Category Archives: Business

Lets All take a Deep Breath and Stop the Hyper-Analysis

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Could it be that we Americans are over reacting to the problems in the market? The market is very much a collaborative structure resting heavily on trust in the power of the vast American economic engine. What we are witnessing right now is the multichannel, speed-of-light, propagation of panic through the miracle of electronic communication. Wagging tongues and chin music from our esteemed news commentators as well as we, the blogging community, are only fanning the fire of panic. The USA is on the verge of freaking itself into an economic collapse.

We don’t need additional and more concise descriptions of the foolishness of the players. That’s been done. I participated in this too. Ascerbic wit and biting rhetoric needs to be turned to constructive service. The first thing that we can do as bloggers citizens is to tone down the negative buzz and quit getting each other twittered. It serves no purpose and is counter-productive.

Citizens need to start asking constructive questions and make suggestions to all who will listen on how best to minimize panic and the damage it will cause to our economy. We need to take some time from blogging to focus on communicating with our friends and colleagues and members of congress to keep a steady hand in the coming months.

We also need to start asking about the details of the financial mess. Of the “bad mortgages” we hear about, how many are actually in default vs how many are just in the category of subprime? Are the banks possibly exaggerating the size of the losses? If banks are over extended in their loans, what fraction of their subprime loans are still in good graces? In other words, exactly how is the bad debt manifested? What is the true magnitude of the thing? How many mechanisms are available to bring this thing to a survivable landing?

It is not unheard of for a company to write off as much loss as it can if it is inevitable that it must report losses. An MBA friend pointed this out to me. He worked for a semiconductor firm whose habit was to maximize the losses if it could not avoid reporting a loss. They’d throw some of the ugly furniture overboard with the trash to clean house. To what extent is this happening now?

Maybe we can raise the bar a bit by helping to ask better questions. The best questions get the best answers.

A Life in Industrial Science

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There are many ways to live a scientific life in chemistry. The obvious examples are the lives of chemistry faculty. A chemistry prof’s time is split between teaching, managing a research group, grant writing, committees, giving seminars, academic advising and, oh yes, a home life. 

In industry, the life of a scientist can be split between several layers of applied research, management of a budget and directly reporting staff, occasional patent work, meetings, writing reports, and if there is a spare minute, leafing through a journal.

I could have never anticipated the job description that I now hold. The specifics aren’t important for the purpose of this essay. What I want to describe is the extent to which I am constantly juggling numerous diverse, often intractable, open-ended tasks. It dawned on me recently that my job description sets me up for a career of dealing with thorny problems that few want and could or would handle.

Is this shameless self-admiration? No, it’s really a kind of lamentation. It would be nice to do something straightforward now and then. I used to do the advertising. Then we got back the C&EN survey results. I don’t do the advertising anymore. I’d like to meet a few of those rotten commenters … \;-)

Because I share office space with the accounting group, I have the chance to lunch and banter with the bean counters. It doesn’t take long to realize that theirs is a life of well defined tasks with built in cross-checks and monthly cycles. These accountants have their work cut to size and funneled to them by highly formalized and structured norms. Their job is to enforce consistency and eliminate surprises. They express discomfort and fear near the boundaries of their knowledge.

In contrast, scientists are people who seek out the boundary waters of knowledge and actually set up camp there. A scientist is someone who finds a way to acclimate to a life of uncertainty. A scientist knows that ignorance and uncertainty can be ground down with hard work and a bit of luck. Luckily for me, dogged persistance can partially make up for the lack of genius.

But despite the high minded platitudes about the endeavor of science, I’ve come to appreciate washing glassware and cobbling together a plumbing solution to a problem with an apparatus exactly because it is so concrete. Unlike molecules, I can actually see the results of my plumbing handiwork of compression fittings, steel tubes, and rubber hose. Sometimes it is nice to leave the abstract behind and make something simple but sturdy.

Ike and Gus

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Hurricanes Ike and Gustav have disrupted the ebb and flow of hydrocarbons out of the US gulf coast. Lots of plant shut downs and supply chain interruptions for those in the petrochemical supply chain. It really plays havoc with just-in-time delivery of raw materials. The jabbering masses whining about gasoline prices are insulated from the real magnitude of what a hurricane and a banking catastrophy can do to their supply of hydrocarbyl necessities.  It’s like the food web, only you can’t eat it. It’s the petroleum web of commerce.

The banking fiasco is unlikely to directly harm the chemical industry other than spot problems due to the unavailability of cash to borrow for big projects. The bigger problem for the chemical industry lies on the demand side. If money isn’t available for consumers to borrow to energize the construction, automotive, machinery, and durable goods industries, the polymers and coatings supply chain will see a slow down. This will affect the specialty value-added companies as well as basic feedstock suppliers.

Pharma could be hurt if there is a big uptick in people who lose their insurance benefits to pay for the expensive namebrand pills. On the other hand, the generic drug business could gain from the slow down, based on the assumption that people will still demand drugs from someone.

In the end, the Wal-Mart to China cash conveyer will do just fine as shoppers downrate their expectations for the good life. So, what are lipstick sales looking like?

Views on the Subprime Mortgage Mess

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I have no real expertise in banking or real estate. Neither fields hold much interest for me. But I am interested in failure behaviour of large complex systems. There are a few posts out there that hold better than average insights on the current financial mess and I wanted to post links to them.

Jim Kunstler‘s blog, the full name of which is a bit too coarse to post here. None-the-less, Kunstler writes one of the best blogs out there on business topics.

Georgetown Law Faculty Blog has posted part of an article intended for the banking community. It is lifted from the American Banker which, sadly for me, requires a subscription. The theme supports my contention that business- banking included- should be treated as part of contemporary anthropology rather than an abstract exercise in arithmetic.

Business isn’t just an math exercise. There is a lot of anthropology to it. Unfortunately, anthropology isn’t on the curriculum of most MBA programs.  MBA’s worry me. They seem to be hustling the rest of us into an Orwellian future with methodologies taught by faculty members who are more interested in tidy formalisms than people. 

There are a lot of cocky bastards in business who are always certain, but frequently wrong. This banking mess is an example of what happens when they achieve a quorum. In fact, I think they have ascended to the level of mythical archetype.

Bush II and His Faith-Based Bailout

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Where is the Decider President? He sent his creepy surrogate, Dick “Rasputin” Cheney, slinking around to urge members of congress to support the bailout plan, but where is George?.  I suppose Bush II is lying low to avoid casting the long shadow of the GOP on this banking train wreck.

But it’s just so striking; in the run up to the largest business bailout in the history of the solar system, Secretary Paulson’s boss is strangely absent. No frank and heartfelt talk with the American people. All the Bush administration can do is to attempt to hustle congress into a mysterious plan. Take our plan on faith- we know what we are doing.

No details have been released to the citizens regarding how this number, $0.7 trillion, was arrived at. Is this large sum actually large enough? How does the country recoup this outlay?  Is the stated urgency related to the election?

Citizens must learn to save more cash and be smarter about the terms of the mortgage they sign. We must consider that our banking system is much like the municipal water system- it’s integrity must be scrupulously maintained and those who manage it must be held accountable for its operation.

Update:  Bush II will make an announcement to the nation this evening. I wonder if there will be any folksy anecdotes?

Drill Baby Drill!! The GOP Call to Arms.

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I recall sitting on the sofa watching the 2008 GOP convention and hearing the intoxicating refrain “Drill Baby Drill”. It was like the sensation of sitting in the dentist chair with my brainstem bathed in cool nitrous oxide vapors and face numbed with lidocaine.  I found myself tumbling head over heals in a mild, drooling, narco-twilight state while my twitching eyeballs attempted to focus on McCain.  My fellow citizens had drummed themselves into an enchanted war dance and gathered to hear Colonel Kurtz, but without the banana leaves.

Then I snapped out of it.  Drill baby drill. This was not just a work order or a requisition for drilling staff to please set up a few drilling rigs in the morning. This was an exhortation to rip those smirking tree huggers from their stations, pulp the trees to make a paper dunce cap for Pelosi, and call in the Air Force to oversee saturation drilling of the continental shelves, and do it pronto!

“Drill baby drill ” was a catch phrase along the lines of “Damn the torpedoes! ” or “somebody get a rope! ” Its conception and use was a masterful bit of applied propaganda- A figurative running of the liberals out of town on a rail.

But what was lost in the excitement were the pragmatics of oil production. You need to boost refinery capacity to increase the supply of refined fuels.  And, what oil company is going to attempt to flood the market in a bid to drive down oil prices? What oil company is going to step in and provide cheaper crude to US refiners so that they can, dutifully, distribute cheaper gasoline when the global market price is so high? Only the dumb ones. Do they think that Santa Claus runs Exxon?

I thought GOP’ers were market savvy, laissez faire devotees swingin’ the big stick of Ronnie Reagan tough love? What has happened to these people?

Seems to me that oil in the ground is like money in the bank. Why are we so anxious to deplete North America of its supply??  What about pulling back on demand to counter the high prices? That is the one big stick that consumers have in the market.

China to Demand “IT Accreditation” from Foreign Manufacturers

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Yomiuri Shimbun, September 19, 2008. The Chinese government will soon oblige foreign companies to disclose source code in IT products for sale in China. Foreign manufacturers will be allowed to sell their IT-based products to the Chinese market only after an accreditation body examines the code and finds that it passes unspecified tests.

Products expected to be subject to examination include smart cards, digital copiers, and computer servers. China claims that this activity is needed to shut out viruses and stymie hackers. Companies that decline to cooperate can be barred from both sales and manufacture of the product in China.

I would suggest to China that they spend more of their energies keeping better track of melamine and lead.

Clowns to the Left of Me, Jokers to the Right

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Pity Larimer County in northern Colorado. We poor sods who live here find ourselves sandwiched between two unexploited deposits of natural mineral wealth. To the east of Fort Collins, near the hamlet of Nunn, is a fairly large uranium ore body. In the northwest, there may be an exploitable diamond deposit. Perhaps hundreds of Kimberlite pipes may be lying in the CO/WY region waiting to be exploited.

Diamonds have already been mined in northern Colorado, near the Wyoming border. The Kelsey Lake diamond mine closed in 2002 due to bankruptcy. The Kelsy Lake mine produced the 5th largest diamond ever found. The yield of the formation is reportedly 4 carats per 100 metric tons of ore.

Given that the Colorado Front Range has been substantially gentrified, the discovery of mineral wealth in the vicinity of hobby ranchers and McMansions will make for some interesting times for the county commissioners. Uranium and Diamonds. NIMBY.

Stealers Wheel Video 1972.

BASF Offers to Buy Ciba

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According to the on-line publication Chemical Engineering, German chemical giant BASF has made an offer to buy Ciba Holdings AG, headquartered in Basel, Switzerland. In the public takeover, BASF has offered CHF 50.00 for each nominal share of Ciba stock.  The agreed upon price represents a 32 % premium above the Sept. 12, 2008, closing price. The acquisition will help BASF strengthen its hold on specialty chemicals, particularly in the area of coatings.