Leaders need to "go to the source"

Having grown from being an analyst to a forecast team lead, I always used to think where to draw a line between micromanagement and delegation; then I came across the following article from WSJ and it cleared the mist

‘On April 30, associates who were gathered in a conference room handed Mr. Dimon summaries and analyses of the losses. But there were no details about the trades themselves. "I want to see the positions!" he barked, throwing down the papers, according to attendees. "Now! I want to see everything!"

When Mr. Dimon saw the numbers, these people say, he couldn't breathe.’

Seeing the data raw in addition to prechewed analysis can have enormous impact on perceptions. That's not to minimize the importance of analysis and interpretation. But when discontinuities defies the logic, nothing creates situational awareness faster than seeing with your own eyes what your experts are trying to synthesize. The raw ingredients are critical to success.

BUT is this micromanagement? You bet! There's difference between this kind of micromanagement and being a control freak. In the former, leaders want to see — and feel — what's going on with their own eyes and gut; they want to draw upon their own experiences and expertise. In the latter, they want a greater command of detail in order to tell people what to do. The best micromanagers go to the source, so they can see, listen, and understand better; the control freaks do it to remind people that they run the whole show.

Yes, there's something vaguely mistrustful and distrustful about insisting on a diet of raw data rather than a richly prepared presentation of analytics. The core message — that you want/need to see for yourself — may feel disempowering to some. But there's a fundamental difference between trusting your people and trusting their data.

May be there is a reason why great chefs visit the farms and markets that source their restaurants!!!

If confidence is the gasoline, then trust is the oil in the engine of Capitalism!

Being able to trust people might seem like a pleasant comfort, but economists are starting to believe that it’s rather more important than that. Trust is about more than whether you can leave your house unlocked; it is responsible for the difference between the richest countries and the poorest.

“If you take a broad enough definition of trust, then it would explain basically all the difference between the per capita income of the United States and Somalia,” ventures Steve Knack, a senior economist at the World Bank who has been studying the economics of trust for over a decade. (Any prices for computing - it’s 99% of the US economy!!)

“Virtually every commercial transaction has within itself an element of trust,” writes economist Kenneth Arrow, a Nobel laureate. When we deposit money in a bank, we trust that it’s safe. When a company orders goods, it trusts its counterpart to deliver them in good faith. Trust facilitates transactions because it saves the costs of monitoring and screening; it is an essential lubricant that greases the wheels of the economic system.

Since last two years, world clearly don’t trust the big banks and financial companies.

Trust is gone: there is no longer trust between counterparties in the financial system. The Fed has gone about as if the problem is a shortage of liquidity. That is not the basic problem. The basic problem for the markets is that uncertainty that the balance sheets of financial firms are credible. So even though the Fed has flooded the credit markets with cash, spreads haven’t budged because banks don’t know who is still solvent and who is not.

Bank lending won’t get going again until trust in the markets can be restored. Fighting a Great Depression era problem probably won’t help. More transparency, which means more write-downs and failures, is probably necessary if we’re going to get through this. Unfortunately, we’re still sailing in the opposite direction.

Importance of the feel good factor

I hope this explains why we might have a bumpy road to recovery ahead!!

Can't live without it, but can't live with it (in my portfolio).

The Internet Is Dead… well as an Investment.

I can spend the whole day on the Internet and it would be a day well spent. I can chat, listen to music, watch videos, study, trade stocks, play games, do work - all on the Internet and I believe that its true for almost everybody in my generation. But still when it comes to getting advertisements(revenues) on the Internet, even big names scramble to find a few.

To share a few stories: Microsoft has spent zillions on Internet strategy without a single ray of hope. Every other day Yahoo is closing some of its offering, today it was geocities. Even Google finds it difficult to introduce any other business model other than the one they stumbled upon when they bought Applied Semantics in 2001 that had a little piece of software called AdSense. Google's flagships- Gmail, Youtube, Orkut, Google Earth are all bleeding. Time Warner would rather keep their legacy old media businesses than hold onto one of the biggest Internet companies out there, AOL. News Corporation is shaking up its MySpace business as it figures out its next steps. And the new business in the block: Twitter and Facebook are still struggling for profits despite exponential usage growth

Don't just ask me. Ask the best – Warren Buffet. Nobody can figure out a business model.

Gone are the days of infinite margins, 1000% productivity gains, and growth of market throughout the universe. Internet companies are, at best, like utility companies albeit the only difference being that they get bought at about 10 times earnings and sold at 13 times earnings.

Let's face it. Electricity greatly improved our quality of life. But we are not going to get excited about buying a basket of utility companies. Now, the same applies to the the Internet. Can't live without it, but can't live with it (in my portfolio).

CDS riddle

It isn’t the housing market devaluation, or the sub-prime mortgage market defaults that have us in real trouble. Those are nice fakes to sway attention away from the place where greed truly flourished — trading phony instruments to the tune of $700 trillion.

Let’s figure how to get out from under that. Then maybe the capital will begin to flow again through the markets. Right now, this elephant isn’t just in the room, it’s sitting on us. Banks in Europe and the US face a new wave of losses linked to contracts issued to insure against companies going bust and defaulting on their loans, City analysts have warned. After the billions lost over the US subprime market and leveraged loans, investment banks such as Morgan Stanley, Deutsche Bank, Barclays, UBS and RBS face losses on credit default swaps (CDS) – contracts that allow an investor to be repaid if a company loan or a bond defaults. CDS contracts became a favourite tool of speculators, mostly hedge funds, which bought the contracts without having any link to the original lending. They bought the contract to trade or in the expectation the company would in fact default, meaning they could claim back the full value of a loan they never made.

The CDS market exploded to be worth as much as $50 TRILLION, many times the size of the underlying assets. Each loan could have thousands of protection contracts, even if there were only a few lenders. Hedge funds accounted for about 60% of CDS trading, according to ratings agency Fitch.

The reality of the situation is akin to a game of musical chairs — without any chairs. So now the music has finally stopped.