The House on the Lake

The Martins use to live in a lovely house in Pleasantville. The town was unusual in that it was situated on top of a body of water.


It was an enormous lake that was designed to be in the center of the town. The homes were built around the lake so all the citizens could enjoy the majesty and all of the benefits the lake had to offer.

People came from all over the country to live here because it was so spectacular. And because of this, the local business community flourished. The local bankers and the housing sector benefited the most because of the great demand to buy homes there.

As people continued to move to the town, loans were made to home  buyers and in turn the builders employed thousands of workers to make these homes. The municipal employees that lived and worked there also benefited from the steady work and excellent benefits that the town offered.

Pleasantville was one of the nicest places to live in the world.

There was, however, one small problem. The lake was man made. It always needed an influx of water to sustain itself. Without the water, the lake would dry up, become barren and, in essence, destroy the community. The townspeople knew their livelihood and the value of their homes depended upon the lake being full for if it were to dry up,  property values would plummet, the banks would go bust, and Pleasantville would be no more

The municipality, knowing this, bought water by the truckloads and filled the lake each week. But over time, this got to be a prohibitively expensive and they had to raise taxes on the homeowners to cover this cost. At first it worked but then the  homeowners couldn’t keep paying higher and higher taxes necessary to purchase and transport the water.

So, the municipality decided to print money called Pleasantville dollars. The town started to use this “extra” money to truck in the water, and for a while it worked because  the water suppliers knew that Pleasantville was good for the money. Afterall, it was wealthy, had the best economy and now, a seemingly endless supply of dollars.

Then something happened. The town became addicted to the new money and started to spend it like crazy. Eventually it ran up enormous debts.  Plus,with so  many new dollars in circulation, the value of the Pleasantville dollars started to decline. So, the all its creditors stopped taking the dollars for payment.

When that happened, the suppliers of water stopped bringing water to fill the lake.

Without water, the lake began to evaporate and its level recede. In short order, the beautiful waterfront homes sat on top of a bowl of dry land. A dust bowl.  Because of this, home prices started to decline. People who were overextended on their home loans walked just away from their houses. Banks went bust. People were laid off.  In a few short years Pleasantville became a ghost town.

Sounds like a fairy tale gone wrong right? Well it isn’t. In the last 10 years, this fairy tale gone bad has happened here in the U.S and overseas.

In 2003, Nakheel properties embarked on an ambitious real estate project in Dubai. They literally began pouring sand and concrete into the sea to create a series of islands called “The World”. It was meant to encompass 300 islands covering anywhere form 14,000 to 42,000 square meters. The result? The project defaulted in 2008 (estimated at over 10 billion dollars) and the islands are slowly sinking back into the sea. Like Pleasantville, “The World” was meant to be an oasis of sorts for the world’s wealthy; but, in the end the financial ruin of that project caused devastation in Dubai.

Then there is China. Flush with cash and wanting to take part in the global economic boom, it created hundreds of ghost cities. These are actual cities with high rises and shopping malls. Some of them are the size of Madrid and Hong Kong yet nobody lives in them. They remain totally uninhabited. Economists believe that given the amount of people in China, Communist Party planners created theses cities thinking they would provide jobs and head off the civil unrest that massive unemployment can bring.

So you think the U.S is immune to these types of shenanigans?

The U.S just went through one of its worst recessions in history when the housing bubble burst because of mass hysteria surrounding the belief that the road to wealth was paved through home ownership…not responsible home ownership. Just ownership.

In our tale, the Martin family from Pleasantville went bankrupt. They were unable to pay the mortgage and forced to move to a new city where they are starting over. If it were just a fairy tale gone wrong, we could shrug it off and not retell the story. But the story is being acted out every days as countless Americans have been forced to move and start over. Its so easy to understand the confusion, followed by the anger and mistrust, at those whose solution had been to print more money and create more irresponsible home ownership.

You see, so many of these now wandering Americans thought they had already arrived in Pleasantville… and the view of the lake was just lovely and, of course, would remain that way.




Things That Ain’t So

“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”

Mark Twain

Over the last 40 years, we have been bombarded with news about a variety of environmental disasters that await us.  The first to be  promulgated by the press was over population. This perceived threat to mankind was so grave that some governments started legislating and implementing polices to stem the impending doom.

polar bear on wall street

The over population bomb, promoted by Paul Ehrlrich, proposed solutions to make the planet’s resources last longer lest we end up with global famine.  His ideas were not only not dismissed outright, they actually found a home in think tanks and even within some governmental agencies. Some of Ehrlich’s ideas included taxes on diapers and children, covert sterilization of the public through their drinking water, and spiking foreign food aid with anti-fertility drugs.

Ehrlich’s theories were taken seriously by many.  China went so far as to implement a one child policy in the late 1970’s  which resulted, by some estimates, in China aborting millions of infants. One of the main consequences of the policy was that it left China with a subsequent preponderance of men. Social scientists in China say the upcoming census results could reveal a gender ratio of 122 boys born for every 100 girls. Under natural conditions, there are typically 105-106 boys for every 100 girls.”

To better understand that number in 2010, the Economist ran a cover story highlighting the fact that over 100 million baby girls are “missing” – dead through sex-selective abortion, infanticide and general neglect.  Ehrlrich’s forecast, as well as China’s implementation of such fears in the form of law, caused massive devastation in China. The reality is that there are financial, not to mention spiritual, consequences for killing millions of babies. What does it say about a nation that would commit such violence against its most helpless members of society?

Or, take the latest scare issued from the environmental movement. We have been warned incessantly about the threats of Global Cooling, followed by Global Warming and, now finally, the main stream media has settled on “Climate Change” (I guess that covers their bases on both heating an cooling!) as the greatest threat to mankind. It seems that the environmental movement is continually looking for a new bogey man to scare the public; hence the ever changing threats to mankind.

I think what has disturbed me most about the latest environmental debate are the arguments made by the Climate Change proponents:

  • All the scientists now agree we have a problem with “Climate Change”
  • All the data is in on “Climate Change” and we have to act now!

These types of statements lead me to ask: “Why is there such a rush to cut off the debate?”

History is replete with theories that we once believed true that were not so. For eons, humans believed the world was flat until the 1500’s, and it was accepted fact that the earth was the center of the universe… prior to Copernicus dispelling that myth.

Having the benefit of hindsight and, of course, history, it seems ridiculous that anyone could have believed the world to be flat or the earth the center of the universe, but we did. If it hadn’t been the work of scientists who continued to question and test our assumptions where would humanity be?  Just imagine if the leading political powers back then had only funded scientists who believed in the flat earth doctrine! It seems ridiculous right? But isn’t that what’s happening today? Only proponents of Climate Change are deemed credible and legitimate recipients of funding.  But, what if in 20 or 30 years we look back and it turns out Climate Change was an expertly marketed false belief…not a fact?  Where are we then having closed off legitimate debate?

I would argue the essence of science itself is a series of questioning and testing of hypotheses that are meant to continue to explore and unlock the mysteries of our world. It seems the whole notion of cutting off the debate and settling “Climate Change” is political in nature not based in science.

Every human being benefits from a healthier and more robust planet. Our food, medicine and roles of stewardship of the earth is a responsibility upon each of us. No one I’ve ever met likes smog or pollution. So with statements like “All the science is in and its settled” there must be a hidden agenda because humanity can only benefit from continued intelligent dialogue, some of which raises legitimate questions as yet unanswered.

One of the main beneficiaries of the global change movement, if implemented in full, would be Wall Street and the United Nations.  The U.N would be the governing body and arbitrators of carbon emissions, while Wall Street would be the marketplace in which these credits would trade.  Climate change advocates believe that carbon emissions are one of the biggest contributors to global warming. The U.N. would set  quotas on the amount of carbon emission that companies could produce. In addition, the U.N. would also determine which companies, and their projects, were eligible for carbon credits.

To understand how this works in practice look at the following transaction: Costco produces 10 million in carbon emissions that have to be offset. They would have to buy 10 million in carbon credits from a carbon credit producer.( for example, a tree farm would be a carbon credit producer). Enter Wall Street.  Financial Institutions and traders would set up the exchanges where sellers of carbon credits would interface with carbon credit producers. Wall Street would be extremely happy because they would make money on both sides of such trades.

Given the declining revenues on Wall Street, now more than ever, they need a new product through which to fleece the unsuspecting public. The United Nations (and governing bodies all over the world) would be happy as they would have more power.  The U.N would be able to dole out carbon credit projects to their friends and family, thereby enriching themselves. Finally, the violators of excess carbon production could be shaken down and fleeced by the political class and other regulatory bodies. Everyone prospers…well, not everyone.

Everyone but the general population.

In the aftermath of the 2008 financial crisis, what we learned is that the wealthiest  and most powerful institutions were saved by the government at the expense of the taxpayer and the middle class. The Climate Change Movement has the same formula in place; fleece the middle class in order for money to flow to a select few and into the most powerful institutions in the world.

Prior to the real estate crisis of 2008, the government sold home ownership as the ultimate form of wealth and we know where that got us.  In 2016, they and the financial markets are selling a new product: Climate Change.

We all need to help save the planet from carbon emissions and…oh yes… the middle class can pick up the tab one more time.



The China Miracle

I have worked in emerging markets for over 20 years and I have been fascinated by the China story as the massive growth of that economy has lead to many serious issues within China that need to be resolved in order for that economy to continue to grow. Given the worldwide economic slowdown, the world needs China more than ever.

chinadragonMost economists and market participants believe the next century will belong to China just as the last century belonged to the U.S.

In order to understand how China has grown over the last 30 years, it is is important to understand how the U.S first became the dominant player in the global market.

A big component, and less understood success, of the U.S economy has been the influence of England upon our culture which installed a firm belief in property rights and rule of law. The fact is we are a former colony of the U.K and benefited from their political and economic systems as our country was formed. We are also a Judaeo-Christian culture which underpins the governing principles in all of our dealings. The main tenants of don’t “lie, cheat or steal” are taught to our children at an early age. The adage of “do onto others as you would have them do unto you” is also a commonly understood refrain in the business community.

The point is that in Western Culture there is an explicit understanding that in order to make money a service has to be provided that benefits the customer. This culture has been nurtured and reinforced for hundreds of years, and it is on this rock that our Nation was built.

Although China is a much older culture then ours, it’s guiding principle is “To be rich is glorious.” This was articulated by Deng Xiaoping, a Chinese communist leader, who led China after the Cultural Revolution and implemented the “socialist market economy.”

The Cultural Revolution occurred between 1958-1976 and was a movement to purge capitalism from China. The campaign was aimed at rapidly transforming the country from an agrarian economy into a socialist society through rapid industrialization and collectivization.

Chinese citizens went through a mandatory agricultural collectivization while prohibiting private farming. This campaign caused famine and revolution and ended in catastrophe, resulting in tens of millions of deaths.  Estimates of the death toll range from 18 million to 45 million.

Deng Xiaoping’s simple statement which he uttered in 1976 on wealth, sent a massive signal to the Chinese masses that the cultural revolution was over and that China was in business.  So, the population went to work as quickly as possible to make as much money as possible. China’s growth has been outstanding as China’s GDP has grown at a 9% clip since 1989. To put that in context, the U.S. is ecstatic when growth rates are above 3%.

Because China is still a Socialist State, there is a collective push in everything they do. Part of this collective push has been to limit the population growth. Currently, the population in China is around 1.3 billion. In addition all actions, goals and desires are subject to the collective goals of the State which include, but are not limited to, restricting religious affiliation. The Chinese government’s belief is that  religion discourages loyalty to the State and encourages independence of thought which is anathema to the State.

Which leads to the problems in China. Given that there is no cultural institutions that foster cultural norms, and principles such as truth and honesty, Deng Xiaoping’s directive of becoming rich has been the driving principle behind all of China’s dealings.

This tenant getting rich at all costs has become a problem for China and has led to societal erosion. Here are a few examples:

  • In the early 2000’s a woman became famous for suing a stranger who found her lying on the sidewalk and took her to a hospital. She claimed that he had pushed her to the ground in an attempt to catch a bus. Her injuries cost thousands of dollars and the courts convicted him, without any evidence, because the judge ruled no ordinary person would help somebody unless he had caused the injury.
  • In 2008, thousands of babies became sick from tainted milk powder. The company responsible for this had paid off government regulators for inspection-free privileges.
  • Mengniu, a milk company in China operating under declining profit margins, started to add water and a chemical called melamine to hide the dilution which led to dozens of deaths and thousands of hospitalizations.
  • It is common knowledge that cooking oil in China  is often laced with oil and food waste gathered from the gutters. Anyone with economic means avoids these products.

These are a just a small sample of some of the legal and business practices in China. As a result, the Chinese prefer multi-national food products over domestic products for safety reasons. You know things are bad when the Chinese themselves prefer to buy products from foreigners because they have no faith in the ethics of their Chinese brethren.

Another example of the belief in results over principles has led to China building massive “phantom” cities as this construction has improved their GDP numbers. Go on YouTube and search for phantom cities to see these remarkable monstrosities that exist but have no private or commercial inhabitants.!

Given the global slowdown taking place throughout the world, economist’s wait with baited breath for the China miracle to continue. But, Americans need to be astute about what is happening in the world and realize the critical importance of cultural norms and values. They are the basis from which economic growth proceeds and is ultimately measured.

For the U.S. economy to continue to grow, we must inspire and nurture the national virtues that have sustained us since the founding of our  country lest we morph into “a China,” where its own citizen have no faith in the products they themselves produce. The hope is that Chinese will  foster sound virtues and business practices which will allow them to take the lead in a new and robust economic world order.

Should they fail in taking that necessary next step… we are all doomed.

This article was inspired by these two great books on China:

Tiger Woman On Wall Street

Mr. China