Friday, 7 December 2018

What Would Odysseus Have Done With A SatNav?

When walking down the street have you ever noticed just how many people stride purposefully along with their eyes focused almost exclusively on the small screen of their smart phone held in front of them like some sort of medieval talisman warding off evil spirits? Oblivious to their surroundings they plough through crowds, sometimes straight into trees or lamp posts, as they tap furiously on the phone or check street signs to make sure the computer map is indeed sending them to Portobello Road and not Penzance.

Is this what we're coming to?

            It remains a mystery just what demands their constant, immediate attention. Remaining in touch with a friend they haven’t seen for at least 10 minutes? Checking their lottery number, finding the magic cure for Brexit, resolving the Syrian mess? Or perhaps they’re anxiously awaiting news on their Oscar nomination or Nobel prize announcement.

            While not wanting to appear like some old fogey technophobe I do sometimes wonder how the social value of recent ‘triumphs’ like Facebook, Twitter, or Instagram improve our lives compared with the discovery of things like penicillin, polio vaccine, electricity. It’s interesting that in the search for clean energy we’re going back to the very basic wind or geothermal sources. Perhaps one day we’ll even figure out how to harness the tides or develop energy from water.

            One innovation that seems to cause as much confusion as enlightenment is satellite navigation or SatNav. How many stories have you heard about people relying on SatNav only to wind up in a remote refuse pit instead of in their friend’s driveway? Once we made the mistake of using SatNav to find a hotel in Normandy and spent hours creeping around back roads before discovering that the hotel was less than a mile from where the device had told us to turn off into the woods.

            That experience only reinforced my prejudice for proper maps. Now before any journey I spend very pleasant hours in Stanford’s map/travel shop in central London. There you can find beautiful, multi-coloured, accurate road maps, hiking maps,  ordinance survey maps for almost every location in the world – all of which you can study at your leisure without that irritating little voice telling you to turn left in 200 meters, turn right there, and announcing arrogantly that you have arrived at your destination when a glance out the window shows that you are instead far from any known destination. Perhaps SatNav developers should add a phrase like ‘You Can’t Get There From Here.’

            These thoughts were wandering through my head as a recent Greek ferry trip took us past the sometimes-turbulent strait between the islands of Evia and Andros. This strait is the most direct route to Troy on the coast of Asia Minor, and I wondered what Odysseus would have done with a Sat Nav for his famous trip home after the long war.  Having made the trip to Troy 10 years previously he should have known the direct route home to Ithaca. But the gods, mainly Poseidon, decided to make his life difficult. At least that’s what he ultimately told his long-suffering wife Penelope.

Think she'll buy the  faulty SatNav argument?
             In addition to the issues with Poseidon he decided to add to his problems by relying on the first-generation SatNav. Instead of the simple, direct route the SatNav directed him to  zig-zag around the Aegean and Ionian seas for 10 years constantly being told to turn at the next way point or that he had arrived at his destination. I wonder if the system would have warned him about spending several years with Calypso, the risk of the Sirens, the dangers of Polyphemus, or the problems of a reckless crew that opened the bag of winds. After many distractions and useless side trips the little, by now almost completely torn, checkered flag finally appeared at Ithaca. History does not record what the frustrated Odysseus did with the malfunctioning SatNav. But he probably did what most of us often think of doing – grind it underfoot before confronting the wife and son with an already tall tale.

            Perhaps now we can blame the trials of early travellers on a faulty SatNav. One can only speculate how travellers like  Columbus, Magellan, the Vikings and others would have reacted when their SatNav said it was ‘recalculating’ or that they had ‘arrived at their destination’. They would probably still be floating around the high seas wishing they had relied on tried and tested celestial navigation. At least the stars move in predictable patterns without constantly 'recalculating.'

Wednesday, 21 November 2018

The Best Of All Holidays

In the pantheon of major American holidays none stands higher than Thanksgiving.  There is no pressure of frenzied gift giving, no special services unique to one religion or another, and no marching bands loudly proclaiming one’s nationality. It is simply a time for families to take time out and realize some things are more important than work, politics, shopping, or any of the other myriad events that seem occupy so much of our time.

            The food recipe is fairly simple. It’s been around since 1621 when local native Americans – perhaps unwisely in light of later events – shared a meal with the newly arrived settlers just south of what is now Boston. Turkey, sweet potato, corn bread and pumpkin pie are now the basics, and modern-day cooks can add green vegetables or other types of pie. Certain things, however, are off limits. My wife is Greek and one year thought perhaps a few spanakopita – spinach pies --- would be just the thing. Absolutely not, I insisted. Tradition is tradition and must be honoured. History does not record any evidence of flaky pastry in Plymouth, Massachusetts in 1621.  However, it must be said that that one slight slip was quickly remedied and we now have a Thanksgiving table second to none.

No sign of spanakopita
            The holiday was first celebrated in 1789, and it was an on-again-off-again thing until 1863 when Abraham Lincoln declared it a federal holiday. Seems strange to create a national holiday of thanksgiving in the middle of a vicious civil war, but then maybe Lincoln needed something to take people’s minds off the carnage on the battlefields.

           Now it is celebrated pretty much the same way throughout the country from southern California to the coast of Maine, and many family members overcome major obstacles to get home for this one holiday. Travel writers often say that the Thanksgiving period is the single busiest travel time of the year.

            For me, I always associate Thanksgiving with the small town in Vermont where I grew up. Autumn was over and hard winter had not yet arrived. The trees had lost their wonderful mosaic of red, yellow, and tan foliage. Their limbs were now bare, and the dark greens of the spruce, hemlock and pine trees dominated the woodlands. Fields were beginning to freeze hard, and rings of ice were forming on ponds and streams.  The birds had long since flown south and small creatures of the fields and woods by now were nestled deep in their warm burrows. Outsiders – those people from Boston or New York – would say the air was cold, really cold. True New Englanders would only concede that the temperature was indeed bracing – maybe time to put on the long underwear.

            With the wisdom of 12-year-olds we would comment on peoples’ winter preparations while walking home from school. Who had enough good quality, dry wood precisely stacked and protected, who had sacks of sand ready for the icy roads, who had cleaned all the leaves from gutters to prevent ice from forming under the roof shingles? Meanwhile we would busy ourselves with the important things like checking that our skis were well prepared and edges sharpened, ice skates well polished, and hockey sticks recovered from under work benches. 

            Sharp edges on the skies were critical. Skiing in New England was different than in the West with all its luscious champagne powder snow. We in the rugged northeast weren’t used to such luxuries. No, our snow was rock hard and quickly turned to ice. If your edges weren’t sharp enough to carve around the icy conditions your race turned into catastrophe as you slid ignominiously sideways down the hill instead of going neatly through the gates. Very embarrassing when you’re 12 years old.

            My mother was usually exhausted by the time Thanksgiving morning rolled around. There were very few supermarkets in Vermont in the 1950s, and none at all around us. She had to drive to several different towns to get what she called the ‘right’ Thanksgiving ingredients. But cook she did. And by early afternoon we were ready to gather around the table. While we were a fairly small family, the number always seems to swell with stray friends or a distant relative. One year we were joined by recent arrivals from war-torn Europe and listened in awe as they gave a special thanks and recounted their experiences just trying to stay alive during the war and in its immediate aftermath. That was my first, personal introduction to the world beyond our little slice of rolling, green, peaceful hills.

            After the meal and the washing up, there was the obligatory touch football game. Football is a game normally played with 11 people on a side. However, on Thanksgiving the teams could number as many as 20 ranging in age from four to 74 as different families gathered to work off some of the excess food. This game had strict rules, such as how many times one’s sister was allowed to touch the ball. Score keeping was haphazard at best, and the game ended only when both sides were exhausted, frozen, or both. Then we would retire inside to a nice warm fire and watch a real football game on television before falling asleep fairly quickly.

The obligatory Thanksgiving touch football game
            Times, circumstances, and locations change. But it is gratifying to see that this most basic of holidays featuring family, friends and food is only getting stronger

Wednesday, 14 November 2018

Is The Turkish Economy Strong Enough For A Marathon?

Over the past few years Turkey, like its neighbour Greece, has suffered a serious brain drain as thousands of talented young people—the kind of people Turkey can ill afford to lose -- left for a variety of political, social or economic reasons. Journalist Kadri Gursel, who had served a jail term for his sharp criticism of economic and political developments, revealed the extent of this problem in a recent column in Al-Monitor. One of those who left is a brilliant young financial analyst now working in Europe, and he offered these insights into the economic problems facing his homeland. For understandable reasons he prefers to remain anonymous.

          When I first started my career in finance 20 years ago,  my boss at the time gave me a book called “Warren Buffett’s Way”.  As a young Turk, who never heard of the great master before, I was impressed by the clarity of Buffett’s thinking and his simple explanations of quite complicated subjects.  One of the most striking examples was on how to approach macroeconomic analysis where he likened the U.S. economy to “a great athlete who runs sometimes fast and sometimes slow and we should not be worried about how fast he runs in the short run as eventually he will get to his destination”.  Later during the 2008 crisis, the great sage used the same analogy. This time he said that great athlete who should have been checking his blood pressure now had suffered a heart attack. What’s worse, he continued, is that the paramedics who arrived, instead of applying the resuscitator, started arguing about who was at fault. It doesn't help spending time worrying about who is to blame when the patient is having trouble breathing.

The economy is more than a 100 metre dash
            Borrowing Buffett’s analogy, we can liken Turkish economy to a typical Turkish athlete who likes to run a fast sprint just to get ahead. But then either he loses energy and leaves the race or relies on some supportive “substance” to finish the race, with the hope (and often confidence) that he is so smart that no one will find out about it.  Either way, the race ends in humiliation.  Beginning in 2002, the Turkish economy had run a great race with the help of a foreign trainer - the IMF --  who prepared a long term strategy and careful nutrition plan. The economy also had a technical adviser – the EU -- who promised Turkey the opportunity to compete with elite athletes, as long as it promised to learn and obey the rules of the game.  In addition, low global interest rates provided the perfect weather conditions for Turkey to shine by using foreign borrowing to import all the equipment and proper nutrition. Turkey, of course, promised to pay back all these loans after it had won the race.

Since 2013 a lot changed for our athlete. First, he fired his foreign trainer, stating that his own methods developed by the great leader Tayyip Erdoğan, are much better than the alien but scientific methods used by his old trainer.  Then, instead of trying to compete with elite athletes, he decided to join a new league in the Middle East – a league not known for having, let alone following, a lot of rules and where the concept of ‘fair play’ is considered just another Western intrusion into the region’s culture. However, lately our athlete realised that the competitors in the new Middle East are quite tough, and most of them (with the exception of one small runner – Qatar) have long memories and are not fond of the renewed Turkish activity.  Afraid of losing the race (and face) the trainer decided to push the athlete even faster.

This short-term tactic obviously needed more imported nutrients, equipment and even drugs (on credit), which resulted in Turkish economy growing over 7% in 2017, much faster than any of its competitors.  Given that the trainer’s strategy resulted in huge debts, around US$440 billion, it is understandable that foreign suppliers decided to ask for higher rates. They also stopped accepting IOUs in the name of Turkish Lira and more importantly showed some reluctance to extend or roll over maturing debt.   This obviously resulted in a sharp slowdown in the speed of our athlete or a complete halt to catch a breath in hopes of getting more foreign-supplied nutrients enabling him to continue with his fast run.  However, while he is catching a breath the trainer has started blaming everyone else, attacking other athletes, technical advisors and even some of the spectators who had nothing to do with the competition.  Moreover, once he started to feel the effects of his “cold Turkey”, he realised that he needs the drugs supplied by the others to continue with his performance. The trainer then began to approach some of these foreign suppliers for more supplies on credit.

What now?

However, this time it is different.  Given that our runner has completely run out of options he needs to readjust his speed or face the possibility of a major heart attack and leave the competition in disgrace.  Even in the best case where the foreign suppliers might agree to provide limited supplies enabling our athlete to continue running, the trainer needs to agree on a much slower pace. More importantly the trainer is told to stop his rhetoric against the suppliers and agree to make necessary changes to his current unhealthy diet of “using borrowed funds for construction of mega projects”.   The biggest problem in this case is that our tired athlete’s current manager, like any manager who believes he is smarter than everyone else, does not really understand the severity of the situation and is unwilling to change his game plan. 

He would rather to take the risk a risk of forcing his athlete to run even faster and force an even bigger catastrophe.  His management team has lost key members who have been replaced with family members and others whose priority is pleasing the manager rather than understanding the real rules of the game.  There is some small hope that a few of the family members understand the current situation. But there are doubts whether they can tell the manager to make key changes such as replacing the team doctor (Central Bank Governor) who has consistently been wrong in his diagnosis of what ails the athlete.

            To sum it up,  our Turkish athlete, once again is suffering from the effects of running much faster than his capacity and is completely exhausted. Our athlete now faces the choice of slowing to the pace of an overweight recreational jogger or forcing himself to run fast until his last breath – at which point he could probably only be saved by a foreign paramedic in the name of the IMF.   The decision is at hands of the manager and his team.

Monday, 1 October 2018

Is Britain Looking At A High Speed Run Straight Off A Cliff?

The only comparison I can make with the current inane Brexit discussions going on in Britain is the final scene from the 1991 classic Ridley Scott film Thelma & Louise where the two women happily run their convertible car at high speed off a cliff. In the current Brexit remake of that film we have fervent Brexiteers Boris Johnson – the man who will do anything to be prime minister – and his boon companion Jacob Rees-Mogg putting the pedal to the metal and hurtling Britain off the cliff and back into what they presume to be the glorious past of Rule Britannia.

Is this all he's promising?
Alas, a more likely outcome is to crash loudly on the rocks of reality at the bottom of the cliff. The truly discouraging point is that no one – not the government and certainly not the opposition Labour Party – has clue what will happen in six short months when whatever ‘deal’ is agreed is supposed to go into effect. The alternatives range from A -- as in Absurd – to Z – as in Zilch.

A major sticking point at the moment seems to be what do with the border between Northern Ireland, part of the UK, and the Republic of Ireland, a member in good standing of the EU. Will there be a ‘hard’ border with customs duties, etc. or a ‘soft’ border more or less replicating the ease of trade between the two parts of Ireland that exists today. The obvious answer – an answer regarded as the third rail in British politics – is the unification of Ireland. But, given the realities of the deep religious divide within Northern Ireland, that option looks Dead on Arrival at the moment.
Is this old border post in Ireland going to get re-opened?
Somewhere along the way, lost in all the raucous debate and fevered posturing, is the seemingly simple question of how the quality of real daily life for the average Brit will be affected by a rupture with the European Union. Without offering anything more than mere speculation the Brexiteers assure us that we are headed for the sunny uplands of a rejuvenated Britain freed from the snares of those wily foreigners.

They are a little light on explaining exactly what those sunny uplands will look like. What will replace the ease of trade and travel we now enjoy throughout the European Union? Trade that, among other things, keeps our supermarkets full and prices relatively low. It is important to remember just how much Britain relies of huge volumes of trade each and every day with the EU just to feed itself. Next time you go to the supermarket take a look at the country of origin of what you buy. Then ask yourself what would happen to those products once trade barriers and customs duties are imposed. It’s not a pretty picture.

How many of those trolleys are filled with EU products?
What about travel? Now we enjoy seamless travel throughout the EU. Go through passport controls quickly, enjoy the right of residence, and – very important – have access to health care through reciprocal arrangements between the NHS and other public health providers with the European Health Insurance Card. What is going to replace this convenience and peace of mind? More important is the right that all UK businesses – services and manufacturing – have to operate anywhere in the EU.

Ah, the Brexiteers say, those agreements can be replicated with a fresh new set of treaties when we are free from EU shackles. Right. And exactly who is going to negotiate those treaties? And, given that the much-touted trade model between Canada and the EU took seven years to negotiate, it could be a long, dry trip to those sunny uplands. Furthermore, that Canadian model does not begin to cover the extent of the existing trade between the EU and Britain.

But our sovereignty, the Brexiteers cry out. We will regain our sovereignty. What does that mean, precisely? Exactly how much is the daily life of the average Briton affected by this alleged lack of sovereignty. Does the Queen still sit on her throne? Do local councils continue to exist? Does parliament still exist? I admit this is a dubious point, but at least the building still exists. Do British courts still rule? European courts have some jurisdiction, but hardly total. Is not the Bank of England still free to implement whatever policy it wants? Is sterling not the legal tender throughout the UK?

The argument that Brexiteers fall back on when all else fails is ‘control of our borders.’ Again, this begs clarification. To a very large extent Britain already does control its borders. The fact that it has such difficulty in doing so is not the fault of the EU. But more to the point, official statistics show Britain is hardly flooded with EU immigrants. For example, for the year ended in March 2018 there were 226,000 immigrants from the EU (most of which were from the original EU countries) and 138,00 emigrants, i.e. a net immigration of 88,000. You can lose that many people in Harrod’s in any given day. So, what exactly is the problem that leaving the EU will solve?

The vast majority of immigrants in that time period came from non-EU countries, countries over which Britain has complete border control. There were 316,000 non-EU immigrants for that year, and the vast majority of those – 202,000 – came from Asia. It is worth noting that only 81,000 of the non-EU immigrants left Britain in that year, leaving a total immigration far outstripping those who came from within the EU.

It is well past the time to shed the hyperbolic rhetoric of the Brexiteers and focus instead on exactly how a rupture from the European Union is going to benefit – or hurt -- the daily lives of the proverbial man-in-the street.

Messrs. Johnson and Rees-Mogg have us headed at high speed straight off the cliff edge with absolutely no clarity on what we face in their brave new world. Is this a gamble the British people really want to take?

Tuesday, 14 August 2018

Time To Step Back From The Brink And Start Some Serious Negotiations

One of the amazing elements of the stormy debate over the collapse of the Turkish currency is just how much it is a dialogue of the deaf. On one side is the enraged, cornered Turkish president Tayyip Erdoğan whose only response the economic crisis enveloping his country is to cast the drama as yet another independence struggle against ravenous ‘imperialist’ powers determined to undermine Turkey’s emergence as a great power.

Currency speculators around the world smell blood in the water and are undoubtedly very active in Turkish Lira trades. But that is an effect, not the cause of the crisis. So far, the Turkish president has not uttered a word about the disastrous economic policies of the last several years that led to this collapse. But the speculators may have to wait a long time for the currency’s total collapse. One has to respect Erdoğan’s courage and resilience if not his economic acumen.

Like the Raging Bull  Erdogan may be battered but he is still standing
There is also not a word in the closely controlled Turkish media about the real crunch that local companies are facing because of the eroding currency. According to a report in The Financial Times some importers having trouble with shipments because suppliers are having difficulty pricing their goods. Prices of dollar-denominated Turkish bank bonds dropped like a stone sending their yields up sharply. And the debt repayment schedule looms larger and larger. In the next 12 months private non-financial institutions will have to repay or roll over $66 billion in foreign currency debt. For the banks alone that number is $76 billion. These repayments get even more difficult as hard-hit corporates struggle to repay their loans from Turkish banks. This could lead to a sharp increase in what’s politely called ‘non-performing loans’, i.e. loans that are not being repaid. The government will undoubtedly put pressure on the banks not to classify these loans as ‘non-performing’, but at a certain point the economic reality will disrupt that fantasy.

On the other side of the debate you have commentators in all the standard financial journals, social media, and television endlessly forecasting doom and gloom unless Turkey immediately adopts the typical IMF recipe of higher interest rates, curtailed lending, and sharply reduced government spending. Not a word from them about how demeaning this must seem to a country with great power pretensions like Turkey. Turkey is indeed a geo-politically significant country. And driving it into an embittered corner where it retreats into a sullen isolationist shell is to no one’s advantage. Suddenly the old saying ‘A Turk has no friends but a Turk’ looks more and more relevant to many Turks. I appreciate that Erdoğan is a hard person to sympathise with, but one has to realize that there are 80 million people in Turkey – about half of whom don’t like Erdoğan either. Whether they like Tayyip Erdoğan or not, however, they all deeply resent receiving lectures that are quickly interpreted as insults and infringement on their hard-won national sovereignty. The vast majority of Turks I know – no matter how ‘Western-oriented’ they may be --would rather suffer great economic pain and eat grass than submit to this type of behaviour.

And on top of this you have Donald Trump -- for whom the word nuanced simply does not exist. He much prefers the bludgeon to the scalpel, and doesn’t seem to care how much damage he causes – especially when there is a tricky election just over the horizon. Right now, he is using the power of the US dollar as the global reserve currency in an attempt to force people and countries to do what he wants. Yes, the dollar is a very powerful weapon. Yes, the vast majority of global trade is in dollars. Yes, most global commodities are priced in dollars. But, most important, perhaps, is ability of the United States to punish banks around the world by levying heavy fines for what the US Treasury deems inappropriate activity. Failure to pay the fines is essentially a death sentence for the banks because they can be shut out of the US financial system. Without access to the US financial system they could not any business in US dollars. Given the current dominance of the dollar in all aspects of global finance banks without access to the US financial system may as well shut their doors. Sooner or later some clever person will find a way around this dollar-domination, but at the moment it gives America a weapon more powerful than any nuclear bomb.

And this is precisely the weapon hanging over Turkey. One of Turkey’s major state banks – Halkbank – stands accused of violating the sanctions against Iran. The details of that sanctions busting were outlined in a colourful American trial involving one of the central characters in that scheme and an unfortunate executive of Halkbank who picked the wrong time to visit the United States. This executive was found guilty and now resides in a federal prison.

Testimony at this trial deeply implicated Halkbank in sanctions busting

No decision has been made yet on the amount of a fine that Halkbank could face. This is part of the negotiations involving the fate of an American evangelical pastor – and other Americans – held in Turkish prisons on unspecified charges of aiding an attempted coup in 2016.  The fine could be small and symbolic. Or it could be the multi-billons of dollars that other international banks have faced. A hefty fine of more than $5 billion would hurt Halkbank a great deal. What would be worse would be Erdoğan refusing to pay that fine because he considered it a violation of Turkish sovereignty. Then Halkbank could lose access to the US financial system. The knock-on effect of that is hard to predict – but it won’t be positive.

Will Trump pull this trigger? Will he sacrifice Turkey just to show how tough he is – or thinks he is? How would Erdoğan respond? Is there a chance that economic and political sanity might prevail? Unfortunately, it’s too early to tell.