The lessons of newly emerging champions in the global economy from a Davos CEO forum:
• You have to have a mission. A mission of creating a better world for your children.
• Make impossible things happen.
• Be bold and persevere.
• Be a bridge.
• Rethink cultural biases.
• Rethink where talent is – create talent.
• Empower women.
• Rethink where innovation comes from.
• Create diversity and inclusivity.
• Leverage technology.
• Be flexible and open to the best ideas.
• Keep high ethics and high standards.
• Have a heart to your country.
• Generate business model innovation.
• Don’t be rigid, be adaptive, be open, listen, see, learn and embrace.
• Articulate a clear corporate social and environmental responsibility.
• You need a cause in life. Use business as a model for change.
• Vision comes first. Be a transforming force.

© Aviv Shahar

Aviv Shahar :: Jan.28.2008 :: Entrepreneur, Money & Market Behavior :: No Comments »

I clearly remember my first landing practice in Fighter Pilot course. My flight instructor demonstrated the pattern around the airbase from take off, upwind, crosswind, downwind, base and final approach to landing. He then handed the control over to me. My first approach to landing the plane was a huge overshoot. I was so surprised that in my next attempt, I seriously overcorrected. My second approach resulted in a substantial undershoot. We needed to push the throttle hard to get to the runway and not land in the sand, six hundred yards short. Apparently, I was not very original in my miscalculations. In fact the Overshoot—Undershoot error seems to be a pattern for most people on many fronts. Perhaps it is human nature or the nature of our brains. I was reminded of my overshoot – undershoot landing experience by Paul Saffo, Six Rules for Effective Forecasting, July 2007 edition of Harvard Business Review who writes:

“Ironically, forecasters can do worse than ordinary observers when it comes to anticipating inflection points. Ordinary folks are simply surprised when an inflection point arrives seemingly out of nowhere, but innovators and would-be forecasters who glimpse the flat-line beginnings of the S curve often miscalculate the speed at which the inflection point will arrive. As futurist Roy Amara pointed out to me three decades ago, there is a tendency to overestimate the short term and underestimate the long term. Our hopes cause us to conclude that the revolution will arrive overnight. Then, when cold reality fails to conform to our inflated expectations, our disappointment leads us to conclude that the hoped-for revolution will never arrive at all—right before it does.”

In essence this is the pattern behind every boom and bust cycle. Here is what Richard Russell author of The Dow Theory Letters says about this: “In all history, stocks have always been subject to two major forces. These two forces are as follows – the first force is the one that takes stocks ever-higher to overvaluation. The second force is the one that reverses at the top, and then takes stocks down to undervaluation. How stocks get from undervaluation to overvaluation and then back to undervaluation, that’s what we struggle with. We call the move from undervaluation to overvaluation a primary bull market. We call the journey back to undervaluation a primary bear market.”

Luckily I’ve learned to land the Fuga and then the Skyhawk safely and had many good landings with an occasional little undershoot or overshoot. Still, I observe all around me the tendency of people to vacillate from over optimism to over pessimism. The auto industry followed this pattern in the early 20th century with companies appearing like mushrooms after the rain. Later, the story became how most of them failed and went bankrupt. Then, within a few years the Big Three (GM, Ford, Chrysler) had taken on a much bigger chunk of the American economy than anyone could have imagined just few decades earlier. The same identical pattern played out in the dot com bust.

Where is the cycle now? Are we now in an overestimating or an underestimating phase? What is mass psychology underestimating or overestimating today? Where are you overshooting or undershooting? Here are 10 areas to reflect on:

1. Internet 2.0 – How will it change the nature and character of participative democracy? Are you underestimating the long term societal and geo-political change the Internet will bring?
2. The Chinese Dragon – are we in the overestimation phase to be followed by a bust of the Shanghai stock market? Or is mass psychology underestimating the power of the dragon?
3. The Indian Tiger – is the tiger’s ability to catch up with the dragon underestimated?
4. The Commodities Bull market – Started in 2001 but is it still in its infancy?
5. The crash of the dollar – is its impact and future deterioration underestimated or overestimated at this time?
6. Peak Oil – is the energy crisis and peak oil an underestimated challenge? Are the innovation and economical opportunities these challenges will unleash under or overestimated?
7. The Golden Years – are we over or underestimating the societal transformation and the redefinition of the golden years by the Boomers entering the fourth phase of life:
   1st: birth to 21
   2nd: 21-42
   3rd:42-65
   4th: 65-105
8. A New, “New Age” – What is the power of new pragmatic and integral idealism that is beginning to appear with young people all around the world?
9. Peace in the Middle East – Is the possibility of peace and its power to transform the region and the whole world over or underestimated?
10. Latin America – Is it currently highly underestimated in its social, economic and spiritual power?

Please add and share your thoughts about what we might be over or under estimating at this time.

© Aviv Shahar

Aviv Shahar :: Jan.01.2008 :: Future, Money & Market Behavior, Strategy :: No Comments »

The Roman Empire ruled the world by conquering land. It came undone not by an external enemy but because it crumbled from the inside, at its core. The British Empire did not need to conquer land to rule the world. It controlled the sea with its navy and thereby controlled commerce and the world at that time. The beginning of the end of the British Empire was the innovation of aviation. Aviation made naval power less important and helped unleash America’s power.
How did America gain an empire-like hegemony in the 20th century? The answer is a 3-legged stool.

1. American high moral ground originated by the constitution, progressed by American idealism and demonstrated by America’s role in WWII and the rebuilding of Europe.
2. American innovation and entrepreneurial edge, demonstrated by its productive drive and a series of scientific, medical, and technological breakthroughs.
3. The unique, never before in history, universal reserve currency status of the Dollar.

This third leg has been the more invisible instrument of American dominance. It did not need to control the land, nor the sea. America controlled the universal currency. Three things allowed the Dollar to become the universal currency.

1. The Dollar was good as gold and was backed by gold as the ultimate currency that has never been tarnished. The gold window was closed in 1971 by Nixon.
2. The great engine of American industrial and technological development became the fountain of wealth creation that backed up and gave deep support to the unique Dollar status.
3. America’s role in WWII created tremendous trust in both its strength and in the benevolent ideal demonstrated by America in not reducing Europe and other parts of the world to conquered states. In essence this was a second George Washington moment in not assuming the kingship role that was available. Instead America did something smarter. It made the Dollar the King.

The machination of the dollar’s crowning is found in the Bretton Woods Agreements .

On September 20, 2007 the Dollar broke down a critical technical resistance by cutting through it’s all time low. A few days later the Canadian Dollar achieved and surpassed parity. The deterioration continues further. The third leg of the American stool is being challenged very seriously. The strength of an economy is in the soundness of its currency. The last five years have seen the first leg of the stool – the American high moral ground – being criticized and tarnished in the world. Thomas Freedman tells us that the second leg of entrepreneurial and innovative edge is also being challenged by a flattening world. Some would claim that the 3-legged American Hegemony stool is no more because of the triple deficit coupled with many trillions of Dollars in what is called by some a nuclear derivative cloud.
I propose that it is too early to conduct an American Requiem. That instead this can be a moment for America to transcend its crisis to discover and unleash the even greater potential waiting in this land. This potential is in the form of a new release of brilliance. Brilliance not aimed at preserving old hegemony but toward leading the family of nations on the path of true world and planetary citizenship.
Great nationhood in the 21st century is offering leadership of a global planet-wide nature. The task for young and bright minds of America and of China, India, Latin America, Russia, and Africa – the task and challenge for the young people of the Earth is to discover the ingredients of such global, local and personal leadership. This is bigger than climate change or any one issue and includes societal, cultural and spiritual maturation. The task is to identify, build and lead the three or seven legs of world citizenship and leadership wherein individuals, families, groups and sovereign nations can choose their destiny and thrive without bringing this planet back to some dinosaur age. Any ideas?

Aviv Shahar :: Oct.16.2007 :: America, Money & Market Behavior :: No Comments »

The recent Futurist, the World Future Society magazine offers 70 forecasts for 2008 and beyond. The first forecast is: The world will have a billion millionaires by 2025. It says that according to James Canton, author of The Extreme Future globalization and technological innovation will drive this increased prosperity. I have not read yet the book but I have a few quick reflections.

1. First, I bet before there are billion millionaires there will be million billionaires. Now if you are like me struggling with big numbers here is how it works:

1 Million	1,000,000	106
1 Billion	1,000,000,000	109
1 Trillion	1,000,000,000,000	1012
1 Quadrillion	1,000,000,000,000,000	1015
1 Quintillion	1,000,000,000,000,000,000	1018

A million seconds is 13 days.
A billion seconds is 31 years.
A trillion seconds is 31,688 years.

2.This means according to this forecast it will look like this: Billion (10⁹) x millionaires (10⁶) = Quadrillion Dollars or 1000 trillion dollars. Now add to it: million (10⁶) x Billionaires (10⁹) = which is another 1000 trillion or Quadrillion dollars. This is without calculating that many of the millionaires will have 10 or 25 or 55 million and that many of the billionaires already have 5 or more than 35 billion. Whichever way you do the math you are talking about a hell of lot of money.

3. Where is this money going to come from? How is it possible for there to be so much money sloshing around? Okay, I get it. We have three billion people joining now the market economy and the capitalist society in China, India, Russia, Brazil, Mexico and soon Africa and they are all going to want a better life style. Therefore we will all be creating such wealth. Right? No, it still doesn’t make sense unless you factor in hyper-inflation.

4. In the last 80 years the Dollar lost about 80% of its value. This means that to buy the amount of bread, milk, clothing, oil or gold that you could buy in 1920s with 10 dollars you now need to pay $50 or a lot more. In the early 20th century an ounce of gold was about $20. Today its $750, which is 37 times $20. A similar thing has happened with food and real-estate. We all have a lot more dollars to pass around but most people are not richer. This is what it means when you hear that the dollar is losing its purchasing power. Inflation is more money chasing goods. Hyper inflation is a lot more money chasing goods.

5. Here is another way to put it. A million dollars in the 70s made you a millionaire. To be a millionaire today with a purchasing power of a millionaire in the 70s you need
to have a lot more than a million dollars.

6. How is this possible? What causes such hyper inflation? Central banks work overtime to print money. In a global economy every country wants to devaluate its currency because it makes it more competitive as the goods it manufactures become cheaper. How does a country devaluate its currency? It prints more of it. We are now living through a great competitive devaluation of most currencies. The Central Banks of most nations are printing tremendous amount of currency. They can print as much as they want because in most countries fiat currency doesn’t have to be backed by anything. This means that the $100 bill you hold in your pocket has less value or can buy less today than a week ago and will have even less purchasing power next year. Heck, you better be a millionaire 20 years from now or sooner because the $100 in your pocket today will not buy much tomorrow.

© Aviv Shahar

Aviv Shahar :: Oct.12.2007 :: Money & Market Behavior :: No Comments »

(This was written during the August Market reaction when we were preparing the blog).

What has caused the stock market to suddenly pull back in the August of 07? What are the possible scenarios involved? What will history say about this:

1. Credit meltdown?
2. Vanishing liquidity in the markets?
3. “Predatory lenders” selling mortgages to collect commissions and pass on the loans knowing full well they will never be paid?
4. Too many computerized hedge funds deep on margin with only 10% collateral, all betting on the same side, facing forced liquidation?
5. A contracting Real Estate bubble or possibly a beginning of a crash?
6. Unwinding of the Yen carry trade as the simplest money making game for the last few years?
7. A 20+ trillion dollars derivatives default bomb that no one seems to exactly understand?
8. A sudden shift in mass psychology from mass greed to mass fear?
9. A dollar crisis
10. A tremor in a bigger global dislocation?

It is said that the five most dangerous words in Wall Street are: “This time it is different.” Every new generation of money managers brings new suckers ready to declare that we are experiencing a new “new economy” that defies the laws of nature. Natural Laws determine that day follows night and night follows day; that after winter comes spring, summer and then the fall; that birth precedes childhood, and then comes youth, adulthood and old age. Stock markets oscillate from over optimism to over pessimism, from mass greed to mass fear, from over valuation to under valuation.

What is different now? Never before have there been so many computerized “black boxes” automating the market based on blind mathematical equations and momentum trends replacing human judgment and decision. Plus, only recent decades of computing advances enabled such a rapid and explosive growth of derivatives. So is this time different? Will the natural oscillation of the market be averted? Probably it won’t. It was said before: “Markets can be irrational longer than you can stay solvent.” Markets can be manipulated in the short term to reflect a distorted picture and computers may create sharper and faster shifts. Primary trends and natural laws may be suspended for only a brief time but cannot be stopped and cannot be changed. It’s difficult, but the best time to buy is when everyone is selling and the best time to sell is when all are buying.

© Aviv Shahar

Aviv Shahar :: Oct.10.2007 :: Money & Market Behavior :: No Comments »