Musings #11 (3/19/11) from oftwominds.com
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The Big
Stories:
Japan and Libya.
As for the situation in Libya: any time
peaceful
Denmark sends F-16 fighter aircraft in support of military intervention,
I take
notice.
It is noteworthy that the U.S. has
(officially at
least) remained circumspect about imposing a "no fly" zone, the European
nations
have taken the lead. It is also noteworthy that President Sarkozy is
highly
unpopular in France, yet he has taken a leadership role here--possibly
connected
to France's perception of its long-standing role in North Africa.
The
Italians of course have the most to lose in terms of oil exports from
Libya.
Strategically, what's important here is
how the
West (broadly speaking, the U.S.-European alliance) can still act in
unison when
the various players choose to back a cause or venture. This reveals the
continuing strength of the West in comparison to China and Russia, who
have no
"network" or alliance of other powerful nations to enlist to join with
in
coordinated action.
It is also worth noting that the West,
via NATO and
France (which has a long history of coordination with NATO forces) has
the
ability to field forces which have trained together and which respond to
unified
and coordinated chains of command. This is also true of the South Korean
and
Japanese militaries, which have held numerous joint exercises with the
U.S.
military.
This ability to work together is a
non-trivial
task, because communications and control systems can be quite different
(i.e.
the Tower of Babel problem).
When people talk about the decline of
the West and
the rise of China as a global strategic power, it's worth asking: what
other
militaries does China work with in joint exercises? The answer is
none,
meaning that China acts alone or not at all, or in conjunction with U.N.
forces.
It's all well and good to talk about
"projecting
power" and "soft power," but joint military action, be it intervention
in Libya
or humanitarian aid in Japan, is exceedingly difficult in the real world
and
takes a lot of corrodination and practice.
Alliances which
are more
than just PR conveniences (alliances in name only) are worth a lot
because the
sum of the participants exceeds the power of each
participant.
Japan: report from the
Pacific
Fleet
I received a long report from an
Oftwominds.com
correspondent who is on active duty as a U.S. Navy officer in the
carrier group
currently providing support to Japan's relief efforts. Here is an
excerpt of
this report:
Let me give you an on the ground
observation
report. Keep in mind, I can only tell you unclassified
observations, but
not many things are worth reporting that are classified at this
point.
- Contrary to lots of overseas sensationalized press
reports
of impending nuclear meltdown, the general Japanese populace is
remaining
calm.
- The threat of complete nuclear meltdown in the
effected power
plant is possible but remain unlikely. As I type, the Japanese are
doing
some unbelievable work in trying to contain the situation. I won't
bore
you with all the details but I believe the Japanese will have this
contained.
- Even assuming the worst case scenario (Chernobyl-like),
the
effected area will be within ~50NM (nautical miles) centered around the
power
plant. This calculation was run by the best nuclear minds
(possibly in the
world) we have in US Navy. Major cities such as Tokyo (180NM away)
will be
effected but nowhere near the hype that media is portraying.
The
radiation exposure to the rest of population in Japan, outside the 50NM
bubble,
will be minimal. The effect will be more psycological then
anything else.
- US Govt is in process of initiating a form of evacuation operation
for
dependents."
(end of excerpt)
This squares with what I have posted,
i.e. that the
hysteria is overblown.
As correspondent G.F.B. reminded me,
the media's
job is to attract viewers which can be translated into higher revenues,
and
fear-mongering and exaggeration of risk are both successful methods of
creating
an emotional response in viewers.
Clearly, Japan's central government
failed to take
effective control of the situation and also did not gather and/or
disclose
essential information, and as a result the Japanese have lost "face" on
the
global stage.
Those of you who have been watching NHK
(the
Japanese network) may have noticed that workers who volunteered to go to
the
reactors were exhorted to uphold the honor of Japan, which has suffered
due to
government incompetence and obfuscation.
As I have noted in this week's blogs,
Japan's
culture is very different from that of America. Amidst the incompetence
there
are people on the ground working with extreme dedication and
self-sacrifice
to get the reactors cooled.
My source in the USN carrier group also
noted that
there is full coordination between the U.S. government's many agencies
the the
Japanese government, including the US Navy and Japan's self-defense
forces and
various nuclear-related agencies (Dept. of Energy, etc.) Most of
this
coordination is of course not publicly revealed.
The point here is that Japan and the
U.S. are
"networked" in many ways beyond the public gaze.
Investment and
Speculation:
As I noted this week, volatility is a
speculator's best
friend, and I've had a fun week as a two-bit trader.
I posted a few charts today which were intended to point out the
grave
risks of holding onto the decades-long belief that "stocks are a good
investment
in the long run."
With correspondent Harun I.'s assistance, I will be addressing some
related
issues in the next week, such as a look at the oil market, and
specifically what
rising volume says about that market.
In broad brush, I think a strong case can be made for the following
long-term points:
1. Stocks have entered a long period of decline as participants
bail out of
equities and move their money elsewhere.
2. Real estate valuations
are very
sensitive to rising mortgage rates. If inflation/stagflation take off,
then
interest rates will rise. That will crush real estate values, which are
ultimately based on the cost of borrowed money.
3. You may have read
that
PIMCO, the world's largest bond fund, has exited the US Treasuries
market. The
dynamic is the same for bonds as for real estate: rising rates
eviscerate the
value of existing bonds.
4. Most of the "investment strategies" out
there
count on a rising, stable stock market and low, stable interest rates.
If these
two props collapse, then all these strategies are doomed.
5. Oil and
precious
metals are just as prone to wild swings up and down as stocks--just look
at oil
falling from $140 to $47/barrel in less than a year. Look at what
gold did
in late 2008--it cratered. These "investments" act like a
speculative
trade, and while they are clearly better than bonds, real estate and
stocks,
they are volatile and may well get more volatile.
6. "Buy and hold"
as a
strategy in any asset class may be risky. Everyone who bought into the
"commodities will go to the moon because of China" story suffered some
sudden
losses in various commodity markets.
7. Global markets may have
entered a
long period of high volatility. If so, there may not be one
"answer" as to
what constitutes a low-risk, "safe" investment.
8. If this is so,
then we
will just have to stay nimble and keep an open mind. Sharing my
own
attempts to do so is part of what I perceive as my "job" here.
Item #1: the ubiquity of computer
algorithms.
Correspodent G.F.B. submitted this link with the
following comment:
It's 26 minutes but worth your investment of time,
as it's
about how we are increasingly letting computer algorithms make choices
for us -
in everything from what movie gets made to trading stocks has
changed us in
amazing and surprising ways."
This is a topic I will explore further, but the primary question
this
raises is this:
If the algorithm's analytic process is not
transparent to us,
then how do we know its analysis is truly "objective"? What
biases,
unintentional or otherwise, might be buried in the code? What
catastrophic
flaws might be hidden in the process that will only be revealed in
certain
circumstances?
Item #2: Interesting bits about Steve Jobs.
Apple's Steve Jobs has long been an icon, not just in the tech
world but in
the business realm. I thought I knew his basic backstory but there were
some
bits here that were new to me.