Brevis sit et vana huius seculi fallax gloria

- Beware Invisible Hands

Jacques de Vitry penned these words after seeing the near naked, stinking, and looted body of Pope Innocent III lying in distressed state in Perugia.  Less than one year after declaring the Magna Carta null and void as a concession to his loyal subject King John, this most influential pontiff was desecrated by those who saw more value in his burial clothes than in the legacy he tried to carve out of the medieval hornets nest of Europe.  Having presided over the fourth Lateran Council giving Papal State rulers sanction to burn, behead, torture, and otherwise torment anyone capriciously deemed to question the lofty office of the church, Pope Innocent III, in many respects the perpetrator of such unspeakable acts of tyranny, played a central role in creating the conditions which made the Barons' demands at Runnymede so pressing. This week's 800th anniversary celebration of the Magna Carta reminds us of the sad tale of the power of dogmatic tyranny over pragmatic humanity. 

Pope Innocent III's objection to the Magna Carta is noteworthy for a number of reasons.  Like his own papal decrees, it is suitably anti-Semitic in its disdain for the necessary financial services provided by Jews.  Given the Christian predilection of consuming beyond ones means and thereby incurring debts - many of which survived the life of the debtor - the Jews who were capable of providing interest-bearing loans to Christians were taxed by the church and crown in a bizarre, morally remote money-laundering scheme.  The pope had a similar scheme.  Like the pope's rules, the Magna Carta made it clear that clerics had equivalent or higher preference to the feudal lords and enjoyed considerable favored treatment.  In short, when it comes to conscripted service, money-lending, and property rights, there's quite a high degree of similarity between Innocent's own rules and the Magna Carta.

So what is it that was so offensive that the Pope had to declare the Barons' mandates null and void?  The answer is really quite subtle.  In a regime defined by a supreme ruler who had dominion over every regent in the empire, the Barons made copious references to the need to have due process, witnesses to offenses, and independent juries of peers.  These procedural mandates - a cornerstone of modern jurisprudence - threatened the economic interest of the church and thereby constituted heresy.  And behind the Pope's objection to the Magna Carta for the benefit of King John was a not-so-well publicized spate between the two just a few years earlier which had resulted in the Pope excommunicating King John from the church.  When Pope Innocent III appointed Stephen Langton to serve as the Archbishop of Canterbury, King John objected.  The Pope proceeded to place a restriction on all rites (mass, marriage, etc) anywhere in England and in retaliation, John confiscated property of the church and imposed levies on the clergy.  Meanwhile, France's Phillip II was rapidly confiscating land in France occupied by John and, when both the Pope and John realized that they needed each other to check the aspirations of Phillip II and liberty-minded English Barons, John agreed to recognize Langton and the Pope reinstated John.

This week we will celebrate the 800th anniversary of the signing of the Magna Carta.  This celebration suffers greatly in its hopelessly romantic nostalgia.  While the document - like many other idealist impulses (the Hammurabi Code, the U.S. Constitution, the Declaration of Human Rights) - marks an important impulse in the response to abuse and dominion, it also reifies the hopelessness of such impulses in the face of the fisted "invisible hand".  While Adam Smith extolled the virtues of the invisible hand when it was associated with the beneficial field effects of actions taken by individuals which had greater than anticipated salutatory consequences, his recognition of benefit did not extend across the entire value chain. 

We are standing idly by while secret agreements are being forged by corporate privateers under the auspices of the White House in the Trans-Pacific Partnership agreement.  Like the Innocent III and King John secret negotiations of 800 years ago, the need for maniacal dictators to act in the paternalistic interest of the governed is as dangerous now as it was then.  And the expediency - the elusive siren seducing a President who vowed to run the most transparent White House - is to the TPP what the promise of France was to John - an empty illusion with hundreds of years of conflict insured to ensue. 

Why is this relevant to our discussions about the economy?  The answer is quite simple.  We all pay a price for risk.  Geopolitical upheaval adds costs to goods and services.  Supply chain disruptions effect employment and trade.  And the more we have cause to doubt the certainty of operating conditions, the more we see risk premiums in price.  Which brings me to the real point.  I think that the TPP secrecy has nothing to do with secrecy.  I think this is a phenomenally corrupt tool in the emptying toolbox of economic brinksmanship.  The TPP is America's last gasp at confusing the influence of China across the Pacific.  However, this is as wrong-headed as was John's calculus on Pope Innocent III's hollow support in his nullification of the Magna Carta.  Like the Papal States, China does not need to concern itself with the petty trade skirmishes with its Pacific neighbors.  If China wants, it can turn inward (as did Italy, Germany and France during the 13th - 18th centuries) and ignore the "heresies" in the periphery.  And if the U.S. insists on seeing China as a threat, we'll spend the next 500 years trading more violence than value. 

"Brief and empty is the deceptive glory of this world," was not a commentary on the world.  de Vitry gave us all a wonderful truism for those who imagine themselves to have obtained such exalted dominion as to no longer be accountable to anyone.  And while tweedy historians wax poetic about the 800 years of due process that was whimsically promised by a King who was known for expedient double-crossing and bad faith, a few of us should learn from the same history and agree that we won't be bamboozled at our Runnymede.

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Vis et voluntas

During the Norman Conquest of 1066, the dispossessing of traditional feudal title holders by William the Conqueror and the emancipation of Anglo-Saxon slaves offered clear advantages to those who had been oppressed, enslaved and indentured.  Trading land title holders for military victors and allies of the Conqueror, while shedding one form of tyranny to be sure, put in motion what would 149 years later be squarely addressed at Runnymede.  Commoners – farmers, tradesmen, and laborers – were introduced to the fickle whims of kings, earls, dukes and anyone who enjoyed the patronage of crown or church (largely indistinguishable at the time courtesy of Pope Alexander II’s cosy relationship with William).  A papal legate and the right flag and one could levy tax on money, commodities, and family members – particularly daughters!

As we stand on the eve of the mid-June 800^th anniversary of the signing of the Magna Carta, I found myself disheartened by the degree to which eight centuries have done little to fundamentally change the timeless tyranny of those who perceive to wield power and dominion over others.  Power and dominion rear their ugly heads in countless ways – most of the time barely gaining the attention of the average citizen.  At 3:59pm yesterday, the U.S. National Security Agency (NSA) reportedly stopped collecting information on American phone calls and the FBI lost certain access to corporate records that they used to “hunt terrorists”.  Under the USA Freedom Act, the NSA can’t collect phone records but can rifle through records held by phone companies with court oversight.  Clothing manufacturers across the globe are racing to find low cost labor to manufacture the clothes Americans don’t need at prices that are “too low to pass up” putting in jeopardy the lives of those who will never live to see the fluorescent glare of gluttonous consumption.   In recent reports by Human Rights Watch and Amnesty International, girls as young as 12 years old are being auctioned as sex slaves in Syria and being subjected to unspeakable violence.  Barrick Gold paid out-of-court settlements to women in Papua New Guinea for numerous rapes of local women in the vicinity of the Porgera Mine stating that, “the women will receive compensation under the Porgera remedy framework, and a payment in connection with their participation in the mediation process.”  We’ve changed the venues, made them more remote and less verifiable, but our current systems are as dysfunctional as they were in 1066 and our sterilization of the industrial forms of inhumanity are potentially more insidious than lords of a millennium ago.

As we approach the Magna Carta anniversary, I thought it would be appropriate to revisit a couple of the key principles that were contained within the Articles of the Baron’s which was drafted 800 years ago right now.  While our systemic violation of humanity seems to persist largely unabated, knowing what a group of Barons thought would be worth demanding of King John may remind us what we should care about in 2015.  The Angevin monarchs ruled “above the law” (a practice boldly embraced by the Bush Administration and canonized under the present administration) and ruled by force and will.  The Barons, sick and tired of paying tribute to John for the reclamation of lands he lost to King Philip II in 1204, defied both King and Pope Innocent III and demanded of the King a series of concessions that they designed to democratize their influence.  In what would become the Magna Carta, they sought to strip John of his unchecked abuses.

One of the most fascinating provisions in the Articles was the notion that common people should be capable of persistent livelihood.  In Article 7, minimum wage was established by insisting that no one should be forced to do more service for a “knight’s fee than is owed for it.”  Article 10 demanded equivalent ecumenical compensation to clerics.  Bailiffs and sheriffs were prohibited from taking land and commodities from a debtor who was capable of servicing debt.  And commodity seizure that would impair the livelihood of the debtor was prohibited.  In short, the Barons sought assurance that imposition of levies and debts would not enslave humanity nor subject them to inhumane treatment!

The Article that struck me most profoundly, however, was Article 9.  Some of us are unfamiliar with the principle of amercement.  This was the practice of being held “in the mercy of” the crown for offenses great and small.  Harvest a deer from the King’s forest – you were amerced a tariff.  Trespass on the wrong road or land – you were amerced a tariff.  In the 13^th century, if a crown wasn’t on your head, you were subject to someone who wanted to collect something from you for violating some petty rule they’d established – kind of like modern homeowners’ associations.  This death by a thousand financial cuts was so harmful that the Barons demanded that these penalties be commensurate with the offense rather than capriciously determined.  What is most profound in the demands of the Barons was the insistence that no offense should warrant the threat to someone’s livelihood.  

We’ve long forgotten the wisdom of the Barons.  The notion that laws and rules should ultimately be for social benefit but should never lead to the perversion or extermination of individual well-being is as relevant in the halls of Congress as it is in the tortured towns in Syria, Iraq, and East Africa.  Whether you justify your tyranny based on a perversion of “national security” or under some warped theology which places women under the crushing abuse of sex-crazed mercenaries, the notion that any cause justifies the removal of individual liberty is sadistic and evil.  And We The People must muster the courage and the audacity – like Barons of 800 years ago – to first identify and then demand alternatives to systems great and small which place dominion over mercy.  If not, 800 years from now, this time will be described as the darkest of ages when we could have known so much and chose to do so little.

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Felons at the Gate...or maybe Vikings

We know that if someone walked into a Citibank or Chase establishment with a face mask or a gun, pulled out a note stating that the teller should fork over, say, $547,000 and walked out of the place in broad daylight, he'd get 36 years in a federal prison.  Apparently, Chicago's own Joseph Banks, who during his trial reported that he was a "humble, anti-gun" bank robber, should have said that he was a FOREX trader.  That would have entitled him to keep 1/2 the money he stole just so long as he agreed to go three years without trying to do any other criminal activity.  Mr. Banks robbed a Chase Bank, a Citibank, and the First Commercial Bank in a string of robberies dating from August 2007 to August 2008.  He's a menace to society according to U.S. District Judge Rebecca Pallmeyer.  Maybe he should have dropped the humble bit and gone for the, "I'm a bank CEO," defense.  Then, his death-defying escape from the Metropolitan Correctional Center would have given him the opportunity to add "performance acrobatics" to his Linked-In executive profile.

Image from ABC7 Chicago

Barclays CEO Anthony Jenkins and Citi's CEO Michael Corbat "deeply regret" behavior that did not represent the banks' values.  UBS CEO Sergio Ermotti, JPMorgan Chase's illustrious Jamie Dimon and RBS Chairman Philip Hampton threw rogue employees under the bus while stating their commitment to controls and compliance.  FOREX traders brazenly used terms like "Bandits", "Mafia", and "Cartel" to fix foreign exchange rates to rob their clients of billions of dollars.  JPMorgan's Dimon went as far as to say that the bank's felony was "principally attributable to a single trader," in a refrain echoing his derivatives buck-passing in 2012 with the London Whale.   According to the headline grabbing U.S. Attorney General Loretta Lynch, Citi's $925 million fine will be, "the largest single fine ever imposed for a violation of the Sherman Act."

She'd barely completed crooning over the record setting fines levied against the banks when she went on to state the following hollow warning:

"the Department of Justice, under my watch, will not hesitate to file criminal charges for financial institutions that reoffend."

Oooohhh!  I can see the bank executives shaking in their boots with such an ominous warning.  "If you break the law," she is saying, "you'll have to share about 1/2 of the revenue from your illegal activity with the same institution that you manipulate on a regular basis and which uses public funds to bail you out in your wanton mismanagement." Oh and before you get all emotional about the "record" fines that the banks are paying (a jaw-dropping $5.7 billion), let's remember that Citi received $45 billion in equity, $300 billion in government guarantees, and nearly $2 trillion in loans from the Federal Reserve as a reward for bringing the global markets to their knees in 2008.  So, Loretta, forgive me for being entirely unimpressed with your crowning inaugural achievement - and confirming that your justice department, just like Eric's, is for sale.  But the public shouldn't fear.  Both felon banks in the U.S. were put on a 3-year probation during which they are to "cease all criminal activity" for the period.  Whew!  That's a relief.  Right?  Not so fast!  They've not been able to stay clean for half that period since December 2007 so a three year non-criminal run would be unprecedented.

I'm not sure which disappointed me more: the corporate felony admission or the fact that the media was impressed (along with the pseudo-activist public) with the penalty without ever reporting on the magnitude of the crime.  If the Federal Justice system used Mr. Bank's crime as a sentencing guideline, the 5 bank CEOs would be looking at a 355,393 year prison term.  Heck, I'm a merciful guy - let's let them all serve a cumulative concurrent sentence and have them go away for 71,078 years apiece.  Obviously, this would be ludicrous, right?  No one could serve a 71,000 year sentence.  But it used to be the case that you couldn't commit a crime when the numbers you were stealing were measured in the billions either.

But in the longer view, what is most troubling is what both the banks' leaders anemic contrition and the faux justice charade mask.  The concept of a bank represented an innovation in society in which a trusted agent would hold assets for safe-keeping and, based on the public trust, play a vital role in the circulation of money so that it served a utilitarian function in the economy.  When we see the current state of affairs, what we see is not the behavior of a bank.  Rather, we see organized crime which seeks to rob the public of its money under a government sanctioned racket in which the government is fully complicit.  And why would the government be willing to go along with this?  For the simple reason that they are a part of the bank's business beholden to the felons for their own public delusion.  Take away the complicity of the banks and the manipulated markets and we'd find out that none of the foundation of our current economic system works on its own.  It requires criminal acts to prop up the illusion.

And as long as We The People decide that the ultimate scorecard in life is the dollars we think we control (now, all of which are merely digital records which could be expunged by anyone in an instant), we'll feign disgust and go on using the exact same system that we know is parasitically extracting from us that which we think we own.  Capital One had a successful ad campaign, "What's in your wallet?", which cost them a reported $285 million to turn into an iconic message.  It's time this question takes on a whole new meaning.  Look at your credit cards, your car payments, your mortgage, your student loans and see if you're doing business with a felon.  And if you are, ask yourself if that's the kind of world in which you want to live.  If not: Change IT!

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Sipping a Pisco Sour Listening to Phonograms

I find it fascinating that in the hundreds of pages of provisions set forth in the Trans-Pacific Partnership Agreement (TPP), the one token request from Chile - to secure the name "Pisco" for their signature drink the way France got Champagne - was opposed by Australia, the United States, Peru, New Zealand, Vietnam, Singapore, Malaysia, Brunei, Mexico, Canada and Japan. 

What a terrible day to be the trade negotiator from Chile.

"Listen Eduardo, we know that we're going to have pharmaceutical, agrochemical, and digital rights from the U.S. shoved down our throats so at least get us our signature drink protected!", Chile's President said as the trade delegation was leaving Santiago.

"Si, El Presidente," Eduardo nodded beaming from ear-to-ear with his chance to do his country proud.

… followed by….

"Um, El Presidente, the U.S. got Mickey Mouse protected for 120 years and got to extend the copyright for phonograms for 95 years - longer than their own law allows…"

"Yes, yes, Eduardo," the President waited, "and what of our Pisco sours?"

"Well," Eduardo cleared his throat and kicked his well worn shoes into the pavement, "it doesn't look good."

If you listened to President Obama and Congressional leaders this week, you heard that the United States was urgently seeking to conclude a vital piece of trade legislation paving the way for the TPP.  Senate Bill 995 also known as the Bipartisan Congressional Trade Priorities and Accountability Act of 2015 (CTPA) allegedly will boost the U.S. export market for its goods and services.  Supported by the American Association of Port Authorities, the National Council of Textile Organizations, the U.S. Business Coalition for TPP, Honeywell, and others, Congress feigned opposition long enough to attempt to placate labor momentarily only then to give the President most of what he wanted.  To date, we don't have a lot of visibility into what the TPP includes but, from the CTPA, we can get a great clue as to the identities who have shaped it. 

Leading off the list of campaign contributors would be U.S. pharmaceutical companies.  In the copy of the TPP published by Wikileaks last year, the leading provisions for trade enforcement begin with specified protections for U.S. pharmaceuticals (§QQ.E.16) followed by agrochemicals (§QQ.E.XXX) rounded out by recorded media and software (§QQ.G.1).  The CTPA adds color to this list by highlighting interests of U.S. industrial agriculture and about a dozen specified industries.  Under the TPP, many protections afforded to U.S. exporters exceed the current U.S. legal protections for commerce rights (patents, copyrights, trademarks and the like) despite the fact that the CTPA clearly states that no trade agreement shall have provisions that supersede U.S. law.  Apparently, what this means is that as long as it is as favorable or more so to U.S. commercial interests, we're willing to impose our most greedy position on other nations but if the inverse is the case, it's right out.

In the final analysis it's clear that both the TPP and the Orrin Hatch / Paul Ryan sponsored CTPA are evidence of the Executive and Legislative branches of government selling the law for patronage.  Wrapped in whimsical nostalgia about creating U.S. employment, protecting the rights of workers, and caring for the environment, a detailed reading of these documents (including that unfortunate TPP §QQ.D.12 which screws Chile and its one drink of note), shows that these efforts are purely protectionist.  Changing the terms of copyrights, forcing the recognition of U.S. pharmaceutical patent rights (including their term extensions based on U.S. regulatory delays), and criminalizing IP theft while allowing "traditional knowledge" abuses to be a best efforts compliance is an affront to the principles of genuine competition. 

The implications of TPP abuses are not ephemeral.  This past week, I was the target of a very angry investor who alleged that I had "ruined his retirement" by threatening the value of a stock in which he held a sizable position.  Early in the week, M∙CAM published a detailed report showing that the patents supporting the drug Revlimid^® made by Celgene were clearly subject to legitimate invalidity findings.  Making matters worse, just one week earlier, the European Patent Office had arrived at the same conclusion.  The arrogance with which the company dismissed this critical ruling and the U.S. market's contempt for the European decision - with numerous analysts stating that the European decision didn't matter because it had no bearing on the U.S. patent - was disgusting.  Never mind the fact that a good friend of mine in Australia, suffering from a form of cancer for which Revlimid^® is indicated but for whom the drug is excluded by virtue of the patent-inflated cost, faces a worse prognosis because of a patent system abuse.  By showing that Celgene had at best exerted influence and at worst, outright mislead authorities, apparently I was the reason why an investor was "ruined" - the same investor who likely laments the cost of prescription drugs in the U.S. and has no knowledge of the patent manipulation upon which his investment rides.  In a TPP world, my Australian friend will be even more likely to suffer and die so that my U.S. investor acquaintance can get enriched.  Stock chatrooms were alight with suspicions that M∙CAM had been hired by a notable equity trader to do a "hatchet job" paying NO attention to the facts of unfair competition and systemic abuse.

I'm not naïve.  I know that governments and corporations collude now just like they have from the beginning of delegated sovereignty.  Furthermore, it has been and remains the case that the economically and militarily powerful typically get to make the rules that they get to impose on others.  While I think that this is reprehensible, I don't see many people seriously seeking to transform this reality.  But what I find most tragic is the silent assent We The People give to those who, after taking every advantage, still have to cheat to win.  While Congress talks about staying competitive, our trade negotiators are still using the term "phonograms" which signifies the state of awareness of the thinking (or lack thereof) in those who craft and manipulate the rules.

Worst of all, in the Commerce and Congressional activities around the TPP and the CTPA, we're neglecting a profound problem.  The system of industrial drug addiction, genetically modified caloric production (formerly known as agriculture), digital media hypnosis, and monotonic industrial design has been leading to decreased economic status in the U.S. middle class (to say nothing of the unemployed and uninsured lower class).  The model of planned obsolescence - made famous by industrial designer Brooks Stephens - has itself become obsolete.  And now, rather than calling for a renaissance of quality and aesthetic improvement, we're merely placing the rest of the world under the screws of a system that failed us.  It may be the case that no one in the U.S. is capable of waking from the hypnosis to architect a More Perfect Union but certainly, someone in  Australia, Chile, Peru, New Zealand, Vietnam, Singapore, Malaysia, Brunei, Mexico, Canada or Japan could wake up before this protectionist train-wreck is allowed to take effect.  Or maybe, just maybe, too many have simply given up.

Cue the phonograph, pour yourself a Pisco sour, and, in the waning moments that we have to actually do something about these reckless abuses of ourselves and our Earth, consider whether you wish to stand for a better tomorrow.

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Fairness Fallacy

The American Society of Appraisers (ASA) defines "Fair Market Value" or FMV as the price (in money) that two parties would reasonably exchange when they are "neither under any compulsion to buy or sell, and both are fully aware of all relevant facts."  Reading the financial news this week, I was intrigued by how many analysts used the notion of fair value when it came to the near-floating Chinese currency, the value of Greek and Spanish debt, the importance of maintaining the eurozone, the consequence of the U.K. holding a referendum on EU affiliation, the appropriateness of the jobs statistics coming out of the U.S., or market effects of the Trans-Pacific Partnership (TPP) which is an oxymoron when referred to as a "partnership". 

During a recent speech at the University of Notre Dame's Executive MBA graduating class, I discussed the ethics of lying.  Lying, it turns out, is a prevalent social utility for the most part because it works most of the time.  The willful concoction of a false statement to mislead another person or the selective obscuring of something that would inform another is as prevalent as conversation itself.  People manufacture stories about their past in hopes to achieve notoriety or advantage in the present.  People promote preferred dogmatic beliefs while selectively ignoring odious statements in their own codified texts.  Financial statements, tax forms, product or service promotions, religious historicism, you name it - falsehood abounds in overt and covert fashion.

It's interesting to note that lying was not listed as one of the "thou shalt nots" that many of us were taught from the tablets of stone.  While many infer that the ninth commandment about bearing false witness is a moratorium on lying, this is not likely to be entirely the case.  Bearing false witness is a very precise (and in certain eras, quite grave consequential) activity.  This is to actively make up an untrue accusation, not, say, pretending to remember it was someone's birthday a day after you were caught not remembering it.  In one of the cherished lying stories in the Bible, a couple who said that they had been charitable were allegedly struck dead for lying! 

In the class as in most conversations, the response to the question, "What's wrong with lying?" is, "Getting caught."  Interesting that the reflexive impulse around the act of lying is to suggest that its detrimental effect is its discovery. 

In business as in the rest of life, there are several more subtle, albeit equally consequential, forms of lying. 

Seduction:  seeking to appeal to an impulse that someone finds enticing to have the effect of achieving a response that, with full introspection, would not likely be engaged is a cunning form of lying.  The Latin term from which the word comes has the connotation of having someone abandon their duty.  What is most fascinating about seduction is the level of careful awareness of another that is required for this social utility to work.  If I know enough about you to know your vulnerabilities, there's a particular intimacy that must be honed on my part to know how to offer a compelling impulse sufficiently distracting to make you abandon your thoughtful judgment. 

Consumer-based marketing:  selective messaging to appeal to the desires, wants or needs of another.  One cannot interact with any form of media without having intrusive messages placed in the front of awareness.  I'm not interested in insurance, feminine hygiene products, drinkable industrial nutritional sludge, or expensive mattresses but, today, prior to reading or watching what I was actually interested in, I was bombarded by Geico, Tampax, Ensure, and TempurPedic.  Now why would I throw this activity under the lying bus?  Well, the answer is simple.  When I get a message about a good or service, I'm not getting ALL of the information.  I'm not informed of all relevant facts.

Which begs a question from the ASA FMV definition:  who determines relevant?  Does Bougainville Copper Ltd. have a duty to inform local landowners how it invests the money it didn't pay them for near 25 years before offering them a paltry settlement?  Does President Obama owe an explanation to the American people as to why the TPP must be negotiated in 'Classified' sessions when its about "free trade"?  Does a minority-owned asset manager need to explain to investors how they invest in businesses that promote diversity?  Do Geico, Tampax, Ensure, and TempurPedic have a responsibility of informing me of all the facts that I would want before making an informed purchase?

May it be appropriate to consider building models of human engagement - social, business, or otherwise - where a primary (if not main) objective is to deliver value inclusive of informing all parties of all facts - not just those selectively deemed relevant by the disclosing party?  Wouldn't it be interesting to see transactions where the value exchanged between parties included a premium for making sure that complete knowledge was shared and that, in the end, "best" was defined both by quality but also by completeness of transparency?  If you haven't disclosed to me the nature of your determination of relevance, can you ever expect me to be a willing participant in any transaction?  In other words, can I be anonymous and still receive from you the truth?

Why does any of this matter?  The answer is simple.  If we are to build robust models of human interaction and engagement, we must transform our acquiescence to the socially acceptable use of lying.  We must see willful exploitation of the ignorance of others as a part of lying and actively build transparency and integrity into the core of all our actions and interactions.   

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Blinded By the Obvious

I was in a 6^th floor hotel room on Grace Bay in Providenciales, Turks and Caicos Island on Tuesday, January 12, 2010 when I noticed the floor shaking under my feet.  Colleen was napping on the bed and, as I was watching, it slid on the floor.  “What was that?,” she asked as she roused from her post-sun nap.  “Just a little earthquake,” I responded.  About 191 miles away from our room, a quarter of a million people had just lost their lives and over a million lost their livelihoods.  At dinner, oblivious to the epicenter, we saw the news of the tragedy that had struck Port-au-Prince.  In the five years since the earthquake, cholera has impacted the lives of at least 100,000 people and has led to nearly 10,000 preventable deaths.  And, after 5 years, nearly one third of the cholera treatment centers have been closed due to lack of funding according to the latest UN statistics.  About five years earlier, the Indian Ocean had heaved off the coast of Sumatra killing another quarter million people in what was thought to be the 3^rd most powerful earthquake in modern recorded history (trailing the 1960 Valdivia Chile 9.5 and 1964 Prince William Sound Alaska 9.3).

This weekend, Katmandu experienced the latest mass-casualty earthquake with the death toll still mounting as I write.  It’s another springtime of death 5 years later.  It’s another moment of desperation as families seek to find their loved ones in the midst of centuries-old rubble and informally constructed brick and stone homes.  And it’s another moment when the instant response from everyone from Save The Children to the UN is to send money to jump-start relief efforts less than two months before the arrival of the monsoons… and cholera.

Two years ago, Santosh Gyawali, Senior Disaster Specialist for USAID Nepal wrote an article for Disaster Risk Reduction entitled “Implementing Building Codes to Save Lives.”  In his article he stated that, “a large earthquake would result in at least 100,000 deaths, 300,000 injuries, and 1.6 million displaced in the capital city alone.”  According to the study performed by Geohazard International, the majority of risk to humans in the Kathmandu Valley was not from mudslides and natural hazards but rather from “poorly constructed buildings not built to seismic codes.”  And while the last big earthquake to topple much of Kathmandu was in 1934, the population explosion that has happened since then led experts to warn of the impending loss of life and property.  In a July 28, 2014 article in Cosmos entitled “Kathmandu’s earthquake nightmare,” Kate Ravilious carefully laid out the anatomy of what happened on Saturday – a year before Saturday!

While we marvel at the nighttime lightning images from Chile’s Calbuco volcano and the emergence of islands in the Pacific – including one I saw rising from the sea in Tonga after watching a mini-tsunami in the hotel swimming pool! – we seem to be collectively missing a number of critical points as humanity despite the earth’s generous and frequent reminders to PAY ATTENTION!  While sociopaths in Washington, Brussels, Jerusalem, Moscow, Tehran, Kiev, Vienna and, Beijing play out their Freudian dysfunction jeopardizing the lives of billions, the earth is reminding us that it’s one active mother (fill in the expletive if you so desire!).  And if we’re listening to its rumblings, crashings, and torrents, we may be ignoring something far more important than our post-traumatic sympathy for people we’ve cared nothing about before this Saturday… this time! 

Kathmandu and its residents don’t need our sympathy now.  They’ve needed our attention for at least the past 20 years during which time more people have been killed in political insurgency than the earth did on Saturday.  The Maoist United People’s Front, the Nepali Congress Party, the United Communist Party of Nepal, the police and the armed forces have variously harmed and unified this poverty-ridden nation.  On April 24, 2006, then King Gyanendra laid the groundwork for the Constituent Assembly which governs the country today.  No breathtaking coverage from CNN and BBC when tortures and killings claimed 13,000 lives because We The People don’t care about the root causes of poverty and extremism around the world!  No calls for humanity to find all the other Nepals and Haitis before they become victims of “natural disasters”.  But most troubling is the fact that the disaster IS NOT NATURE!  It’s human callousness that fails to realize that a world built valuing Well-Being does not die at the hands of nature.  

And this is not some sort of naïve illusion.  My dear friends in Papua New Guinea live WITH volcanoes and earthquakes – many of which are more violent and powerful than the ones grabbing the headlines – and they’ve lived with nature for 40,000 years!  Stone walls in Saksaywaman outside of Cusco Peru sit atop highly seismic convergences and, based on their interlocking engineering, have stood for an indeterminate period of time.  And my team at M•CAM, working together with our visionary partner Krishna Gurung, President and Founder of the Kevin Rohan Memorial Eco Foundation, designed buildings using bottles (similar to the work we did in Mongolia to build greenhouses) in Kathmandu which did not fall when the earth shook! 

The earthquake is another wake-up call for us to realize that earthquakes and volcanoes don’t kill anywhere near the number of people that our careless neglect and predilection to violence does.  And while putting up emergency shelter, water and sanitation is an immediate need in this moment, it’s past time that we wake up and realize that focusing on economic, social, and trade justice pre-empts our pathetic impulse to act sympathetic after our indifference is evidenced by earth and war.  Among the many things that this earthquake did for me was to solidify my deeply held conviction that I’m no longer capable of engaging those who debate the existential merits of the ephemeral “meaning” in life if they don’t stand shoulder to shoulder with those who are actually working to live.  And, at the risk of heresy, it’s time for someone to update the New Testament timeless debate about “faith” and “works” which has received more attention than the citizens of Nepal.  In James 2:14-26, the following is written:

¹⁴ What does it profit, my brethren, if someone says he has faith but does not have works? Can faith save him? ¹⁵ If a brother or sister is naked and destitute of daily food, ¹⁶ and one of you says to them, “Depart in peace, be warmed and filled,” but you do not give them the things which are needed for the body, what does it profit? ¹⁷ Thus also faith by itself, if it does not have works, is dead.

¹⁸ But someone will say, “You have faith, and I have works.” Show me your faith without your works, and I will show you my faith by my works. ¹⁹ You believe that there is one God. You do well. Even the demons believe—and tremble! ²⁰ But do you want to know, O foolish man, that faith without works is dead?   ²¹ Was not Abraham our father justified by works when he offered Isaac his son on the altar? ²² Do you see that faith was working together with his works, and by works faith was made perfect?²³ And the Scripture was fulfilled which says, “Abraham believed God, and it was accounted to him for righteousness.” And he was called the friend of God. ²⁴ You see then that a man is justified by works, and not by faith only.

²⁵ Likewise, was not Rahab the harlot also justified by works when she received the messengers and sent them out another way?

²⁶ For as the body without the spirit is dead, so faith without works is dead also.

There’s no question that the wisdom that is captured in the 16^th verse above is the only prophetic voice we should listen to at the moment.  If we see destitution, we have a DUTY to ACT!  And until we see none without, we’ve always got something to DO!

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Not Equal Anymore

I was one year old when the Civil Rights Act of 1968 was signed into law by President Lyndon B. Johnson.  This law was an update of the anti-discrimination law passed in 1964 and was precisely aimed at insuring that racial housing discrimination would end.  It had been about 100 years (April 1866) since the bloody war that had pitted brothers against brothers and neighbors against neighbors animated, among other things, the final enactment of the first Civil Rights Act of 1866 twice vetoed by then President Andrew Johnson.  This law, also finally enshrined in April 1866, recognized that all citizens were to be afford equal protection under the law.  Two rather ineffective Presidents - both named Johnson and both President by virtue of assassination - presided over the country during two of the most pathetic legislative milestones in the United States - the recognition that People should actually be treated as People!  Regrettably, their less than enthusiastic patronage of these Acts reflected not only their own contempt for those not like the majority establishment, but the prevailing status of the citizens of the Republic.

During the summer of 2014, I had the privilege of hosting a racially and gender diverse weekend gathering at my home.  Anyone who has spent a weekend at the house will attest to the breadth of conversation that attends such gatherings.  Over flourless waffle breakfasts and savory dinners infused with fresh produce from the garden, any topic is fair game.  We discussed our respective upbringings and reflected on the way in which opportunity had manifest in our lives.  And while we all had ample evidence of our individual and collective successes and accomplishments I was intrigued by the unspoken sorrow I heard in some of the voices who clearly carried the pain of a society that still did not adequately account for the disadvantages imposed on persons based on skin color, heritage, and other social "differences".  For a twenty-first century conversation, it seemed to me that we were still living in some barely illumined 19th century paradigm.

So it occurred to me that we should examine the root of the social scourge rather than merely reflecting on its fruit.  And in the ensuing months, I spent a lot of time reading legislative debates, breathtaking oratory from visionaries and bigots alike, and laws allegedly aimed at breaking down barriers of access.  Some of these thoughts have surfaced in my previous writing.  What stood out to me was something that didn't fully gel until February 2015.  We established a glass floor with Civil Rights - not a ceiling. 

Let me explain.

I have been working with the University of Miami Executive MBA program for Artists and Athletes which matriculated its first class, largely comprised of current and former National Football League players, in February 2015.  During the opening weekend, I was invited to address the class and I pointed out two important insights.  First, I described the players as alchemists.  This was not some nostalgic illusion.  Think about it.  To play in the NFL, at some point in your life you have to find a way to take a game and turn it into not only a career but into an exceptionally lucrative proposition.  These gentlemen had all transformed their mettle into gold (some of them adorned with the same).  Second, I observed that each of these men met Plato's definition of genius.  Plato saw the capacity to hold two or more hypotheses simultaneously as the mark of genius.  Think about it.  If you're on the field on Sunday afternoon, you must have: full awareness of 21 analog inputs (not counting the zebras with whistles); complete recall of a week's worth of plays and drills; and, the capacity to engage cognitive and motor function in an instant when none of the above conform to expectations.  The best financial minds in the capital markets might focus on 4 or 5 variables and get most of them wrong most of the time.  A football player has to compute 441 analog functions in a single play with a 300 lb opponent getting ready to crush him. 

None of the guys in the room had ever been accused of possessing either alchemical or genius capabilities.  Why?  Because they're athletes and we "know" what that means.  Oh, and many of them come from historically disadvantaged communities so we "know" what that means too, right? 

What if we don't "know" anything underpinning our callous assumptions?  What if we lived in a world where we saw a disproportionate number of genius alchemists on the field rather than athletes cursed to wind up in the media fueled frenzy about post-professional sports bankruptcies?

I can go on and on about how pathetic our condescending attitudes impact the lives of others.  Or, I thought, I could do something different.

So I did.  Some of you know that I started a quantitative fund with my friend and business partner Bob Kendall.  Using work developed by our team at M∙CAM, we identify companies that have genuine innovative advantage in the marketplace and measure the degree to which the equity market prices this advantage.  When we see innovative companies in which this advantage is not appropriately priced, we invest in them and generate a targeted investment return we call Innovation a®.  In modeled and actual performance, we typically outperform the Dow Jones Industrial Index by as much as 108%.  I decided to take this exact same strategy and do something else.  Many companies voluntarily support minority and women-owned businesses as a meaningful part of their supply chain.  Under the National Minority Supplier Development Council (NMSDC), companies can work to become corporate citizens explicitly committed to economic development through enhanced commitments to diversity.  So, we took the list of all the Russell 1000 companies that have made these NMSDC commitments and integrated them into our quantitative fund to see if innovation and diversity commitment make for a good investment thesis.  Over the past 3 years, while the Dow Jones Industrial Average returned about 37% (Q3 2011 - Q3 2014), our strategy returned a modeled 89% - a 240% out-performance*. 

Which begs the question:  why don't we have a Diversity Quantitative Trading investment product on the market?  No ETF.  No Mutual Fund.  Nothing!  Why?  Because we still are striving for access and totally ignoring the possibility that Diversity OUTPERFORMS our bigotry and contempt-fueled models.  With police shootings, marches, and protests, we're being asked to accept a world where the best we can hope for is "equal access".  And in keeping the conversation in that sphere, we're conveniently supposed to ignore the reality that we're actually harming ourselves by not perceiving the extraordinary benefit of driving racism and any other schism from our behavior.  I'm relentlessly committed to bringing an end to the tyranny of prejudice and chauvinism and to finding a mountain top from which we will see the Promised Land.

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*Past Performance is not an indication of Future Results

The backtested performance of the proposed fund allocation is based on a “Dow Substitution” strategy, as disclosed herein.

Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended or undertaken by M•CAM) will be profitable or equal the corresponding indicated performance level(s). Moreover, you should not assume that any of the above content serves as the receipt of, or as a substitute for, personalized investment advice from your financial adviser.

Historical performance results for proposed fund allocation have been provided for general comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the occurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your holdings in the fund will correspond directly to this backtested performance or any comparative indices.

The proposed fund allocation presented here represents backtested results from January 1, 2010 through June 17, 2013. The time periods selected were based on a minimum of 3 years backtesting. The performance of the proposed fund allocation was derived by backtesting our algorithm for selecting best Dow replacements not from actual client or firm accounts. Backtesting of performance is prepared using a computer program that starts with the first day of the given time period and evaluates performance of the recommended securities based on the proposed weighting for each allocation assuming quarterly rebalancing of the allocation.

Backtested performance does not represent actual account performance and should not be interpreted as an indication of such performance. Actual fund performance may also deviate from the index selected for comparative purposes. The index selected was chosen because we are replacing Dow companies and have shown risk that is approximate Beta equals 1 to the Dow.