Egypt’s Constitutional Crisis


Below is the summary of my understanding of the constitutional crisis unfolding in Egypt. I am indebted to Juan Cole at Informed Comment and Angry Marmot at DKos for their analysis, and the Egyptian blogger Big Pharoah for his on-the-scene observations.

1. What is the Crisis all about?

On Thursday, November 22nd, Egyptian President Morsi set out a series of 7 decrees which effectively gave him more unprecedented political power. Although the aim of his power was to assert greater control over political holdovers from the Mubarak regime, the heavy-handed way that Morsi went about his grab for power has sparked a series of protests in Egypt, even from groups who opposed the Mubarak regime.

2. What were in the7 decrees and what were their singificance?

Decree

Significance

1. Officials in Mubarak regime who resorted to violence against protestors will be investigated and retried. This is a demand from Egyptian masses, so Morsi appears to be pacifying opposition from the Left.
2. Suits brought in the Courts against Morsi’s executive orders are hereby dismissed. Morsi is trying to prevent the Courts from dissolving the parliament like it did to the one elected in Fall 2011.
3. Public prosecutor will be appointed by the judiciary for 4 years. Preventing public prosecutor from aligning with members of former Mubarak regime.
4. Constituent Assembly has 2 more months to finish drafting constitution. Deadline moves from the end of December 2012 to end of February 2013.
5. No Court may dissolve the Constituent Assembly or the upper house of Parliament. Leftists are concerned that Morsi plans to reinstate the Muslim Brotherhood-dominated parliament.
6. President may take any steps to preserve national security. Secularists and leftists are concerned at how broad and vague these unspecified powers are. Similar decrees have been used by dictators in the past to consolidate power.
7. This decree will be published in Official Gazette. Makes it official.

3. What are the deeper currents behind the decree?

The mainstream media cast this in terms of Islamists vs. Secularists. However, both Angry Marmot and Juan Cole seem to be saying that the Morsi regime, while trying to go after those hard-core elements of the Mubarak regime both in the military (SCAF) and the judiciary, are also trying to see if there are more “junior” members of the regime that would be willing to share power with the Muslim Brotherhood.

However, by tactic of Decree 2, which has the executive totally override the judiciary, he has alienated most of the judiciary, and Decree 6 has alienated most of the Secularists/Leftists, whom he was trying to appease with Decree 1.

4. What prompted Morsi to make such a sweeping change?
This is where the interesting speculation comes in, particularly from Big Pharoah, an Egyptian blogger who says that he was feeling empowered by the support and gratitude he got from both the Obama administration and Israel for his role in brokering the Gaza ceasefire. The low-key reaction from the Obama administration seems to give tacit approval to Morsi as the legitimate alternative to the Mubarak regime.

However, Big Pharoah hints at the problem with such heavy-handed tactics, that to those inside Egypt, he will increasingly be seen not as the alternative to the Mubarak regime, but as its successor in every sense of the term, both positive and negative. And regarding that possibility, I bring you the ending to George Orwell’s Animal Farm, as the animals looked in on the negotiations between the pigs (the current regime) and the humans (the former regime).   (The pig reference is not meant as an insult, but rather that the difference between the current regime and the former regime in Egypt may be seen to be eroding in the eyes of the Egyptian public in a parallel manner to the passage quoted below from Animal Farm.)

“No question, now, what had happened to the faces of the pigs. The creatures outside looked from pig to man, and from man to pig, and from pig to man again; but already it was impossible to say which was which.”

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Six Sigma Green Belt—Define Phase: Process Maturity Model


In the Define Phase of Six Sixma, defining the process that you are to improve is an essential first step in process management.  The Process Maturity model or Capability Maturity Model describes the five levels or stages in the evolution of process management, which are outlined below.

Level Process Characteristics Quality Level

1

Initial Processes not standardized, not documented, reactive to events. Processes chaotic, unstable. Ad hoc methods (workarounds), bottlenecks, quality is low, high cost of nonconformance (rework, defects, customer complaints, warranty).

2

Repeatable Processes are repeatable, with mostly consistent results, but still not documented. Focus on work unit, not individuals. On-time delivery, but mistakes sometimes made. Quality is good, but still sporadic. Reduced rework, but defects still occur that lead to customer complaints.

3

Defined Processes standardized, decomposed into work instructions, documented, and training offered for workers. Focus on entire business, not just work unit. Productivity growth seen. System in place to handle customer complaints effectively. Improvements in quality. Standardizing brings economics of scale into play.

4

Managed Metrics are used to monitor processes. Processes are now modularized, and capable of being adapted for new projects. Focus on connections with suppliers and customers. Variation reduced, lessons learned causes more efficient management. Quality high. Customer satisfaction high.

5

Optimizing Proactive improvement of processes, alignment with strategic goals of organization. Focus on connection between current operations and future strategic goals. Cost of nonconformance greatly reduced, benefits of superior quality exceed costs. Superior customer satisfaction creates repeat business.

There are different versions of this, but this gives the general idea of how processes are created, defined, managed, and then continuously improved upon or optimized. Even though Six Sigma’s full DMAIC methodology can probably only be used to its full extent after processes have been stabilized or standardized, some of its concepts such as process mapping can be used at the first two stages of process maturity listed above.

Six Sigma Green Belt–Define Phase: Stakeholders on a Six Sigma Project


1. Stakeholder definition

 The concept of stakeholders is any person or organization that is either actively involved in the project, or whose interests may be positively or negatively affected by the execution or completion of the project.

2. Categories of stakeholders

Here are the categories of stakeholders as they relate to a Six Sigma project in an organization.

Fig. 1. Categories of Stakeholders on a Six Sigma Project

 

1.  The innermost circle is that of the people actually working on the project, namely the project lead, the Six Sigma Black Belt, and the project team members, the Six Sigma Green Belts.

2.   The second circle is that of the Master Black Belt or Sponsor, the person or group that provides the financial resources for the project and the one who champions the project within the organization when it is first conceived. The Sponsor acts as a spokesperson to higher levels of management within the organization, which is why I placed the Master Black Belt in the second circle. You might also consider the Master Black Belt the equivalent to a program manager that managers several Six Sigma projects, each of which is headed by its own Black Belt.

3.  The third circle contains of the functional managers from whom the resources (money, manpower) will be needed to carry out the Six Sigma project. This can be a potentially negative stakeholder in those organizations where the Six Sigma approach of Process Management strives to break down the barriers between functional areas of the department in order to get the project done. If you a functional manager who built that barrier in the first place, then your vested interest will be to impede the project.

4.  The next circle is still within the organization, but rather than the three inner circles that deal with the Six Sigma Project or provide resources for it, this is the circle of management that sets the strategic goals for an organization. The Six Sigma Project must align with the strategic goals of the organization (i.e., contribute to the bottom line) in order for it the project to be accepted by the Sponsor. Reporting of the results of the project to the strategic managers is important because it justifies the existence of the Six Sigma program within the organization, and will make the sponsoring of further improvements easier once a “track record” of success has been established.

5.  Now we get to the circle which is outside of the organization, but one in which there is a business relationship between the organization and that stakeholder, such as sellers/business partners (vendors and suppliers, for example) in the case of a B2B relationship, and customers/users in the case of a B2C relationship. In the case of customers, they are the ones through the Voice of the Customer that supply the requirements that get translated into the technical design requirements of the product. They are the ultimate arbiter of what sells and makes a profit for your organization. If your product is being produced at a Six Sigma level, and no one is buying it because the market has shifted, then it’s not contributing to the company’s bottom line no matter how good the quality of the product is.   And on the supplier side, the quality of the raw materials or components is something that you are responsible for since they are going in your product, but over which you have no direct control, only the degree of control you get through your contractual relationship with that supplier.   So this is another potentially powerful influence on the success or failure or your Six Sigma Project.

6.  The last circle consists of elements of society that may not have any formal relationship to the organization, but which may contain groups that are affected by the project or that can influence the project because they effect not only the organization, but the industry of which it is a part.  I have put an example of “Regulatory Agencies” as just one type of entity that could be considered a stakeholder. A non-governmental organization such as an environmental awareness group that is an NGO would also be an example of a stakeholder at this level as well. However, industry associations such as ASQ could also be considered a stakeholder that can influence the way a Six Sigma project is done.

These concentric circles, I believe, show a little more of the different kinds of stakeholders and why some of them have more influence than others.

CONCLUSION

These categories of stakeholders show that Six Sigma projects must be done with an awareness of the relationships of the project to the organization as a whole, and the relationship of that organization to its suppliers and customers, and the influence that regulatory agencies, industrial associations, consumer groups, etc., may have on the industry in which the organization is a part.

Also, you must never underestimate or overlook the influence of negative stakeholders, because they can negatively influence your project and its success. These negative stakeholders can come at any category listed above, but I have made suggestions in the paragraphs some of the reasons why these stakeholders might be found at any particular level.

The above analysis applies to Project Managers in general, and not just those doing Six Sigma projects.

Six Sigma Green Belt—Define Phase: SIPOC model


 

This is part of a series of posts discussing the Define phase of Define-Measure-Analyze-Improve-Control or DMAIC in Six Sigma.

In the last post, we discussed the general description of Process Management as opposed to traditional management. SIPOC stands for Suppliers-Inputs-Process-Outputs-Customers and is a tool of Process Management.

1. What are the elements of SIPOC?

Element

Explanation

1. Suppliers Providers of inputs
2. Inputs Raw materials, components or data required for process
3. Process Activities that transform inputs into outputs
4. Outputs The products or services the company is producing
5. Customers The persons who receive the products or services

Here’s a graphic which I found on Meryle Corbett’s blog mentorsonline.wordpress.com. It shows the connection between these elements.

2. Uses of SIPOC

SIPOC can be used as a tool in the following ways:

  1. It can be used to map a new process. In this case, you usually start with listing the Customers, and working backwards through the Outputs, Process, Inputs, and the Suppliers. For that reason, in the context of a new process, the tool is sometimes referred to as COPIS.
  1. It can be used to document an existing process. In this case, you usually start with listing the steps of the process, and working outwards back to the Suppliers on one end and to the Customers on the other.
  2. It can be used as an educational tool to give a high-level overview to those unfamiliar with the process.

It can be used in other creative ways, too. Meryle Corbett shows in her blog post http://mentorsonline.wordpress.com/2012/04/30/sipoc-an-amazing-way-to-reduce-waste-and-streamline-workload/ how people can use this tool to analyze their own jobs within the workplace. In this way, they can gain insight on how to reduce waste and streamline their workload. In this case the suppliers and the customers may be other departments within the company.

3. How is SIPOC created?

It is usually done in a brainstorming session with as many of the stakeholders as possible. It looks like the following diagram in general, with the suppliers, inputs, outputs, and customers being listed in the various columns, and the process being broken into the various steps of activities that comprise it. The process steps are sometimes broken out into a separate area below the main chart.

Suppliers

Inputs

Process

Outputs

Customers

As mentioned above, if this is an already existing process, you start with mapping the process and go to the outputs and customers, then work backwards to the inputs and suppliers. If it is a new process, you should start from the customers and work backwards to the suppliers.

4. What are some points to remember about SIPOC?

  • The focus is not on the process, but on the inputs and outputs, and by extension the customers and suppliers.
  • The supplier can be the customer, especially if the process is a service like getting a car or a computer repaired.
  • It is possible for the supplier and customer to be in the same organization as the unit doing the processing. In the example given by Meryle Corbett referred to above, each person’s job in a company, if considered a process, gets inputs from and gives outputs to another department in that company.

This is a tool that can then be used as precursor to other tools such as Quality Function Deployment, where you start mapping out the requirements of the Customers into those technical requirements of the product or service you would like to provide. Or it can be used in conjunction with the Ishikawa or cause-and-effect diagram where you take the processes and put them in the place of the standard “bones” of the diagram (man, machine, material, methods, measurements, and Mother Nature) to ask how each process could possibly negatively influence the defect you are investigating. (Refer to http://www.isixsigma.com/tools-templates/cause-effect/combining-sipoc-cause-and-effect-diagram/ for more details.)

In conclusion, SIPOC creates a way of visualizing how the inputs are processed into outputs, which is necessary if you are to understand how to improve the processes themselves. If you want to change the output, you have to either change the processes themselves or the inputs. SIPOC tells you where to look in order to do this.

Six Sigma Green Belt—Define: Process Management vs. Traditional Management


“If I had an hour to save the world I would spend 59 minutes defining the problem and one minute finding solutions.” Albert Einstein

1. Introduction: Define, the “D” of “DMAIC”

The Six Sigma process has five steps or stages, which are listed in the diagram below. The initials of these stages form the acronym DMAIC, and it is the “D” or “Define” stage which will occupy the next series of posts.

2. Business Process Definition

Six Sigma is a tool for attacking problems that impact a company’s bottom line. It does this by improving processes as part of Process Management. But before we discuss Process Management, let’s take a moment to define what a business process is: it is a series of activities that produces a specific product or service for customers.

There are inputs and outputs to each activity in the process, so the entire process can be diagrammed as a flowchart similar to that of a computer program. Except here, the beginning point of the process would be the raw materials or components received from suppliers and the end point would be the shipment of the finished product to the customers.

There are three types of business processes: the core processes that add value to the company’s bottom line (purchasing, manufacturing, sales & marketing), the support processes that support the core processes (accounting, technical support, call centers), and management processes that govern both the core and support processes (corporate governance and strategic planning).

3. Process Management vs. Traditional Management

With the above definition in mind, let’s turn to one of the reasons why Six Sigma is recognized as an effective tool in management, namely that it brings better results than traditional management.

Traditional management focuses on the different silos or departments within an organization so that the focus shifts from what is good for the entire organization to what is good for that particular department. This is called parochialism and can be one of the barriers to success for an organization. In fact, Tom Rieger, in his book Breaking the Fear Barrier refers to it as one of the three barriers (along with territorialism and empire building) which can divert an organization’s resources from fighting the competition to internal battles between departments.

This is why Process Management, as part of the focus of the Six Sigma method, can help break down this parochialism by focusing on the processes no matter which department is responsible for them. It involves management, core, and support-related departments together in finding the solutions to problems, and that is why it has proven to be an effective tool in improving the bottom line for organizations.

#Toastmasters International—The Leadership Excellence Series


This post is designed to introduce those already in Toastmasters International or those who are interested in joining a Toastmasters club on how the organization helps you learn advanced leadership skills. I’ll show what part The Leadership Excellence Series plays in the leadership education program, and what topics are covered in the series. Finally, I’ll give some advice on how to do an effective presentation in the series.

1. Leadership Education Track

There are two educational tracks in Toastmasters International, the communications track and the leadership track. The communications track focuses on public speaking, and runs parallel to the leadership track. There are three levels of awards or “promotions” in the Toastmasters International organization based on your achievements with regards to leadership. They are: the Competent Leader (CL) award, the Advanced Leader Bronze (ALB) award, and the Advanced Leader Silver (ALS) award.

The Competent Leader award is the first level, which is achieved after you complete 10 leadership projects. These projects consist of a) performing a certain combination of roles at the regular club meeting, or b) leading a special project such as a club speech contest or membership campaign.

The Advanced Leader Bronze award is the second level, and it takes the practical knowledge learned at club meetings and applies them to being an actual officer of that club. You also need to study leadership by preparing two presentations from the Leadership Excellence Series or The Successful Club Series. That is where the Leadership Excellence Series fits in on the leadership educational track.

For the sake of completeness, I will describe the last and final level of award on the leadership track, that of Advanced Leader Silver. Here you need to serve as an officer not in the club, but at the district level, which usually is achieved by being an Area Governor. You must also complete the High Performance Leadership program, which is a project that can takes up to several months to complete. Finally, you must foster a new club by being a sponsor or mentor of that club.

2. Leadership Excellence Series

Here is a list of the 10 different modules you can choose from in the Leadership Excellence Series. The entire series costs you $100 if you purchase it from Toastmasters International, or $50 if you are a member of the organization. Each module consists of a booklet which gives an outline of your presentation, and a CD which contains visual aids in the form of a handout or Powerpoint presentation.

Remember you only need to complete 2 out of the 10 presentations to achieve your Advanced Leader Bronze award. Your Vice President Education in your club should purchase the entire series and make it available to members to choose from in doing their presentations for the ALB. I suggest that if you have more than one person in your club going after your ALB, that you have them coordinate their choice of module so that they don’t end up doing the same one.

Module Description
1. Visionary Leader Discusses how leaders create and communicate a vision for their organization to help it be successful.
2. Developing a Mission Addresses how successful leaders create and communicate a mission for their organization.
3. Values and Leadership Examines values and how to employ them as you lead a team toward achieving a goal.
4. Goal Setting and Planning Reviews the processes leaders use to set goals and develop plans to achieve these goals.    
5. Delegate to Empower Discusses how to effectively delegate tasks and responsibilities.
6. Building a Team Reviews how to create and lead a team.
7. Giving Effective Feedback Provides suggestions for offering feedback to others on their performance.    
8. The Leader as a Coach Discusses how to work with a team to help them improve.
9. Motivating People Examines how to be sensitive to your team members’ needs and create an environment that will motivate them.
10. Resolving Conflict Provides concepts that will help the presenter and the participants learn conflict resolution skills.

Personally, I chose the Motivating People and Building a Team modules for the presentations I needed to do, but that was my personal choice based on my interest and what I felt the club needed at the time.

3. Tips for doing a Leadership Excellence Series presentation

Research

  • Do your own original research—the outline you are given is just that. In my case, with the module on “Motivating People”, I did research on 4 theories of motivation and made a visual aid demonstrating the most elaborate one, that of Abraham Maslow’s Hierarchy of Needs.
  • Tailor to your audience—since the club I am giving the presentation to consists of project managers, I made sure to make sure I gave them information they could use as professionals to motivate their project teams.

Prepare

  • Adapt visual aids—the visual aids you are given match the outline, and if you add original research you will need to add visuals to go along with them. However, limit your handout to 1 sheet, or your Powerpoint presentation to 10 slides. And put graphics, pictures, etc. on the Powerpoint presentation if you do use it. Nobody enjoys reading 10 slides filled with bulleted lists. You need to monopolize the audience’s attention; don’t monotonize it!
  • Don’t let them upstage you—I’m referring, of course, to the visual aids, not the other speakers. If you have handouts, give them out BEFORE your speech starts. If you have a Powerpoint presentation, run through it so you know the timing of when to change slides. Also, do a backup of handouts if there is a technical problem with the projector (which sometimes happens). Finally, if you are using a flip chart, always write everything out beforehand. Writing things down while keeping your back away from the audience is awkward. If you need to, use post-it notes or larger pieces of paper that are taped over portions that you will then reveal when that subject on the chart comes up. This “reveal” method works well and prevents you from having your back to the audience.

Practice

  • Even though it’s on the leadership track, remember it still is a speech and by now you should be at the Advanced level on the communication track as well. So start with a script, that will tell you whether you are in the 10-15 minute time range for the speech. Trim accordingly and get to the point where you have the presentation done in 12 minutes, so you can add 2-3 minutes for potential questions from the audience, and still come in “under the wire”.
  • Add vocal variety, staging—You are trying to give a presentation that makes the usual boardroom “Death by Powerpoint” presentation look like the amateur hour. Be a professional presenter and add flourishes with your voice, your gestures, and the position of your body with regards to the visual aids, etc.

These tips should make it a memorable presentation both for you and your listeners. Remember, you are at the Advanced level now, and you want to inspire those you are working on their Competent Leader award that someday they will be where you are now!

World Bank Report on Climate Change: Avoiding 4°C Warmer World


1. Introduction

On Monday, November 26th, the World Bank came out with a report called Turn Down the Heat: Why a 4°C Warmer World Must be Avoided. A copy of this report can be seen at the following web address.

http://climatechange.worldbank.org/sites/default/files/Turn_Down_the_heat_Why_a_4_degree_centrigrade_warmer_world_must_be_avoided.pdf.

The report was prepared for the World Bank by the Potsdam Institute for Climate Impact Research and Climate Analytics. The world is already 0.8°C warmer compared to pre-industrial levels. However even if the emission reductions pledged by countries as part of the UN Framework Convention on Climate Charge are adhered to, the warming will continue to 3.5° to 4°C. The purpose of this report is to give an idea of what a 4.0°C warmer world would be like, and to urge the global community to take stronger measures than those currently in place in order to limit the global warming to under 2°C. Of course, if the reductions pledged by countries are not adhered to, an even more extreme scenario of 6°C or greater is possible. For perspective, you should realize that 4°C is the difference between the temperature during the last ice age and that of today.

The reason why the World Bank is getting involved in the climate change debate is because is funds development in developing countries, and it turns out that these will be impacted even more than developed countries if such a 4°C warmer occurs.

2. Projected Effects of a 4°C Warmer World

Each of the chapters of the report deals with a different set of effects that having a 4°C world would have on various phenomena and processes. One of the important themes running through the report is that the effects would not be evenly distributed throughout the globe. You can see that many areas of the developed world would be hardest hit with regard to biodiversity, water resources, and heat extremes.

Phenomenon Effect in 4°C world Comments
1. CO2 Concentration and Ocean Acidification 390 ppm → 800 ppm, ocean 150% more acidic At 450 ppm, coral reef growth slowdown; coral reefs dissolve at 550 ppm
2. Droughts and Precipitation 20-30% more precipitation in winter; droughts more extensive in summer Extreme drought areas include: Amazon, western US, Mediterranean, southern Africa, southern Australia
3. Tropical Cyclones 2X current economic damage due to storms Most severe storms: NA, East Asia, Caribbean, Central America
4. Sea-Level Rises Sea level rises 1 meter Sea level could rise 2 meters if ice sheets melt in Greenland and Antarctica
5. Heat Extremes Some regions could be higher than 4°C, up to 10°C Areas of 6°C: Mediterranean, N. Africa, Middle East, US
Areas of 10°C: Arctic region
6. Agriculture Global food production will decrease Mid- to high-latitudes will see increase, low latitudes will see decrease; CO2 fertilization effect somewhat offsets yield reductions
7. Water Resources Population living in water scarce area 28% (current) → 43-50% Areas most effected: N. and E. Africa, South Asia
8. Ecosystems and Biodiversity 20-30% plant and animal species at risk of extinction Tropical and sub-tropical regions in Africa and S. America are particularly vulnerable
9. Human Health Increase in starvation, deaths due to weather extremes, increased disease transmission Disease-related deaths can be mitigated somewhat, but starvation and weather-related deaths are more difficult to mitigate
10. Non-linear effects Amazon Rainforest die-back, ice sheets melting, loss of coral reefs, expansion of ocean “dead zones”, Combination of non-linear effects causes crop yields to decrease 63-82%.

3. Strategy for Mitigation

Well, with the unending list of “gloom and doom” scenarios laid out above, the report itself does not lay out strategies for increased efforts to mitigate these effects by reducing greenhouse gas emissions. However, the comments on the report at the World Bank site do indicate the following components of such a mitigation strategy which are outlined below.

  • Support climate actions in country-led development processes;
  • Mobilize additional concessional and innovative finance;
  • Facilitate the development of market-based financing mechanisms;
  • Leverage private sector resources;
  • Support accelerated development and deployment of new technologies; and
  • Step up policy research, knowledge, and capacity building.

One of the biggest arguments against increased measures to mitigate greenhouse gas emissions is that it would cost resources that the world cannot afford in a time of a global economic slowdown. The point the World Bank makes is that inaction would cost us all a lot more.

Combining the approaches listed above will have the best chance to mitigate the current global warming trend so that it does not exceed 2°C, which would not cause us to live in a paradise here on this planet, but would at least avoid the “hell on Earth” scenario outlined in this report. A technological fix may not be possible, but a portfolio of solutions could spread the costs more equitably and more efficiently and thus reduce the economic impact they would have in the short run. If we don’t do anything at all, well, there won’t BE a long run.

Post-Election Economy: Analysis of Investment Risks and Opportunities in 2013


This is a summary of the webinar given by John Mauldin of Mauldin Economics on Tuesday, November 20, 2012. For those interested in more details about investment advice, please register at Mauldin Economics to watch the re-broadcast of the video presentation. The purpose of this post will be to review the insights of the panelists regarding the economy in 2013.

1. About John Mauldin

I first learned about John Mauldin and his investment advisory company from a friend of a college friend of mine who went on to earn his MBA and who now runs his own investment firm managing pension funds. Based on my friend’s advice, I started subscribing to the John Mauldin newsletter over a year ago, and have appreciated his insights into the economy ever since. He is the author of the book Endgame: The End of the Debt Supercycle published last Spring. When I heard in his newsletter that he was having a webinar about the post-election economy, I made a point to tune in and watch it.

2. List of Panelists

Here is a list of the panelists who spoke on the program.

Lauren Lyster, moderator

John Mauldin of Mauldin Economics

Mohamed El-Arian, CEO of PIMCO

Barry Ritholtz, CEO of FusionIQ

Rich Yamarone, Senior Economist, Bloomberg Brief: Economics, Professional

Gary Shilling, President of A. Gary Shilling & Co., Inc.

James Bianco, Bianco Research

Barry Habib, Vice President & Chief Market Strategist

3. Economic Risks

The following risks to the economy in 2013 were discussed on the program. I have listed them in the order of those risks with the highest perceived combination of probability, impact, and urgency.

Here is a summary of the discussion among the panelists regarding the risks facing the global economy in 2013.

 

Economic Risk

Explanation

1.

“Fiscal cliff”

If no deal reached, $6B in spending cuts (sequestration will occur) and taxes will increase, which will lower deficit automatically. However, this will cause the immediate slowdown from current 2.0% to 1.5% GDP growth. Only lower growth if S&P downgrades US economy, perhaps down to 1.0%. Worst case scenario: recession + 9% unemployment. Negotiations need to bring in new revenue somehow. Panelists estimate of the chances of US Congress reaching a deal on the fiscal cliff ranged from 50-70%.

2.

Corporate earnings plunge

Currently operating at 2.0% GDP growth in US. Business confidence fell in the 3rd quarter 2012. Productivity growth not increasing past two months, despite corporations decreasing costs. On worker side, real median income down 7% over past decade.

3.

Eurozone

EU going into recession, negative 1-2% contraction. 50% chance of repeat of same problems that happened in July 2012.

4.

Chinese economy hard landing

China growth may slowdown from 8% current growth to 5-6%.

5.

Oil/energy shock

US scheduled to be self-sufficient in oil by 2020; already self-sufficient in natural gas. However, geopolitical problems may cause oil prices to rise in short term, with spillover effects on the collapse of the recent bubble in commodity prices.

6.

Middle East

Flare up of geopolitical problems in Middle East (Syria collapse, Israel/Iran, Israel/Gaza),

 Here are some additional comments from panelists on some of the topics listed above regarding the risks and the possible opportunities that may counter them.

i. Fiscal Cliff

John Mauldin said that the election probably made a deal on the fiscal cliff in the next 30 days more likely with the election of Obama rather than Romney simply for the pragmatic reason that the people doing the deal would already be in place. There have already been behind the scenes conversations because the leadership on both sides want to address the deficit, although they have different visions of how to do it.

All panelists agreed that there must be an increase in revenue to accompany a reduction in spending. Most felt that this would have to come to a certain extent in increased taxes, but some (Gary Shilling) did not agree. The minority opinion was that revenue could be created through the reduction of tax loopholes. However, in contrast to that, the majority felt that a deal that tries to remove tax deductions that are popular with the middle class such as the one for mortgage interest would create popular political pushback. The last time they tried to axe the mortgage interest deduction was in 1986, and there was “million realtor” march in Washington that put an end to that idea.

In Japan, the government will also be trying to print more money to prop up the currency against the Chinese yuan. Many manufacturing sectors are struggling due to competition, particularly from South Korea, but robotics sector continues to do well.

ii. Corporate earnings

Because of the global slowdown, most panelists agreed that in general, shifting from stocks and commodities to long-term treasury bills would be more prudent. The US government should be focusing on those steps which encourage intellectual innovation, which will create economic activity. John Mauldin in particular likes investing in companies that have strong IP as well as balance sheets.

iii. Eurozone

Because of the problems in the Eurozone, non-EU entities in emerging markets (Asia, MENA, SA) will give better dividends, particularly in those areas like telecoms and manufacturing.

iv. China

The emerging leadership in China is trying to make investments in infrastructure and education that will help reduce the negative impact of the global slowdown.

v. Oil/energy Shock

Energy is probably not what you want to invest in now, because of the possibility of a global slowdown. The wild card in this, of course, is the possibility of a spike in oil prices that would be a result of any geopolitical flare-ups in the Middle East.

3. How to turn economic risks into opportunities

Here are some of the suggestions by the panelists on how to turn these economic risks into opportunities.

Suggestion Explanation
1. Watch Central Banks for clues to Monetary Policy in US, EU
Don’t get paralyzed by complexity and fluidity; Central Banks’ moves will contribute to stability of the system.

Example: ECB in Europe is trying to open the spigots, so far to no avail. In US, Fed will do QE3 and QE4, also to little effect.

 

2.  Avoid Inertia  Don’t get stuck in the status quo thinking that what is happening now is only temporary. We are not going back to the 1990s for the foreseeable future 
3.  Emerging Markets Other parts of the world will navigate the global economy better than EU, US.

 

4. Look to Fiscal Policy in China, not US Fiscal policy impotent in US because of political gridlock regarding fiscal cliff; in China, however, new leadership doing extensive investments in infrastructure and education.

In general, there are opportunities for investors as long as they are first aware of where the risks are in the economy both in the short term and the long term.

The general consensus of the panel, in my opinion, regarding the global economy in 2013 was the following: rather than a bearish market that looks for the highest yield, we are in general facing a bearish climate where the most positive outcome in the US would be a deal that it reached to start a slow reduction in deficit that does not put the brakes on the economy too quickly. It will not be an easy world to make money, but targeted opportunities may prevent you at least from losing it.

China’s Next Generation of Leaders and the Implications for the Future of China


The following is my summary of the webinar put on by the Economist Intelligence Unit on Tuesday, November 20th. For more detailed information, go to the Economist Intelligence Unit website and register for a download of the report on which the webinar was based.   Most of the presentation was done by Victoria Lai.   I apologize in advance for any errors I may have made in compressing what was a very information-defense presentation into my brief summary.

1. Introduction

In China, the Central Committee of the Communist party changes its leadership of the Politburo every 10 years. On November 8th, the 18th National Congress of the Communist Party of China met, chose delegates and on November 15th the Central Committee chose the 7 members of the Politburo Standing Committee. This webinar was given to discuss the implications of who was chosen and who was not on the future direction of Chinese domestic and foreign policy. This decision comes at a pivotal time in China’s development.

2. The Chinese Communist Party and the State apparatus

In China, the Communist Party and the State are parallel structures that are connected through the PLA (People’s Liberation Army) or the military. Here are the levels of the Communist party, with the Politburo Standing Committee or PSC (currently 7 members, used to be 9) at the top, followed by the Politburo, the Central Committee, and the local and provincial (grassroots) members.

and here are the levels of the State, from the State Council or Cabinet, the Ministries and Department (the equivalent of the executive branch) the National People’s Congress (the equivalent of the legislature), and the provincial authorities.

The military or People’s Liberation Army (PLA) is the link between these two structures.

3. The Politburo Standing Committee (PSC)

The 7 members of the Politburo Standing committee are the top rank of the Chinese Communist Party or CCP. They are the ones that will set the general direction for the country in the years to come.

The following is a list of the 7 members of the Politburo Standing Committee. They were ranked by the EIU in terms of their political leaning, from most conservative to most liberal. Then their ranking within the power structure, with Xi Jinping being 1st as President, going all the way down to the 7th ranking member, Zhang Gaoli. Victoria Lai gave some details regarding the members background or interests.

Fig. 1. 7 Members of 18th Central Committee PSC

Political

Ranking *

Power

Ranking

Notes

Zhang Dejiang

1

3

Newcomer to PSC; supports state-run enterprises

Liu Yunshan

2

5

Newcomer to PSC; fairly conservative in outlook/

Yu Zhengsheng

3

4

Newcomer to PSC; propaganda and media chief; champion of state-led development.

Zhang Gaoli

4

7

Newcomer to PSC; champion of state-led development.

Xi Jinping

5

1

Was in 17th Central Committee; China’s new President; princeling**. Affable, but controversial (wife is famous singer in PLA). Good at balancing factions, associated with economic liberalism.

Li Keqiang

6

2

Was in 17th Central Committee; relatively liberal economically, backs World Bank report on China. Focused on wealth distribution, climate change.

Wang Qishan

7

6

Newcomer to PSC; supports liberalization of financial sector/

* Political ranking means from most conservative or supporting status quo to most liberal or supporting reform.

**A “princeling” is considered someone who is a descendant of prominent or influential senior Communist party officials.

4. Economic Agenda

On the domestic side, urbanization, increasing consumption by the middle class, and wealth distribution issues are important. Promotion of high tech is a priority, but there is pressure from grass roots regarding environmental issues related to local air and water pollution.

There is a consensus regarding interest rate, exchange rate and capital account liberalization. This will cause a lot of volatility in the economy and inflation will be far more of a problem than it was before. In addition, the “demographic dividends” that China has enjoyed in the past 3 decades will be coming to an end as its average population ages.

5. Foreign Policy Agenda

China’s moves in the South China Sea and the Senkakus/Diaoyutai Islands are upsetting the regional status quo. Xi Jinping is a nationalist and this trend will most likely continue.

However, one of the main challenges of the PSC will be to create a foreign policy that positively furthers China’s interests and is not just trying to counter whatever the US is trying to do at the moment.

6. Upside and downside risks of PSC

According to the Economist Intelligence Unit, here are the three negative risks and three positive opportunities that the PSC will face in the next few years. The risks are in orange, and the opportunities are in green.

Risks/

Opportunities

Item Explanation
Opportunities 1. Judicial reform Increasing accountability for party officials

 

2. Civil society liberalization Growth of NGOs

 

3. Local fiscal reforms Control of abuse by corrupt local officials favoring developers and industrialists and ignoring popular concern about pollution

 

Risks 1.Conservative balance Heavily weighted towards those supporting state-run enterprises, which will slow pace of financial reform. Two potential members of PSC that didn’t make the cut were more liberal or reformist.

 

2. Reform Major financial reforms will face strong opposition from entrenched interests.

 

3. Political volatility Inequality between provinces and experiments with relative local autonomy will cause increasing political volatility.

The PSC will be steering China through an increasing complex landscape of financial and political changes not only within the country, but throughout the world. I appreciate the Economist Intelligence Unit giving their opinion on the future of China’s leadership and how it will affect the future of China.

Gain a New Attitude through Gratitude—The Psychology of Giving Thanks


“If we study what is merely average, we will remain merely average.” Shawn Achor

I originally posted about Shawn Achor’s TED talk on gratitude and its link to a positive mental attitude back on June 4th. I tried his journal-based program for 21 days and had good results. In the past almost 6 months now it has become an integral part of the fabric of my life that I thought I would update this post on a day devoted to the giving of thanks.

Shawn Achor is a psychologist who is the CEO of Good Think, Inc. After attending Harvard University and getting a degree in psychology, he helped students at Harvard for the next 8 years as a counselor. He gave a talk about the relationship of an “attitude of gratitude” and positive psychology at a TED talk  in May 2011.   His talk is informative, but also very fast-paced and, incidentally, very funny as well. (As a member of Toastmasters, I appreciated his speech delivery very much.) Here’s the link to his talk.

http://www.ted.com/talks/shawn_achor_the_happy_secret_to_better_work.html

I outline his talk below which he concludes with a methodology on how to press the “reset” button for your mindset so that you are more optimistic.   The only equipment you need to follow his method is to buy a journal to keep notes in.

At the end of the talk, I will relate the results I had in using his method.

1. Escaping the law of the average

Social scientists make pronouncements about trends based on averages within populations, but people have to realize that when you are dealing with the potential for individual happiness or creativity, you need to escape the “law of the average”. When psychologists strive to make people “normal”, then if they succeed, people will continue to remain merely average.

I can illustrate Shawn Achor’s point with a story.  A friend of mine who was taking economics in graduate school, and I saw him one day in a coffee shop looking a little glum. “What’s wrong?” I asked him. “Oh, it sounds silly, but I’m a little bummed. My statistics professor said that up to 50% of us in the class would end up doing below average on the test.”

Intellectually, he knew that this was of course true because it hinges on the technical definition of the word “average”. However, it was the implication that he had only a 1 out of 2 chance of escaping mediocrity that was a challenge to his self-esteem.

2. Studying outliers

Shawn Achor has studied those individuals who have higher than average potential to find out what their secret is in order to be see if some of those secrets can be passed on to the rest.  Instead of a psychology model that tries to drag everybody down towards being average by making them “normal”, or focuses on bringing the lower than average up towards the average, he wants to have a positive psychology model that brings up  average.

3. Changing the lens

We view the world through the lens of the media, which selectively captures negative events and brings them to our attention, with the news hour occasionally ending in a positive story. This has an effect on us where we start to assume a false picture of the world where that same ratio of negative events to positive events is replicated throughout the world.

4. External circumstance does not determine inner attitude

Shawn Achor related how the students he counseled at Harvard University should have been happy to be at such an elite school, but they sought counseling because they concentrated on the negatives of the workload, peer pressure, etc. He realized that no matter how good the outer circumstances, there were some people who have a negative attitude internally. He found that the external circumstances only account for 10% of a person’s happiness over the long term; the other 90% are determined by the way in which that person views the world.

In the work environment, he found that only 25% of job successes are predicted by a person’s intelligence level. The other 75% are accounted for by your optimism levels, your social support levels, and your ability to see stress as a challenge rather than as a threat.

5. How can you change your mindset?
Here’s the kernel of what Shawn Achor came to talk about. Most schools and workplaces have the mindset “if you work hard, you will be successful. If you are successful, then you will be happier.”  This theory of motivation is backwards.  If you have a success, then the workplace or school simply changes the goalposts and you have to achieve even better success the next time. If happiness is thought to be on the other side of success, your brain never gets there, it pushes happiness over the cognitive horizon.   Just remember that one of the definitions of a horizon is “an imaginary line that gets farther away from you the closer you get to it.”

The problem with this method of motivation is that our brains work in the opposite order:  if you raise a person’s happiness in the presentthen their brain experiences a happiness advantage, meaning that performs better than if it is negative, neutral, or stressed.  Every business outcome improves for an employee who has this happiness advantage: people are 31% more productive, they produce 37% more sales, doctors are 19% more accurate at diagnosis, etc.  So if our brain is more positive in the present, than it becomes more successful.

If people do the following 21 days in a row, it can rewire their brains to be more optimistic and therefore more successful.

Fig. 1 Shawn Achor’s New Attitude through Gratitude program

 

Activity

Explanation

1

3 Gratitudes

Write 3 new things you are grateful for each day

2

Journaling positive experience

… in a journal, along with one positive experience you have had in the last 24 hours.

3

Exercise

15-20 minutes of vigorous exercise, 3-6 days a week.

4

Meditation

15 minutes of meditation, 1-2 times per day.

5

Random Acts of Kindness

Write down one random act of kindness you have done in the past 24 hours to someone in your network of friends, family, and/or colleagues, or even better, a total stranger. Think of someone to whom you can send an encouraging e-mail in the next 24 hours.

6

Lessons Learned

Write down how you will take a negative experience you have had in the past 24 hours and turn it into a learning opportunity for the future.

Here Shawn gives an explanation of these 5 factors; I have added a sixth factor which I explain below.

1. Writing down the 3 gratitudes changes you mind so that it starts scanning the world for the positives rather than the negatives. It doesn’t change the ratio of positives to negatives in the outside world, but it does change which factors you focus on as being the most significant.

2. Writing about a positive experience you’ve had in the past 24 hours allows you relive it.

3. Exercise teaches your brain that behavior matters.

4. Meditation allows you to detach from the cultural pattern of ADHD which we are creating through the constant attempts at multitasking, and increases the ability of the brain to focus on the task at hand.

5. You can write in your journal about a random act of kindness which you performed in the last 24 hours for someone, meaning that you did it without consideration of being paid back by the person whom you helped.  Alternately, perform a conscious act of kindness by sending a note of support to someone in your social support network.

6. To these activities, as a project manager, I have added a sixth of my own to Shawn’s list, which is to write down your “lessons learned”. This means take a negative experience which you had in the past 24 hours, and create some lessons learned from it so that you will experience it in the future not as a threat, but as an opportunity to overcome a challenge.

CONCLUSION:

After five and a half months of using Shawn Achor’s method, I am now close to filling out my third journal. Now I also use my journal to record dreams, jot down ideas for future writing projects for this blog, and to do short-term and long-term planning. I would say about one-third of my journal is devoted towards the “Gratitude Project” as I like to call it. But it is the FIRST thing I do every morning after mild exercise (like yoga) and meditation.

What happens after you do this project for at least the 3 weeks or 21 days Shawn recommends is that your brain scans the world differently. The generic problem with our society’s view of success is that we play the “if only” game. If only I succeed (however that is defined), then I will be happy. But when we achieve a goal, we don’t take time enough to appreciate it, and our restless mind starts pursuing the next goal with the same promise that happiness is “just over the horizon.” The problem with that thought is that one definition of the horizon is “an imaginary line that gets farther away from you the closer you get to it.”

With gratitude changing your attitude, you can be truly happy and positive NOW with whatever you have. This makes your brain learn better because it is more open to new things. I am fluent in several different foreign languages other than English, but since I started Shawn Achor’s program, I decided to buy Rosetta Stone software and learn a new one, Brazilian Portuguese. Before I would have said, “I’m too busy” or “I’ve got enough on my plate” or “I’m having trouble keeping up with the other languages I know.” Now I say, “why not? It would be fun!”

Now I am not saying that you won’t have negative experiences. This program is not “magical thinking.” What will happen, however, is that your mind will not dwell on them. You will either do something about the situation to improve it, or it if is beyond your control, you will let it go and move on.

So on this day devoted to giving thanks, let us not just do it because “it’s the season”; it’s also good psychology!