by Andrew White | October 31, 2014 | 2 Comments
I was at IBM’s Insights event in Las Vegas the week for a couple of days. Here are some of my perspectives of the event. I also compare and contrast to what I observed while attending SAP’s TechEd the week before.
Bottom line: IBM has stuck to its “big data and analytics” message for the last 2 or 3 years. In some ways this was a tad repetitive, or so it seemed for a while. The main keynote seemed to have that feeling of sameness about it. However there was a new message this year that emerged as day 1 progressed. That new message is that the offerings talked about in previous years are now here, available, and ready for use. In other words, IBM’s big data and analytics solutions are real and some of its vision has been realized. I did not see too much new innovation however…
Now for the details.
Client examples were sprinkled through the various keynotes, and customer stories always help convey the vendor messages. I particularly liked the Pratt and Whitney (Internet of Things evolving predictive maintenance) and Ceva Logistics (evolving use and exploitation of supply chain asset oriented analytics) stories. The key tips from Ceva were “do taxonomy first, and do information retention policy early”. Sage advice, for sure.
Another new emphasis on an old topic is that concerning IBM Watson. Throughout the first day there were several new product announcements, and several played on the commercial availability of IBM Watson-powered products. These represented the leading, innovative examples that were loosely described in previous years.
Like SAP the week before, IBM has had a silver bullet looking for a problem to solve. It seems IBM has done a little more homework than SAP, in my view, in this area. IBM’s Watson seems to have come of age while SAP’s HANA is still in high school. Several commercial solutions were demoed including Chef Watson, targeted at you and me and our creative culinary juices. There was another demo for IBM Watson specific to healthcare (Oncology). IBM emphasized how these were packaged and targeted at specific roles and use cases. Packaged solutions are what Swiss Army Knives, such as IBM Watson and Sap HANA, need to be meaningful to business users.
As I listened to the speakers through day 1, several cool metaphors or phrase resonated with me. One concerned a phrase to define an industry leader. The phrase was, “two moves for one“. That sounded cool. The point being that in the time and money your competitor takes to make a single move, as if on a chess board, your organization could execute two. This is a powerful message and one way bigger and broader than mere analytics. This conveys the fan-favorite, “plan, do, check, act” ( a slight nod to i2 Technology’s Sanjiv Sidhu).
The second cool idea was teased by Beth Smith, GM Information Management, in her divisions’ keynote. She got my heart racing with “liquid data layer” then she promptly let me down and cool, by not following up and exploring the idea. She mentioned it one more time, as a near afterthought, and that was it. I thought I was going to be made weak at the knees with a pitch about semantic governance or something. Bummer.
One odd thought came to me, that had a sports flavor. It happens to apply to IBM and SAP. The question was: Why does Big data produce so many one-time data innovations?
Another odd thought came to mind during the ECM keynote. It was this: Over 90 per cent of what Doug Hunt (GM, ECM) referred to actually related to structured data, not unstructured data. In truth, he was referring to examples oriented towards content, but content with some contextual structure applied. Once structured, content becomes information even if it is not physically stored in an relational database. Such information should be subject to the exact same information governance policies and practice as master data. And this ties into a recent blog of mine (see Is it too soon for unstructured data governance) on the issue.
Open questions, considerations and queries
In the main keynote IBM over emphasized analytics as if analytics alone would save or improve your business. There was very little to talk about information Management per se; there was talk of faster boxes, servers and stuff, but that’s the ‘easy’ part to talk about. Governance, quality, and trust in data, and information value, was not the priority for this event headlines.
Additionally IBM had a key slide that they failed to explore, explain or exploit. The slide emphasized how insight from analytics leads to action and a change in (business) outcome. They did not explore enough, for me, that change in action. It’s as if the focus was on the stop-lights, and it was assumed you, the driver, know how to drive. There was good use of case management, but again, that is a poor substitute for all business apps that are the vehicle controls we all use every day.
From queries to wrinkles
A wrinkle for me: “Markets of one are a stopover”. That did not resonate with me but this was said several times in the keynotes. Markets of one is a concept that should sit at the heart of a new digital business strategy. IBM was trying to outdo the concept with the suggestion that markets of one does not imply the ability to interact and even influence the market. This is not true other than IBM says it is. No one said a market of one was meant to exclude interaction or influence. IBM had good content but the message chosen to convey it didn’t work with me.
One final wrinkle and thought left me wanting more. After the conclusion of the divisional keynotes (corporate, business leaders, information management, ECM, and business analytics), I was left wondering this: Why didn’t IBM call out the market discontinuity by not having separate keynotes for info mgt, ECM, and analytics? All keynotes included a major focus on analytics. And though the opening keynote was a kind of overview, it too was heavily focused itself on analytics. I’d like to see a vendor break the mold and avoid silod keynotes and focus on a matrixed message and structure.
So wrapping up…
I tweeted quite early on day 1 that for me, “taxonomy was tops”. What I meant to say or mean was that the new world IBM is talking about really points to the validity, quality and meaningful use of my taxonomy versus your taxonomy. At the end of the day, if we are using content or information, dark or big data, streaming or in-memory data, if we can’t express the semantic meaning of the data, we are done. IBM did not really explore or explain how this brave, new data work will unfold. I know IBM has cool stuff going on and new products rolling out. But I didn’t see IBM with a visible, rounded, public road map showing how all the necessary tools converge to align, prioritize, then operationally govern key information artifacts across an organization, or firewall. We all know IBM can build almost anything (they have a big bag of tools and products) but they do not, as yet, seem to want to push this particular envelope yet. I accept that there are few, if any, real buyers for such a vision but I think it is on our collective horizon.
Category: Analytics Big Data Business Intelligence Dark Data IBM IBM Insights 2014 Information Management Information Organization Information Stewardship Information Strategy Tags:
by Andrew White | October 31, 2014 | 2 Comments
Making It Happen: RBS and the men who blew up the British Economy, Iain Martin, Simon and Schuster UK, 2013. After reading about numerous US organization’s that played a role in the financial crisis that preceded our economic crisis (Bear Stearns, Lehman, Washington Mutual, Amaranth, Merrill Lynch etc.), I really wanted some experience of the same relevancy but from the UK side. This was the only book I could find that seemed new and focused on a major bank (RBS). The book is readable, and in chronological order, and really focuses nicely on the men in suits that created the giant that was RBS. I didn’t realize until this book that at the time of its demise, RBS was the world’s largest bank by balance sheet, with almost $2 trillion on its books. Also the author catches nicely the spine twisting moment when RBS closes the ABN Amro deal, at exactly the moment when questions were being asked about the credit worthiness of the CDOs on its own books. Worse, ABN Amro had a balance sheet stuffed with the same things, and RBS had just paid top dollar for them. Chilling. The fault I have with the book is that it does not explain or describe enough the fall of RBS, and intricacies of its meltdown. It’s all a bit of a rush. The first 208 pages are all prelude, though with important narrative over its US adventures that opened up the core banks arteries to the toxic CDOs. The next 80 pages are the real ride. I really wanted a bit more about the events, and how the sweat must have been palpable in many important meetings. The details don’t quite live up to the depth in say, for example, Bear Trap or Colossal Failure of Common Sense. Due to lack of alternatives, this was an “ok” read. But the definitive UK-finance story seems yet to have been written. Somewhat recommended 5 out of 10.
Category: Economic History Economy RBS Royal Bank of Scotland Tags:
by Andrew White | October 24, 2014 | 4 Comments
I was enjoying an invigorating inquiry with and end-user client yesterday. The question on the table was this: why does the MDM hub, the place where the single source of truth (for master data) resides, need to be the place where we recognize, capture and govern the state of data? I felt this was an intriguing question. It immediately exposes for me one of the weaknesses of our collective information infrastructure and application landscapes; and also highlights an apparent fatal flaw in our current information systems design.
First the weakness: Even with all the talk of standards, protocols, and metadata, our information systems and applications deployed around our organizations do not, on the whole, get on well with each other. I don’t mean to say they do not or cannot be integrated. Many of our systems are integrated; that is very different to exploring the degree to which each system understands or respects the (information) needs of others (i.e. context). In fact, by design, we have compartmentalized context because that is how we do things. Using systems thinking we break things down into their smallest common components and assemble them into logical or meaningful groups. Thus the concept of application or app is explained is somewhat explained.
This will expose the flaw. A business application is meant to be a representation of how work should get done. Years ago these were monolithic beasts; now they are almost transient services assembled periodically, perhaps one day, on the fly. However, the very notion that we can predefine how work gets done leads to the idea that there is a boundary, and a boundary results in a semantic model that meets the needs of that which is bound. Thus we have many applications, and each with their own authority model over their own semantic landscape. We designed systems efficiently so that they did not have to worry or concern themselves with other application needs for the same information shared or “integrated” between them.
We are not going to solve this problem quickly, if at all. The fact that I said this was a “problem” is itself problematic; it may not be a real problem that needs to “solved”, whatever “solved” means.
Maybe we don’t need to solve the entire problem. In fact, Master Data Management (MDM) is a great case in point. One that should be brainstormed at the highest echelons of IT strategy. I say this, because MDM is at once a Trojan horse, and at the same time, a silver bullet. It is a Trojan horse because it is showing us that we DON”T actually need to govern, master, properly manage all the data in our business systems. We don’t need to because people are generally quite good at doing things, and coping with adversity. An effective MDM program helps an organization prioritize and effectively manage only what matters, and govern what gives back. Much data is fine, as is, in whatever state it finds itself. If we only govern the part of the information make-up that really, truly matters, good things will come, and the rest of the world will operate quite nicely, thank you very much. Another way to look at it might be this: we only need to exploit our master data slightly better than our nearest competitor…
MDM is also a silver bullet:
- It sounds so easy
- It’s not even that new as an idea (didn’t an Enterprise Data Warehouse do this anyway?)
- It’s a technology -can’t we just buy one?
- We can’t afford a massive cost , so is there an easy way to reconcile and manage this data, on the cheap?
MDM is not a technology. MDM is not easy. MDM is not cheap – but I don’t mean to say that it must cost you a $1M to acquire. I mean to say the mental energy (executive and non-executive) needed to understand what MDM is, and how to make it work for the organization, is not insignificant. The money you spend on “it” is the least of your worries. Truly understanding what makes MDM different to ERP, EDW, data integration, SOA, cloud, in-memory, is the real concern.
So back to the question: Yes, the MDM hub needs to play the role of the source of information state since the rest of your information infrastructure and application landscape is incapable of doing so for the benefit and information of others. This is a most interesting idea – one that sounds pretty dry, even IT’ish, but from a business perspective (note I have never worked in IT!) it is really quite interesting. One I wish more of us explored – ideally with a nice, cool libation in hand.
Category: Authority Model Information Lifecycle Master Data Master Data Lifecycle Master Data Management MDM Tags:
by Andrew White | October 24, 2014 | 2 Comments
Two articles in today’s print editions of the Financial Times and Wall Street journal call out the extreme debate raging beneath the malaise in the euro zone.
In an Opinion piece for the Financial Times (see Blame Berlin for bad policies, not reluctance to spend more), Otmar Issing (former ECB chief economist) suggests that calls on Germany to increase its spend (even deficit spending) to “promote growth”, are wrong and should be ignored. In fact the argument is that Germany is a model European country that has done well. As such it should not be dragged down like the less efficient states that today hamper growth.
In “France, Italy Take Their Austerity Fight to Brussels“, the Wall Street Journal reports on the politicking taking place before a summit set to review budget proposals for 2015. There are rules agreed that say a country cannot run a deficit larger than a specific percent of GDP. When a deficit is ran that is larger, the country can be fined (making things worse, of course). I don’t actually know or remember if any country has actually paid a fine but I do remember France, and even Germany, gave flagrantly ignored the rule in the past. However, the issue today is austerity (reduce deficit spending in at-risk economies) versus increased spending (in those same at-risk economies) to help grow the Euro zone out of it’s funk.
The fact is that Germany is a model economy, of sorts. The problem though is that Germany is able to account for its economic situation first and foremost and that is its “success” for which its politicians are elected, and Europe’s success and votes second. On the one hand the country is acting as a pillar of strength among weaker Euro partners; on the other hand Germany is not “mucking in” enough and jointly getting their hands dirty with real work needed. Germany, by being German (disciplined, managing within their means) saved the euro. But by staying German, that are letting their Euro neighbors struggle on their own.
And the real issue is the Euro structure itself. It is an incomplete federalist structure whereby Germany is able to count its economic and political condition separate from its euro neighbors. In the US federal model, there is a state level budget, equivalent to a country, but it takes secondary priority over the federal budget. There is an election, accountable to the people, for the head of the nation. In Europe it remains an incomplete model white few political, monetary, fiscal, and centralized powers like the US model. In Europe there is no federal gilt or bond market. The way debts are accounted for is not at the European or super-national level. The ECB cannot fund its work like the U.S. can. The banking system is not structured the same way. The federalists in Europe want more, as if an “all in” approach fixes the problems. In part, it would fix the fact that there is no unitary response framework for such situations. But more federalism would not, however, change the economic imbalances across the euro zone that actually created the mess in the first place. No amount of politicking will fix that. For now, let the politicians meet, eat their croissants and coffee in plush surroundings, print expensive bound and leathered documents and meeting minutes, while the unemployed sit patiently waiting for their unemployment check.
Category: European Central Bank (ECB) European Union Tags:
by Andrew White | October 23, 2014 | 2 Comments
I only offer a few new twists following on from yesterday’s at-length notes.
Listening to Irfan (CTO) again I will temper my concerns yesterday re his vision statement. I concede a point. Perhaps SAP has not driven totally new innovation, but SAP Hana SP09 does seem to represent a more rounded set of capability from a well established enterprise vendor. Yes, I would accept that. So not net new per se, but rounded.
Innovators Overshoot. I do think, more clearly now, that SAP needs some serious product strategy to determine how to monetize its innovation-enabling SAP Hana solution:
- Re-invent what it means to say, “ERP” (when you embed real-time analytics in an in-memory ERP system – ask the 1,450 Suite on Hana clients)
- Re-invent what information governance and interoperability such that cloud to cloud will become simpler than app to app. With no serious semantic-based response, its hard work
- New partnering program to support new ways to leverage HCP (I guess that’s obvious)
- Package up more of the one-off stories we keep hearing so they can be re sold (again, I think SAP is doing some of this)
I think of SAP Hana this way: imagine buying a souped-up, high-end gaming PC with 8 cores and 100 gig of memory, quad video cards each with 4 gig video memory. Then running Microsoft Word on it. It really opens up fast, and you can start typing really quickly. But we need new games and apps to leverage this new found power. We saw, this week, developers with zeal play with new toys. But beyond this, we need new reasons for being.
I’ll give you another example. Being an F1 fan I was impressed and in awe when I saw on stage at Sapphire, Ron Dennis of Mclaren. He and SAP were touting the power SAP Hana would bring to the ream in analyzing the telemetry streaming from their cars during each F1 race. All teams get the same data feeds. Only Mclaren had Hana. Only problem is, the team has not really altered its win rate on the track. So does this mean that the team users have not, as yet, figured out the new, next, innovative questions to ask of the data? The fastest calculator is not that useful if you keep asking the same old questions. I want to see Mclaren win. And I want to hear how SAP Hana made a difference.
Category: Information Innovation SAP SAP Hana SAP TechEd 2014 Tags:
by Andrew White | October 23, 2014 | 3 Comments
Creating the Data Governance Killer App, on Information Management, by Michele Goetz.
I don’t like to complain, and I don’t like the idea of being negative for it’s own sake. I would much prefer someone engage in a worthwhile substantive dialog. With that in mine I wanted to review a couple of key points from the article that I did not agree with. I hope my points come across. We all have a lot to learn, myself included. But it might help if we all started from the same foundation. I don’t intend to look for a war of words. But I passionately believe we tend to over complicate many things for no good reason. A colleague of mine shared an interestingly titled article from Forrester called, “Creating the data governance killer app.”
I read the opening paragraphs and realized that there is so much wrong in the article. Not wrong as in nefariously dangerous, but just plain ignorance over the grass root of the problem, and opportunity. Let me pick a few points.
1) The use of the term, “data governance” ‘ is all wrong. Data is everywhere. Since information is a smaller set of data that has some business context, we should be referring to information governance. From information we glean insight. Data should be maintained; information is what needs governance. “Data governance” is thus so 1990s and implies we need to govern all. We don’t. And you won’t turn a business person on with a pitch about ‘data’
2) “…resources are the data governance killer even in the face of organizations trying to take on enterprise lead data governance efforts.”
I don’t accept that. Resources are allocated by, mostly, rational executives keen to maximize a return. If governance efforts are not aligned to business relevancy, it will be perceived as an overhead, or a cost, and so the perspective shared will become self fulfilling. When information governance is aligned to real business value, resources are allocated.
3) “…data can only be governed when you have the right culture throughout the organization.” I don’t accept that. Information governance is not some magical, or Druid-based, or faith-based practice.
It is work that is done by the business, for the business. It is practical, hard to do, but valuable. We all govern our own information every day. When firms understand how to reduce and optimize the work of information governance, and align to business outcomes, magic may appear to happen. But please, don’t sell us down the river as if we have to wait for cultural change. We can make change follow our success.
4) “The point being, you need accountability with those that actually know something about the data, how it is used, and who feels the most pain.
That’s not IT, that’s not the data steward. It’s the customer care representative, the sales executive, the claims processor, the assessor, the CFO, and we can go on.” We have a problem, Houston. We are seeing this problem in spades. No one has any real idea what an information (not data!) steward is! Even the analysts don’t. The customer care representative, that represents all the customer care representatives in the work of enforcing information governance policy, IS the information steward. It is as if the author feels the role of information (not data!) steward resides in IT. Oh boy. We need to get up to date here.
5) “But, the path to sustainable effective data governance is data citizenship – where everyone is a data steward.” No, no, no. We don’t need everyone responsible for that. I am taken back to the 1980s when in factories up and down the land were encouraged to proclaim everyone is responsible for product quality. That’s just plainly obvious and at the same time not actionable. A subset of information workers (who isn’t one of these?) are information stewards. Some will be organized by function, department, data domain etc. They are recognized for the role they play; they are rewarded for their efforts and accountable to the governance board for effective work execution.
6) “So, we have to strike the right balance between automation, manual governance, and scale.” Finally something I can agree with, in part. It is a trade off in the work of information governance (policy setting, maintenance, and management) and information stewardship (policy enforcement). We need to automate more than we do today in order to operationalise the work.
7) “Ultimately, business users want access to the data to use the data.
Why slow them down with data governance?” Back to normal: I disagree. The work of IG should be designed to work at the rate the business wants to operate. Who ever said that it should be slower?
My last point: There was not reference to the real information governance killer app. I know we would all agree that the work of information governance is about people and process, not technology. But there is ample room for technology to help us here.
Category: Data Governance Data Stewardship Forrester Information Governance Information Stewardship Tags:
by Andrew White | October 21, 2014 | 4 Comments
Please note that I was once a user of ERP and supply chain planning applications (never having worked in IT); and also a software vendor selling SCP solutions that integrated to many different ERP systems; and then a Gartner analyst covering SCM/SCP. For the last 5 years I have focused on information trust and governance, and MDM. Thus I used to have a great appreciation for SAP Sapphire keynotes and messages, positioned as they were, to business application innovation. I have been “away” from apps for a long time and so my understanding of apps, what they do, what the need, has changed. I suppose I am now a data guy; and perhaps focused on the weeds.
I’ve been going to Sapphire for a number of years. I have gone to TechEd when I was unable, in that year, to get to Sapphire. 2014 was one of those years. TechEd attendees tend to be a little more detailed, even “developer” level, though the actual keynotes tend to capture the highlights from Sapphire. Here are a few observations from my first day attending. The first is my main “take away” so far – followed by some more “official” perspectives we were guided to hear.
My Main Take Away: SAP Needs Repeatable Customer Problems for SAP Hana to Grow
Keynotes, Monday evening and Tuesday morning, were chock full of end user customer driven innovation stories using SAP Hana. Any software vendor would be proud to sport so many new, different and innovative case studies. Now the bad news: every one of the stories, showing off the power of SAP Hana, was a unique exploration into what can happen when you have almost unfettered processing power that describes the difference between on-disk and in-memory processing.
In the keynotes, 1-1’s and executive panels I was grabbed by a feeling of a vendor looking for end-user client problems to solve. It is as if the Innovators Overshoot has struck. I remember an SAP Sapphire keynote, a few years ago now, where Hasso Platner shared his vision for a new concept, then unveiled as SAP Hana. Within a few moments my fingers were typing into my iPhone. I didn’t text to my Gartner peers about real-time analytics (that was just too obvious); I emailed my supply chain and apps peers and said that SAP had just announced to the world the reinvention of business applications, and specifically S&OP as a good example. However it then took SAP three more years to figure out how S&OP should be designed to take advantage of SAP Hana. Why did it take them so long?
The exciting capability that is in-memory computing can radically speed up current business process and the supported applications. That same power of in-memory processing can also create an opportunity to reinvent an entirely new process. With such power, why would we not reinvent what we have? We should be able to do things completely differently, if we had fewer limitations, yes?
But why bother? And when do you bother? If you are making enough money, do you spend cycles reinventing yourself? Do you wait until the signs are that your competition is renewing? I think SAP is stuck in this paradox. They have an innovating technology that has few, burning-platform drivers to satisfy and too many opportunity-drivers to discover. This would not be bad for a small start-up, but it could be a killer for a software behemoth with a big belly to feed, and now.
So SAP is in search of business opportunities with credible or demonstrated value.
Now for the more official-like messages I saw emphasized today.
Co-innovation. This was Björn Goerke (Executive Vice President and Corporate Officer, SAP Product & Innovation), message. It was good, and aligned to SAPs new position. No longer the work horse ERP provider, and no longer the best of breed slayer or purveyor, but now the partner that brings innovation capability to build on and build out from that large investment in ERP that provides solid data. I felt this was a frank and fair message. SAP needs you, and now.
Openness: This was Steve “Open” Lucas’s message. Building on the platform and out to the network, Steve emphasized the new culture and new approach to openness that SAP is adopting. He explicitly suggested competitors would be sought to build on SAP Hana. There was talk of the SAP Hana Cloud Platform that will use Java (where did all the ABAP go?). I get the message though this is not a new one from SAP. I myself have been party to “partner” agreements with SAP in years past, albeit under different climate and time. I have seen other vendors “partner” in more recent times. I am not yet convinced the worm has turned, quite. It might happen…
Technology visionary again: This was Irfan Khan (CTO global customer delivery (ex CTO Sybase) message. In fact he said, “SAP is reclaiming its position as technology visionary”. I think that is the kind of thing analysts might say, not what I would expect from a visionary. A visionary should paint his picture and observers should exclaim the wonderment of the vision. I think Khan is a very strong and marketable executive, but to suggest SAP as a whole has shared. information around a new technology vision didn’t ring true for me yet. SAP Hana is a pretty cool technology and enabling platform. So now let me now contradict myself.
One of the demos in Tuesday’s keynote concerned the design, versioning, deployment of an app to client server, then native mobile platform. I tweeted that this was tantalizing. And yes, it worked on stage, live. It showed that a developer could, with some ease, go from concept to deployment, even mobile deployment, in relatively easy steps. Some few years ago though, the SAP’s first ever NetWeaver analyst day, there was a similar demo (less the mobile part). The demo was much more polished this time; the tools looked more stable- even real. And NetWeaver is no more anyway, even if the Net and the Weaver are now part of the fabric of Hana’s dress.
So here we are. SAP Hana is powerful innovation enabling capability, lacking customers with defined problems to solve. About 1,450 end user clients are running their SAP business suite on SAP Hana. Cloud has been added as a platform deployment option; openness is being adopted; application lifecycle management demonstrated. Does the amalgamation of these parts lead to technology visionary status? It is a good story. But it’s been out there for a while, in parts.
I would wrap up day 1 on a positive note though. SAP has now mastered how to explain what SAP Hana is. It can clearly demonstrate, with real world, even life-saving examples, some of its capability. It seems geared to say all the things a vendor needs to say to convince the wider market it can be an enabler of an organizations innovation platform. The bad news? It needs, desperately, a product strategy to monetize its new found clarity in vision (not new vision but stabilized, rounded) before its competition can come up with an effective SAP Hana alternative or blocking strategy.
Category: In-Memory Computing Innovation Innovation Overshoot SAP SAP Hana SAP TechEd 2014 Tags:
by Andrew White | October 17, 2014 | 2 Comments
I was dismayed after reading two articles. One in yesterday’s US print edition of the Financial Times, the other from today’s Wall Street Journal.
Bank of Canada turns sceptical on forward guidance
The Bank of Canada was an early adopter and pioneer of “forward guidance”. This practice has become popular with central banks around the world. The last head of the Canadian central bank took the same job recently with the Bank of England. Forward guidance is the practice of sharing with the market and public at large the expectations of the future by the central bank. Such guidance typically focuses on the future timing and scale of changes interest rates. The idea is that by exposing such “forward guidance”, the market would be less exposed to sudden shocks. In the past a central bank might have changed interest rates with little warning. Markets tend to over react to shocks.
An article in yesterday’s Financial Times, called “Bank of Canada turns sceptical on forward guidance“, reported that the current head of the central bank thinks such practices are best saved for times of crisis. The article goes on to suggest that Stephen Poloz, Governor of the Bank of Canada, argues that there is too much uncertainty to make the effort worthwhile. Excuse me? That is exactly why forward guidance should be used! In times of certainty we don’t need such help. Honestly, you can’t make this stuff up. Most central banks have elaborate; if outdated and very manual, data gathering processes and data analysis teams crunching numbers all the time. If these guys can’t get their act together, who can? It is because of the very same uncertainty Mr. Poloz refers that we need his best guesses. Maybe we need more forward guidance on his own confidence in his own data. That might help us all hedge….
Jack Lew, Investment Killer
In an article in today’s US print edition of the Wall Street Journal, an Option piece (Jack Lew, Investment Kill) shows just how messed up the current US administration is with what drives growth in our economy. The tax rule changes invigorated by the Treasury Secretary will actually slow investment in US by reducing the motivation of rational firms to repatriate their profits from overseas enterprise. I think the situation is actually laughable. I really can’t fathom why we put up with this madness. The US, as the Opinion piece mentions, is one of the few developed nations that double taxes profits from overseas operations. That should be stopped, not enhanced. Our leaders, our policy makers, are completely out of touch with how rational firms operate, and how organizations compete. They think they can do better. Oh, hang on, we have heard that line before…
Category: Corporate Inversion Forward Guidance Interest Rates Tags:
by Andrew White | October 16, 2014 | 3 Comments
I spied two articles recently that caught my eye. One was an Opinion piece calling for unbridled market driven economic growth (and a withdrawal from crony-centric, big government based socialism. The other concerns capital flows. The two topics and articles are related.
Behind the Global Growth Slowdown
In yesterday’s US print edition of the Wall Street Journal, Brian Wesbury (Chief Economist at First Trust Advisors, LP) derailed an Opinion piece a call to arms. Enough, already, of the centralist “we know better” government guided economy. In fact he highlights some interesting data. The Euro zone is led by governments with some of the highest public spending, as a percentage of GDP. The US in contrast has lower public spending. Mr. Wesbury highlights the crowding out effect of public spending over private. He states the obvious, derided by socialists, that it is the private sector that creates wealth; public sector tends to re-distribute, not generate.
The world needs different ways of taming capital flows
The second article was from the US print edition of Friday’s (October 10th) Financial Times. It too was a “Comment” piece, by Paul Tucker, a former deputy governor of the Bank of England, and senior fellow at Harvard university). His piece looked at how capital flows follow trade patterns and so grease the wheels of growth and progress. During periods like the gold standard and Bretton Woods, capital flows were closely monitored and even controlled, to help preserve exchange rate differentials and so support the idea of stable prices. Today capital flows are much freer to hunt for margin in near real time, almost globally. He also suggests that it is not just capital flow that define a nation’s place in the economic growth league tables, but the composition of its state balance sheet. Too much short-term debt, compared to its trading partners, could create an opportunity for capital flow. This then reinforces the imbalance that then only gets worse. Eventually something breaks. The challenge is perhaps well captured with “when cyclical or event based conditions become structural or long term conditions”.
The answer is not to control capital movements. That would slow down the cycle of investment and curtail organic growth and natural re-balancing processes. What the world needs now is a new Bretton Woods agreement, a Bretton Woods II, if you will. It needs some serious advanced and developing national collaboration focused on monitoring global imbalances and orchestrating the re-balancing of same. Such countries that need to work together include:
- United States
- Germany, representing the Euro, with French and Italian participation
This would be the first tier of collaboration. Other nations would play a smaller role in following this Bretton Woods II lead. Post Bretton Woods gave rise to the World Bank and the IMF. These organizations are doing a reasonable job of monitoring financial and economic events, but they have no executive authority and nor are the leading nations of the world taking heed of the advice being offered. We need action, not more reports.
The goal is not to establish capital controls. The goal is to work with the IMF and others to monitor and reduce global trade imbalances where possible, and/or manage the result re-balancing of financial reserves that results. This is not about saving the dollar’s status as reserve currency – it is about saving the global economy. I now can finally glean some of the understanding Keynes must have worked through as he was seen, by America’s Harry Dexter White, as someone trying to save the pound.
Category: Bretton Woods GDP Global Economy Global Trade Globalization Tags:
by Andrew White | October 14, 2014 | 3 Comments
America, Britain and the period of Empire
Gideon Rachman, of the Financial Times, offers up a salutary “Comment” in today’s US print edition regarding the eerily similar situation the US finds itself compared to the British Empire around 1920’s. Specifically the correlation follows in terms of political will (or lack thereof), financial weakening, and regional conflict in roughly similar areas around the world (Ukraine, Afghanistan, and Iraq). His point being that there are lessons to learn from recent experience. It’s a good, if too short, explanation for the comparisons.
The main warning however is in his conclusion. As Britain’s hold on empire was waning and its ability to promote order around the world weakened, the world drifted toward greater instability. The drift toward greater unrest could hardly be prevented and soon enough, events too the world toward a Second World War. Rachmans’s warning is clear. The good news, not explored in his Commentary, is that the failings of the two ‘Empires’ are similar, but current conditions are not as dire as they were for Britain back then. The US can keep printing money; there is no natural “replacement” for the dollar; and better yet, all other developed and developing nations have their own imbalances to worry about. For Britain, Germany was already challenging global trade dominance and the US was just waking up and getting ready to take over the role of worlds’ creditor.
We do need, however, to remain watchful. China is a key red flag. Indolent smaller offspring too, like North Korea, may yet sap the patience of its peers. The biggest risk we face, perhaps, is deflation….
Bernanke’s failed mortgage application exposes the flaw in banking
In another FT “Comment”, Amir Sufi (co author of House of Debt, and professor of finance at the university of Chicago Booth School of Business) highlights a fascinating irony on the news that Ben Bernanke, ex-head of the Federal Reserve, had his application for a mortgage refinancing turned down.
In 1983 Bernanke was doing research into the Great Depression and determined the greatest value banks play is winnowing out good borrowers from bad borrowers. It was for this primary reason that he concluded that banks should be saved, since their demise would denude the market if this key function. So it is ironic that even today banks are not smart enough to spot his potential worth. He can command up to $250,000 per speech!
Sufi highlights what banks really are: they are not, he supposes, efficient information gatherers and processors. The conclusion is that political mental models are all wrong and out of date. And clearly banks need to get their act together.
Student of Big Firms’ Behavior Wins Nobel
In today’s US print edition of the Wall Street Journal there was coverage of the Nobel Prize for Economics that was awarded to French economist Jean Tirole, for his research into how large firms compete and how regulators may understand that basis and influence it. In a nutshell the research looks at information asymmetry.
This fascinating party-topic explores how different sides of an information exchange can perceive each other’s views differently, merely on the pretense that each side does not have the same data or perception capability even if they did have the same data. Information asymmetry goes to the heart of trade, competition, collaboration, and information theory.
Category: American Empire Banking Banking Regulation British Empire Information Asymmetry Information Sharing Information Theory Information Trust Tags: