Peter Dag & Friends: June 2013

6/29/13

Observations

Oh! Italia, Italia!

Guilds are a very powerful voice in Italy. Newspapers, for instance, can be sold only by authorized newsstands. The list goes on and on. The government is now trying to break them and introduce more competition.

Italy is still anchored in a medieval mindset when guilds were authorized to set standards and protect professional interests. Following the fall of the Roman Empire, Italy has been constantly devastated, women raped, men tortured, cities destroyed and rebuilt-to-be-destroyed-again for almost 2000 years. The last event was WWII.

Attila, Germans, Swedes, Muslims, Greeks, Spanish, and English found Italy an attractive battleground. The Italians answered by building hilltop castles.

Italy’s main historical problem has been its failure to unite when other nations (France, Spain, England, and Germany) did. They chose to fight against each other.

Italy had two hundred years of glory: the Renaissance. Commerce through Venice, and then Genoa, Pisa, and Amalfi created unprecedented wealth.

The Medici family in Florence seized the opportunity and created the banking system to finance trade with India and China through the Middle East.

Money discovered and financed genius. It always does. The world could thus enjoy and benefit from such giants as Michelangelo, Leonardo, and Galileo.

But the tight grip of the church, the discovery of America, and the rounding of the Cape of Good Hope put the Italian merchants out of business.

The Renaissance waned. Knowledge and money moved north. Bach, Mozart, Kepler, and Newton were some of the offspring of the Italian genius.

The Italians failed to unite once again. The Church emerged one more time as the surviving power. And for another four centuries Italians managed to remain afloat.

Long live the guilds, the last remnants of a medieval mindset Italy failed to overcome!

(This Observations appeared in the 7-24-2006 issue of The Peter Dag Portfolio ).

George Dagnino, PhD Editor,
The Peter Dag Portfolio.
Since 1977
2009 Market Timer of the Year by Timer Digest
Portfolio manager

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6/18/13

Observations

I rarely listen to NPR on the radio. They belabor the news until the listener is exhausted. I respect, however, their professionalism and thoroughness.

One day I was lucky enough to catch the beginning of an interview with Thomas Friedman, the famed New York Times columnist. I had to stop surfing and listen. Friedman is a great writer and solid thinker. I like his common sense and breadth of thinking. The interviewer asked him about outsourcing. Because of the populist slant of NPR, the answer surprised the young lady asking the questions.

Friedman just came back from a tour of Asia in preparation of his book The World is Flat. He was there. He saw. And his answers were well documented and to be trusted. This is Friedman’s trademark.

Outsourcing does not cut jobs in the US. It frees US resources so that US companies can employ them in product development and higher level research.

This is exactly what a client told me. “We built a plant in China to supply us with inexpensive parts. By doing so, we have become more competitive and have been able to keep the employees.” They also had the opportunity to develop new products.

Friedman is convinced outsourcing is not going away, to the surprise of the interviewer. We have to get ready to compete. A superb education system will make us competitive. Right now the US is financially segregated. Only the wealthy can afford the best (private) schools and first-rate colleges. I went through this shock myself, when I came to this country from Europe.

Another very interesting point he made was that India has the second largest Muslim population in the world after Indonesia. With some 150 million Muslims, you do not hear about Indian terrorism.

The reason is that they are part of a “secular, free-market, democratic” system. They all have an opportunity for economic advancement. Poverty and lack of freedom as in Pakistan, Egypt, Saudi Arabia, and Syria, however, fire discontent and anger. I believe we should be fighting poverty, not terrorism.

(This Observations appeared in the 7-10-2006 issue of The Peter Dag Portfolio ).

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6/9/13

AN ESSAY BY NIALL FERGUSON -- A MUST READ

A Saturday Essay by N. Ferguson in the WSJ on how America lost its way. This essay is an adaptation from his new book "The Great American Degeneration:....".

The bottom line? It has become too difficult to do business in the US. Reason? Too many regulations. Too much time and costs spent to satisfy the increasingly large number of guidelines coming out of Washington. All this is putting us at a disadvantage and hindering our productivity growth.

It supports the view I have been discussing for some time. On why our productivity growth is less than 1% when it should be close to 2%-3%. Printing money will not solve the problem. And we should not be surprised the dollar is weak.

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6/7/13

OBSERVATIONS

In April 2000 I wrote about political systems and power groups.

All political systems are the same, I suggested. What makes them different is the number of power groups in control of the national system. When a nation has few power groups, they control the country to satisfy only their needs, the needs of a few people.

In this case the country does not have to expand rapidly. The power groups in control do not need much wealth because the wealth has to be shared by few. The Soviet Union, Cuba, and China under Mao are the most obvious examples.

On the other hand, countries with a large number of power groups (democracies) need a fast growing economy to create the wealth to be shared by the various power groups.

All political systems are the same, I concluded then. Power is the unifying parameter of political systems. How you label these systems is irrelevant.

The great book The Birth of Plenty by W. J. Bernstein provides a superb historical perspective on the conditions for prosperity through the centuries and adds to my perspective by providing practical guidelines.

Four conditions are necessary for a country to grow.
1. Property rights. They provide the backbone for entrepreneurship and for civil liberties.
2. Scientific method. It establishes a cultural framework to educate the people of a country and promote research in the main fields of human endeavor.
3. Capital marketplace. A country cannot grow without a modern financial system providing the necessary financing to an expanding economy.
4. Communications. Countries cannot grow without the ability to trade based on efficient communication. The author provides many convincing examples of expanding or collapsing societies. One more case. The failure to grow of the Arab states in the Middle East can be easily explained by applying the analysis of this book.

(This Observations appeared in the 6-26-06-2006 issue of The Peter Dag Portfolio ).

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