Personal Inspirations

If you haven't already seen it, take a few minutes to look at Carnegie Mellon computer science professor's now famous "last lecture." Here's a man that is leaving life with elegance, courage and a sense of purpose. It's in the lives of "ordinary", extraordinary people that I'm finding the biggest sources of inspiration these days.

Another example: a friend of mine left a Wall Street position for military service after 9/11 because he thought it was the right thing to do. He completed his service and at the same time set up a charity called "Give to the World", which uses US troops to get basic supplies in to war torn areas where humanitarian organizations are unable to reach. This is worth checking out as well. My favorite quote from one of the founders is this: "Someone once said to me, 'you can’t save the world.' Hopefully one day, no one will ever believe a word of it."

Hong Kong

A semi-sovereign state now administered by the Chinese government, Hong Kong gives the appearance of an entirely different country from China itself: Chinese by ethnicity and culture, to be sure, but very different from the mainland. The city will be more familiar to westerners, though I would not describe it as western per se. This is a truely international city. While I was there, I saw plenty of British, Japanese, some Americans, French, Indians, and of course the majority Chinese population. The city is lit by neon and dominated by tall buildings, both offices and apartments with awesome views.





This is a mature economy. Sometimes Hong Kong is more reminiscent of parts of Tokyo, than Shanghai. Hong Kong continues to seek immigrants "of quality", which I take to mean professionals. The residents are clearly wealthy by world standards or in fact by American or European standards. The main economic driver is in finance, though retail and shipping are visible as well. A night time cab ride wound up behind two different Ferraris in 20 minutes. Hong Kong is certainly suggestive of the level of economic development that major Chinese cities will reach in time.

Hong Kong, of course, maintains it's own financial system (though currency is issued by private banks: my Hong Kong dollars were issued by HSBC). The Hong Kong stock market is highly successful. In fact, Hong Kong seems to be almost a pure capitalist system. Like the Chinese cities I visited, Hong Kong felt utterly safe. It also seems like a very attractive place to live and work. I can't think of a better location for sampling authentic foods from around the world, night after night.

Beijing

A note from the seat of the central government. Beijing is more interesting from a tourist perspective than Shanghai, though I have only been able to see things from a taxi en route to meetings. The buildings in Beijing are different: the layout is typically large and low, with buildings occupying a whole city block. The city has a feel of strong growth as well, but more planned and orderly. The feeling is less international and more distinctly Chinese. The air in Beijing was decidedly cleaner than Shanghai.

Private business is everywhere, but so are government offices. The government employees I met were extraordinarily smart, serious, but also very friendly. I saw little difference in form or function from what you might expect in the US. The more I travel, the more I learn that despite our differences, people everywhere are people: same basic concerns, same basic desires, not always the same perspectives on everything.

The food in China is amazing. Two evenings ago, I had traditional peking duck from a hickory wood fired oven. Most of the food I've had has been delicious, but the duck was just awesome.

As you drive by Tiananmen Square, you can see the new opera house, which is set to open shortly. Opposite the square is the smiling portrait of a benevolent looking Chairman Mao. The city is also a city of contrasts: as you drive past Mao, you also drive past a mini-Rodeo drive, replete with shops for Swiss watch brands that routinely sell for over 20,000 USD. Another striking statement on how much things have changed here.

The red government buildings are another study in how things have changed: does the red represent communism or prosperity and good fortune? Both or neither?

I write from Hong Kong, now administered by the Chinese government, yet under a completely different system. I have talked with Hong Kong natives who describe the arrangement as a family reunion, where earlier concerns have largely been put to rest. Again, not what I might have expected as an outsider and the different systems are another interesting contrast in China.

The excitement over the olympics is infectious. I picked up some souvenirs for the 2008 games at the airport. I have never traveled to the olympics before, but being in Beijing during the games may be worth the effort.

Shanghai

I just wrapped up a week long business tour in Shanghai, where I had the opportunity to meet with executives at MNCs doing business in China. Fantastic experience and I'll try to share some thoughts on this in a follow-up note. Just a few quick observations now.

It's difficult to describe the explosive growth and the level of investment that is happening here: I have not personally experienced anything comparable.

I did not know what to expect when I came here and my number one takeaway from the trip is this: you have to come to China to begin to understand what it is like here and to have any clue about what is happening here. I can say frankly that reading the western press does not prepare you for the experience at all.

The Chinese people are open and frank, as are westerners living here. The presence of European shops and the ubiquity of American and European brands was surprising. Retail business is huge here, and families appear to be always out and always shopping. Prices vary dramatically, depending on where you shop. A full dinner (and a couple of beers) at a popular Shanghainese restaurant topped out at 6 USD. On the other hand, a tall cup of Starbucks coffee was nearly 4 USD! There is clearly wealth asymmetry. Workers live in small and old apartments. On the other hand, nice Western style apartments appear to cost on par with Manhattan.

When you talk to the Chinese about how the country is governed, they talk about understanding the Chinese government in terms of Confucius, not communism. The people are fiercely proud of the success here and the middle class and business class seems very supportive of the government. I got no sense that this was anything but honest: in fact, Chinese were also quite willing to make critical comments on specific issues and openly acknowledge problems they face.

The best and brightest are said to go into government here. One executive compared the party education as on par with top MBA programs worldwide and emphasized that the leaders are thoroughly schooled in liberal economics.

There is a very strong entrepreneurial spirit here. I have talked with small business owners as well, some of whom fled China, then Hong Kong, only to return to live in Shanghai.

An amazing place. And I think it's fair to say that this is only the start of China's resurgence.

Marketing for Dummies

Having a platform for multiple consumer products is a marketers dream, especially if it can give effective differentiation with economies of scale in production. The danger of course is that the differentiation is not strong enough to prevent the lower margin product lines from cannibalizing higher margin products. Of course, the challenge is to make sure that all products are attractive to at least some segment of buyers. Wharton runs all MBA students through a great multi-period market simulation that really drives this home.

The ability to exploit a platform is why the iPod Touch was inevitable. On its face, it looks like one of the best moves Apple has ever made. But when you look at what they didn't include, the picture changes: no email client, no microphone, no bluetooth. Think about that for a moment: an Internet device without email. Wow. I'd say that it's not really an Internet device after all, just an incremental feature on the iPod.

Folks, people buy the iPhone because it is a phone. People won't buy this in lieu of a phone. People will buy the iPod Touch because it looks like the Internet device it isn't and because the last generation of iPods break too easily. Hopefully, the next iteration will get it right, because I know a lot of people that want the device that they are marketing but not selling, myself included.

Eternal Life

I was saddened to see the news that Luciano Pavarotti passed. There is nothing like the human voice as a musical instrument, though only a handful of singers have the capability of moving a crowd to tears by virtue of their natural gifts.

I have little hope for a life after death. But some people will live forever, or at least as long as civilization lasts. Pavarotti is one of them.

Becoming human

BecomingHuman.org is a web-based presentation on paleoanthropology. It is a great example of how interactive multimedia can be a much better learning tool than television. Of course, this also requires active engagement on the part of the user, which makes the target audience necessarily smaller. If every university department produced one introductory resource like this, the world would be a much richer place.

Edwin Khodabakchian's new blog

I wanted to point people to Edwin Khodabakchian's new blog. Edwin was the CEO of Collaxa when it was sold to Oracle back a few years: he and his team built out the first commercial BPEL implementation, which is widely recognized as being the best of breed product for service orchestration and process management. He's up to some cool, new stuff (more on that soon): this will be one of the "must subscribe" feeds in the tech field. Edwin has a unique way of looking at product development: he's one of the few people that are able to consistently blend simplicity and beauty in a software product.

Service Platforms and SOA Enablement

Demed L'Her and I wrote an article for SOA World that discusses how service platforms are emerging as key enablers for SOA. This is one of the more important trends in application integration. Demed is a Product Manager at Oracle responsible for a range of integration technologies; he's been doing a ton of work in Oracle Fusion Middleware. He's also a nice guy.

William Vambenepe joins Oracle

I'm pleased to report (or rather point to a reportrx) that William Vambenepe has joined Oracle to work in the enterprise management and SOA spaces. I worked with William a bit back at HP middleware and followed his work in the management standards space for some time; I think everyone that's worked with him is impressed by both his professionalism and smarts. It's great to see the talent inflow at Oracle continues.

Money for Nothing and Checks for Free

If you want to understand a bit more about what is happening in the markets, I highly recommend the IMF working paper "Money for Nothing and Checks for Free". If you are pressed for time, take a look at the graphic summaries throughout the paper.

Two things strike me in all of this:

1) The leveraged positions on some of these investments (in particular in hedge funds) on securities is almost an inversion of the historical norm of banks with required asset reserves for loans. The fact that these securities were not only over-valued but in some cases are unable to be valued is alarming

2) The subprime loan segment just blossomed a few years back as the economy was coming out of a recession via a major injection of money for the central bank (of course depressing interest rates); after today's rate cut, it's unclear that what Fed policy is going to look like. Could this mean things are really that bad? Obviously the equity markets didn't think so.

PS: Mauro Guillen of the Wharton School pointed me to this paper.

Oracle Coherence 3.3 released

In short order, the Oracle folks in Boston have gotten a new release of Coherence data grid software out the door. I expect that we'll see a very broad footprint for the Coherence software, both in Oracle software and with customer deployments across industries. There's a good computerworld article that discusses this in more depth.

What's the deal with Hedge Funds?

I got some recent questions from friends on how hedge funds work. There is no real answer to this question, so I thought I'd take a stab at explaining why that is. Over the weekend, I was looking around for good articles on hedge funds: somewhat to my surprise, I found that the finance information on wikipedia is not bad (to the extent it is up to date). The article on hedge funds is here.

Many people are surprised to find that many hedge funds don't actually hedge at all. Hedging is a strategy used to buffer against losses; in some sense, a diversified portfolio "hedges" against risk that can be diversified. Hedge funds often do something a bit different: they are looking to hedge against broad market risk, particularly in equity positions. But this too is somewhat misleading: some hedge funds take no equity positions at all. What really characterizes a hedge fund is that the fund is structured to avoid regulation, not its investment strategy.

Typically (as in the referenced article) you'll see that funds are targeted toward accredited investors. This is an allusion to securities regulations. Terms like "seasoned" and "accredited" basically signal that the investor has either savvy or money or both. Securities regulations allow private funds to escape many of the regulatory requirements by selling securities to accredited investors. These investors use their own judgment to determine if the risk in the fund is acceptable. Of course, they expect high returns and are willing to pay out high management fees for those returns. How the fund invests is specific to the fund and fund managers, not to "hedge funds" as a category. Hedge funds are never exempt from anti-fraud provisions of security regulations.

As you might imagine, this has all the hot button issues for controversy: "unregulated", "rich investors", "rich management", "opaque strategies". Hedge funds have been around for a long time. But let's be honest. These funds are putting a lot of pressure for efficiencies on a large scale and that has both good and bad results. As a category, it makes little sense to me to insist on special regulations or caps on management fees. Personally, I wouldn't lose sleep over hedge funds: they aren't new and they aren't sinister. Mostly they are risky bets that have the potential for big payoffs. In some cases, there are really well run funds that deserve a lot of credit. In other cases, they are disasters waiting to happen.

Bernanke versus Cramer

BusinessWeek has a good overview on how Bernanke is managing the money supply: tightening (but not tight) monetary policy to carefully control inflation. The recent OMC injection looks set to maintain existing target rates, which is a lot different than what folks caught in bad investment strategies, esp. around fixed income or housing, may want to see. This is in many ways contrary to what has been the dominant fed policy, esp. through the Greenspan years. Is this the right policy now? Well, we'll know soon enough. One of the key problems with managing the money supply to actively manage business cycles is this: different industries experience different conditions; a one size policy only makes sense under relatively uniform conditions. Mortgages and housing are awful right now, but the fallout hasn't generalized in a way one might have expected. It seems to me that the fed is being prudent at the moment. In fact, cutting rates could up long term inflation, which would drive housing problems into a worsening state.

Capital market credit crunch

I've had a bunch of friends asking me about what is going on in the capital markets over the last few days. If you have a wsj.com subscription or can get access to one, there was a very good article on how we got into the current credit market mess. Definitely worth a read.

As usual, there isn't only one element that bears the blame: much of this is a fall out of fed actions dating back to Greenspan's easy money policies after 2001; part of it is desperation for higher yields through fancy and often opaque securities that few purchasers really understand; part is the fact that hedge funds are able to avoid many securities regulations; and part is of course just short-sightedness. It is very hard to say what the ripple effects will be: my own take is that it would be very prudent to make sure you're not carrying variable rate debt and consider using a no-risk interest bearing vehicle for a chunk of liquid capital (the latter is what the CAPM would suggest anyway).

There also seems to be a lot of interest in hedge funds. I'll follow-up this weekend with a brief explanation of US securities laws and how a hedge fund avoids a lot of regulation.

Doing good, again

A friend of mine founded an innovative non-profit, which helps to supply essential supplies to areas that are currently torn by war. It's called Give to the World, and worth checking out.

Jim Gray life and rescue

Via Mark, a nice article on Jim Gray. Well worth the read.

Doing good

DonorsChoose.org is an innovative program where teachers in underfunded schools can get support for educational projects. This is something that can really help kids in need in the US. Check out the site and if you are an Amex card holder, consider voting for them in the American Express Members Project final round: it only takes a couple of minutes and they stand to win $5 million to help out school kids.

Favorite "Blog"

Time is our most scarce resource. Due to this fact, I have a hit or miss record with keeping up with blogs. One of my favorite "blogs" that I try not to miss is the Expat Life journal kept by Alan Paul, an American expat in China. I am not sure if you require a subscription to read this or not, but I'm linking to the latest discussion of his Chinese language instructor's decision to become a Buddhist monk. It's worth reading (if you can) as a matter of pure interest: http://online.wsj.com/article/SB118483378755971491.html?mod=hps_us_inside_today

I will try to follow up with some thoughts on Buddhism, ethics and theism when I have some more time. I recently finished reading two books by the Dalai Lama (which obviously reflect the Tibetan take on Buddhism) so this topic has been on my mind a lot recently, but have been thinking more broadly about Buddhist teachings for several years. I do not consider myself a Buddhist, but I do think this is an important "religion" to understand and I'll try to explain some of the implications that may be of interest to Western readers. I put religion in quotes as most Western religions are theistic: I consider Buddhism a very interesting and important school of philosophy and ethics, from which there is a much to learn.

Of interest to engineers

The subject of responsibility and professional ethics is a hot topic in business. It is also a key and sometimes under-appreciated aspect of engineering. A great case study in engineering ethics can be found in Joe Morgenstern's 1995 New Yorker article "The Fifty-Nine Story Crisis." Yes, engineers have responsibilities to make things right.

On the topic of engineering, I am continually impressed with the engineering ingenuity involved with mechanical watches. I wish every software developer thought like a watch designer: efficiency, size, and reliability are permanent constraints on feature development. For some wonderful examples of modern engineering, see two (commercial) overviews of recent work done by Jaeger LeCoultre: the ingenious gyrotourbillon and the revolutionary master compressor LAB.