What Is the Definition of Insanity (a.k.a. Will the Government Shut Down)?

Insanity: doing the same thing over and over again and expecting different results.”
—Albert Einstein

I can’t believe the Congress, more specifically—the U.S. House of Representatives—has done it again. For the 40-something-time, the House has voted to pass a law ONLY IF ObamaCare (The Affordable Care Act) is de-funded. Since the chances of that happening is absolutely zero, there is no getting around this fact: this was an act of crazy people (not a word I have ever employed in my writings). These are the people that are well paid to represent the will of the people, and obviously shutting down the government is not what we sent these people to Washington to do. Yet even cautionary notes from people like Karl Rove and the Wall Street Journal Op-Ed page (not exactly bastions of the left), could not convince them to take a saner path. And they don’t even know—or care—that the choice they have just made may just shut down the U.S. government.

However, that is precisely what I believe the House has just set in motion. And if that happens, it will cost the U.S. much more than the $100 million a day it has estimated.

Before explaining how, here’s a few “fun” truisms. The smartest people I have ever known—people like Jack Welch and Peter Drucker—insist that leaders must “face reality” (that became Jack Welch’s mantra and his first rule of leadership). It is apparent that the 113th United States Congress can’t do even that. Never mind that both chambers of the current Congress has gotten less done than any other Congress since the earliest days of Thomas Jefferson’s tri-tiered vision of government (and much less than the so-labelled “do-nothing Congress” that served under Harry Truman from 1947-1949).

Conventional wisdom—as expressed by pundits and politicians on the Sunday morning shows—is that the Congress will right the ship and reach a last-minute deal before October 1st. But what they fail to realize that even if that happens, much damage would already have been done. In fact, I assert that some damage has already been done.

How? Let’s look at the events of the last 48 hours to find the answer.

On Friday, September 20th, the House actually applauded themselves on their vote to defund ObamaCare.

Unbelievable.

Leave it to this House to celebrate the politics of suicide, as most Americans will blame Republicans if the government shuts down. Although, ultimately, it hurts us all, but I expect it to reap its greatest damage on the GOP in the 2104, mid-term elections.

On that same day, last Friday, the U.S. stock market—as measured by the 30 stocks in the Dow Jones Industrial Average—fell by almost 200 points, making it one of the worst days of the year (this in a year when the S&P index is up nearly 20 percent). And nearly half of that selling on Friday took place in the last half- hour of trading—after the House vote. So, if you believe Isaac Newton’s law: “To every action there is always opposed an equal reaction,” then the stock market likely fell on Friday because of the uncertainty set in motion by the House vote. All stock market participants know that the stock market hates uncertainty. That is why the market fell by well over 700 points in early August of 2011 when the U.S. lost its triple “A” credit rating (and not only has it not gotten it back, Congress has the chance to take it down another notch or two in the next 40 days). And we have not even got to the Debt Ceiling debate set for early-to-mid October, one more land mine likely to trip up this obstructionist chamber of Congress.

One point of clarification: it is not only the House that has crazies. The biggest, most dangerous individual in either chamber is not the save-my-own-hide-no-matter-what House leader John Boehner, but the junior Senator from Texas, Ted Cruz. That is the man that has vowed to spare no action in tearing down the Affordable Care Act, which he knows was voted into law by both chambers of Congress, the Office of the Executive, and upheld by the highest court in the land. He is only too happy to play scorched earth politics, while secretly (or not so secretly) plotting a run for president in 2016 (please say it ‘aint so).

So now we wait and watch. If I am correct, or even if there is a last-minute deal, the stock market will be the ultimate scorekeeper of the Kabuki theater taking place inside the District of Colombia. If a deal is not reached by 4 pm Eastern Standard Time on Friday, September 27th, then the stock market will likely lose another 300-600 points between Monday and Friday of this upcoming week. And for one, I am betting heavily on my own blog posting by shorting the market in a big way. I have lost a lot of money over the years, but not once by betting heavily against the likely acts of an irrational chamber of our government.

—-Jeffrey A. Krames, Sunday, September 22, 2013

Why Assad Should Go the Way of Hussein

The prospect of being hanged focuses the mind wonderfully.”
—Samuel Johnson

For those that have followed my recent postings, you know how deeply the recent Syrian crisis has affected me—and why. While the recent deal worked out by the U.S. and Russia on eliminating Assad’s chemical arsenal appears to be “a good first start” to the Obama administration, we must never forget the heinous crimes that Bashar al-Assad has committed against humanity. For those crimes, the only acceptable outcome is accountability—Assad must stand before the world and stand trial for what he has done. Since any use of substantial force against his regime now seems unlikely (but not completely off the table), a public and transparent trial will be the only way to honor the tens of thousands of people he has brutally murdered—and those he continues to murder to this day.

More important, it will send a signal to the world that murderous dictators will be called to account and that no leader should ever calculate that they stand above international law and the common decency of man.

Tomorrow, Monday, September 16, 2013, the United Nations Secretary General Ban Ki-moon will make public the findings the weapons inspectors that went to the site in question about a week after the August 21 chemical attack. The primary mandate of the inspectors is to determine if an attack took place and what possible agents were used in the attack—not who perpetrated it. However, I remain hopeful that the U.N. inspectors may exceed expectations by bringing forth evidence that it was indeed the Assad regime that launched the deadly missiles that carried the poison gas. That would be an important win for the U.S. and the world, for it would directly rebuke the assertions of both Assad and his partner-in-crime Vladimir Putin. That is why I hope beyond hope that the U.N. now possesses such evidence. However, that may be too much to hope for.

Why? Because Assad, knowing exactly what he had done, bombed the living daylights out of that site for five days following his horrendous crime in order to eradicate all evidence of his deed. Whether he was successful we will soon find out. Tissue samples were removed immediately by doctors on the scene and both the U.S. and the U.K. found traces of sarin gas in those samples so there is really no doubt that the attack took place. Even Putin, in his hypocritical, sometimes fabricated New York Times Op-Ed admits an attack took place, but that it was the opposition that launched it (hence the word “fabricated”). Since the U.N. is an objective body [albeit which has shown little teeth in recent decades], their word carries more weight than the U.S. and other western nations. And since Putin specifically included mention of the United Nations in that Op-Ed, it would be a win for the world if that normally feckless body points a finger against Assad.

Speaking of the United Nations, if one visits their Website, they will find its “motto” right at the top:

Welcome to the United Nations. It’s your world.

In our world, we should hope that Assad gets tried by the International Criminal Court in the Hague, like the fellow murderous dictator, Slobodan Milošević, the former President of Yugoslavia. Milošević was charged with committing genocide and crimes against Humanity. However, after a five-year trial in which he represented himself, he was never convicted (instead he died in a Hague jail cell in 2006). I prefer the Saddam Hussein outcome. He was also tried for his unspeakable crimes—by the Iraqi Special Tribunal for the murder of 148 Iraqi Shi’ite—but unlike Milošević, was convicted and hanged.

Like Secretary of State John Kerry said last week, “Nothing focuses the mind like the prospect of a hanging.” [He was quoting the Samuel Johnson line].

However it comes, in whatever form, the world and its victims deserve justice, at the very least.

Note to Obama: Never Negotiate from a Position of Weakness

Not negotiating from a position of weakness is one of the first rules of brinksmanship. However, if one chooses to do so, then that individual has only one weapon left in their arsenal to turn the tables, so to speak: And that is to walk away when met with an unreasonable response or intransigence.

I have had the good fortune to negotiate for a living for three plus decades. My father— Barton “Baruch” Krames—who built up a successful business from nothing, did so because he is a first rate negotiator. I am sure I got the “negotiating gene” from him. It is also the part of my business that I enjoy the most—negotiating the best possible terms for my very valuable clients.

This posting, like the previous half a dozen, is not about publishing but about Syria and how the U.S. had decided to negotiate with Russia in order to obtain a U.N. resolution to remove and destroy the huge Syrian stockpile of chemical weapons. When Secretary of State went to Geneva to negotiate with his Russian counterpart, Russian Foreign Minister Sergey Lavrov, he went with a weak hand. President Obama missed his best chance to deal a blow to the Assad regime two weeks earlier. That is when he made the worst mistake of his presidency by deciding that instead of leading, he would delegate a major leadership decision to Congress. We now know what I correctly predicted then: Congress would falter and not support their Commander-in-Chief. Obama learned a valuable lesson that he should have already known: leadership can never be delegated. The War Powers Act of 1973 gave the president ample authority to attack Assad with missile strikes without congressional approval.

There are half a dozen instances of that precedent, starting with Ronald Reagan and most recently used by Obama himself against Libya!

That is why I was so utterly dumbfounded and devastated two weeks ago this day when Obama declared that he would go to Congress for “permission” to attack Assad. He should have known that the wars waged by Bush in Iraq and Afghanistan were too fresh in the minds of most Americans and congressional leaders to grant President Obama anything like a blank check to attack Assad’s war-making targets. Of course, Obama was requesting much less than a blank check.

But no matter. The “mindset” of congress was stuck on the Bush wars and they could not stomach another one. History is full of “fighting the last war” miscalculations. The greatest example is Hitler. He knew that the mindset that existed in the leadership of other European nations [due to World War I] was too vivid for any country to pick up arms against him until he attacked Poland in September of 1939.

Back to Syria. Obama and Kerry should never have agreed to any U.N. resolution that did not include automatic missile strikes if Syria fails to comply with the agreement. First of all, why should Russia or Syria have a problem with that? All they have to do is make sure that they keep their word. And that brings us to yet one more rule of negotiating. Do not negotiate with bad-faith actors that have revealed themselves to be liars and cheaters at every opportunity. Put another way, Kerry is fighting an unfair fight: even though only Russia was in Geneva with him and his team, Assad was in the background making unreasonable demands on Russian television during the negotiations. That is what happens when an honest broker goes up against two dishonest brokers—both which are enemies of the United States.

As I have been writing this piece, word has come that Secretary Kerry has reached an agreement with Russian Foreign Minister Sergey Lavrov over the Syrian affair. In the agreement Syria has one week to account for all chemical weapons. That is an unexpected “win” for Kerry—right? After all, Assad wanted a month. But, like every aspect of this negotiation, something stinks in Denmark (well, Geneva). The only reason Kerry won that “concession” was because Assad has already moved his chemical weapons—to more than 50 sites by some reports. And since no one really knows how many weapons he possesses, he can “make it up” [the accounting and the location of the weapons] as he goes along.

Assad also knows that it will be nearly impossible to secure and destroy these weapons during his brutal civil war [he has not agreed to cease the war so that inspectors could do their job]. The magnitude of the task and the action on the ground make the logistics of the elimination of those weapons impossible. And even if inspectors get in there, they will need 2,000 inspectors (that many does not even exist) and tens of thousands of troops to protect them in the midst of a war that has already seen Assad slaughter 110,000 people using conventional weapons (which of course are not even being discussed by the U.S., the U.N., or anyone else that have any power to level the playing field).

So what have we learned: the deal just hammered out in Geneva does not include any threat of force if Syria does not live up to their part of the “bargain.” Alternatively, it includes an agreement to agree to revisit the subject of force if Assad does not comply. But any lawyer will tell you that an “agreement to agree” does not constitute anything binding. So while, in the early going, the agreement is being hailed as a “win” for the United States, I beg to differ. I see the entire exercise as a ruse and a stalling tactic that will likely allow Assad to keep a good chunk of his weapons no matter what and allow him to continue to kill thousand more of his own people, albeit with bullets and bombs rather than chemical weapons.

The one key lesson of all negotiations should have been exercised by Kerry: he should have walked away from the negotiation when the opposition failed to agree to our key demand. As soon as it was learned that the threat of force would not be in the resolution Kerry should have gone to the microphones and declared the negotiation “over.” But he simply couldn’t. His hand was too weak. And that is what happens when leaders fail to lead and inaction wins out over action.

I am afraid that history will judge this entire Syrian mess to be a low-point of American leadership—adding to the perception of a “weak America” and an even weaker super power. For what good does it do us to be a super power if we fail to use that power when the world—and the helpless—need it most?
—-Jeffrey A. Krames, September 14, 2013

Puking at Putin (and I am not the only one)

In this morning’s New York Times, Russian President Vladimir Putin wrote an Op-Ed piece on the possible use of military force by the U.S. against Syria in the wake of their gassing of their own people. This article, entitled “A Plea for Caution from Russia,” is a clever piece of propaganda that would make Hitler’s “Reich Minister of Propaganda” Joseph Goebbels proud.

Putin does not deny that gas was used in the August 21 chemical attack, he just claims that the opposition did it, despite the fact that these forces have no access to such weapons of mass destruction, nor the delivery system that was used in the attack. If the opposition had such an arsenal, al-Assad would have been targeted years ago and would probably be dead. But here is Putin, flying in the face of what the rest of the world knows to be true. Here is how he puts it: “No one doubts that poison gas was used in Syria. But there is every reason to believe it was used not by the Syrian Army, but by opposition forces, to provoke intervention by their powerful foreign patrons, who would be siding with the fundamentalists. Reports that militants are preparing another attack — this time against Israel — cannot be ignored.

Hypocrisy does not begin to describe the Russian leader. He remains “KGB down to his DNA.”

Putin also takes aim at the U.S. and president Obama, labeling them, in essence, the world’s new bully (this from a man that has waged brutal thuggish wars on numerous occasions without ever consulting the U.N., helps to arm Syria on a near-daily basis, and even beats and punishes his own LGBT population).

He also takes another swipe at Obama because in the President’s address to the nation on Tuesday, he [Obama], had the temerity to use the phrase “American exceptionalism” in describing the country he leads. Asserts Putin: “I carefully studied his address to the nation on Tuesday. And I would rather disagree with a case he made on American exceptionalism, stating that the United States’ policy is “what makes America different. It’s what makes us exceptional.” It is extremely dangerous to encourage people to see themselves as exceptional, whatever the motivation.”

From a personal perspective, I have had the good fortune to visit most every continent throughout the world, and while I have enjoyed so many of the countries I have visited, I have never found a country to be more exceptional than the United States. My father, a holocaust survivor that survives to this day, has always said that the most valuable lesson he can impart on his children is how “fortunate we are to live in a country like the United States.” I carry that lesson with me every day, and now pass it on to my own two small children.

Why makes America so exceptional? The answers are too numerous to detail them all here, but I will give it a shot. One can point to the freedom that America offers, but more than 150 countries throughout the world offer its people freedom. America is exceptional because this is a country in which people can come from “nothing,” and become “everything.” There are so many examples of this, a country in which one can get educated or create a better mousetrap in their garage and rise up to become a business or political or any kind of leader. One of my favorite examples of this, that he himself cited in a recent interview, is former Secretary of State Colin Powell. A black man from the 1950’s Bronx who could have become president but still rose to the highest levels of our military and government. And he is one of so many who rose themselves up by meager bootstraps to make a huge impact on this nation and the world at large.

When I met with management pioneer Peter Drucker in 2003, he reminded me that Europe—for much of the 20th century (especially the first half)–unlike America, still held to long-held rules of birth and social status to determine one’s status in society. It was America, Drucker asserted, that was first to loosen those shackles so that people born anywhere to anyone could be whatever their own talent and ambition took them. I have also lived that reality, albeit on a much smaller stage, coming from the Bronx and rising up, over many years, as an author, publisher and now literary agent helping new authors to realize their own dreams.

What else makes us so exceptional—and what has—over our history? I can think of a few things: Thomas Jefferson and the U.S. Constitution, Henry Ford and the invention of the automobile, Orville and Wilbur Wright and their invention, our freeing of Europe from Hitler [that started with a day of unbridled bravery on the D-Day landing in early June, 1944], and being the first country to land a man on the the moon, to start.

But it is also a seemingly unending list of so many great Americans in our storied history that have helped make America such a singular nation. Here are some: George Washington, Benjamin Franklin, Abraham Lincoln, Mark Twain, Susan B. Anthony, Dwight Eisenhower, Thomas Edison, Theodore Roosevelt, Alexander Graham Bell, Jackie Robinson, Martin Luther King, Franklin Delano Roosevelt, Eleanor Roosevelt, John F. Kennedy, Albert Einstein, Walt Disney, John Steinbeck, Ernest Hemingway, Frank Lloyd Wright, Jonas Salk, Bill Gates, and Steve Jobs, to name more than a few.

But, ultimately, it is the exceptionalism of the American spirit, our persistent and consistent values, our unbridled idealism—and our unwavering wish to want more for the next generation than our own—that makes us the exceptional Republic we have become.

In summing up, I have little doubt that Putin’s ham-handed attempt to sway the American people against using force against his close ally, the murderous thug Bashar al-Assad, will backfire. Putin is proof positive that one cannot change their stripes. He under-estimates both the American people and its current occupant of the Oval Office—although it was Obama’s inaction that got us into this political quagmire in the first place (inaction is often a leader’s greatest enemy, and it certainly was in this instance). When Putin fails to come up with an acceptable U.N. Resolution that includes the threat of force against al-Assad [if al-Assad does not give up his chemical weapons as promised], I believe there is a chance that Obama will finally go against his own DNA and use force against the Syrian regime. That will reveal Putin’s puny attempt to gain acclaim on the national stage as nothing but a stunt and a stalling tactic. And that is when Putin will eat the words that he has thrown in our face on this day, September 12, 2013.
—-Jeffrey A. Krames

If Hitler Had Lived in the YouTube Era

“Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”
—Justice Louis D. Brandeis

In the critical days before the Congress officially returns to work to weight the issue of military strikes against Syria, we have seen many more disturbing video images online and on television that prove beyond a reasonable doubt that the al-Assad regime had used sarin gas against his own people. These videos, taken on the scene in real time with cell phones and other “new” technologies, make a near-fortress like case that everything that America has asserted in regard to these attacks is true. However, whether or not that will make a difference to the Congress and the American public remains to be seen [for more on that read my previous posting here: http://jeffreykrames.com/2013/09/07/the-word-of-a-leader/].

While watching these heart-wrenching videos, I began to wonder what would have happened if such images existed in real time while Adolph Hitler waged his merciless war and subsequent genocide against the Jewish people. If so, would the world have allowed Hitler to get as far as he did? Would they have watched Hitler roll over the Polish army [so mis-matched atop horses fighting Hitler’s air force and armored Blitzkrieg divisions]?

First, a bit of history: Hitler lost a key election in 1932 by securing just under 37 percent of the vote. Paul von Hindenburg, an independent, crushed Hitler with 53 percent of the German electorate backing him. In the German “Weimar system,” the president had broad and sweeping powers, and Hindenburg made the most seriously flawed mistake of his presidency by elevating Adolph Hitler to the key post as Chancellor of Germany at the end of January, 1933. After Hindenburg died in office in 1934, Hitler consolidated his power as dictator of Germany by eliminating the office of the presidency and replacing it with the newly created post of “Führer und Reichskanzler” (“Leader and Reich Chancellor”).

But as early as 1933 Hitler began his war against Jews and other people within his own country. Here is how the New York Times reports it:

“Within months [of Hitler’s appointment in 1933], the first concentration camp was opened in the Bavarian town of Dachau. The first prisoners were political opponents of the regime. But it wasn’t long before other groups that the Nazis deemed undesirable were rounded up and sent away: in particular, Jews, homosexuals, and gypsies.”

The SS—Hitler’s elite paramilitary force—had long been terrorizing Germany’s Jews, beating them up and vandalizing their businesses. The Nazis believed that Germans, part of what they called the Aryan race, were racially superior to Jews. In 1935, their racist beliefs became official German policy with the passage of the Nuremberg laws, which stripped German Jews of citizenship and laid the groundwork for the horrors to follow.

On Nov. 9, 1938, the Nazis orchestrated a nationwide wave of attacks on Jewish businesses, homes, and synagogues. Almost 100 Jews were killed, and thousands were arrested and sent to concentration camps. The night became known as Kristallnacht—the night of broken glass.”

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I must note that Bashar al-Assad is no Adolph Hitler. Al-Assad is the dictator of a brutal regime that used chemical weapons to kill many people—yes. But their goals were far different and the number of dead in Syria does not come close to the number of Hitler’s murders, and Syria is a poor country with a limited military that does not compare to a fighting force capability as strong as say, Iran, never mind the United States. In 1939 Germany had the world’s third most powerful military.

We all know of Hitler’s atrocities—and as the son of Holocaust survivors who had lost most everyone at the hand of Hitler’s armies—I could not help wonder what would have happened if the world was able to see what Hitler began in 1933 as it happened. Would France and England have permitted Hitler to take Czechoslovakia and annex Austria [in the so-labelled Anschluss] in 1938? Would the U.S. have intervened far earlier in the second World War?

We, of course, cannot answer these and many more pressing questions with certainty this many decades later. However, I think it is a very fair to assume that despite the many pockets of anti-semitism of the day that persisted inside and outside the borders of the United States and Europe, the world would not have allowed Hitler to go unchallenged. Even Czechoslovakia could have given Hitler a fight, as it possessed dozens of well-armored divisions in 1938, but laid down its arms without firing a single bullet. We know now that Hitler correctly assumed that no one would have the stomach to wage war against him until September of 1939 when he attacked Poland. His armies were not ready for war before then, and the world was war-weary still after World War I.

Now, as the world faces another brutal dictator [albeit with far less military power than the Nazi Germany of 1939], what happens in the upcoming days and weeks will be of historical significance for many reasons. One of the biggest challenges for the world—more specifically the United States— is that there are no good choices left. Because the world watched as al-Assad slaughtered 110,000 of his people with mostly conventional weapons, we now have bad guys on both sides of the conflict. Still, that does not mean that inaction will not come without a heavy price.

No matter what happens, we must never forget.

—-Jeffrey A. Krames, September 8, 2013

The Word of a Leader

In the past week I have discussed the importance of leadership moments and showed how they play such an important role when push comes to shove. Push has come to shove for President Obama is in the weekend before his final and sweeping effort to secure the support of Congress to strike Syria in the wake of Syria’s use of chemical weapons against his own people.

Let’s pivot off that concept and discuss the importance of words. For more then three decades I have made my living by shaping words. As editor, publisher, author and literary agent, I have helped many hundreds of authors by shaping and massaging their words in order to turn something ordinary into something special.

Speaking of words, I have always kept mine because I always knew that stakes were too high to contemplate otherwise. I spent more than three-fifths of my life in the business world building up a “fortress-like,” sterling reputation. However, I always knew that if I violated my word, even once, I could tear down that reputation in an instant—something I made sure I never did. Over-promise and under-deliver and you will find yourself out of business very quickly. I work in a small and close-knit industry in which word spreads quickly. I knew I had to be true to the values that were instilled in me from childhood. One does not lie—and one does not make a promise that cannot be honored.

Of course, the word of a corporate leader does not compare to the word of a country and its leadership. It is now common knowledge that President Obama made an off-the-cuff remark in August of 2012 about a red line and chemical weapons in Syria. We know that the remark was not planned because it was never followed up: President Obama—we know now—never instructed any members of his cabinet to come up with a plan of action in the event that the Syrian leader violated that red line. His failure to plan is what boxed him into his current and messy situation.

President Obama knows better than anyone the power of words. It was his soaring rhetoric that got him into the White House in the first place. He is also keenly aware that he has now put his reputation on the line. And not only his—but the reputation of the Office of the President as well as the word of the nation. And not just for now, but for years to come. That is why the stakes in Syria are so high. The decision to go ahead with strikes against Assad is more important than war—it is about the reputation of the United States.

That is why I believe that Obama will work doggedly to get the American electorate and both Houses of Congress with him. But momentum has shifted against him in ugly fashion. The shadow of the badly-bungled war in Iraq is too long and wide which explains why little more than a third of Americans back his decision to wage a limited war in Iraq. However, Obama has always been a pragmatic leader who sees things how they are and not how he wishes them to be. He knows that in 1999 President Clinton initiated bombing strikes for months in Kosovo a full month before the House voted on the issue (but after the Senate voted yes to a non-binding authorization of the use of force 58 to 41).  Obama also knows that he has almost no chance to win over the Republican- led House of Representatives. Momentum is crushing his efforts by the day. Minority Leader Nancy Pelosi has told him that it might take several weeks before the House is even ready to vote. Contrary to conventional wisdom, that is sweet music to the ears of the president.

That is because I believe that he now has a new plan of action.

He and his closest two members of his inner circle—Vice President Biden and Secretary of State John Kerry—will put on a full court press to win Senate approval. In the Senate, Obama has about a six-member lead in the weekend ahead of his all-important address to the country on Tuesday, September 10th, one day before the 12-year anniversary of the 2001 horrific attack. Still, the Senate could go either way.

So what happens now?

One of two things: if Obama wins Senate approval, I believe he will wait no longer—knowing that his failure to act one week earlier may have been the worst day of his presidency—and order the attacks to go forward. He will not wait for the House to vote. If he fails to win the Senate, then he will go it alone, knowing full well that he is risking his presidency and his legacy in doing so. I believe that Obama has already made his calculation. He will put the word of the nation above his own word and his own legacy. He will do so because he knows that the word of a nation is far too valuable to squander. He also believes deeply that the use of chemical weapons cannot go unpunished—even if much of the the country—and the world—is not with him.

I have had the good fortune to publish more than one book on former Secretary of State Colin Powell. He spoke of leadership as a lonely endeavor. Just how lonely is something that Obama is about to find out—the hard way.

—Jeffrey A. Krames, September 7, 2013

 

 

 

 

Why Obama May Have Already Lost Syria

It is difficult to believe that less than 70 hours ago it seemed a sure thing that America would launch strategic missile strikes to weaken Syria’s al-Assad’s regime—the same one that crossed Obama’s red line by murdering more than 1,400 innocents with sarin gas.

Now, just after the U.S. Labor Day holiday, that moment seems like some long-ago lost reality. In earlier posts I have discussed the importance of leadership moments. It now seems, with 20/20 hindsight, that there were far too many moments missed by Obama to save the world from a Middle-Eastern crisis that deepens by the day. Especially since Iran and Russia are two major players determined to undermine the west—countries with leaders whose actions will only complicate and confuse the muddled morass that Syria has become in such a seemingly short time.

But that’s the point. Has it really been a short time? The short answer is “no.” The civil war that has raged in Syria did not start a week ago or a year ago or even two years ago. It began in the Spring of 2011, and it did not take all that long for certain American politicians to recognize the war for what it was: a cancerous, Middle-Eastern crisis that had the ability to light up the Middle East in some tinder-like- box regional war.

Now, in the early days of September 2013, the chances of that stark reality seem more possible than ever.

Let’s look back at what did not happen in the last 30 months to bring us to this leadership moment. Forget 2011, that was only the beginning and no one could imagine that Bashar al-Assad would become a modern- day, Hitler-like  leader on the modern stage. After all, he enjoyed listening to musician Phil Collins and was described by one credible biographer [who met with him on numerous occasions] as a as a geek—a nerd-like leader—certainly not a harsh dictator that would use every weapon in his arsenal to kill and maim thousands of his own citizens.

But—by 2012— a new al-Assad had emerged, the real Bashar al-Assad. That is when two never-shy Republican leaders—Presidential contender John McCain and Senator Lindsey Graham—warned Obama and the world to the perils of Syria and al-Assad. They understood that the Syrian conflict was about far more than Syria—it was about Iran—the only Middle-Eastern nation that had the capability of becoming a nuclear country besides Israel. [The Iranian red line is a whole other story—one that now seems more likely to be dealt with by Israel when the time comes].

It was enough for McCain and Graham that Syria had 5,000 Hezbollah fighters backed and financed solely by Iran. They urged the American president to arm the Syrian Free Army. But to Obama—the anti-war president, it wasn’t that simple. There were simply too many factions—including al-qaeda—on the anti al-Assad side of the war. Better not to involve America in a messy and complicated civil war in the worst neighborhood on earth. In retrospect, especially when it seemed that al-Assad was losing, it is clear the United States missed its best chance to level the playing field and tip the balance against al-Assad and his Iranian proxy fighters. But that, too, is “Monday morning quarterbacking,”— after-the-fact analysis.

However, hindsight is not useless when it provides lessons for the future. By arming the right factions fighting against al-Assad, the U.S. could have tipped the scales against him. But the hands-off American leader stayed true to his doctrine and stayed out of it. Even in late 2012 or early 2013 the Syrian war was still not something that rose to the level of U.S. involvement, Obama argued. And that was Obama’s second Syrian miscalculation, but unfortunately, not his last. [it is interesting to note that it was another U.S. president that was always on guard against “miscalculation,” and that was the 35th president, John F. Kennedy. It was a number of correct calculations on his part during those 13 days that saved the world during the Cuban Missile Crisis].

Apparently it did not occur to President Obama that he might have miscalculated. That is, not until his own credibility, after al-Assad used his unthinkable chemical agents—and the credibility of the United States—became the new table stakes in this far-away civil war. Once Obama realized he under-estimated the significance of the Syrian war and the brutal dictator who led it, his first instincts were the right ones. Attack al-Assad as soon as possible—before the regime could prepare and hide key assets in such civilian populated places like hospitals and schools. Show him, Iran, Russia and the rest of the world that al-Assad’s actions would not stand. That was August 31st—when it was thought that at least some sort of limited war would be waged by Obama under the War Powers Act.

But then the other Obama—the anti war Obama— appeared, and mucked up the works in ways that might very well be studied for decades as the flinch that brought the Middle East to its knees. At this point, with so many players, countries and politics in the mix, only time will tell how all will play out on this increasingly dangerous chess board. But the signs are disconcerting at best, and terribly ominous at worst.

Russia has volunteered to send delegates to speak to the American Congress—an unprecedented act as far as I can tell. Iran remains eerily silent, secretly delighting at the inaction of the United States. If the U.S. won’t back up its own red line, they won’t attack us, reason the Iranian leadership. That may or may not be true, and if it is, surely Israel will act. But that is a topic for another day.

For now, the stakes are growing by the day as the American electorate sides with the anti-war Obama. Stay out of it, they argue. Who wants another Iraq? But they are fighting the wrong war at the wrong time, something the world did some 75 years ago, when many underestimated a different leader. to catastrophic results. Despite the two recent wars started by George W. Bush, America has had a history of entering wars reluctantly and too late. The most vivid example of that is World War II. Even though Hitler’s war had already rolled over most of Europe—it took the Japanese attack on Pearl Harbor in December of 1941 to get America to enter the war. [Hitler’s war against Jews was well known by that point, but it is lesser known that in the late 1930’s and early 1940’s, anti-semitic factions in the U.S. helped to give cover to Roosevelt to stay out of the European conflict].

I fear many outcomes of what appears to be a fairly contained conflict (if you do not take into account the two million refugees that have already exited Syria, nearly a third of its population—with half of that incredible number being children under an average age of 12). The range of thinking in the U.S. Congress on this topic is as fractured as I have ever seen it. Some want to see the details of a comprehensive and strategic plan to bring down a monstrous regime, while others do not want us to go in at all. Most congressional leaders are torn—somewhere in the middle. Even if Obama gets the vote to wage “war,” which I believe he will, it will be such a watered down version of the original document that he will be handcuffed in what he could actually do against Syria, leaving little room for contingency plans if some awful “what-if” scenario plays out in the region [and I believe it will].

And what if the 113th U.S. Congress does what it usually does? [hint: nothing].

What will Obama do then? And what will happen to the U.S. reputation on the world stage? More important, will the conflict in Syria spread to the rest of the Middle East? And how will Russia’s appearance in the Eastern Mediterranean with its state-of-the-art navy hardware play out against the U.S. presence already there? The outcomes are too many to ponder, and none of them are good. Which is what keeps me up at night, writing such verbose pieces about events in far-away lands. It used to be only the health and well-being of my loved ones that kept me up at night…that, and maybe the stock market. Now look at where we are.

However, It is where we might end up, however, that truly scares the living daylights out of me.

Please stay tuned for more in the days ahead.

—-Jeffrey A. Krames, September 3rd, 2013

 

The Limits of Charisma: The “Sequestration is Dumb” Edition (a.k.a How on God’s Green Earth Did we Get Here)?

Having written about some of the greatest leaders of the 20th century, I have always believed that charisma and leadership have little to do with each other. That idea is hardly new. It has been espoused most eloquently by the late, great Peter Drucker (the “Father of Modern Management”) when I met with him in 2003—as well as in several of his classic books.

Drucker also asserted that charisma, as defined by Merriam Webster as “a special magnetic charm or appeal,” could also be used as a construct to explain the evil influence of some of the worst leaders of the 20th century, like Stalin or Hitler. But, for the sake of this piece, we will use “charisma” to describe a positive leadership trait.

Before moving on, let’s get back to Drucker for a moment. To underscore the difference between leadership and charisma, he wrote: Harry Truman had no more charisma than a dead mackerel,” but accomplished great feats of leadership and legislative victories nonetheless. In contrast, Drucker asserted, “John F. Kennedy was perhaps the most charismatic president of his day, but “few presidents got less done.” I take exception with that characterization, since Kennedy both inspired a generation, and saved the world from a potential nuclear exchange during the Cuban Missile Crisis. 

Let’s fast forward more than five decades to today’s occupant of the Oval Office. In ways that were similar to JFK, Barack Obama has the gift of oration and charisma, two qualities that helped to get him elected twice. Obama is a gifted and intelligent president. His command of the bully pulpit typifies at least part of what makes a great leader, but only a part. For leaders of states and nations, there is no substitute for authentic leadership and effective legislating. Consider them as two sides of a coin. Opponents of Obama have labeled him the “campaigner in chief,” because whenever a difficult choice must be made by him and the congress, he takes his argument directly to the people, passing “go,” both houses of Congress, and the media in one fell swoop. But presidents must do much more than campaign.

The most effective leaders don’t just talk, they act. They articulate a path forward—a vision of the finish line—and get others to follow; this is true for people they don’t like or who hold different views than themselves…especially those that think differently from themselves. That was the best part of Lincoln—the President (as well as the movie). It is in this regard that Obama has consistently let us down, especially when it comes to the economy. Even though his common sense ideas are almost always more popular than any that emanate in Congress, he still comes up short when it comes to getting others in Congress to follow his lead. Recently Obama has reached out to members of congress by hosting a lunch and a dinner with key members of congress (but not the leaders of either house of congress).

Of course, John Boehner and the other House Republican’s obstructionists (e.g. think Tea Party zealots) have actually made  congress less popular than cockroaches (I kid you not). Their responsibility in sinking the U.S. economy into the sequester quagmire is equal—and even greater—than President Obama’s. Most Americans blame Republicans for hurling us into this mess which according to the government, could easily spark the loss of 750,000 jobs just when the United States was getting on solid ground following the great recession of 2008/2009. One very recent Bloomberg headline summed it up as follows: Congress Budget Cuts Damage U.S. Economy Without Aiding Outlook

 

POISONING THE WELL

And in one way important way, Republicans spoiled the well in a way that Obama will never forget.

Several years back, on the floor of the Senate, Leader Mitch McConnell announced that his main priority was to “make sure that Obama never gets a second term.” That is unprecedented—and politics at its worst.  One would think that creating legislation that leads to a stronger economy and the ending of two wars would rank higher than ridding the White House of its current occupant—or any sitting president for that matter. Think of it. What if one of your colleagues at work said the same thing to the entire company you work for—that getting you fired is his main priority. There is no way that would be tolerated by the leader of that organization. But the 2013 Republican party is both a leaderless and rudderless party. That did not happen overnight. They had to work at it to be so out of touch with the American mainstream.

I view Obama, who boasts a more definitive swagger after his second term win, as a determined prize fighter landing blow after blow on the entire Republican party. Don’t misunderstand me. He did not want this sequester to go into effect, but, as many pundits pointed out, he “miscalculated” by overplaying his hand. He thought that the Republicans would cave again because they could not tolerate the cuts to the Defense Department. Clearly he was wrong. And there are more “cliff-like” moments coming at the end of March and in the ensuing months that follow.

In the early days of March, no one knows what effect the Sequester will have on the economy and the financial markets. That’s because this is an unprecedented event for the U.S. (a self-inflicted $850 billion wound). People in far-away lands are incredulous—they can’t believe that the greatest country on Earth cannot get their fiscal house in order. In light of that, who knows what they will think of us if we are unable to come up with a new budget in the next few months. Stay tuned!!

Greece, Spain…Who’s Next? Wenzhou or Wisconsin?

We certainly do live in interesting times, especially if you are like me—a stock market junkie who also follows world events with equal measures of interest and cynicism. Before I continue, I should point out that I started writing this blog a month ago, but I could have just as easily written it three or four months ago. That’s how long these major market headwinds have been around–and most much longer (e.g. Greece).  Given how fast things move in the financial markets, and more importantly in the world at large, the enduring nature of our most pressing problems is worth noting.

This is a piece about the stock market, and how long the U.S.—and most other global markets—have behaved in such an insular, illogical fashion for so long. It is as if the outside world did not exist, which is what has traders so frustrated for so long—and why I have agonized over this market for months. In fact, I have hated this market since June.

Why?

Like so many other investors and money managers, I have been awaiting some financial disaster—a “Black Swan” event or a “Lehman moment”—that would simply crush U.S. markets. That’s why I have been largely short the market since June, with Facebook at the top of my short list (and Apple a close second since before the troubled iPhone 5 release. But I closed that winning position quite recently).  In other words I made a major bet that the markets would fall since early summer, and that just didn’t happen. However, with terrible earnings thus far in Q3, all of that looks like it might finally change—and change fast. Either way, until quite recently, the last months have been nothing short of stock market torture.

I am not alone in calling this “the most hated market rally of all time.” Many money managers have not participated in this market “melt-up.” Research reveals that in 2012 well over 90 percent of portfolio managers have failed to keep pace with the returns of the S&P 500 (which is up 15% through three quarters, its best performance in years). That means that there are literally tens of thousands of traders and money managers who were judging the market on macro events, and as a result, like me, were under-invested. But when the central bankers—first Mario Draghi in Europe and then Ben Bernanke in the U.S.—promised to do “whatever it takes” to prop up respective economies, that artificially propped up most global markets by more than ten percent since late July. I say artificially because that sort of open-ended monetary policy seldom leads to the kind of authentic growth that can lift economies for the long-run, and not just financial markets for the short-term.

The reasons for my continued market pessimism should surprise no one. There is the horror-zone that is Europe with negative-growth countries needing to be bailed out by at least one other country in which its citizens don’t want any part of any additional bailouts (hint: they invented the blitzkrieg). Then there is the much talked-about “fiscal cliff,” which reveals the absolute inanity of the U.S. government. It is a travesty that they cannot get a thing done. Give congress a lamp and a light bulb, and you will still be sitting in the dark a month later. Congress won’t budge an inch on the “fiscal cliff” with its automatic spending cuts and expiration of the Bush tax cuts. The GOP won’t risk making Obama look competent a few short weeks before the election. As a result, businesses are frozen in place. Since they don’t know what the tax situation will be next year, they are loathe to hire new workers, which only adds to uncertainty—and markets detest uncertainty.

Then there is the China slow-down, which is a huge factor sparking another huge problem: the slowing of growth in the U.S., as evidenced by a multi-year high of corporations missing their top line numbers (in the current quarter only four of ten companies have made their top line revenue targets thus far—despite the fact that these numbers have already taken a haircut or two. That’s down by more than 30 percent from an average earnings report). Also, China gives us reports year-over-year without any quarterly adjustments, which obscures the meaning of their numbers even more.

You can stop reading here, or get more detail on the key headwinds described above. If you are still with me, let’s get back to Europe.

Most of Europe is in either recession or depression or heading in that direction—with things getting worse with each passing week (although many talking heads on financial networks will talk of declining Spanish bond yields as evidence of an improving economy. Spoiler alert: they’re wrong). The most beleaguered country—Greece—is experiencing a full-blown depression. With overall unemployment rates of 25%, and a jaw-dropping 55% for young people of working age, Greece is sadly an unmitigated disaster in which things will get worse before they get better. European leaders are finally learning that austerity measures are the enemy of growth, a lesson they should have learned long ago (but are still not changing their stance much on austerity measures). Instead of an accurate representation of the state of these broken economies, what we usually get are platitudes on “progress being made” and “more time should be given” [to Greece]. It appears that Europe’s politicians will say most anything to kick the can down the road to preserve the euro—and the 17-country euro zone—for as long as possible. However, that can only work for a a finite amount of time as the truth of Greece’s inability to pay off their debilitating debts become apparent to everyone [Citigroup puts the chances of a Greek exit from the euro zone at 60%, down from 90% a month earlier].

However, Greece is not lonely at the bottom, nor is it Europe’s most severe problem.

That honor goes to Spain, Europe’s 4th largest economy. This proud nation is in crisis. They accepted $100 billion euros to bail out their banks, but that was just to prop up failing financial institutions. The rest of the country is mired in a double-dip recession, and the country needs to be capitalized or risk running out of money. Unlike Greece, Spain cannot be swept under the euro zone rug for months to come. The country is too big, and its problems much bigger; yet their leader, Prime Minister Mariano Rajoy, stubbornly refuses to request a bailout for the country. And in the “new” Europe, a country must officially request a bailout, and all the growth-killing austerity measures that goes with it—to get any funds from the European Central Bank. But who can blame Rajoy? Every other leader who received bailouts have been voted out of office. It does not help that Rajoy is a serial procrastinator, and is not likely to request a bailout anytime soon, despite weekly press reports to the contrary. He may simply follow Europe’s lead and kick that same can down a different road—a road that leads to additional pain, more debilitating austerity, and ultimate insolvency.

Next up—China. According to numbers coming out of that country, growth is slowing quickly, with growth expected to come in at about 7%-8% for all of 2012. That would be amazing for the U.S. or Europe, but not for China (the U.S.is growing at a rate between one and two percent). In many ways, China poses a far more vexing problem than Europe. Another important aspect of the China problem is that their numbers are likely a canard. China is of course not a democracy, which makes any numbers emanating from that country suspect. That’s why, for example, anchors on CNBC use things like Chinese electricity consumption numbers as a more accurate guide to measure Chinese economic growth. I believe that when the real numbers are finally revealed in 2013, it is far more likely that China had grown by perhaps by four to six percentage points in 2012. We know that dozens of countries in the U.S. have missed their top line revenue targets in the second and third quarters because of slowing growth in China and the euro zone, but more CEO’s have pointed to China as the biggest problem, especially technology companies. This is true with the best U.S. tech names like IBM and Intel. Some large company CEO’s have said that China “feels” like it is growing at two to three percent rather than the seven or eight percent sworn to by China. There is also a monumental change in leadership coming soon in China, which only adds to anxiety in a way that the fiscal cliff has added to fear and anxiety in the U.S.

One city in China—Wenzhou—gives a more accurate picture about what is really going on inside world’s second largest economy. Quite recently the Washington Post ran an article entitled: “Some see China’s in Debt-Ridden City of Wenzhou.” The article made the point that the debt issues of this city bears some resemblance to the Bear Stearns of 2008, which was the first shoe to drop in the debilitating liquidity debt crisis of 2008-2009. The piece also mentioned that a prominent professor from Beijing saw Wenzhou as a “signal that high-interest private lending might trigger a debt crisis.” China’s total debt is estimated to be somewhere from 10 trillion to 14 trillion renminbi (about $1.6 trillion to $2.2 trillion). That pales in comparison to the U.S. with more than $16.1 trillion debt, which comes out $51,472 per American citizen. Hence the title of this posting.

If we are not far more prudent with our fiscal and monetary policy going forward, is it possible that the U.S. becomes the next Spain? It is surely possible, especially since congress is such a dysfunctional organ of our government. Since the stock market is forward looking, I would expect the market to be weak (meaning down) over the next few weeks as uncertainty rules the day. We will know more after the U.S. elections and the ringing in of the new year. Until then, consider buying some protection for your portfolio (e.g. buy some SPXU which is the inverse of the S&P 500), stay tuned and fasten your seat belts.

 

How Low Can Facebook Go? Look to Business Books to Tell the Tale

This trusim is something I alluded to in my last blog posting, and for me, this is a fascinating reality: “If it isn’t a book, it isn’t a stock.” Having just celebrated my 30-year anniversary in the business book industry, I certainly have seen my share of “phenomena” books. Electronic day trading was a phenomenon in 1998 before dying a quick death by late 2001. In the early 1980s, in the wake of the stunning success of In Search of Excellence, every publisher and their mother brought a book out with excellence in the title. That worked for a few weeks before that market died.

Unlike a hot topic like electronic day trading, most social media books have been spectacular failures from the start. I don’t even need the Nielsen Bookscan numbers to know that, for I know intuitively that this genre of business book would die on the vine. How did I know? Because social media books are the classic case of publishers barking up the wrong tree. Publishers have an incredible penchant of publishing the hell out of the wrong topic at the wrong time. Sure, a few social media books did well, but they are the exception, not the rule. While social media is still growing by double-digits in developing nations across the globe, few top tier publishers are bringing out any new books on this topic. Why? Because people who are active on Facebook and Twitter spend hours on these platforms—and no time reading books on the topic. They don’t have to. They know how to access and use these sites so why do they need a book telling them how important it is or how it will influence their lives or society as a whole?

There is also great competition entering the Facebook space: for example, Pinterest, the “online billboard,” is quickly emerging as the next big thing in social media.

This brings us back to the stock market. As I have mentioned before, I have been short Facebook (that is, betting it to go down) since the end of May. I have always believed that there is a dearth of leadership at the $60 billion company, especially in the chief executive’s office. I knew that if publishers could not make a go of social media books, then the biggest company on the block would have a hard time making it as a publicly traded company. The problem isn’t that the customers aren’t there. With nearly a billion users, they have the eyeballs that would make 99 percent of companies salivate. The problem is that they haven’t found a way to monetize their hundreds of millions of users. And when sales can’t keep up with users you have a problem. And when the entire industry is shifting to mobile, a much smaller platform for advertisements, you have an even bigger problem. While I think there is a good chance Facebook will figure it out eventually, it will require time and a kings ransom to get it right. While the firm has money, they don’t have much time. In late 2012 there are far fewer investors out there and more traders than ever. Fewer and fewer people are buying and holding stocks. That means that companies have less time than ever to right the ship. If Facebook can’t get mobile revenues into the multi-billions by say, Q1 2013, I could see the stock sinking into the high single-digits. Single digits? That’s impossible right? Ask Zynga, a firm that, at the time of this writing is trading at $3 per share after hitting a high of just under $16 per share in April of 2012. Or the discount coupon company Groupon (another company I am shorting), which is down almost 80 percent since it went public last November.

The truth is that no one knows what will happen to Facebook stock. But one thing is for sure: as a book category, social media books are likely to go the way of Friendster and MySpace.

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