Eternal Winter in Japan?

People have been waiting for Japan to recover since time began via the FT:

The Japanese government on Friday unveiled a Y11,500bn (US$105.8bn) economic stimulus package which includes an income tax cut, fuel subsidies and government loans to small and medium-sized companies.

The package, which includes Y1,800bn in new spending and nearly Y10,000bn in government loans and credit guarantees, comes as the Japanese economy in July suffered its biggest contraction in seven years and inflation topped 2 per cent for the first time in a decade,

The measures highlight the pressure facing Prime Minister Yasuo Fukuda amid growing public discontent over rising prices at a time when wages are stagnating and economic activity has been sluggish.

The stimulus package, however, was widely criticized as ineffective in countering the impact of the economic slump.

“It does look to me like the impact of this package will be relatively small. It’s a knee-jerk reaction to difficult economic times,” says Robert Feldman, chief economist at Morgan Stanley in Tokyo.

Not only is the actual spending small, the substance of the package is unlikely to address the fundamental problem of the Japanese economy, which is low productivity, he says.

“It will slow the deterioration of the economy just a little but it won’t lift growth,” says Akira Maekawa, economist at UBS in Tokyo.

Artificially low interest rates seem to be a huge part of this "funk". Specifically, it forces money out of the country which ordinarily could be deployed in its own domestic economy rather than finance domestic consumption in places like the United States.

What would happen if 1) Oil drops back below $85 and stays there and 2) Japan raises interest rates to something semi normal?

I think you get a revaluation of Japanese assets and a potential emergence from what seems like an eternal winter. Could be the kiss from "Prince Charming" that Japan has been waiting for. As the subslime crisis subsides, we could finally see this occur.

Security Council Reform, If One Were So Inclined

The UN has long been viewed as an ineffective tool to solve international disputes. Particularly when one of the major powers was deadlocked or a party to a particular issue. Here is an article venting some of those frustrations via BBC News:

Deadlocked over Georgia, ineffective on Darfur and impotent about Zimbabwe, the BBC's United Nations correspondent Laura Trevelyan asks, what is the point of the UN Security Council?

It is hardly the first time this has happened.

During what some are now calling the first Cold War, the Security Council was deadlocked because Russia and the US could both use their veto power.

But given the regularity with which the council reaches an impasse now, the obvious question is whether it is really working in the way it should.

The council is charged with maintaining peace and security

The council is charged with maintaining international peace and security, a grand ambition, but if it cannot pronounce on Georgia, what use is it?

In July, China and Russia vetoed an attempt by the West to impose sanctions against members of Zimbabwe's government.

The peacekeeping force the Council despatched to Darfur is struggling, weakened because divisions between China and the West meant the Sudanese government was given a role in the force's composition, one it has exploited to the full.

What are some of the issues here?:

• People have talked about security council reform, specifically changing the way the Veto works as well as expanding the council to include Japan, Germany, India and Brazil and a few others.
• Does the US want to give up its veto in exchange for preventing its use by others?
• If a sole power the source of a veto how about a provision for a veto override by a simple 4/5ths majority from the General Assembly? If you do something like this you have to prepare for a lot more UN Security Council votes as well a loss of blocking ability by not just Russia, but our own blocking ability as well.
  

The Insurgent Trade

I know this sounds crazy but Iraqi currency and fixed income assets that are tied to oil revenues are doing amazingly well. Changes in risk profiles can surprise a lot of people very quickly and they can change on a dime. Full article via Bloomberg and excerpt here:

Iraq's bonds are delivering the biggest returns in emerging markets as oil export revenue bolsters government finances and violence declines.

The country's $2.7 billion of 5.8 percent bonds due 2028 gained 45 percent since August 2007, according to Merrill Lynch & Co. indexes. Investors demand 4.84 percentage points more in yield to own the debt instead of Treasuries, down from 7.26 percentage points a year ago. The spread is narrower than for notes of Ohio banks National City Corp. and KeyCorp, suggesting Baghdad may be safer for bond investors than Cleveland.

Oil exports will climb as high as $86 billion this year, more than double the $30 billion annual average from 2005 to 2007, helping the country post a $52.3 billion budget surplus, according to the U.S. Government Accounting Office. A reduction in bloodshed has allowed the Bush administration to consider a ``general timeline horizon'' for troop reductions.

``The main driver'' of the rally is oil revenue, said Gunter Heiland, who manages $12 billion in emerging-market debt, including Iraqi bonds, at JPMorgan Asset Management in New York. ``The other is implied U.S. support. It's half a commodity story, half a political story.''

Yields on the bonds fell to 8.65 percent from a high of 11.81 percent in August 2007, according to data compiled by Bloomberg. The price of the securities surged to 73 cents on the dollar from a low of 54 cents a year ago.

It's Sarah Palin-- Now that's a Shakeup

A very aggressive pick given that will shake things up one way or the other. Whatever you think of Sarah Palin this is a bold and highly interesting pick.

She is a fresh energetic face though and the GOP needs some sort of invigoration. In the next 48 hours and during the convention she'll be watched and judged pretty quickly. Will she get the change oriented mantle Obama has or will she be judge another Dan Quayle for a 72 year old President.

She's a former beauty pageant contestant and like Obama does not have a lot of experience, in fact, probably a bit less. However, the GOP can say at least she's introduced a budget whereas neither Senator Obama or Biden has ever done even a state budget. Consequently, the Democrats can't really attack her on experience but now McCain will be limited in the stones he can cast as well.

Her big weak spot is going to be foreign policy, and she's very far to the right on a few issues.

On the plus side she is known for taking on oil companies but being pro energy at the same time, she also is a reformer, antiTed Stevens (bridge to nowhere), and anti pork and anti corruption.

The biggest thing for me is she is wild card and dynamic injection of energy into the GOP campaign when some kind of risk taking is required.

I think she actually changes the nature of how McCain is viewed in terms of being charismatic, energetic, attractive and pro change oriented. She is a compelling enough speaker which the GOP desperately needs. What GOP speaker do you want to hear from the way people want to hear Obama.

If she doesn't stumble or have some undiscovered vetting problem, McCain is showing his stripes as a tough guerrilla fighter in what wasn't supposed to be a tight election. She's going to appeal to women, anti big government, anti pork, pro reform, and being pro energy with a record of standing up to big oil. She will certainly inspire feminists as a "feminist for life" in the vein of Hillary clinton although I think the split in the Democratic party is now pretty much healed.

I also think this is an effort by McCain to recapture "change" and "maverick". Biden is 36 years in the Senate and a DC insider. Palin is the Anti-Biden and helps McCain recapture some change and anti establishment credentials.

Full story via MSNBC.
p.s. I hope she was vetted well.

McCain's Pick, Sarah Palin?

I am hearing Sarah Palin who is governrer of Alaska but there are a lot of rumours flying.

She is a bit of a dark horse candidate and a little bit on the bold side. McCain isn't too constrained by handlers like I suspect Obama was in his super dull and uninspired choice in Biden. Note just because a choice is very "logical" does not mean it wasn't "dull and uninspired".

Sarah Palin is a firecracker. She is as much of a Maverick as John McCain and her opinions are exceptionally strong and it would be interesting to see her impact on Washington. She definitely has some strong policy views on energy and natural resources.

If he does pick Palin she has a few "skeletons" as well as it would be interesting how it would impact Ted Stevens who is facing an indictment and a re election.

All that said I wouldn't be surprised if McCain picks someone completely wild like Meg Whitman. I think Obama will get a 10 point bump to 55% post convention and to stay competitive McCain is going to have pull out some moves.

One more thing... no matter whether you are voting for Obama, still undecided, or voting McCain, his speech last night was a memorable moment in American politics. However, he seems reluctant or unwilling to really go into a lot of depth on some of these proposals for some reason. I think it still gives him an opportunity to move towards more "scientific" economics rather than what "seems fair".

Putin Lashes out at US for Orchestrating Georgia Invasion

Putin is out with an interview a few minutes ago blaming the United States for the Russian invasion of Georgia here.

Vladimir Putin accused President Bush tonight of orchestrating the war in Georgia in a plot to get John McCain elected to the White House.

In his most explosive allegation since the South Ossetia crisis erupted, the Russian Prime Minister said that the United States had provoked the conflict to aid the Republican candidate, who is an outspoken critic of the Kremlin.

“It is not just that the American side could not restrain the Georgian leadership from this criminal act. The American side in effect armed and trained the Georgian army,” Mr Putin said.

“Why spend years holding difficult negotiations and looking for complicated compromises in ethnic conflicts? It’s easier to arm one of the parties and push it to kill the other party, and the job is done.

So what you're saying is, this whole thing is orchestrated by te United States and George Bush outsmarted you?

This interview to me looks like a move to shore up domestic political support as Russia becomes more isolated on this issue. Even the SCO summit with China ended up with a statement advocating a diplomatic solution and "grave concern". More on strained Sino-Russian ties here via the WSJ.

The agument that we armed Georgia to fight Russia doesn't make sense---the arming of Georgia was to have them help with troops in Iraq. These guys didn't get Stinger missles, anti-air or anti tank weapons---they got weapons to patrol in Iraq which don't help a lot against Russian armor and air.

Quick Economic Notes

Commercial Paper issuance looks pretty good with the increase of almost 70 billion in the last few weeks which is the best we have seen since 2006. Strong credit issuance, on the surface, means money is getting to those who need it and that fuels growth.

The big surge in exports becuase of the dollar drop continues. Essentially, Europe and China's loss is our gain. Why? Because we cut out discount and they raised it. We've got 2Q GDP at 3.3% compared to a contraction in Europe with the same exact inflation rate.

How is this not evidence, that you absolutely positively cannot control external inflationary forces through contraction of your own monetary base? And the EU was out with hawkish talk yesterday which will exacerbate their problems. I don't think they are going to get a huge collapse but they are-- in my opinion- creating an artificial disequilibrium which will have a variety of interesting impacts on a few unhelpful things.

While the dollar is rebounding and may crimp growth like this in the future, it has not retraced that much and we should still see some nice tailwinds next quarter in GDP growth. The best way for us to get out of this crisis is to 1) Export more 2) consume less and 3) solve the energy crisis. It's amazing to me how much a slight rebalancing of growth rates in exports vs. imports has on the overall GDP growth rate.

A GDP growth rate of 3.3% is a fantastic number and we've even seen some positive signs in housing this week with some of the markets that were hurt first, experiencing some stablization. Not too shabby.

If we can solve the energy problem you would have a very dynamic country and economy that will fuel a global infrastructure buildout that comes along once in a century. Still a lot of troubled waters ahead but the potential is there for a very positive outcome in the midst of all the gloom and doom we hear these days.

Auto Makers Lining up for a Bailout Again

VIA the Detroit Free Press

In a free enterprise system, businesses succeed and businesses fail and the government is supposed to stay out of it -- unless the cost of failure is untenable for society. Such was the thinking behind the federal loan guarantees that saved Chrysler in 1979, the $15 billion that helped the domestic airline industry after 9/11 and, more recently, the short-term loans to Wall Street banks and the bailouts for Fannie Mae and Freddie Mac.

So you can't blame the auto industry for queuing up.

The Detroit-based motor vehicle manufacturers and the United Auto Workers have embarked on a big push in Washington for $50 billion in government loans over the next three years to finance the more rapid development of fuel-efficient vehicles.

Yes, it's a bailout of sorts, but consider the consequences of Ford, GM or Chrysler LLC failing -- not just in jobs but also the ripple effect on suppliers, the retail businesses that depend on auto industry paychecks, and the states and schools and local governments that count on auto industry taxes. Consider the consequences to the U.S. economy of even more car-sale profits being made by companies that don't put them back into the United States as income or investments.

And on the plus side, consider the prospect of a breakthrough product line that really makes a dent in U.S. consumption of foreign oil.

Hey, it's not like Uncle Sam doesn't already have a lot to say about the industry on issues such as safety, mileage and even roads.

Certainly, federal aid has to have accountability strings attached. But just as certainly, the federal government has spent more money on worse ideas with less prospect of a return.

So you want us to give you more cash so you can keep making gas guzzling sherman tanks and ride out this cycle once more until the next crisis and the next bailout?

My first job was working for the Chief Trade Economist's office in the White House. What was one of my first tasks? I worked on a draft response to Lee Iacocca asking for a bailout from Bush Sr. in 81 or so and I was pretty excited about the letter.

My job was to research some of the statistics to tell him "no". Somewhere, somehow, some young whipper snapper is working on a new draft and I hope they do a far better job than I did. We spent a lot of time back then on competitiveness issues but more specifically relative to Japan (Steel VRAs, Autos, Eu-Aircraft, Textiles).

If these guys will agree to reach for the moon here with say a 100 mpg car, I'm for giving them the loan. But wipe out the equity, or provide warrants to the government that effectively do so. If they want another $25 billion extract a heavy price in terms of achieving technological leadership in auto technology. If they end up coming up with a breakthrough the common might end up being worth something giving them an incentive to take some risks here and innovate.

Just giving them another $25 billion without getting huge concessions in return is not only bad for America, it's bad for the car makers. These guys are absolutely unwilling to change or innovate and if we provide a cushion for them so they don't have to take risks, they won't. They will simply troll along with substandard returns and try and ride the next economic cycle up and out with the same old car designs and technology with fuel standards well below Europe and Japan.

Man, NO WAY. Let's see 1) a 100 mpg car and 2) a plug in electric car or 3) a natural gas car

Imagine if we actually had a breakthrough here and everyone had to buy American auto technology. It would be a huge job and export boon for a very depressed part of the United States. The Auto makers made the same mistake in the 70s all over again. The same old approach isn't going to solve anything. Time for a fresh approach for the US auto industry and if we extend the loan let's get some dramatic concessions that force risk taking, change and innovation.

McCain's VP Choice

The speeches last night at the convention were very good, and I wouldn't be surprise to see Obama actaully get that big 10-15 point bump people have been discounting (including myself). I also find myself wondering, who in the GOP is going to give an interesting barn burning speech.

Clinton (both of them), Obama (both of them), Joe Biden Jr. etc. all gave fantastic speeches. What does the GOP lineup look like?

But if McCain does a great VP pick maybe we can get an interesting convention.

Lots of the recent speculation is that McCain is going to go conservative with his pick for VP. Lots of the speculation is on Romney but I'd love to see a "maverick" choice. If Bush Sr. can pick Dan Quayle for VP, why can't McCain go with a wild card?

Any of the female candidates would be an interesting choice in my opinion. I think Lieberman is an interesting choice but the guy would accentuate McCain's faults rather than his good graces. And while Lieberman calls himself an indepednent, he really votes incredibly liberally everywhere else besides Iraq. Even though he is a rich white guy I think Bloomberg is such a maverick that it would turn the ticket into an "independent" ticket.

Factors that would be helpful:
1) Someone who will help drive home an energy independent America
2) Experience as a governor or CEO experience in the private sector
3) Moderate in temperament and policy attitudes. If you can create a middle of the road ticket to capture independents and the right you can win.
4) Independent credentials like McCain has
5) A Pro Future/Pro Technology vision along the lines of what Mark Warner talked about
6) A woman or a minority. Two old rich white guys isn't going to cut it anymore. The Democratic speeches were fantastic but there are still a lot of woman who feel "disenfranchised".
7) Some economic literacy. Both Obama and McCain are overwhelmingly weak on economics. Give us someone who is comfortable in this area.

Currency Stuff

European Central Bank council member Axel Weber said there's no scope for interest-rate cuts and policy makers may need to raise borrowing costs once the economy emerges from its slump.

``Monetary policy at the moment is roughly where it should be and I think the discussion about declining rates in Europe is premature,'' Weber, 51, said in an interview in his office in Frankfurt yesterday. ``If the economic outlook brightens somewhat again towards the end of the year and next year, which I still expect, we'll have to see if action is necessary.''

Full scoop via Bloomberg here.

You know, I used to shy away from currencies. The trends can often be meaningless and the leverage so large it can provide very big swings off of small but unpredictable developments.

Not so these days.

Lots of juicy trends especially with 1970s BOE like talk out of the ECB a la pound Sterling crisis. The economic statistics out of Europe are so horrible, and they are going to get worse plus you've got Russia stirring up problems, and the pound collapsing.

Also I can't tell if this guy is talking up the Euro because he believes what he is saying or he wants to keep it high so energy prices don't bite as much. If you saw a wholesale collapse of the Euro the price of oil would truly smash Europe and their inflation numbers would turn even ugglier with even worse growth.

All of these things are clear macro trends that have been made strategies in the pound sterling, the dollar, the euro and the yen very interesting.

Is Russia Setting a Wise Precedent

The problem is that these judgments typically become hostage to conflicts between large nations, as in the case of Kosovo, South Ossetia and Abkhazia, Mr. Lukes said.

“These situations are not really murky,” he said. “What makes the situations murky is each superpower tries to exploit ad hoc situations as they emerge to advance its interests and to hurt its rivals. It’s really the way the superpowers manipulate the reality. It’s not the reality that is complicated.”

Russia’s decision to recognize the breakaway regions may have gone far enough that it will unify the usually fractured Europeans, pushing them toward the kind of tough actions advocated by Poland, Sweden, and Estonia.

No question that right now the population is Osseitia has few Georgians, but before the conflict started in the 90s I've seen estimate that show Ossetia was up to 50% Georgian. Don't those folks have a "right of return" or a voice in what happens in Ossetia?

There is one big question I have about this strategic choice by Russia to respond so aggressively here.

1) There seems to be a sequential alienation of Russia all across its borders and you may see even formerly pro Kremlin states join some sort of anti Russia defensive bloc. Tough language from Merkel is really a big shift for her and the Swedes are irate. At one point Russia could have entered a path to join the EU and been a preeminent political force. Now that seems a bit further off. Wise Russian leadership would have entered the EU and exercised political influence through a more cohesive union. That's the best path for a Russia that produces nothing except commodities.

2) Ever seen a ethnic map of Russia? Ethnic minorities account for 20% of the population now and its rising every year. Grozny is right next door to Georgia, and Russia almost lost complete control of the region a few years ago. Russia has a dramatically declining population with ethnic minorities all over its map. Is this the precedent it wants to set?

3) Demographic projections have Russia dropping from 140 million to 100 million in just a few decades. That's just a bit larger than Germany now over a much larger territory. That 20% ethnic minority base could easily rise to 30-40% with that kind of a shift.

If Europe can unify around this issue this will end up being a significant constraint and a strategic error for Putin. All sorts of unintended consequences often flow from events like this and it may sent Putin down a choppy road. I've been unhappy with the guy from a political and an investment point of view for some time and I'm hoping this to be the case.

Rest of the article in the NY times here.

Covering Your Fannie

Fannie, Freddie Mortgage Profit Reaches 10-Year High

The crisis of confidence that sent Fannie Mae and Freddie Mac debt costs to record highs above U.S. Treasuries is also providing the mortgage-finance companies with the biggest profits on new investments since at least 1998.

The current-coupon mortgage bonds Fannie and Freddie buy yield about 40 basis points, or 0.40 percentage point, more than what they pay to borrow by selling benchmark bonds, according to Citigroup Inc. The difference exceeded 20 basis points only twice in the 10 years through 2007 -- in 1998 and 2003.

Full story via Bloomberg.

There are quite a few smart(er) guys who are short Fannie but I am having difficulty figuring out the scenario that's going to force a bailout as long as they have a government guarantee on the debt. For a normal business, they would go under because they would run out of funding sources but Fannie has a government guarantee and can simply issue debt to meet cash needs.

Would equity be better? You bet, but why mess with high cost equity if you can do debt over and over?

To me management has a huge incentive to just ride this out, since the common will be completely wiped out if any bailout occurs. They also don't have a huge incentive to do an equity financing because they know a bailout will come and they can probably go to the debt market because their debt is viewed as government paper (the people that print the money to pay the debt back with).

It was pretty criminal in my book that Freddie didn't do an equity financing, but with a government guarantee he was acting in his shareholders interests--just not the real stakeholders which are the American taxpayer.

It seems to be that these companies can "ride out" the worst financial crisis in a century because of this guarantee. Again, lots of smart guys are "All in short" this name so I am probably missing something. Some new variable could be introduced and the things could go to zero on a dime, but that's why you view them as call options. My honest gut though is everyone seems to be counting this out to zero (and they are worth zero) and they will probably ride this out over the next 5 years rather than going under.

Keynote Speech By Mark Warner

Warner had early success with wireless licenses so he's crossed paths with a lot of friends and lot of people who have built and run wireless businesses. Also, he and a few others started Colombia Capital which is still alive and kicken doing telecom deals A few, don't really like Mark at all but man that was a good speech.

It's not that he is a particularly passionate speaker but it was a speech focused on science, technology, competitiveness and how that can be used to build the country's future. It was a relatively well laid out argument that I found well reasoned, cohesive, and appealing.

I don't know what he did to piss off so many wireless guys off, and I'm not sure I want to ask but it was a good speech. It's a very good vision for a national campaign as well. If I was still living in Virginia I'd be inclined to support him.

Trying to tell people not to vote for McCain because he is another Bush won't work because he isn't. People look at McCain and know he's a completely different critter. However, run a national campaign on the future and it accentuates some weaknesses McCain has that are at least partially true.

Important Quiz For Hillary Clinton's Convention Speech Tonight

So How Might These Two Images Be Related?

Bill Clinton Comments that were in no way Related to Obama

At some point in the convention Clinton is supposed to release her delegates and nominate Obama by acclaim and she probably will. But Obama's numbers are low and one poll now has McCain ahead. There are rumors of a floor protest which probably won't happen but you know there are temptations. Bill Clinton summed it up best in a speech today:

The former president, speaking in Denver, posed a hypothetical question in which he seemed to suggest that that the Democratic Party was making a mistake in choosing Obama as its presidential nominee.

He said: "Suppose for example you're a voter. And you've got candidate X and candidate Y. Candidate X agrees with you on everything, but you don't think that person can deliver on anything. Candidate Y disagrees with you on half the issues, but you believe that on the other half, the candidate will be able to deliver. For whom would you vote?"

Then, perhaps mindful of how his off-the-cuff remarks might be taken, Clinton added after a pause: "This has nothing to do with what's going on now."

Biden: It's like the AOL/Time Warner Merger

A quick blirb on the Biden choice

• The pundits love Biden, he is a nice and extremely personable person. I saw very few pundits who actually thought it was a bad choice. I thought it was an uninspired choice of a Senator who has been in office for 36 years, ran for President twice and did not acquit himself well either time. He had to withdraw the first time for being a plagiarism.
• Biden by most measures has the most liberal voting record in the Senate. Obama is not far behind which presents an opportunity to "box in" the Obama/Biden ticket as "extreme liberals". If McCain can select someone as far to the center as possible to counter this choice without offending the right of the GOP, he can argue that he and his choice represent the middle ground of America--not the "extreme liberal left" that the Democrats are offering. If the Democrats field candidates that have the most liberal voting records in the senate, they can argue they don't represent the country and are "Extreme liberals". If McCain can select a moderate or even a moderate/left VP candidate while keeping the far right happy with the choice, and appealing to moderates that's going to be very difficult for the Obama campaign to fend off.
• I don't think Biden helps as much in foreign policy as people are saying. Obama in a lot of ways had some "new products" in foreign policy that his Germany speech highlighted. Particularly around a US strategy for foreign policy is a more "flat" world. Biden has a lot of experience in foreign policy, but it is in "old products" that have declining margins and share. The choice isn't as disastrous as the AOL/Time Warner merger in terms of dragging them both down, but I don't think the choice was helpful. I don't think that foreign policy was necessarily a huge weakeness for Obama given he was suggesting a relatively new paradigm in how we conduct foreign policy a la Berlin. Biden doesn't add strenght here, he supplants it.
  
• The GOP is dying for another MccGovern type convention where you have an open floor revolt. I am pretty sure that's not going to occur. It's pretty funny to watch the GOP surrogates try and shamelessly incite it.
• The ticket is weak management wise. Senate experience is great, but its very narrow and a bit parochial. Neither has managed a state, or worked in business, and the experience is very narrow and a bit gilded. Sam Nunn would have been a better choice if you are so concerned about foreign policy since he's been out of politics long enough to provide a fresh perspective. He's also shown he can walk away from Washington voluntarily which is important.
  
• I didn't think it was the best choice because it highlights Obama's weaknesses rather than building on his strengths. I would have gone with Evan Bayh. He's a moderate, reaches across the aisle, and has decent judgement. He would have pulled in the independents, now McCain has the edge there.
  
• Biden has an odd pattern of judgment calls. He was against the first gulf war, for the 2nd war in Iraq and was anti surge. He's also the most liberal Senator vote wise in the Senate, and you really don't want to alienate the middle/right of the Democratic party. McCain can highlight that the two most liberal Senators are running and this could cause problems with the independents. This suggests to me that Biden is easily pulled by political weather rather than his own judgement. That pretty much explains why he has six 6 year senate terms under his belt. Anyone who lasts that long in Washington isn't about "change".
  
• Biden is a perfect attack dog against McCain. That probably played a part in the selection as Obama's #s have slumped.
• I think Obama needs to get a 10 point boost out of this convention by bringing in the Clinton voters, particularly those threatening to vote for McCain or stay home. If he can't do that, I am pretty sure he is going to lose. If he can't clear 55 this week there are going to be some problems. If McCain picks someone interesting and pushes Obama below 42/40--ouch!
• Biden can thank Vladimir Putin for the selection. I have no doubt the Georgia invasion pushed Biden over the edge.
• The real unfortunate thing is a lot of good candidates are out of consideration by the GOP because of their abortion position. Why does our whole country have to be hostage to this one issue? I understand one can have exceptionally strong feelings on this issue, but is it a litmus test for every other issue as well? If someone disagrees with you on this one issue but has well thought out policy issues everywhere else does that mean they should not hold elective office?
  
• The choice is a very conservative one and I think pushes McCain towards a conservative choice of his own as opposed to picking a Bloomberg. McCain really is a renegade though, and he could choose anyone and it woudln't surprise me. The guy does what he wants.
  
• If McCain picked Bloomberg or someone like him, you basically have a GOP ticket with two independents (the middle of the road) against two far left liberals. I think he might get some fireworks by going towards a moderate candidate but I think you could generate a scenario where the "right" and "moderates" all vote for McCain, and the Democrats split the ticket with half voting GOP.
• Was this a choice designed to govern the country for the next 4 years, or was it a choice to try and win the election up ahead?
  

This is the most interesting election in quite a while.

It's the Network Stupid

Pieces in BGR and Engaget on receptions issues for the Rim Bold and the Iphone. Engaged it citing a test from Sweden that shows the Iphone doesn't have a problem getting a good 3g Signal. An excerpt from the Swedish study is below:

There's been a lot of discussion lately about iPhone 3G reception issues. Whether they exist or not is largely irrelevant in a world dominated by sound-bite driven perceptions. Nevertheless, some industrious Swedes decided to apply a little scientific method to the argument and found something interesting: the iPhone 3G performed just as well (or just as poorly, depending upon your mood) as a Nokia N73 and Sony Ericsson P1 when compared head-to-head in a mobile communications test chamber. The test was conducted by real-life antenna engineers just like those camera-fumbling souls contracted by the FCC. Of course, who's going to let a few facts stand in the way of contrary opinion and litigation, eh?

To borrow an old political slogan, "It's the network stupid".

Both devices are on AT&T's network. While there may be some problems with the stack in the Infineon chip, a lot of this is due to AT&T's network being aniquated with some unartful engineering and technology. They just have not spent the money to bring their network into the next century. It has to have something to do with the upgrade path to LTE and I'll have to do some research but a lot of the network issues that AT&T has are not as widely talked about as they should be. Especially given they are getting almost all the best new phones.

AT&T has the potential to really get some heat on what is a hugely inferior network compared to 3g from Sprint and Verizon. I think the push to 3g and data may highlight some of the engineering problems AT&T has, that were not as readily apparent when the focus was on voice as the sole application.

Good Piece on Managing PR for Startups

This is an interesting piece but has some useful strategies for CEOs of startups trying to get their message deliverer. A big part of the message has to do with having passion for what you believe in, and Jason makes the argument that you should not have a PR specialist--in sourced or outsourced.

I'd differ slightly there in that not every startup CEO is going to be as good at dealing with the press as Jason is and some CEO's need help in this area. Jason was a CEO with a PR specialty so for him, having a PR specialist was redundant. Some CEO's are either more technical oriented for example and really don't have that as a viable option. In those cases, you need some kind of professional who is as savvy as possible about your particular segment to help out.

That aside, about 80% of the other tips and advice in here are pretty useful strategies that I think anyone can use, no matter what focus area you might have.

Some founders, who are not natively good with the press are so in love with their startups they end up being good as "passion sells". A lot of times founders end up leaving the CEO role for one reason or another but I think one natural place for them to transition to is into messaging and marcom so they can keep supporting their passion and helping their company grow.

Full article via SiliconAlley Insider

Obama Pick Part Duex

Given the campaign is losing some steam against the Hilary style attacks against Obama he may in fact go for a "maverick pick".

My guess for a Maverick pick is the same for either candidate really. Mike Bloomberg brings a bunch of things:

• He brings indepednent voters which are going to be a huge factor, if not the most important factor in this election
• He has been a Democrat and a Republican and carry's a lot of practical middle of the road views
• He is pro energy indepdence
• Bloomberg is a moderate on taxes. The biggest reason Obama is behind is because he wants to raise marginal tax rates. Marginal tax rates hit the people who want to get rich, not actual rich people. Consumption taxes are the only way to target the rich.
• Bloomberg has built a business empire and is respected in government for tackling difficult problems with fresh ideas (we need that)
• I bet Mike is pretty ready for a new job given the loss carryforwards from the investment banks are going to last for years with a huge budgetary impact on New York City. That's not going to give him a lot of room to do the things he wants fromt he city.

Need more? Maybe I am always looking for the angle too much but the timing of this article looks like positioning to me.

Mayor Michael Bloomberg has staked out a claim for making New York City a clean-energy powerhouse through off-shore and on-building wind farms.

Bloomberg spoke at the National Clean Energy Summit at the University of Nevada Las Vegas on Tuesday where he outlined his proposal for more renewable energy in New York City and demanded a more serious discussion about national energy policy.

Cities like New York are leading efforts to tackle climate change, which Bloomberg said is a result of a "leadership vacuum" on the federal level. New York has a target of reducing the energy consumption at city agencies 30 percent by 2017.

Do I think either candidate will pick Bloomberg? No and I'd put it at 15% for Obama and far less for McCain. However, I think he'd be a fantastic moderate choice. Bloomberg or a candidate like him could bring a lot of indepdendents and thus change the rules of this election which Obama needs to do quickly.

Full article Via CNET here.

Interesting Applicaton of the Day

Last June we got a sneak peek at nrme, a location-based message service for the iPhone. The service behaves like a regional Twitter, but is geared towards sharing information rather than chatting - it’s sort of like a neighborhood bulletin board in the cloud. Instead of using a follow system, nrme makes all messages public to users within a 9 block radius (users can still private message each other if they’d like).

Today, the app has finally gone live in the App Store (despite rumors to the contrary, the approval process was only a matter of a week or two, not months). After a quick test run I have a few gripes about the interface, which is still a work in progress, but my biggest concern is the absence of content that has been posted by anyone “near me”. This isn’t unexpected because the app just launched, but I worry that the service will never be able to get a meaningful amount of information. To help combat this “chicken and the egg” problem associated with a new app and its lack of users, nrme is focusing its marketing efforts in San Francisco, even though the app is available to the entire country.

I really want this service (or another one like it) to take off. The prospect of being able to let people know when a bar is full or a store has just gotten a shipment of a hot item like the iPhone 3G is very appealing - and the altruistic nature of it would build a sense of community. The fact of the matter is that there are dozens of location-based applications on the iPhone (some of which are very similar to nrme), but most of them have gone largely unnoticed and lack content. At this point, it is beginning to look like we might have to wait for an established player like Twitter or Facebook to implement geo-awareness before we’ll see a location-based app that’s actually useful.

I couldn't agree more with the sentiment in this piece via techcrunch as I love applications in this space. This one is going to have a tough time building up twitter like critical mass but the potential is huge here for buying/selling/and socializing based on location. What's more interesting than some of the things going on just a few feet away that you maybe didn't know about or people right next to you doing or interested in the exact same thing or issue.

This isn't necessarily a huge business by itself but could be acquired by those looking to extend into location based social networks, location based services and content delivery.

The wired based internet "sanitized" a lot of social interaction but the mobile location web has the potential to bring people right next to you a lot closer. Closed network policies by US carriers has stifled a lot of innovation but now bring people right next to you together in an interactive location based context is finally here.

Kleiner is all over this space with a fund targeting the IPhone alone.

Meanwhile Apple has started upping the pace of software updates for IPhone. I still love my IPhone despite some issues but people have some pretty high expectations for new features in the next software update. Later on in the day I'll post some screen shots of me using my IPhone to scan for life signs and dilithium.

Obama's VP Pick

I think Obama has left is options wide open frankly. There has been quite a bit of pressure on National Security issues which really help McCain so a lot of people are shifting their guesses towards Joe Biden. However, all things being equal my guess unless there is some sort of wildcard is Evan Bayh. Obama needs to move to the center a lot more quickly and a choice like this may do it.

He's also been a governor, he is considered a moderate, friends with a lot of GOP leaders (including the President).

McCain is really giving Obama a tough run however with the latest poll showing McCain actually ahead by 5 points which is a relatively extraordinary shift given most people believed the Presidential race was locked up. This could force Obama to pick someone that is a complete wildcard which would be interesting.

More on the poll here.

Quote of the Day

This quote of the day comes from Paul McCulley from Pimco (Pacific Investment Management Corporation)
To paraphrase:

"The Fed raising rates now to stop inflation would be like seeking out a prostitute to enhance virtue"

A couple reactions:
1. Oh wow I can't believe you said that on TV Paul.
2. I agree with the end suggestion here in that I don't think we are quite ready to start raising rates but what does inflation have to do with prostitution? I understand the credit markets risk spreads at least somewhat well and I agree there is a severe problem that's signaling a bank failure in the US (or perhaps in Europe) but I don't follow how one has to do with the other.
3. Does that mean if people stop seeing prostitutes interest rates will fall, or that inflation will drop? Are they the ones buying all this extra food and gas? I knew it wasn't all China's fault.
4. I love how Pimco talks it's book (on debt markets, not on seeing prostitutes). I mean come on. These guys also have to hope the Treasury steps in to guarantee all that agency debt, or it will be a very serious problem. Of course, it's highly unlikely Treasury will be able to escape that step and my bet is Paulson will try and put a plan in before he leaves office that will signal the end of Fannie and Freddie rather than risk leaving it up to Democrats which are more likely to select a plan that props them both up to fight and live another day. Of course, he will avoid acting if he can.

Georgia on My Mind Part 3

Russian soldiers took about 20 Georgian troops prisoner at a key Black Sea port in western Georgia on Tuesday, blindfolding them and holding them at gunpoint, and commandeered American Humvees awaiting shipment back to the United States.

The move came as a small column of Russian tanks and armored vehicles left the strategic Georgian city of Gori in the first sign of a Russian pullback of troops from Georgia after a cease-fire intended to end fighting that reignited Cold War tensions. The two countries on Tuesday also exchanged prisoners captured during their brief war.

However, Russian soldiers took Georgian servicemen prisoner in Poti—Georgia's key oil port city—and commandeered the U.S. Humvees.

Russian forces blocked access to the city's naval and commercial ports on Tuesday morning and towed the missile boat Dioskuria, one of the navy's most sophisticated vessels, out of sight of observers. A loud explosion was heard minutes later.

Several hours later, an Associated Press photographer saw Russian trucks and armored personnel carriers leaving the port with about 20 blindfolded and handcuffed men riding on them. Port spokesman Eduard Mashevoriani said the men were Georgian soldiers.

Pentagon spokesman Bryan Whitman said officials were looking into the reported theft of the Humvees.

The deputy head of Russia's general staff, Col. Gen. Anatoly Nogovitsyn, said Russian forces plan to remain in Poti until a local administration is formed, but did not give further details. He also justified previous seizures of Georgian soldiers as necessary to crack down on soldiers who were "out of any kind of control ... acting without command."

All of this while NATO fiddles with weak responses from France, Germany and Italy. Don't read me wrong, the statements by Rice are well done but they just don't seem to be bolstered by much yet so the Russians are still testing the waters in terms of what they can get away with. You've essentially got a bit of a divide with Eastern Europe, the UK, Canada and the US wanting tougher action and Western Europe more apathetic.

Rice I think understands very well that the way to end this with Putin is to show strength. I think that traditional backpedaling by Germany because of economic ties with Russia is tying hands a bit, at least for the next few days.

We've also got Gates on vacation which is a bit unhelpful.

My gut is the Russians will withdraw their troops in about a week but will cause as much havoc as they can in the mean time. I think however, that you may see a much more unified response by the Baltic States, Ukraine, Hungary and Poland in terms of providing assistance to unintegrated states on Russia's southern border.

If they don't withdraw in a week I don't know another way to end this other than getting NATO troops in Tblisi and Poti. Even a symbolic amount of "peacekeeping" troops will keep Putin from ordering troops into those cities, it risks too much.

I think some way of getting around the exisitng border dispute clause may be required. Specifically, Ukraine may develop a signficant border dispute in Ukraine if they go ahead with plans to join NATO simply because the Russians will escalate the crisis over it's Naval Base and the large Russian population there.

Also, just having troops in those cities shows that Russia's efforts to rebuild the Soviet Empire are not going to gain it any satellite states and will prevent adventures in the future. We may not be able to get a lot of German troops to contribute but I bet you could ge troops from Poland and the Baltics. France promised "serious consequences" if Russia does not withdraw and my guess that has about a week long fuse on it.

Pandora Battle is a Signal to Media Startups

Pandora is one of the nation's most popular Web radio services, with about 1 million listeners daily. Its Music Genome Project allows customers to create stations tailored to their own tastes. It is one of the 10 most popular applications for Apple's iPhone and attracts 40,000 new customers a day.

Yet the burgeoning company may be on the verge of collapse, according to its founder, and so may be others like it.

"We're approaching a pull-the-plug kind of decision," said Tim Westergren, who founded Pandora. "This is like a last stand for webcasting."

Last year, an obscure federal panel ordered a doubling of the per-song performance royalty that Web radio stations pay to performers and record companies.

Traditional radio, by contrast, pays no such fee. Satellite radio pays a fee but at a less onerous rate, at least by some measures.

As for Pandora, its royalty fees this year will amount to 70 percent of its projected revenue of $25 million, Westergren said, a level that could doom it and other Web radio outfits.

A couple reactions:

• It's not hard to see this has huge implications for a future where all you have is a broadband pipe to the home that distributes a la carte content directly from content owners when and where you want it.
  
• The obscure Copyright Royalty Board and the artist association are arguing that internet businesses like Pandora must may higher royalties because internet businesses "have higher margins". In other words, if you come up with a more efficient business model than terrestrial radio, your royalties should rise to the level that just barely pushes you out of business?
• And while I have some sympathy for the record labels because their business model is dying, paying higher royalties over the internet is only going to slow the process of disintermediation, not stop it. As for recording artists, not so much sympathy on my part, these people make way too much money as is. Why does Britney Spears need more money at the expense of a loss of US competitiveness in internet media?
  
• The Copyright Royalty Board and organization representing artists also argue "they are not doing enough in their businesses to make money". This kind of thinking has a very high potential to completely shut down these business before they have a chance to grow and innovate.
  
• If we strip the argument down to its simplest form--What is the virtue of charging royalties for a web based service vs none for streaming music over traditional radio? Why zero in once case and double existing royalties in the other? What happens if a radio station streams its audio over the internet, must it then pay royalties on every song it plays? Should profitable radio stations pay more than poorly run ones? Streaming media has the advantage of being national or even global but why should that mean that the service should pay a royalty? I'd like to see the court's reasoning as to how it justifies these royalties, specifically were there other arguments used besides "higher margins".
  
• This is an example of a startup with a great service but at the same is facing entrenched competitors that are working very hard to protect old ways of doing things. One of the first venture capital deals I did, eRealty faced a similar challenge when it tried to put MLS listings on the internet and offer it as a brokerage. Now of course that's common today but back then it was sacrilege. Now, almost every major brokerage allows you to put listings on line, but it was a slugfest getting this done. In fact, it ended up being an adventure in Federal District Court in Austin (right below the Supreme Court). We ended up winning with the opposing counsel actually feinting in court. When the judge announced the decision I almost hugged him. There is now a DOJ antitrust case ongoing and the matter still isn't completely settled given all the nasty tricks NAR tried to stop this.
  
• On the plus side, big battles like this end up driving subscribers up which looks to be what the CEO is doing with quite a bit of press in a lot of places. For eRealty, while this was a big diversion for management, it also drove up registered users every month it went on. Big anti monopoly pieces in the WSJ generated subscriber surges more than any advertising could have. It's not clear to me this will help Pandora too much as their revenue model has not yet been clearly defined however.
  
• Pandora has got to wage the same sort of David and Goliath battle but the reasoning behind raising royalties given the comparison to traditional media is perplexing. We'v got one of the worst FCCs I have seen in my life as well as legal and regulatory environment that has the potential to squash innovation and new businesses before they have a chance to get critical mass.
• The recent Xm/Sirius merger and the FCC approval circus around that deal provide a pretty good example of the Olympic sized gymnastics required to navigate the FCC these days.
  

There are a lot of great ideas coming in streaming media but the regulatory environment has to be navigated very carefully these days. The amount of resources in terms of press contacts, legal advice, and industry contacts are relatively substantial for a media startup. CEO's in this area have to be a bit more savy in terms of the resistance spots they are going to get and be strategic about what battles they can win, and which they cannot. With the elections coming in November, some of these pitfalls are likely to increase, rather than get easier. Full piece in the Washington Post here.

Trends in Energy Tech

Nice article on hydrothermal. Given problems with energy storage and energy transmission, technologies that produce energy closer to the point of consumption are of interest.

Link via NYTimes and excerpt below:

The pumps, also called geothermal heat pumps, use the relatively constant temperature just below the earth’s surface — six feet below, in many cases — to draw warm air into a building in winter and remove warm air in summer. Advocates say the systems can save building owners 25 percent to 65 percent on energy costs while reducing carbon dioxide emissions.

The systems use a network of water-filled pipes laid either horizontally (6 feet under) or vertically (often 200 to 300 feet down), that attach to a heat exchanger.

The technology can be used almost anywhere, on any type of building. “We’ve got them all the way from Texas to the Arctic Circle,” said Mr. Bose, a professor of engineering technology at Oklahoma State University in Stillwater.

And even without financial incentives from the government or energy utilities, says John Shonder of the Energy Department’s Oak Ridge National Laboratory in Tennessee, “ground-source heat pumps have the lowest life-cycle costs in several cost studies that I’ve done” of heating and air-conditioning systems. (For details on incentives, see www.dsireusa.org.

The industry may find sales and workloads booming even further should Congress pass and the president sign the Renewable Energy and Job Creation Act of 2008. The legislation, sponsored by Charles B. Rangel, the New York Democrat who is chairman of the House Ways and Means Committee, would extend tax credits of up to $4,000 through the end of 2014 to homeowners who have ground source heat pumps installed. (The bill offers no aid to businesses.) The House approved the bill in May, and it is awaiting action in the Senate.

Maps for Those Following the Georgia Conflict

Latest Housing Data

Latest housing foreclosures from RealtyTrac.

Race Between Obama and McCain grows Tighter

A statistical dead heat in the latest poll numbers between McCain and Obama. But in the WSJ today Austan Goolsbee puts a cap on some of the tax increases Obama is proposing here--moving the campaign a nudge more towards the more moderate center.

They don't exactly change their position, but they abandoned the "higher end of guidance" on some rates. For example some thought capital gains might go to 28%, but Austan caps it at 20%.

The only tax I really think should be as high as Obama suggests is estate taxes. Marginal income rates are those that impact people's behavior, but when you are dead who cares? Seven million to me seems like a reasonable exemption for family businesses and farms and nobody should be forced to liquidate a business. But since a death tax does not change economic behavior I think it's a good place for the government to collect revenue.

Marginal income rates this high are not a a tax on the rich, rather those that are trying to get rich. However, it almost looks like they are trying to solve that problem through carve outs for small business.

Generally my opinion as to why Obama is so dramatically under performing his party is in large part due to the perception that he wants to raise taxes. It's also why there have been only 2 Democratic Presidential wins in the last 40-50 years--Carter and Clinton, most Democrats run on raising marginal income tax rates. The best thing the Democrats could ever do to tax the rich would be to move to a consumption tax, since over consumption is the most direct measure of wealth I can think of.

This WSJ pieces is reassuring somewhat to the extent Obama doesn't want to tax to confiscatory levels, but it's almost too little too late. He has to somehow change the perception that he is going to raise taxes to the moon.

McCain has got the wind at his back with the Russian Bear on the move, Iraq looking like its winding down, and a mild respite from some of the finacial problems. I'd love to see Obama move a bit more to the middle here.

Immigrants from Far and Away

Lots of folks are a little up in arms on Greenspan's piece in the WSJ here. Quite a few people think one particular element, his suggestion on immigration was foolish. I think his obsevation has merit for multiple reasons. Here is an excerpt:

He did offer one suggestion: "The most effective initiative, though politically difficult, would be a major expansion in quotas for skilled immigrants," he said. The only sustainable way to increase demand for vacant houses is to spur the formation of new households. Admitting more skilled immigrants, who tend to earn enough to buy homes, would accomplish that while paying other dividends to the U.S. economy.

He estimates the number of new households in the U.S. currently is increasing at an annual rate of about 800,000, of whom about one third are immigrants. "Perhaps 150,000 of those are loosely classified as skilled," he said. "A double or tripling of this number would markedly accelerate the absorption of unsold housing inventory for sale -- and hence help stabilize prices."

I know this is an emotional issue for folks but this is a nation of immigrants, while a large immigrant population can cause quite a few difficulties it is our nation's greatest source of strength. New sources of labor and ideas add vitality in a lot of intangible ways. Most of the time the biggest opposition to immigration reform comes from those who worry that all these new citizens may redraw electoral maps. This has been an issue for the US many times over the past few hundred years.

That leaves me with the position, that as long the immigrants speak English, they should be allowed to work here and give a path of immigration. But to Greenspan's point, I actually agree with him in terms of immigrations impact on the housing market.

When McCain's immigration plan failed in Congress, the Federal government responded by cracking down on employment verification in Congress and that led to quite a few people going back to their home countries or not even attempting to seek work here.

Two points I'll make:
1) One reason food prices are rising is because migrant workers have either been sent home or don't bother trying because of the crack down. Food has literally rotted on the vine because of this.
2) Did you guys not see the movie "Far and Away" with Nicole Kidman and Tom Cruise? Remember the big wagon race to plant your flag for land? The government had large swaths of land and needed people to make productive use of the land and actively sought immigration so property did not sit vacant. Take a drive through California's central valley and there are some areas where the vacancy rates are similar.

A few hundred thousand fewer people means a lot less demand for housing. I'm fine with a crack down, but let's reform immigration so that people who are committed to learning English are allowed to come here and work. This includes expanding the H1-B visa program and allowing for seasonal workers to come in to fill labor shortages in key industries.

A Startup for Map Lovers-- Maker!

Here are some great maps from a startup that is using geotagging for some map mashups called "Maker". I love a good map, and I am sure it's on the radar of Google as a generator of indirect revenue through page views but it's probably not an indepednent business on its own that I can see.

1. Will it become a huge business? No (it's a cool one though)
2. Will it get a good exit? You betcha. I would bet on something like this because one day, mobile advertising will one day be as big or bigger than the traditional market. Your phone has your location and knows more about you then anything else. These kinds of technologies are needed to build information quickly and easily about you and for you.

It's a decent bet.

In-Q-Tel is in the deal which is not a big surprise given the kinds of deals they like.

Whether its a big business on its own or not, these are some nicely eye candy-- more on them here at TechCrunch.

Nice piece on infrastructure investment

Also some allusions to the tenancy of government to have pro cyclical regulatory policy which ends up prolonging problems and in many cases making them far worse. VIA PEHUB here:

Michael Butler is chairman and CEO of investment bank Cascadia Capital. He is writing a book titled Financing the Future and the Next Wave of 21st Century Innovation, and is serializing it here at peHUB. What follows is an excerpt from the eighth chapter.

It’s been nearly 30 years since Ronald Reagan tore down the walls of regulation and ushered in a new era of smaller and less involved government.

But 30 years is a long time – a full generation, in fact – and the pendulum appears to be swinging back toward greater government regulation of business.

Actually, the pendulum has already swung back – and in a major way. Ever since the rescue and fire sale of Bear Stearns, The Federal Reserve has been steadily but surely asserting itself by inserting itself in Wall Street’s affairs.

This involvement shows no sign of abating, and I believe it will lead to a new and significant regulatory infrastructure. We can already see the emerging outlines of a possible nationalization of Fannie Mae and Freddie Mac; investment banks will experience more oversight from Washington; short sellers will be scrutinized; excessive leverage is being examined by legislators; the oil futures market is under investigation; utilities will be monitored more closely; and the government has shown us that it will do whatever it takes to prop up and support the housing markets.

So far, most of the regulatory inroads have been in the financial, energy and housing sectors of the economy. But it’s very logical to assume that government intervention will spread to other industries in due course.

Like it or not, the bottom line is that there will be more Federal regulation of business over the next four years than at any time since the late 1970’s. And if Barack Obama is elected President, the move toward nationalization and re-regulation will be even more pronounced.

I’m an unabashed capitalist – and I’ve been an investment banker for more than 20 years – so I understand that the knee-jerk reaction to all this is apprehension and maybe antipathy. That’s the normal response from the private sector. People building enterprises don’t like to be messed or meddled with. And to the extent that regulation becomes an impediment and industries are nationalized, they are right – and I’m with them.

This may be heresy from a guy who has been doing deals for several decades, but I believe there are a number of legitimate opportunities for public-private sector collaboration. And these opportunities can be very beneficial for a wide range of constituencies within our country.

The key premise for a successful public-private joint venture – at least in my view – is that an investment initiative is solidly in the public interest. It must also require more capital, and have a higher risk profile and longer time frame than most private entities can handle on their own.

I’m not in any way, form or fashion proposing another New Deal or Great Society; nor am I going to claim that a Reagan-like laissez-faire approach can help us solve the huge global problems that gnaw at the fiber and fabric of our society today. What I’m saying, though, is that a pragmatic blend is the way to go, a mixture of public-sector muscle, scale and scope and private-sector agility, innovation and drive. Issues like global warming are unprecedented and require the best and brightest to coalesce and come together – whether they’re legislators, community leaders or CEOs.

Right now, I see four major opportunities for public-private collaboration:

Infrastructure Projects
The Industrial Revolution could not have taken place in the late 18th and early 19th centuries without better infrastructure. The same is true today. We cannot build out the New Energy Economy of the 21st century without sustainable infrastructure that accommodates and acknowledges the beginning of the post-petroleum era. We must upgrade and modernize the highway systems, railroad tracks and shipping processes that were constructed in the 1950s under President Eisenhower. And government and the private sector must put their heads and wallets together on this.

Research & Development
Basic research, which costs in the neighborhood of tens and tens of billions of dollars a year, is an area where the private sector has trouble going because of the uncertainty and length of time it takes to generate economic returns. This is innovation with a long-term horizon. So government can be helpful and a good partner here by taking on funding through its labs as well as universities, which can achieve breakthroughs in disciplines like health care. And Washington, in particular, can help fund national initiatives in alternative energy that have significant capital requirements and long-haul paybacks.

Appropriately Pricing Existing Solutions
Government regulation can help spur innovation and level the playing field so new and better products and services can compete in the marketplace. A carbon tax or tariff on oil and other polluting energy sources and processes, for example, would appropriately and accurately price these existing solutions. As a result, consumers and customers would be able to put economics aside and make choices based on personal preference and environmental merits not dollar outlays.

Incentives to Jump Start Strategically Important Initiatives
A good example here might be tax benefits in the form of investment tax credits (ITC) for the fledgling solar power industry. The government has determined that the development of renewable energy is a strategic priority and the private sector has invested in solar. But solar isn’t cost competitive right now – and won’t be until the technology is more fully developed and economies of scale are developed. So, we are faced with a chicken-and-egg situation: how does the solar industry get economies of scale if it’s not cost competitive today? The sheer amount of capital required for subsidizing carrying costs to get to scale and cost competitiveness is way too much for the private sector to handle on its own. That’s why the government – at both the state and federal levels – has stepped in with tax credits to fill the financing void and enable solar to achieve cost parity. This is an interesting model to watch – and perhaps follow.

Some of the best examples of public-private partnerships are currently taking place at the state levels. Oregon’s progressive tax code, for instance, has encouraged the growth of sustainable industries in a number of solid – but creative – ways. New Jersey has an extremely popular incentive program that has boosted solar power’s fortunes and prospects. And California, which produces roughly 6.2 percent of total U.S. greenhouse gases (GHG), passed landmark legislation in 2006 that established a first-in-the-world program of regulatory and market mechanisms to achieve real, quantifiable, cost-effective reductions of GHG.

A lot of people think that the next president should pledge support for a huge and sweeping green governmental initiative. Baby Boomers, especially, yearn for another John F. Kennedy – who promised to put a man on the moon within a decade.

But I don’t think this is the way to go this time. Instead, we need to be strategic rather than grandiose. What do we need to unleash private enterprise in this country so capital can be put to work in an efficient and effective way on behalf of 300 million people? That’s the question we have to ask ourselves. We can’t worry about making splashy headlines. We have to focus on staying competitive in a brutal global marketplace. And we have to try to find middle-ground ways of bringing public policy makers and private sector executives and entrepreneurs into the same deals.

That’s why it wouldn’t be such a bad idea for the next president to create a Cabinet-level position for coordinating public-private initiatives across the board.

We can do it. And to be perfectly honest – we have to do it. Ideology and labels must go away or our big and seemingly intractable problems will be here to stay.

The Thorn in Spotrunner's Side

Interesting blurb on Spotrunner via Alleyinsider. This is a business I've been watching for a while. My gut is there is a business here and I'd love to see it succeed. It's also very synergistic with efforts in internet based advertising and there are some overlaps that could be exploited into a nice acquistion.

I wonder if they are having issues because 1) the ads for small businesses are down in a softening economy or 2) if it is some other problem in the model:

Spot Runner is laying off a bunch of people: 100 total if you believe a Valleywag tipster; much less if you believe a company spokesperson, who says the company is only canning 50 people. That smaller number is about 10% of the startup's workforce.

The company, which raised $111 million from the likes of CBS, WPP and Lachlan Murdoch, tells NewTeeVee the staff changes are part of a "course correct" to re-focus on national advertising, and that it will hire another 40 to 50 people to beef up its national sales force, headed by former MSN sales chief Joanne Bradford.

What seems clear: Spot Runner, which started by focusing on helping mom-and-pop businesses cheaply create and buy local TV ads, is shifting away from that emphasis to a national ad strategy. Local ads have been hit hardest during the ad downturn, which probably explains the shift in emphasis.

Reliving Old Glories

Here is an excerpt below from a pretty good NY Times piece:

“If the United States and Europe don’t stop Russia, I think this is the end of what we thought of as the post-Soviet era,” said Sarah Mendelson, a scholar at the Center for Strategic and International Studies in Washington.

George Friedman, chief executive of Stratfor, a geopolitical risk analysis firm, said: “The Russians feel they have been treated like dirt by the world for the last 20 years. Now, they’re back.”

Many experts in foreign policy say that one reason Russia responded so forcefully to Georgia’s attempt to take back South Ossetia is that the United States and Europe had been asserting themselves in Russia’s backyard, alienating Moscow by supporting Kosovo’s bid for independence.

These expert say that the Bush administration’s efforts to promote democracy, including backing Mr. Saakashvili as a beacon of democracy on Russia’s borders, may have emboldened the Georgian president to take provocative actions that brought a fierce Russian response.

Beyond that, Russia has also been angry about American plans to put a missile defense system in Poland, and by American moves to encourage Georgia and Ukraine to join NATO.

“The combination is that the overall means with which we’ve dealt with the Russians over the last two years have painted them into a corner so that it’s difficult for them not to see us as hostile,” said Michael Greig, conflict management specialist at the University of North Texas.

It's a great article but a lot of this is absolutely missing the point. Russia has had opportunities to become equal partners with the West--and equal among the G-7. Putin has believed for some time that Russia should pursue a different course. Specifically, the strategy under Putin has been to confront the west and recapture past glory. He has been consolidating local power inside Russia and spoiling for a fight for some time to that end.

This is also starting to remind me of the invsion of Kuwait by Hussein. At first, there was no strong response from the White House. Within 3 days, things had changed. If the course isn't changed quickly, this could turn a lot more ugly.

Russia needs to recognize it is the 21st century not fight the cold war all over again.

Every European former republic except ByeloRussia has opened ties to the west, but Russia under Putin has tried to create some old battles. The continued escalation is extraordinary. I saw a couple of comments from some Swedes who are trying to mediate this situation and I've never seen Swedish diplomats get so angry. They've also got the Ukranians threatening to cut off the Crimea from Russia and the Baltic States, Poland and the Czecks are all furious.

The last time the precedent for protecting citizens was used was World War II by Nazi Germany regarding the minority population in Czechoslovakia--and this is the best the Russians could come up with?

If this was their true concern why not use the UN? Even Putin's favorite President, George Bush used the UN before going into Afghanistan and they turned planes into missles in New York City.

The German Anschluss of Czechoslovakia by Hitler is not the kind of analogies Russia should be using when they were supposed to be peace keepers and ended up picking a side and invading. A lot of this diplomacy appears to be coming straight for Putin--the guy thinks he is Stalin and is destined to bring back the Soviet Union from the great calamity. It's so blatantly aggressive, I think if he pushes it any further without immediately standing down it's going go end up backfiring on Putin.

Full NY Times piece here. BTW, Can you guys tell I love a good map?

Georgia On My Mind and Georgia Making Putin's Day

A few reactions on the escalation in Georgia over the weekend which has been quite extraordinary:

• In the past few months, Putin appears to want to push the US to the absolute edge of conflict with this invasion without actually starting a conflict. The Russians have been frustrated that the US has been unable to engage the US in any kind of provocation, and the US in the past has downplayed Russian moves. This is one area where Secretary Rice’s policy has been well done in my opinion. She is a Russian specialist, understands their history and understands the dynamics of past conflict with Russia. That said, Putin has been gunning for a fight and it looks like he found a spot that is going to be problematic. Russia has tried everything from threatening to base bombers out of Cuba to targeting eastern Europe with nuclear weapons. Putin has found something that the US can’t ignore in Georgia.
• It looks like we had an ally who did not exercise a lot of wise restraint. How did we not caution this guy on a move like this? Clearly however, this was not some gamble on a slow Russian response since the Roki tunnel was not bombed. The area is incredibly mountainous and Roki is the only way to get in or out of Georgia from Russia. It does not appear as though there was some kind of build up before the war started by Russian troops and no evidence this was staged by Russia. Most of this plainly looks like the Georgian government made a small move and Russia decided to view it as a direct provocation and acted.
• This situation is made somewhat more complicated because the two provinces that want to break away from Georgia actually don’t want to be in Georgia and want to be annexed by Russia. Our own principles are supposed to be grounded in self determination so it makes the case a lot less cut and dry than it otherwise could be.
• The Russians appear to be moving towards Gori and most probably the Georgian capital. It may be just to try and engage and destroy the Geogian army but they could in fact continue on to the capital and try an put a new government in place (they hate the existing one)
• This is why we need the Strategic Petroleum reserve that people keep wanting to tap like it’s a piggy bank. Whenever I hear politicians trying to tap this they it strikes me as not having a very long historical view.
  
• As long as we refuse to change our energy policy we need to keep a long supply on hand. Another big reason why we need to move away from dependence on foreign oil as quickly as practical. Announcing steps to get the price of oil down to $85 a barrel as soon as possible might table a few egos in Russia, Venezuela and Iran.
• Just as an aside I saw Pelosi speaking on this and energy last weekend about tapping our reserves. This is one of the first times I have heard her speak and I was a little taken aback by the lack of flexibility and willingness to even think about energy solutions. She struck me as somewhat sheltered, naïve about how the world works, and parochial in terms of energy policy. People live fantastic lives in Northern California, but surprisingly, many parts of the world are not as nice as Stanford Mall. I was not convinced this has occurred to her based on that interview.
• Iran may get tabled because of this, at least by the US and NATO. It could have all sorts of unpredictable impacts for how that conflict plays out.
• Germany blocked Ukraine and Georgia from joining Nato. Right now Ukraine is threatening to not allow the Russian fleet to dock in their Black Sea ports under lease, and the Russians would have to supply from Murmanks way up North (another reason the Russians are carrying a big slavic chip on their shoulders). We may have to quickly adopt Ukraine into NATO to prevent this kind of problem occurring again if russia continues to expand its invasion into Georgia proper.
  
• This whole conflict has me looking at economic and political maps like I used to quite a long time ago. Russia wants its old prestige back, but it has 140 million people, not 300 million, and it's army is 641,000 which is actually small for Russia. Iraq at the start of the first war was at around 500,000. It doesn't feel like the same country because it isn't.
  
• Oil isn’t really jumping quite a bit yet. That tells you that oil traders are not pricing in an escalation (oil traders are smart). However, I think the Russians are going to push this as far as they can milk it. If this doesn’t settle down by Tuesday, you could see it escalate further by a lot more than people expect. I feel like Putin is looking for a shock here and it's already gone past the logical stopping points. All while the Euro dive accelerates with good reason.
  

Trouble in Georgia at the Start of China Games

The Economist has a piece out on the breakout of war inside Georgia. In the past, it has seemed as though Russia has been the instigator of hostilities. Not sure that is the case this time. If this was a Georgian move, I wonder what the logic was as this can't end well.

It's worth watching as the tensions around NATO expansion, and democracy trends inside Russia are not super good these days. Additionally, if oil drops down to $85 it will have a large impact on the Russian economy as well as the ability of others such as Iran to sustain aggressive international "activities".

Personally, I'd love to see the EU cover Iceland all the way to Vladivastok in the Eeast down to Syria as the southern border, eventually with an integration into NATO, and some kind of economic extension into NAFTA.

However nationalism inside Russia persists and has actually grown more virulent as commodities have spiked. Just one more reason I like seeing oil down like this. Even if it might only be for a short while I think Putin is dangerous and nothing would constrain him and a few others more than a 6 months collapse in commodity prices.

Oh and this is exacerbating the worst decline in the Euro in 8 years. I love seeing the dollar rise like this.

Big Negatives are threefold.
1. If this escaltes into a full scale invasion of Georgia we could see some serious problems undercutting NATO and a big rebuke of Merkel who shut down the path of Georgian integration in to NATO a few months ago. Additionally it would be the end of a democratic republic on Russia's southern border.
2. Potentially negative impact on tighter sanctions on Iran which could move us closer to a military solution instead.
3. China isn't going to be too happy about an attack be either side coinciding with the start of those games aka "China's big coming out party"

Also, I'd point out, I hope somebody smart has a plane ready for the leader of Georgia as the end of his government is likely a primary goal of Putin.

Whole piece via the Economist here.