "This Time Is Different" is very simple:
"We have been here before. No matter how different the latest financial frenzy or crisis always appears, there are usually remarkable similarities from past experience from other countries and from history. ... no country, irrespective of its global importance, appears to be immune to it. The fading memories of borrowers and lenders, policy makers and academics, and the public at large do not seem to improve over time, so the policy lessons on how to 'avoid' the next blow-up are at best limited."
So please listen closely: All the TARP bailouts, stimulus debt and Fed loans won't work. Neither will a new conservative government. This is not a basketball game. We are not channeling Chick Hearn, calling this game before the final buzzer. While we prefer the illusion that "this time really is different," eight centuries of history suggest otherwise:
"The lesson of history, then, is that even as institutions and policy makers improve there will always be a temptation to stretch the limits. ... If there is one common theme to the vast range of crises ... it is that excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom. ... Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang -- confidence collapses, lenders disappear and a crisis hits. ... Highly leveraged economies ... seldom survive forever ... history does point to warnings signs that policy makers can look to access risk -- if only they do not become too drunk with their credit bubble-fueled success and say, as their predecessors have for centuries, 'This time is different'."
No, "this time" it's never different. Get it? In the end, it doesn't matter what happens to the Dodd-Obama financial reforms. The endgame's never a Black Swan, it's a very White Swan well known to historians -- guaranteed, inevitable and inescapable. This time is never different.
The clock's flashing. Huge point spread. Think bear, think crash, think end of capitalism, think Great Depression II ... This is no buying opportunity, this game's in the refrigerator, call it.
Page 1Page 2
Commentary: 'Game's in the refrigerator.' Power's turning off. Dow sinking below 6,470
View all Paul B. Farrell ›
‹ Previous Column
12 ways to cash in on the 'collapse of Eaarth'
First Take ›
BP in deep water
STORYCOMMENTS SCREENER (588)
AlertEmailPrintShare By Paul B. Farrell, MarketWatch
ARROYO GRANDE, Calif. (MarketWatch) -- "This game's in the refrigerator! The door's closed, the lights are out, the eggs are cooling, the butter's getting hard and the Jell-O is jiggling ..."
That was legendary Lakers' radio announcer Chick Hearn's signature way of calling a game early, telling fans the home team won ... you can head for the exits before the final buzzer. Chick wrote the book with popular sports phrases like "slam dunk," "air ball," "charity stripe," and a "bunny hop in the pea patch" for a traveling violation.
Niall Ferguson: Investing amid uncertainty
Economic historian and author of The Ascent of Money: A Financial History of the World, Niall Ferguson gives his predictions on gold prices, emerging markets and the Swiss franc. Ferguson also tells Dow Jones Veronica Dagher where he's investing his money amid the uncertainty.
Chick's our inspiration today: Last March I wrote "6 reasons I'm calling a bottom and a new bull." Today it's time for a new call. We've had a good year. Net gains over 50% in 2009. But now: "Game over, head for the exits." Bears beating bulls.
No, no, "it's a buying opportunity," says another legend, hedge fund manager, Barton Biggs. Buying opportunity? For who? Remember, Biggs isn't advising Joe Lunchbox about what to do with his little 401(k). Biggs' customers are mega-millionaires in his $1.5 billion Traxis Partners Fund. Main Street investors like Joe are prey in his casino.
Read on, you decide: As you stare from high up in the nose-bleed bleachers watching the game, staring at a Dow that not long ago was above 11,000 and heading for 12,000. Now the Dow's sitting on the bench, ready for the showers, weak after a couple air balls around 10,000. No more timeouts. "This game's in the refrigerator."
How bad is your bookie's point spread in this game? A blowout? Will the Dow drop below 9,000 again? Now that it's broken technical supports, will it drop below 6,470, where the last bull rally started in early 2009? Can you handle the nerve-racking volatility generated by Wall Street's high-frequency traders playing the game at warp-speed with algorithms making thousands of micro-bets in milliseconds, betting billions daily?
So who should you listen to? Barton and I arrived at Morgan Stanley about the same time. He stayed decades longer, became one of the world's leading strategists, advising the kind of high-rollers who also bet at private tables in a Vegas casino.
You remember Biggs: In his book "Wealth, War & Wisdom" he advises his high rollers to prepare for a "breakdown of the civilized infrastructure." Buy a farm: "Your safe haven must be self-sufficient and capable of growing some kind of food ... It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc. Think Swiss Family Robinson." Biggs is not advising small investors on what to do with their 401(k)s.
If you're gambling at Wall Street's casino, folks, the odds-makers are betting against Biggs. It's "game over."
Main Street lost 20% last decade ... yet like sheep keep going back
Yes, if you're channeling Chick, here's your "mixed metaphor" cue card: "This game's in the refrigerator ... Wall Street won (proof, Goldman's $100-million-profit trading days and Blankfein's $68 million bonus) ... Main Street's headed for another losing streak ... Congress' lights are out ... the refrigerator door's closing on financial reforms ... the lobbyists are laying some rotten eggs, poisoning capitalism ... the Tea Party-of-No-No ideologies are hardening ... the bull's Jell-O is jiggling to a flat line ... and this market's going into hibernation, with the bears ... run, don't walk, to the exits, folks."
But will Main Street exit? Will we ever learn? No. The Wall Street casino makes mega-billions for insiders like Blankfein and the Goldman Conspiracy. Yet "The Casino" is still below the 2000 record of 11,722. So after accounting for inflation, Wall Street lost over 20% of Main Street's 401(k) retirement money between 2000 and 2010. Yes, Wall Street's a big loser the past decade. Their advice is self-serving. Period.
Given their miserable track record, only a fool would bet with Wall Street. Betting odds are Wall Street will lose another 20% in the next decade from 2010-2020. Yes, today's market is a "buying opportunity," but only for Wall Street casino insiders like Biggs, Blankfein and even low-level staffers inside "The Casino." But not for our 95 million Main Street investors, there's more pain ahead, this market's dropping.
Correction? New crash imminent, worse than 2008
More proof: Earlier economist Gary Shilling said price-to-earnings ratios are at a "nosebleed 22.5 level." The Dow was around 11,000. Money manager Jeremy Grantham recently said the market's overvalued 40%. That could mean a collapse to 6,600. Last week in Reuters' "Markets Could Be Derailed Again," George Soros echoed a "game over" warning with a "stark warning ... that the financial world is on the wrong track and that we may be hurtling towards an even bigger boom and bust than in the credit crisis."
Now Dow Theory's Richard Russell is warning the public of an imminent crash: "Sell ... get liquid ... by the end of this year they won't recognize the country."
A bigger meltdown than the credit crisis? Yes, Bush's team drove America into a ditch. But now Obama and his money men, Summers, Geithner, Bernanke, are digging the hole deeper. Soros says we have not learned "the lessons that markets are inherently unstable." As a result, "the success in bailing out the system on the previous occasion led to a super-bubble." Now "we are facing a yet larger bubble." Worse than 2008?
Yes, the game may be "in the refrigerator," the lights will go out, but as Soros hints, the electricity may get turned off too. Get it? This may not be a correction. Not even a bear. What's coming could be worse than the 2000 dot-com crash and the 2008 meltdown combined, a "Super-Bubble" says Soros. And the biggest reason, Nouriel Roubini and Stephen Mihm tell Newsweek, is that "the president's half-measures won't fix our failed financial system" because he refuses to "bust up the too-big-to-fail banks."
Yes, Congress will pass something. But unfortunately, as reported on MSNBC, Senator Dodd, the reform bill's sponsor, is a turncoat, working overtime with Wall Street lobbyists "to weaken financial reform," leave us vulnerable to a new, bigger crash in the near future. And Wall Street lobbyists are spending hundreds of millions to kill reform.
'White Swans:' 2000 and 2008 crashes were predictable, next one too
Recently Roubini was interviewed by Charlie Rose in BusinessWeek. His message confirms the worst. Roubini was questioned about his new book, "Crisis Economics." Rose began by asking, "what have we learned from these crises of capitalism?" Roubini could easily have said, "nothing, we learned nothing." His actual reply:
"The first lesson is that crises are not 'black swan' events ... they're not just random outcomes. They are the result of a buildup of financial and policy vulnerability and mistakes -- excessive risk-taking, leverage, debt, and so on." They are 'White Swans' "because these events are predictable. But generation after generation, we seem to forget the past. When there's a bubble, there's euphoria. There's irrational exuberance. Consumers can use their homes like ATM machines. Governments and policy makers are happy because they get reelected. Wall Street makes billions of dollars of profits. Everybody's delusional."
Sound familiar? Yes indeed, in "This Time Is Different: Eight Centuries of Financial Folly," economists Carmen Reinhart and Kenneth Rogoff pinpoint the key signal that will blow the whistle and call the game: The "90% ratio of government debt to GDP is a tipping point in economic growth." For 800 years "you increase it over and beyond a high threshold, and boom!"
Warning, fans, the numbers on the game-clock are flashing wildly. America's ratio is now 92%, thanks to Obama's $1.7 trillion budget, future deficits, exploding debt. Soon, Ka-Booom! Another great nation bites the dust. Depression follows. Goodbye retirement.
Warning: 800 years of history are calling 'game over'
But can't we change destiny? Or are Dodd, Congress, Obama, Wall Street, the Party of No-No and 300 million Americans all just playing their parts in a historical script well-known to historians like Reinhart and Rogoff, Kevin Phillips, Niall Ferguson and others? The message of "This Time Is Different" is very simple:
"We have been here before. No matter how different the latest financial frenzy or crisis always appears, there are usually remarkable similarities from past experience from other countries and from history. ... no country, irrespective of its global importance, appears to be immune to it. The fading memories of borrowers and lenders, policy makers and academics, and the public at large do not seem to improve over time, so the policy lessons on how to 'avoid' the next blow-up are at best limited."
So please listen closely: All the TARP bailouts, stimulus debt and Fed loans won't work. Neither will a new conservative government. This is not a basketball game. We are not channeling Chick Hearn, calling this game before the final buzzer. While we prefer the illusion that "this time really is different," eight centuries of history suggest otherwise:
"The lesson of history, then, is that even as institutions and policy makers improve there will always be a temptation to stretch the limits. ... If there is one common theme to the vast range of crises ... it is that excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom. ... Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang -- confidence collapses, lenders disappear and a crisis hits. ... Highly leveraged economies ... seldom survive forever ... history does point to warnings signs that policy makers can look to access risk -- if only they do not become too drunk with their credit bubble-fueled success and say, as their predecessors have for centuries, 'This time is different'."
No, "this time" it's never different. Get it? In the end, it doesn't matter what happens to the Dodd-Obama financial reforms. The endgame's never a Black Swan, it's a very White Swan well known to historians -- guaranteed, inevitable and inescapable. This time is never different.
The clock's flashing. Huge point spread. Think bear, think crash, think end of capitalism, think Great Depression II ... This is no buying opportunity, this game's in the refrigerator, call it.
Page 1Page 2
Tuesday, May 25, 2010
Monday, May 24, 2010
Sunday, May 23, 2010
An Arts Enclave In Cape Town
URFACING
An Arts Enclave in Cape Town
Pieter Bauermeister for The New York Times
Karen Dudley, who owns a cafe and catering company, moved her business to a larger space in Woodstock.
By JOSEY MILLER
Published: May 23, 2010
JUST southeast of downtown, Woodstock was one of few Cape Town communities to, in part, avoid South Africa’s Group Areas Act. That strict apartheid policy demarcated regions by race, forcefully removing residents; Woodstock, however, managed to maintain aspects of its multiethnic character. While it’s still shedding the coarse complexities of an impoverished past, Woodstock is evolving into the media hub of the country’s “Mother City.”
Map
Woodstock, South Africa
Home to production studios and advertising agencies — as well as to Manhattan-inspired mint apartments that share the streets with historic Victorian architecture — Woodstock is a coveted location for movie and magazine shoots. Some of the most highly regarded structures, once threatened by demolition, are being restored instead.
The revamped Old Biscuit Mill, built in the late 1800s, now hosts the effervescent Saturday morning Neighbourgoods Market (373-375 Albert Road; 27-21-448-1438; neighbourgoodsmarket.co.za). Hipsters, retirees and couples with double-wide strollers sample local bites and beverages, from Brie to ginger beer, at more than 100 booths, many specializing in organic products.
“I’ve always believed in Woodstock,” said Karen Dudley, owner of the Kitchen (111 Sir Lowry Road; 27-21-462-2201; karendudley.co.za), which celebrates its first anniversary this month. Ms. Dudley, who has lived in the neighborhood for nearly a decade, found that her catering company had outgrown her home kitchen. So she moved the business into a space formerly occupied by a fish market, where, she said, “the stench was heinous,” and added a cafe. Now it smells more like her secret Love Potion, the creamy, garlicky dressing that graces her famous Love Sandwiches (starting at 35 rand, or about $4.75 at 7.34 rand to the dollar). Copper cake molds and antique teapots, many used to cook for and serve her celebrity and corporate clients, line the shelves.
“It used to be where you’d come for drugs," Ms. Dudley said of Woodstock. "Now you come for galleries and a delicious lunch.”
A few doors down, stop by South African Print Gallery (107 Sir Lowry Road; 27-21-462-6851; printgallery.co.za), which Gabriel Clark-Brown, the editor of The South African Art Times, opened in 2009; his mission is to showcase printmaking as a fine art. Why Woodstock? “Proximity to city center, low rent and a focus on the arts were paramount,” he said. With an unadorned décor of Cretan stone and bleached wood, the shop lets the work on the walls do the talking; pieces are hung without frames. Prints by, among others, the late, beloved Gabisile Nkosi and the award-winning township artist Linga Diko start at 3,500 rand.
Wind down your day at Woodstock Lounge & Bar (70 Roodebloem Road; 27-21-448-4448), where media professionals pack the place, affectionately known as Wooders, to watch local rugby games. “We’re mostly a bottles bar,” said the bartender, Robin Hesketh. “But I make a mean margarita.” (A Hansa Pilsener goes for 11 rand; margaritas are 25.) This homey spot, filled with picnic benches, love seats and a fireplace, conducts monthly wine tastings and live music weekly, plus a full menu. Try the Blue Fig Pizza, with fig preserves, blue cheese and bacon (62 rand).
An Arts Enclave in Cape Town
Pieter Bauermeister for The New York Times
Karen Dudley, who owns a cafe and catering company, moved her business to a larger space in Woodstock.
By JOSEY MILLER
Published: May 23, 2010
JUST southeast of downtown, Woodstock was one of few Cape Town communities to, in part, avoid South Africa’s Group Areas Act. That strict apartheid policy demarcated regions by race, forcefully removing residents; Woodstock, however, managed to maintain aspects of its multiethnic character. While it’s still shedding the coarse complexities of an impoverished past, Woodstock is evolving into the media hub of the country’s “Mother City.”
Map
Woodstock, South Africa
Home to production studios and advertising agencies — as well as to Manhattan-inspired mint apartments that share the streets with historic Victorian architecture — Woodstock is a coveted location for movie and magazine shoots. Some of the most highly regarded structures, once threatened by demolition, are being restored instead.
The revamped Old Biscuit Mill, built in the late 1800s, now hosts the effervescent Saturday morning Neighbourgoods Market (373-375 Albert Road; 27-21-448-1438; neighbourgoodsmarket.co.za). Hipsters, retirees and couples with double-wide strollers sample local bites and beverages, from Brie to ginger beer, at more than 100 booths, many specializing in organic products.
“I’ve always believed in Woodstock,” said Karen Dudley, owner of the Kitchen (111 Sir Lowry Road; 27-21-462-2201; karendudley.co.za), which celebrates its first anniversary this month. Ms. Dudley, who has lived in the neighborhood for nearly a decade, found that her catering company had outgrown her home kitchen. So she moved the business into a space formerly occupied by a fish market, where, she said, “the stench was heinous,” and added a cafe. Now it smells more like her secret Love Potion, the creamy, garlicky dressing that graces her famous Love Sandwiches (starting at 35 rand, or about $4.75 at 7.34 rand to the dollar). Copper cake molds and antique teapots, many used to cook for and serve her celebrity and corporate clients, line the shelves.
“It used to be where you’d come for drugs," Ms. Dudley said of Woodstock. "Now you come for galleries and a delicious lunch.”
A few doors down, stop by South African Print Gallery (107 Sir Lowry Road; 27-21-462-6851; printgallery.co.za), which Gabriel Clark-Brown, the editor of The South African Art Times, opened in 2009; his mission is to showcase printmaking as a fine art. Why Woodstock? “Proximity to city center, low rent and a focus on the arts were paramount,” he said. With an unadorned décor of Cretan stone and bleached wood, the shop lets the work on the walls do the talking; pieces are hung without frames. Prints by, among others, the late, beloved Gabisile Nkosi and the award-winning township artist Linga Diko start at 3,500 rand.
Wind down your day at Woodstock Lounge & Bar (70 Roodebloem Road; 27-21-448-4448), where media professionals pack the place, affectionately known as Wooders, to watch local rugby games. “We’re mostly a bottles bar,” said the bartender, Robin Hesketh. “But I make a mean margarita.” (A Hansa Pilsener goes for 11 rand; margaritas are 25.) This homey spot, filled with picnic benches, love seats and a fireplace, conducts monthly wine tastings and live music weekly, plus a full menu. Try the Blue Fig Pizza, with fig preserves, blue cheese and bacon (62 rand).
Saturday, May 22, 2010
Are We Headed For Another Market Crash?
Book extract: The Fearful Rise of Markets
By John Authers
Published: May 21 2010 23:13 | Last updated: May 21 2010 23:13
It was early in March 2007 that I realised that two of the world’s markets held each other in a tight and deadly embrace.
A week earlier, global stock markets had suffered the “Shanghai Surprise”, when a 9 per cent fall on the Shanghai stock exchange led to a day of global turmoil. That afternoon on Wall Street, the Dow Jones Industrial Average dropped by 2 per cent in a matter of seconds. A long era of unnatural calm for markets was over.
Watching from the FT’s New York newsroom, I tried to make sense of it. Stocks were rising again, but people were jittery. Currency markets were in upheaval. In what was becoming a nervous tic, I checked the Bloomberg terminal. One screen showed minute-by-minute action in the S&P 500, the main index of the US stock market. Then I called up a minute-by-minute chart of the exchange rate of the Japanese yen against the US dollar. At first I thought I had mistyped. The chart was identical to the S&P.
Had it not been so sinister, it might have been funny. As the day wore on and turned into the next, we in the newsroom watched the two charts snaking across the screen. Every time the S&P rose, the dollar rose against the yen, and vice versa. What on earth was going on?
Correlations like this are unnatural. In the years leading up to the Shanghai Surprise, the yen and the S&P had moved completely independently. They are two of the most liquid markets on earth, traded historically by completely different people, and there are many unconnected reasons why people would exchange in and out of the yen (for trade or tourism), or buy or sell a US stock (thanks to the latest news from corporate America). But since the Shanghai Surprise, statisticians have shown that any move in the S&P is sufficient to explain 40 per cent of moves in the yen, and vice versa. Does this matter? Perhaps more than you might think. These two measures should have nothing in common, which implies that neither market was being priced efficiently. Instead, these entangled markets were driven by the same investors, using the same flood of speculative money.
The Shanghai Surprise, we now know, marked the start of the worst global financial crisis for at least 80 years, and plunged the global economy into freefall in 2009 – the most truly global economic crash on record. Inefficiently priced markets drove this dreadful process. If currencies are buoyed or depressed by speculation, they skew the terms of global trade. Governments’ control over their own economies is compromised if exchange rates render their goods too cheap or too expensive. An excessive oil price can drive the world into recession. Extreme food prices mean starvation for millions. Money pouring into emerging markets stokes inflation and destabilises the economies on which the world now relies for its growth. If credit becomes too cheap and then too expensive for borrowers, then an unsustainable boom is followed by a bust.
And for investors, risk management becomes impossible when all markets move in unison. With nowhere to hide, everyone’s pension plan takes a hit if markets crash together. In one week of October 2008, the value of global retirement assets took a hit of about 20 per cent.
. . .
Such a cataclysm should have purged the speculation from the system for a generation. But by the end of 2009, when I began thinking about writing this book, risky assets were well into a strong resurgence and markets were even more tightly linked than they were in early 2007. Once again it was impossible to tell the difference between charts of the dollar and of the US stock market. Links with the prices of commodities and credit remained perversely tight. Since then some of that fearful symmetry has dwindled, but that is largely thanks to the Greek crisis – which points to other glaring weaknesses.
The financial disaster of 2007 to 2009, then, has not cured any of the underlying factors that led markets to become intertwined and overinflated and to endanger the world economy. This does not mean that another synchronised bubble followed by a crash is inevitable, but it does mean that such an event remains a distinct possibility.
Like many other financial commentators, I had the unnerving experience of trying to disentangle what had happened and explain it in real time, facing a camera each day to try to give a two-minute potted “short view” for FT.com’s video viewers. Having to venture an opinion so publicly and so regularly at least has the advantage that you soon learn when you have got something wrong (FT.com viewers are not backward at coming forward). In the feedback, as many others in the markets tried to nail what was wrong, a few recurring themes began to stand out from the noise. Not all were part of the political dialogue at the time. So I tentatively tried mapping out a book that would give a “short view” of the causes that led our markets to malfunction so badly.
Investment bubbles are rooted in human psychology, so it is inevitable that they should occur from time to time. Markets are driven by the interplay of greed and fear. When greed swamps fear, as it tends to do at least once in every generation, an irrational bubble will result. When the pendulum snaps back to fear, the bubble bursts, causing a crash.
History provides examples from at least as far back as the 17th century “Tulip Mania,” when Dutch merchants paid life savings for a single tulip bulb. Then came the South Sea Bubble in England and the related Mississippi Bubble in France, as investors fell over themselves to finance prospecting in the New World. Later there were bubbles in canals. The Victorian era saw a bubble in US railroad stocks; the 1920s saw a bubble in US stocks, led by the exciting new technology of the motor car.
But the past few decades have seen more and more bubbles. Gold formed a bubble that burst in 1980; Mexican and other Latin American debt suffered the same fate in 1982 and again in 1994; Japanese stocks peaked and collapsed in 1990, followed soon after by Scandinavian banking stocks; stocks of the Asian “Tiger” economies came back to earth in 1997; and the internet bubble burst with the dotcom meltdown of 2000.
Some said this was understandable. From 1950 to 2000, after all, the world saw the renaissance of Germany and Japan, the peaceful end of the cold war, and the rise of the emerging markets – all events that had seemed almost impossible in 1950 – while young and growing populations poured money into stocks. Maybe the bubbles at the end of the century were nothing more than froth after an unrepeatable Golden Age. But since then, the process has gone into overdrive. Bubbles in US house prices and in US mortgage-backed bonds, which started to burst in 2006, gave way to a bubble in Chinese stocks that burst in 2007. The year 2008 saw the bursting of bubbles in oil; industrial metals; foodstuffs; Latin American stocks; Russian stocks; Indian stocks; and even in currencies as varied as sterling, the Brazilian real and the Australian dollar.
And then, 2009 brought one of the fastest rallies in history.
News from the “real world” cannot possibly explain this. Why were markets so much more prone to bubbles? It is fashionable to blame greed. But this makes little sense; it implies that, worldwide, people have suddenly become greedier than they used to be. Greed, surely, is a constant of human nature. Rather, it is more accurate to say that in the past half century, fear has been stripped from investors’ decisions. With greed no longer moderated by fear, investors are left overconfident.
. . .
How did this happen? I suggest it is down to what might be called the fearful rise of markets. Over the decades, the institutionalisation of investment and the spread of markets to cover more of the global economy have inflated and synchronised bubbles. This rise of markets has brought several trends in its wake, all of which seemed to have contributed to the eventual disaster of 2008.
Other people’s money. In the 1950s, investment was a game for amateurs, with less than 10 per cent of the stocks on the New York Stock Exchange held by institutions; now institutions drive each day’s trading. In the past, lending was for professionals, with banks controlling virtually all decisions. Now that role has been taken by the capital markets, which businesses can tap for funding. As economists put it, in both investing and lending, the “principals” have been split from the “agents”. When people make decisions about someone else’s money, they lose their fear and tend to take riskier decisions than they would with their own money.
Herding. The pressures on investors from the investment industry, and from their own clients, are new to this generation, and they magnify the human propensity to crowd together in herds. Professional investors have strong incentives to crowd into investments that others have already made. When the weight of institutions’ money goes to the same place at the same time, bubbles inflate.
Safety in numbers. Not long ago, market indices were compiled weekly by teams of actuaries using slide rules. Stocks, without guaranteed dividends, were regarded as riskier than bonds. Now computerised mathematical models measure risk with precision, and show how to trade it for return. When academics produced these theories, they were nuanced with many caveats. Their psychological impact on investors was cruder. They created the impression that markets could be controlled, and that led to overconfidence. They also promoted the idea that there was safety in diversification – investing in different assets. Diversification per se is almost impossible to argue against, but this notion ended up encouraging risk-taking and led investors into markets they did not understand. This in turn tightened the links between markets.
Moral hazard. As memories of the bank failures of the 1930s grew fainter, governments eventually dismantled the limits imposed on banks in that era. Banks grew much bigger. Government bank rescues made money cheaper while fostering the impression among bankers that there would always be a rescue if they got into trouble. That created moral hazard – the belief that there would be no penalty for taking undue risks. Similarly, big bonuses for short-term performance, with no penalty for longer-term losses, encouraged hedge fund managers and investment bankers to take big short-term risks and further boosted overconfidence.
The rise of markets and the fall of banks. Financial breakthroughs turned assets that were once available only to specialists into tradeable assets that investors anywhere in the world could buy or sell – at a second’s notice. Emerging market stocks, currencies, credit, and commodities once operated in their separate walled gardens and followed their own rules. Now they are all interchangeable financial assets, and when their markets expanded with the influx of money, many risky assets shot upward simultaneously, forming synchronised bubbles. Meanwhile, banks saw their roles usurped by markets. Rather than disappear, they sought new things to do – and were increasingly lured into speculative excesses.
. . .
There is one big problem when it comes to fixing these underlying factors – most of them are good ideas. Most of us need a professional institution to run our money for us; money market funds, or securitised mortgages, are popular because they help people raise money swiftly and cheaply. Further, the propensity to inflate bubbles is in the very fabric of world markets, so any reforms need to be systemic. While the absurdly complicated instruments that created the subprime bubble, such as the synthetic collateralised debt obligations that landed Goldman Sachs into trouble with the Securities and Exchange Commission, should go, the roots of the problem lie far deeper. Finding fixes will involve hard choices.
Making this harder still, any solution must be filtered through human nature. Our tendency to suffer swings of emotion, to move in herds and to expect others to rescue us from the consequences of our actions, are never going to go away. So while I felt quite good about the diagnosis of the problem, I should be much more humble when proposing a solution. But in outline, I do have some ideas how markets can be made more fearful, and maybe more efficient.
Moral hazard. Previous financial crises reined in moral hazard by inflicting grievous losses on key investors. The latest crisis was different – it showed that the US, the UK and other governments would spend trillions of dollars to sustain the biggest financial groups. Now, the belief that risk takers will be rescued is stronger than ever. So air must be taken out of markets that are currently betting that the government dare not let them fail. It is still too soon to do that. But at some point, either by raising interest rates or by allowing a big bank to go down, government must make clear it will not be there to bail out the reckless.
A safe place to start would be the megabanks like Bank of America, which are even bigger as a result of shotgun mergers which were arranged during the crisis. They cannot be allowed to fail; instead, they must be regulated so tightly that they simply are not allowed to gamble, or they must be made smaller. Governments could raise reserve requirements, which in practice would force banks to sell off assets; this need not involve imposing a break-up.
The decline of banks and the rise of markets. The rise of money markets created a new class of bank-like institutions that do not need to buy insurance to protect depositors. This shadow banking system, including money market funds (mutual funds that invest in the money markets), must now be regulated as if they were banks. Reforms to solidify the so-called repo market (in which banks borrow from each other over very short periods, putting up bonds as collateral) are vital. When this market seized up, banks were unable to get short-term funding.
Regulators also need to overhaul the rules that inadvertently spurred banks to pile into mortgage-backed securities and outsource to rating agencies their central function as lenders – figuring out who can pay back a loan and who cannot.
Like unemployed teenage boys, these banks have shown a terrible knack for getting into trouble when left to their own devices. Once money markets are subject to the same regulation as banks, their advantages may evaporate, enabling banks to regain their old businesses of lending. If not, the economy can possibly do without banks in their traditional form. Hedge funds drove many trends to destruction by 2007, but the much-feared disorderly collapse of a big hedge fund did not occur. Instead, it was the inherent instability of banks that brought the roof down. And so for banks, the status quo is not an option.
Other people’s money. Banking system reforms must also address the conflicts between principals and agents that arise whenever those who take on a risk are able to sell that risk to other parties. In securitisation, where some principal-agent split is inevitable, loan originators must be required to hold a significant proportion of their loan portfolio – in other words to “eat their own cooking”. Investment banks that are now public might return to the partnership model. Then the money on the line would be that of the partners themselves, not shareholders. Again, this might not require government intervention. Existing investment banks could go private. Or hedge funds, which increasingly already carry out investment banking functions, could evolve further.
. . .
All of these areas have been amply discussed in the political dialogue, and rightly so. But they all broadly entail what people in the industry call the “sell-side” – the bankers involved in one way or another in selling securities. In fact, the trickiest principal-agent split affects the “buy-side”: investment managers. Asset bubbles on the scale we have recently seen do not happen unless something is going systematically wrong with the way in which our money is invested. It is hard to see how regulation can fix the problem.
The fundamental problem is herding. The herd mentality of the current generation of investment managers is driven by the way they are paid and ranked. Rank them against their peers and an index, and pay them by how much money they manage, and experience shows that they will hug ever closer to each other and to key benchmarks such as the S&P 500. This inflates bubbles. “We see it time and time again, especially in tough times,” said Jim Melcher, a New York hedge fund manager. “Major investors act like a flock of sheep with wolves circling them. They band closer and closer together. You want to be somewhere in the middle of that flock.”
What does he mean by this? Faced with widely published league tables comparing their recent performance to their peers, it does not pay a fund manager to attempt to do much better than everyone else. If they fail, investors will pull their money out. Crowd together with everyone else and there is safety in numbers. And if the market goes up, then so will the fund manager’s portfolio and their percentage management fee – even if they have done nothing more than passively benefit from the overall rise in the market. The way they are paid encourages them to behave like wildebeest on the Serengeti. Somehow, therefore, we must change the way we pay fund managers.
For hedge funds, it is up to investors to refuse to pay fees on the skewed basis that at present encourages them to gear up to “go for broke” each year. Fixed annual fees, and basing any performance fees on periods much longer than one year, makes more sense. In mutual funds, it is far too easy for mediocrities to make money in an upward market. Their fees go up merely for taking in more funds. The practice of closet indexing – investing most of your assets in the companies on one index, but demanding the fees of a more active investor – must be actively discouraged, possibly by requiring “active” funds to publish their “active share” (the amount that their portfolio deviates from the index). Closet indexing might also be rendered less harmful if mainstream index funds moved toward fundamental indexing, weighting their portfolios according to fundamentals such as profits rather than their market price. This would force them to sell stocks as they become overvalued.
Paying managers a fixed fee would no longer reward them merely for accumulating assets, and so funds would be less likely to grow too big. Rewards above a fixed fee should be reserved for genuinely excellent performance only.
But this brings up the greatest problem: how to determine that performance? Benchmarking portfolio managers against their peers, or against a market index, just encourages herding. The solution may lie in the growing effort to understand and measure investing skill. It rests in mental discipline and the ability to resist the temptations of greed, panic and mental shortcuts. By looking at how fund managers perform day by day and trade by trade, psychologists are beginning to identify the truly talented. This effort should continue.
The greatest power rests with those who make big asset allocation decisions – primarily brokers and pension fund consultants. They should follow what is known in the trade as a “barbell” – either their investments are passive, with minimal costs, or they are given to active managers on the basis of their skill, who are paid according to that skill. There is no room for anything in between.
Another needed reform would change the design of investment products so as to deliver everyone from temptation. Rather than give savers a range of choices, give them a well-tailored default option, covering a sensible distribution across the main asset classes, with both passive and active management. To maintain investors’ confidence, it may make sense to declare guaranteed gains along the way, much as the old Victorian model of paternalistic pensions did. All of this would avoid the disaster of the 1990s as many investment managers had no choice but to keep pouring money into internet stocks, thanks to the “irrational exuberance” of their end clients.
The default option would not be compulsory – you can choose something else if you wish. The key is that the default should be a good one and not overloaded by fees. The industry is already moving in this direction. This should restore investors’ confidence, avert the risk that “irrational exuberance” might again drive markets, and limit the worries for all managers about their success in accumulating assets. They would merely have to worry about performing skilfully enough to earn a bonus. But note that many of these changes are subtle, and it is hard for politicians to legislate to introduce them.
. . .
Will these reforms deliver us efficient markets? Theories must change, not just practice. The old theory of diversification prompted overconfidence and created the rush into “uncorrelated” assets that then became linked. Other core assumptions, such as stable correlations over time, random returns and emphasis on allocation by asset classes, have failed. We need a new theory.
Academics are already on the case. Paul Woolley of the London School of Economics believes efficient markets might be salvaged if we can find a way to model the distorting effects of institutions on incentives. Andrew Lo, of the Massachusetts Institute of Technology, suggests markets are complex adaptive systems that can be modelled using Darwinian biology – which implies we are living in an era when a meteor has just hit the earth and we await the successors to the dinosaurs.
But any new model, I now believe, must not aspire to the same precision as the old; finance and economics are contingent on human decision-making and not the laws of nature. Abandon the attempt to predict markets with precision, and we might avert a return to the overconfidence such models created in the past.
As for diversification, it was the search for new “uncorrelated” asset classes that helped lead to disaster. Those who allocate assets must look at the risks those assets bear and leave a margin for error – meaning more in “conservative” assets, and less potential “upside,” than they would like.
Again, thankfully, such ideas are already bubbling through the investment industry. All of these ideas involve putting limits on the wealth that markets can create. That would be akin to the trade-off the world made after the Depression. With the capitalist world ageing, the growth rate we can expect in the next few decades may well be significantly lower than in the second half of the 20th century. But even taking into account that consideration, many people would be happy to make that trade-off again. Such ideas might defer the next asset price bubble for a generation. And after three hectic years attempting each day on video to explain markets that had fundamentally deviated from common sense, it is a trade-off I too would make.
John Authers became head of the FT’s Lex column in April. This is an edited extract from his book ‘The Fearful Rise of Markets’, published next week by the FT Press (price £20). To purchase a copy call the FT book ordering service on 0870 429 5884 or go to www.ft.com/bookshop. John Authers’ last piece for the magazine was a look at the landmark $1.25bn payment by Swiss banks to Holocaust survivors – 10 years on. Read it at www.ft.com/restitution
By John Authers
Published: May 21 2010 23:13 | Last updated: May 21 2010 23:13
It was early in March 2007 that I realised that two of the world’s markets held each other in a tight and deadly embrace.
A week earlier, global stock markets had suffered the “Shanghai Surprise”, when a 9 per cent fall on the Shanghai stock exchange led to a day of global turmoil. That afternoon on Wall Street, the Dow Jones Industrial Average dropped by 2 per cent in a matter of seconds. A long era of unnatural calm for markets was over.
Watching from the FT’s New York newsroom, I tried to make sense of it. Stocks were rising again, but people were jittery. Currency markets were in upheaval. In what was becoming a nervous tic, I checked the Bloomberg terminal. One screen showed minute-by-minute action in the S&P 500, the main index of the US stock market. Then I called up a minute-by-minute chart of the exchange rate of the Japanese yen against the US dollar. At first I thought I had mistyped. The chart was identical to the S&P.
Had it not been so sinister, it might have been funny. As the day wore on and turned into the next, we in the newsroom watched the two charts snaking across the screen. Every time the S&P rose, the dollar rose against the yen, and vice versa. What on earth was going on?
Correlations like this are unnatural. In the years leading up to the Shanghai Surprise, the yen and the S&P had moved completely independently. They are two of the most liquid markets on earth, traded historically by completely different people, and there are many unconnected reasons why people would exchange in and out of the yen (for trade or tourism), or buy or sell a US stock (thanks to the latest news from corporate America). But since the Shanghai Surprise, statisticians have shown that any move in the S&P is sufficient to explain 40 per cent of moves in the yen, and vice versa. Does this matter? Perhaps more than you might think. These two measures should have nothing in common, which implies that neither market was being priced efficiently. Instead, these entangled markets were driven by the same investors, using the same flood of speculative money.
The Shanghai Surprise, we now know, marked the start of the worst global financial crisis for at least 80 years, and plunged the global economy into freefall in 2009 – the most truly global economic crash on record. Inefficiently priced markets drove this dreadful process. If currencies are buoyed or depressed by speculation, they skew the terms of global trade. Governments’ control over their own economies is compromised if exchange rates render their goods too cheap or too expensive. An excessive oil price can drive the world into recession. Extreme food prices mean starvation for millions. Money pouring into emerging markets stokes inflation and destabilises the economies on which the world now relies for its growth. If credit becomes too cheap and then too expensive for borrowers, then an unsustainable boom is followed by a bust.
And for investors, risk management becomes impossible when all markets move in unison. With nowhere to hide, everyone’s pension plan takes a hit if markets crash together. In one week of October 2008, the value of global retirement assets took a hit of about 20 per cent.
. . .
Such a cataclysm should have purged the speculation from the system for a generation. But by the end of 2009, when I began thinking about writing this book, risky assets were well into a strong resurgence and markets were even more tightly linked than they were in early 2007. Once again it was impossible to tell the difference between charts of the dollar and of the US stock market. Links with the prices of commodities and credit remained perversely tight. Since then some of that fearful symmetry has dwindled, but that is largely thanks to the Greek crisis – which points to other glaring weaknesses.
The financial disaster of 2007 to 2009, then, has not cured any of the underlying factors that led markets to become intertwined and overinflated and to endanger the world economy. This does not mean that another synchronised bubble followed by a crash is inevitable, but it does mean that such an event remains a distinct possibility.
Like many other financial commentators, I had the unnerving experience of trying to disentangle what had happened and explain it in real time, facing a camera each day to try to give a two-minute potted “short view” for FT.com’s video viewers. Having to venture an opinion so publicly and so regularly at least has the advantage that you soon learn when you have got something wrong (FT.com viewers are not backward at coming forward). In the feedback, as many others in the markets tried to nail what was wrong, a few recurring themes began to stand out from the noise. Not all were part of the political dialogue at the time. So I tentatively tried mapping out a book that would give a “short view” of the causes that led our markets to malfunction so badly.
Investment bubbles are rooted in human psychology, so it is inevitable that they should occur from time to time. Markets are driven by the interplay of greed and fear. When greed swamps fear, as it tends to do at least once in every generation, an irrational bubble will result. When the pendulum snaps back to fear, the bubble bursts, causing a crash.
History provides examples from at least as far back as the 17th century “Tulip Mania,” when Dutch merchants paid life savings for a single tulip bulb. Then came the South Sea Bubble in England and the related Mississippi Bubble in France, as investors fell over themselves to finance prospecting in the New World. Later there were bubbles in canals. The Victorian era saw a bubble in US railroad stocks; the 1920s saw a bubble in US stocks, led by the exciting new technology of the motor car.
But the past few decades have seen more and more bubbles. Gold formed a bubble that burst in 1980; Mexican and other Latin American debt suffered the same fate in 1982 and again in 1994; Japanese stocks peaked and collapsed in 1990, followed soon after by Scandinavian banking stocks; stocks of the Asian “Tiger” economies came back to earth in 1997; and the internet bubble burst with the dotcom meltdown of 2000.
Some said this was understandable. From 1950 to 2000, after all, the world saw the renaissance of Germany and Japan, the peaceful end of the cold war, and the rise of the emerging markets – all events that had seemed almost impossible in 1950 – while young and growing populations poured money into stocks. Maybe the bubbles at the end of the century were nothing more than froth after an unrepeatable Golden Age. But since then, the process has gone into overdrive. Bubbles in US house prices and in US mortgage-backed bonds, which started to burst in 2006, gave way to a bubble in Chinese stocks that burst in 2007. The year 2008 saw the bursting of bubbles in oil; industrial metals; foodstuffs; Latin American stocks; Russian stocks; Indian stocks; and even in currencies as varied as sterling, the Brazilian real and the Australian dollar.
And then, 2009 brought one of the fastest rallies in history.
News from the “real world” cannot possibly explain this. Why were markets so much more prone to bubbles? It is fashionable to blame greed. But this makes little sense; it implies that, worldwide, people have suddenly become greedier than they used to be. Greed, surely, is a constant of human nature. Rather, it is more accurate to say that in the past half century, fear has been stripped from investors’ decisions. With greed no longer moderated by fear, investors are left overconfident.
. . .
How did this happen? I suggest it is down to what might be called the fearful rise of markets. Over the decades, the institutionalisation of investment and the spread of markets to cover more of the global economy have inflated and synchronised bubbles. This rise of markets has brought several trends in its wake, all of which seemed to have contributed to the eventual disaster of 2008.
Other people’s money. In the 1950s, investment was a game for amateurs, with less than 10 per cent of the stocks on the New York Stock Exchange held by institutions; now institutions drive each day’s trading. In the past, lending was for professionals, with banks controlling virtually all decisions. Now that role has been taken by the capital markets, which businesses can tap for funding. As economists put it, in both investing and lending, the “principals” have been split from the “agents”. When people make decisions about someone else’s money, they lose their fear and tend to take riskier decisions than they would with their own money.
Herding. The pressures on investors from the investment industry, and from their own clients, are new to this generation, and they magnify the human propensity to crowd together in herds. Professional investors have strong incentives to crowd into investments that others have already made. When the weight of institutions’ money goes to the same place at the same time, bubbles inflate.
Safety in numbers. Not long ago, market indices were compiled weekly by teams of actuaries using slide rules. Stocks, without guaranteed dividends, were regarded as riskier than bonds. Now computerised mathematical models measure risk with precision, and show how to trade it for return. When academics produced these theories, they were nuanced with many caveats. Their psychological impact on investors was cruder. They created the impression that markets could be controlled, and that led to overconfidence. They also promoted the idea that there was safety in diversification – investing in different assets. Diversification per se is almost impossible to argue against, but this notion ended up encouraging risk-taking and led investors into markets they did not understand. This in turn tightened the links between markets.
Moral hazard. As memories of the bank failures of the 1930s grew fainter, governments eventually dismantled the limits imposed on banks in that era. Banks grew much bigger. Government bank rescues made money cheaper while fostering the impression among bankers that there would always be a rescue if they got into trouble. That created moral hazard – the belief that there would be no penalty for taking undue risks. Similarly, big bonuses for short-term performance, with no penalty for longer-term losses, encouraged hedge fund managers and investment bankers to take big short-term risks and further boosted overconfidence.
The rise of markets and the fall of banks. Financial breakthroughs turned assets that were once available only to specialists into tradeable assets that investors anywhere in the world could buy or sell – at a second’s notice. Emerging market stocks, currencies, credit, and commodities once operated in their separate walled gardens and followed their own rules. Now they are all interchangeable financial assets, and when their markets expanded with the influx of money, many risky assets shot upward simultaneously, forming synchronised bubbles. Meanwhile, banks saw their roles usurped by markets. Rather than disappear, they sought new things to do – and were increasingly lured into speculative excesses.
. . .
There is one big problem when it comes to fixing these underlying factors – most of them are good ideas. Most of us need a professional institution to run our money for us; money market funds, or securitised mortgages, are popular because they help people raise money swiftly and cheaply. Further, the propensity to inflate bubbles is in the very fabric of world markets, so any reforms need to be systemic. While the absurdly complicated instruments that created the subprime bubble, such as the synthetic collateralised debt obligations that landed Goldman Sachs into trouble with the Securities and Exchange Commission, should go, the roots of the problem lie far deeper. Finding fixes will involve hard choices.
Making this harder still, any solution must be filtered through human nature. Our tendency to suffer swings of emotion, to move in herds and to expect others to rescue us from the consequences of our actions, are never going to go away. So while I felt quite good about the diagnosis of the problem, I should be much more humble when proposing a solution. But in outline, I do have some ideas how markets can be made more fearful, and maybe more efficient.
Moral hazard. Previous financial crises reined in moral hazard by inflicting grievous losses on key investors. The latest crisis was different – it showed that the US, the UK and other governments would spend trillions of dollars to sustain the biggest financial groups. Now, the belief that risk takers will be rescued is stronger than ever. So air must be taken out of markets that are currently betting that the government dare not let them fail. It is still too soon to do that. But at some point, either by raising interest rates or by allowing a big bank to go down, government must make clear it will not be there to bail out the reckless.
A safe place to start would be the megabanks like Bank of America, which are even bigger as a result of shotgun mergers which were arranged during the crisis. They cannot be allowed to fail; instead, they must be regulated so tightly that they simply are not allowed to gamble, or they must be made smaller. Governments could raise reserve requirements, which in practice would force banks to sell off assets; this need not involve imposing a break-up.
The decline of banks and the rise of markets. The rise of money markets created a new class of bank-like institutions that do not need to buy insurance to protect depositors. This shadow banking system, including money market funds (mutual funds that invest in the money markets), must now be regulated as if they were banks. Reforms to solidify the so-called repo market (in which banks borrow from each other over very short periods, putting up bonds as collateral) are vital. When this market seized up, banks were unable to get short-term funding.
Regulators also need to overhaul the rules that inadvertently spurred banks to pile into mortgage-backed securities and outsource to rating agencies their central function as lenders – figuring out who can pay back a loan and who cannot.
Like unemployed teenage boys, these banks have shown a terrible knack for getting into trouble when left to their own devices. Once money markets are subject to the same regulation as banks, their advantages may evaporate, enabling banks to regain their old businesses of lending. If not, the economy can possibly do without banks in their traditional form. Hedge funds drove many trends to destruction by 2007, but the much-feared disorderly collapse of a big hedge fund did not occur. Instead, it was the inherent instability of banks that brought the roof down. And so for banks, the status quo is not an option.
Other people’s money. Banking system reforms must also address the conflicts between principals and agents that arise whenever those who take on a risk are able to sell that risk to other parties. In securitisation, where some principal-agent split is inevitable, loan originators must be required to hold a significant proportion of their loan portfolio – in other words to “eat their own cooking”. Investment banks that are now public might return to the partnership model. Then the money on the line would be that of the partners themselves, not shareholders. Again, this might not require government intervention. Existing investment banks could go private. Or hedge funds, which increasingly already carry out investment banking functions, could evolve further.
. . .
All of these areas have been amply discussed in the political dialogue, and rightly so. But they all broadly entail what people in the industry call the “sell-side” – the bankers involved in one way or another in selling securities. In fact, the trickiest principal-agent split affects the “buy-side”: investment managers. Asset bubbles on the scale we have recently seen do not happen unless something is going systematically wrong with the way in which our money is invested. It is hard to see how regulation can fix the problem.
The fundamental problem is herding. The herd mentality of the current generation of investment managers is driven by the way they are paid and ranked. Rank them against their peers and an index, and pay them by how much money they manage, and experience shows that they will hug ever closer to each other and to key benchmarks such as the S&P 500. This inflates bubbles. “We see it time and time again, especially in tough times,” said Jim Melcher, a New York hedge fund manager. “Major investors act like a flock of sheep with wolves circling them. They band closer and closer together. You want to be somewhere in the middle of that flock.”
What does he mean by this? Faced with widely published league tables comparing their recent performance to their peers, it does not pay a fund manager to attempt to do much better than everyone else. If they fail, investors will pull their money out. Crowd together with everyone else and there is safety in numbers. And if the market goes up, then so will the fund manager’s portfolio and their percentage management fee – even if they have done nothing more than passively benefit from the overall rise in the market. The way they are paid encourages them to behave like wildebeest on the Serengeti. Somehow, therefore, we must change the way we pay fund managers.
For hedge funds, it is up to investors to refuse to pay fees on the skewed basis that at present encourages them to gear up to “go for broke” each year. Fixed annual fees, and basing any performance fees on periods much longer than one year, makes more sense. In mutual funds, it is far too easy for mediocrities to make money in an upward market. Their fees go up merely for taking in more funds. The practice of closet indexing – investing most of your assets in the companies on one index, but demanding the fees of a more active investor – must be actively discouraged, possibly by requiring “active” funds to publish their “active share” (the amount that their portfolio deviates from the index). Closet indexing might also be rendered less harmful if mainstream index funds moved toward fundamental indexing, weighting their portfolios according to fundamentals such as profits rather than their market price. This would force them to sell stocks as they become overvalued.
Paying managers a fixed fee would no longer reward them merely for accumulating assets, and so funds would be less likely to grow too big. Rewards above a fixed fee should be reserved for genuinely excellent performance only.
But this brings up the greatest problem: how to determine that performance? Benchmarking portfolio managers against their peers, or against a market index, just encourages herding. The solution may lie in the growing effort to understand and measure investing skill. It rests in mental discipline and the ability to resist the temptations of greed, panic and mental shortcuts. By looking at how fund managers perform day by day and trade by trade, psychologists are beginning to identify the truly talented. This effort should continue.
The greatest power rests with those who make big asset allocation decisions – primarily brokers and pension fund consultants. They should follow what is known in the trade as a “barbell” – either their investments are passive, with minimal costs, or they are given to active managers on the basis of their skill, who are paid according to that skill. There is no room for anything in between.
Another needed reform would change the design of investment products so as to deliver everyone from temptation. Rather than give savers a range of choices, give them a well-tailored default option, covering a sensible distribution across the main asset classes, with both passive and active management. To maintain investors’ confidence, it may make sense to declare guaranteed gains along the way, much as the old Victorian model of paternalistic pensions did. All of this would avoid the disaster of the 1990s as many investment managers had no choice but to keep pouring money into internet stocks, thanks to the “irrational exuberance” of their end clients.
The default option would not be compulsory – you can choose something else if you wish. The key is that the default should be a good one and not overloaded by fees. The industry is already moving in this direction. This should restore investors’ confidence, avert the risk that “irrational exuberance” might again drive markets, and limit the worries for all managers about their success in accumulating assets. They would merely have to worry about performing skilfully enough to earn a bonus. But note that many of these changes are subtle, and it is hard for politicians to legislate to introduce them.
. . .
Will these reforms deliver us efficient markets? Theories must change, not just practice. The old theory of diversification prompted overconfidence and created the rush into “uncorrelated” assets that then became linked. Other core assumptions, such as stable correlations over time, random returns and emphasis on allocation by asset classes, have failed. We need a new theory.
Academics are already on the case. Paul Woolley of the London School of Economics believes efficient markets might be salvaged if we can find a way to model the distorting effects of institutions on incentives. Andrew Lo, of the Massachusetts Institute of Technology, suggests markets are complex adaptive systems that can be modelled using Darwinian biology – which implies we are living in an era when a meteor has just hit the earth and we await the successors to the dinosaurs.
But any new model, I now believe, must not aspire to the same precision as the old; finance and economics are contingent on human decision-making and not the laws of nature. Abandon the attempt to predict markets with precision, and we might avert a return to the overconfidence such models created in the past.
As for diversification, it was the search for new “uncorrelated” asset classes that helped lead to disaster. Those who allocate assets must look at the risks those assets bear and leave a margin for error – meaning more in “conservative” assets, and less potential “upside,” than they would like.
Again, thankfully, such ideas are already bubbling through the investment industry. All of these ideas involve putting limits on the wealth that markets can create. That would be akin to the trade-off the world made after the Depression. With the capitalist world ageing, the growth rate we can expect in the next few decades may well be significantly lower than in the second half of the 20th century. But even taking into account that consideration, many people would be happy to make that trade-off again. Such ideas might defer the next asset price bubble for a generation. And after three hectic years attempting each day on video to explain markets that had fundamentally deviated from common sense, it is a trade-off I too would make.
John Authers became head of the FT’s Lex column in April. This is an edited extract from his book ‘The Fearful Rise of Markets’, published next week by the FT Press (price £20). To purchase a copy call the FT book ordering service on 0870 429 5884 or go to www.ft.com/bookshop. John Authers’ last piece for the magazine was a look at the landmark $1.25bn payment by Swiss banks to Holocaust survivors – 10 years on. Read it at www.ft.com/restitution
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