Monday, 29 July 2013

Market Comment July 29 2013

July 29 2013 – Ok this is a little late but it is summer and boy the weather has been primo for sailing so my mind is elsewhere. Besides I left you in the right space with my July 20 comment. The market is overheated and taking a breather. If you are in big defensive stocks enjoy your dividends. If you are playing high flyers you should have pulled in your horns last week. Tisk tisk. 

Rotation is heading in to the safety end of the market with utilities and big dividend stocks like Johnson and Johnson hitting new highs.
 


(as always click any graphic to enlarge)
All my indicators form July 20th continue to get softer and it is clear that nobody wants to take this market higher this week with an upcoming FOMC meeting. Here is my famous green arrows chart. It says be cautious, don't open new positions here, but stay long. 


TBT pulled back on dovish statements from the fed, the smart money bought that dip, it continues it march higher.





For My Next Trick -- Super Skyscraper in 10 Months
Changsha-based Broad Group held a groundbreaking ceremony for its towering 202-storey “Sky City” development on July 20, sparking a flood of global media coverage. See Video Here.  On Tuesday, a story in the local Xiaoxiang Morning Post said local officials had put a stop to construction because Broad hadn't obtained the proper permits. 

Dubai’s 828-meter Burj Khalifa is now the world’s tallest building. It took five years to build the Burj Khalifa.

China’s projected 838-meter (2,749 feet) Sky City broke ground in Changsha in central China on July 20, 2013. Astonishingly, the construction company behind it expects to top out in April 2014 – a build time of just 10 months.

Fast construction claims from Broad Group, the Changsha-based construction company in charge of the build, have elicited strong reactions from China’s “netizens,” as well as experts. “The speed is horrifying, how can that be possible?” said one user on Weibo, China’s Twitter-like service. Another criticized the liveability of the homes within, calling the project a “giant stack of trailer homes.”

Professor Moe of Harvard said a skyscraper in the middle of the countryside was a rotten idea from both an urban planning and an ecological standpoint. “Such fantasies have never proved to work and most are utter failures,” he said.

Founded with $3,000 in 1988, Broad had long focused on producing non-electric central air-conditioners. It made its fortune when constant blackouts in the late 1990s boosted the appeal of its products, which are powered by alternative fuels such as natural gas. The company has since become one of the world’s biggest air-conditioner manufacturers. Why do you need a nat gas Air Conditioner? Well if your power grid fails as often as most of China's does there is a market. 

However this is not going to end well Broad group has a market cap so small it could not cover the cost of the steel for the first 25 floors. How are they ever going to pull this off?

Well it should be interesting to see a super building built to the same standards as a dollar store flashlight. Don't stand near this thing in a strong wind. 



Saturday, 20 July 2013

July 20 2013 Weekend Market Comment

July 20, 2013 – My trader friends in London are dying in the heat wave and I am sure on the streets of Manhattan the pavement is radiating heat and that smell of years of trash left on the street corners is wafting over the city. There people stare in to window mounted Air Conditioners and pray the machine does not die. But here in the West Coast of Canada it is Sunny cloudless, 24C and nearly ideal weather it is all amazing. So get out on the patio and raise a glass of beer.   

If you have been following my trades your pockets a full of money – lets face it life is good. I predicted this bull market was coming in The New Momentum, and the world is pouring money into US equities, commodity markets are dead and bonds are toast -- just like it had to be.  This is the beginning of an American long-term secular bull market and the good news is going to be around for a while. In a word I am euphoric.  

The bad news is that euphoria is a bad sign. In this case we are probably a bit overbought, and a dip here would be par for the course. You can re-read Buy Now? and see that again we overbought and this moment is not the time to put on big new positions -- in fact a little pruning and profit taking is in order, I am rotating from my really leverage speculative bets into my more conservative choices.

First look at the “Green Arrows” chart, wow are we exceeding all prior highs on the MACD at the top of the page. 
(click any image to enlarge)




Next I have a simple chart of the market with a stochastic RSI on top. As you can see in the past once you are up in that green overbought area too long there is a little pull back coming. 



Here is a version of the VIX index, this is called the fear gauge, by drawing two lines I have created a sort of a fear and greed meter. Be greedy when others are fearful and fearful when the market is greedy. As the VIX drops near 12 the market is too greedy.



OK so a mild fluctuation is coming, but is it going to be a broad sell off? Very unlikely.

  
Look at the YP primary Sell it is moving along nicely.


The NYSE high low forces are back moving up . . .


The NYSE stock above 50 day average still has room to run higher



Check out FedEx, when transportation companies do well, everyone does well.


So a lot of the stock rally is dependent on what the Federal Reserve does in Washington. Well you can listen to thousand experts but there is a chart that will tell you exactly what is going to happen. This chart is the Employment rate in other words the number of people working. At the last peek it was nearly impossible to find workers. With the 2006 mass-housing boom -- who wanted to flip burgers when they could get twice that pounding nails. In fact employment in 2006 was so robust it actually was hurting business and send work offshore.




As you can see the market is getting stronger and the US must stop the stimulus. When that juiced market comes off this fall we may have a real good pull back for now expect a good "buy the dip" opportunity very soon.


The US Tech Wreck
It all kicked off with IBM missing its numbers, then a few networking stocks drooped. Then Nokia sale figures were a huge miss followed by news that Blackberry is slashing prices. Between a maturing of the cell phone market and very slow PC sales, technology is not the place to be.  In this rally only technology stocks are looking a little weak.

Microsoft
I hate this company in two different ways;

First -- Microsoft products are slow cumbersome, their licensing policies are unfriendly and most of all there operating system is as reliable as a Russian built car.

Second -- it is a bad investment and has been for a long time. If you bought shares in this massive tech firm any time after 1995 your money was put to sleep, the stock goes nowhere. Activist investor ValueAct has been in talks for a few months about getting a seat on the technology company’s board, according to sources. Microsoft had been resisting, but its recent performance—it lost $33.7 billion in market value on Friday—puts more pressure on Microsoft and its CEO Steve Ballmer to answer to investors. Before last week a number of “experts” had a buy rating on Microsoft expecting big things from the Surface tablet, cloud computing and the introduction of Windows 8. Also many connected some dots looking at HP as this year’s big comeback story -- they made the leap that Microsoft might too.

The truth is people are not buying PC computers where users are forced to buy Microsoft's bloated Windows operating system. Windows 8 is a disaster the only people who still buy PC are business and they don't want touch screen icons, users are getting fatigued arms pointing at screens all day. Microsoft even gave in and brought back the start button. In areas where consumers can choose, like smart phones, tablets and video games, people don’t want Microsoft products. 

You might also note that Google missed earnings and also had a sell off, but there is a completely different vibe about Google.  Their Android system is gaining users, it is fast and relatively worry free and is so adaptable we are seeing Android not just in smartphones but now in car sound systems, smart TVS and even TV media players. Google controls the markets it is in and Microsoft can only say that about the dying world of PC operating systems.


What Works Now

Iron Mountain
This company is in a great business. They store documents and they destroy documents. This is a great business and if you can create a solid name brand you become the go to supplier for these services. Major companies, banks and government office do not want to use the low cost supplier when it comes to destroying information. But when a company is in a great business (like Visa is or Goggle is) everyone can see it and everyone wants a part of it.  However sometimes some little thing scares people off an otherwise good firm and you can get the stock on sale. In this case Iron Mountain tried to get the same tax treatment as a real estate development company. It may be a while to we hear if that is going to be accepted but the stock has been on a fire sale and it looks ready to rise regardless of the tax ruling.




Investing Globally
Raise your hand and have a big smile on your face if you followed me into the ETF FM that is investing in the new Frontier Markets. FM, tracks these new oil producers and sweatshop havens in places like Nigeria, Pakistan, Kenya, Oman, Kazakhstan, Argentina and Vietnam. Go baby go . . .



Tata Motors did very well this week – up over 4% since I recommended it. Their icon brands are Jaguar and Range Rover but they also make inexpensive cars and even the bus pictured here. Now the world's 7th largest automobile company.




Japan --  things are booming for DXJ because Japans Stock Market is the world’s best performing this year – UP 40% since January. The Prime minister is so popular with economic reforms that his party looks poised to win in both the upper and lower houses in Japan, something not seen in many decades. DXJ was up 1.5% this week, but expect it to do very well in the next month.
  


Germany -- Wev have vaze of making you very profitable! --- Hope you put uber bucks in to the German ETF EWG way up again this week. 


Philippines - EPHE should enjoy a steady rise for the next few years as China is losing low-end manufacturing to this island. This is the next China. Same slave labour, better quality control and simpler legal structure.




Oh Boo Hoo
The longrunning insider trading investigation of Stephen A. Cohen and his hedge fund, SAC Capital, has finally come to a head.

The US Securities and Exchange Commission (SEC) has charged Cohen with failing to supervise two senior employees and prevent them from conducting insider trading. If found guilty, Cohen could face “financial penalties, a supervisory and financial services industry bar, and other relief,” according to an SEC press release. The charges come just ahead of a legal deadline government was facing to file a suit against Cohen based on the evidence gathered. Other regulatory organizations—such the Federal Bureau of Investigation (FBI)—may still file additional, possibly criminal charges.

The SEC has had a busy day. Earlier today, it rejected an $18 million settlement that its enforcement division had struck with hedge fund investor Phil Falcone and his firm, Harbinger Capital Partners. The SEC accused Falcone of market manipulation, borrowing from client money to pay his taxes, and giving special preference to certain investors.

Cohen's marketing material says he is the best manager in the business -- but his defense so far has been he has no idea what his traders are up to. Well Stephen -- which is it?

Enough Said
Now get out there and spend some of that money I made you and enjoy some summer fun











Sunday, 14 July 2013

July 14 2013 – Weekend Market Comment

July 14 2013 – Oh baby, how can you not smile? The markets continue to move higher this week and if you have been bullish on U.S. equities you had a nice ride this week. All my market indicators from last week just look a bit better this week. We have a nice low volume summer rally.

(as always click any graphic to enlarge)

Our trade in TBT still looks good, it has slipped a bit this week but this is a long-term play. Here is a highly entertaining video from Bloomberg on why the TBT trade has gone far better than I thought it would, or as the video says a “massive outflow” from bonds.  


Who followed me in to Canadian Pipeline Stocks a last week when I recommended them? Lets look at Enbridge this week up 3% since my recommendation.



Biotech and U.S. regional banks are doing well but a long dead category has come back to life, Insurance companies are having a nice rise, because of anticipated rising rates is boosting revenue potential. 


Look at stodgy, stuffy, old Prudential. In the crash of 2008 Apple went down to $80 and now is about $400, 5:1 a nice return you say, but wait, it is hard to believe but Prudential stock was $8 in the crash of 2008, now nearly $80. A “ten bagger” on an insurance company? I bet you will never see that opportunity again!


Gold
I have been out of gold for a few weeks while it enjoys a little bounce on rumours of trouble from China and a stronger U.S. economy. I have drawn a chart of gold in a Keltner channel. The middle of the channel is the average gold price the outside edges are two standards of deviation. Notice on the way up, price would fluctuate between the middle and the upper band, on the way down it fluctuates between the middle and the lower band. Well we are now at the middle, the ducks are quacking and the big hedge funds getting out of gold, especially HSBC London (who are sweating bullets trying to dump their holdings) have some nice gold bars to sell those noise suckers. From here gold should retreat. If it does not, then perhaps the gold sell off is off for a little longer, but I went short this week. I used futures but you can also buy HGD on the Toronto exchange or DZZ in the US, for the really gutsy DUST the X3 gold miners down.



Whats New? Look Offshore.
Emerging Markets are becoming known as “Submerging Markets” but this really is no surprise when you look how closely these nations are linked to commodities. South Africa and Brazil are diving into economic chaos and Australia has found that the BHP Billiton billabong has finally run dry. That said, there are a few really bright spots in offshore diversification. As wages and environmental issues grips China’s attempt to build a middle class -- low end manufacturing work is leaving for the new so called Frontier Markets. A New ETF under the ticker FM, tracks these new oil producers and sweatshop havens in places like Nigeria, Pakistan, Kenya, Oman, Kazakhstan, Argentina and Vietnam.  Read more here.

Also as it is becoming clear that the EU will survive and that everyone still wants to drive an Audi A6 things have turned around in Germany. As you know we have been waiting for this bounce -- I have been accumulating all week. 


The Japan trade is back on again as DXJ continues to rise on Abenomics (Yen devaluation and stimulus). I pointed out the before this was a crowded trade and sure enough it fell off, well it looks like Wall Street traders have the attention span of a "purse dog" and it is back to game on for the land of the rising sun.


Nightmare-liner
Never put all your eggs in one basket, diversification is important. Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and other categories. It aims to maximize return by investing in different areas that would each react differently to the same event. Most investment professionals agree that, although it does not guarantee against loss, diversification is the most important component of reaching long-range financial goals while minimizing risk.

Just look what happened Friday, here is the stock of Boeing in real time, it hit a record high and 6 min later the news of a fire in a 787 Dreamliner at Heathrow hit the wires.


  
Sign of Impending Doom?
The Chrysler building and the Empire State building were finished right at the start of the great depression. Ever since then, every nation that has just built the “Worlds Tallest Building” has hit economic disaster.

BUILDING
LOCATION (COMPLETED)
SPIRE HEIGHT
FINANCIAL CRISIS
Singer
New York (1908)
187 meters
Panic of 1907
Metropolitan Life
New York (1909)
247 meters
Panic of 1907
40 Wall Street
New York (1929)
283 meters
Great Depression
Chrysler
New York (1929)
319 meters
Great Depression
Empire State
New York (1931)
443 meters
Great Depression
World Trade Center
New York (1973)
526 meters
’70s Stagflation
Sears Tower
Chicago (1974)
527 meters
’70s Stagflation
Petronas Towers
Kuala Lumpur (1997)
452 meters
Asian Financial Crisis
Taipei 101
Taipei (2004)*
509 meters
Tech Bubble
Burj Dubai
Dubai (2008/9)**
828 meters
Global Credit Crunch

Thus you can think of the world’s tallest skyscrapers as indicators of lofty overconfidence. The economist Mark Thorton eloquently summarized the context surrounding the construction of the world’s tallest skyscrapers: “First, a period of easy money leads to a rapid expansion of the economy and a boom in the stock market . . . credit fuels a substantial increase in capital expenditures … [and] this is when the world’s tallest buildings are begun.”

Well this week China did not build the World’s tallest building, but they did open the World’s Largest building. You can read about it here
So does that have the same implications? I bet it does . . .









Saturday, 13 July 2013

Command and Control vs. Nature and Feedback

July 13, 2013 -- I am a great believer in natural self-balancing systems. The heart of natural systems is the feedback loop.  For example each year nature produces too many wildebeests, about a half million. These ugly second cousins of cattle find their numbers cut in half each year as they migrate across the Serengeti plane as a sort of thundering-heard-buffet for predators higher up the food chain.  In years with a bumper crop of wildebeests are followed by years with abundant predators. In years of drought animals herds, up and down the food chain, thin out. The system is robust, adaptable and unfortunately, like much of nature, brutal. A poet speaks of the circle of life -- but the reality is blood thirsty lions tear flesh from bones, and vast herds die of painful thirst or starvation.



Feedback loops are everywhere. They are in our thermostats keeping us comfortable; they (at least briefly) entertain us with toys like the little bird shown here -- that appears to drink randomly from a glass. Feedback is used in navigation systems that guide spacecraft and in radios to keep stations locked in. It guides trends in fashion and politics making hemlines rise and fall and agendas both right and left wing slide in and out of fashion.

Feedback is not just for simple systems, anyone who went through puberty is familiar with how complex the human hormone system is and what happens when it is destabilized.

In what is today known as Gabon in Western Africa there are seventeen nuclear fission reactors. They are remarkable because they spontaneously began operating around two billion years ago, and they continued to operate in a stable manner for up to one million years. Further, at the Gabon
reactors many of the radioactive products of the nuclear fission have been safely contained for two billion years. Nature designed these reactors using feedback. Some prior unstable versions either mealteddown or failed to achieve reaction.  Human attempts at creating atomic reactors have not been as successful as these self-stabilized reactors. To date human designs have had at least seven major accidents with fatalities and have never solved the waste storage issue.

When feedback is in balance it is like a fast spinning top, when it looses balance it wobbles uncomfortably either ending in a return to balance or some kind of death of the system. The beauty of feedback is that it is simple and robust. A vast forest can run itself indefinitely, yet a tiny patch of lawn in front of a house is a never ending unstable system, requiring fertilizer, mowing, watering, weeding and repeatedly patching dead spots.

Humans are good at unbalancing systems. We all know the devastation introducing a new species into an eco-system can have. Bunnies are cute and tasty so human settlers brought them to run wild on islands without predators, multiplying until they starve. Rabbits were brought to New Zealand and released for both food and sport at various sites as early as the 1830s. Once rabbits became established, their population increased to plague proportions several times. The first rabbit plague began in the early 1870s and the most recent began in the late 1980s. Rabbits have cost New Zealand many millions of dollars, through the direct cost of controlling them, and the loss of production from farms. Their impact has been little short of an ecological disaster, as the vegetation grazed off by rabbits has never recovered. The worst affected areas – once well covered with, grasses and shrubs – now have very little vegetation cover, which has led to soil erosion by wind and rain. The loss of soil has left areas where only the hardiest colonizing plants will now grow. Burrowing by rabbits in some soil types and on steep slopes has also led to soil erosion. Similar meddling has introduced weeds and insects adversely changing the area they are introduced to.

It took us over one hundred years of managing forest fires and parks to learn suppressing small fires such as from lighting strikes was creating unhealthy forests. These became vast tinderboxes that spawned massive destructive super wildfires. Routine small-scale fires are a natural and important disturbance in many temperate forests, and this is seen in plant adaptations such as thick bark, which enables a species to withstand or resist recurrent low intensity fires, while less well-adapted associates perish. Forest rangers failed to understand that Pine trees have late-opening cones. While closed, these cones hold a viable seed bank in the canopy that remains protected until fire affects the tree. After fire, the cone scales open, releasing the seed into a freshly prepared ash bed. Without this natural regeneration old forest stagnate and animals have a less viable habitat on the forest floor. Once again we thought we were protecting forest when really were harming them. 

In the 1980’s Computer Aid Design Software became sophisticated enough that it could model engineering forces like, stress, shear and moments. However when The famous Notre Dame Cathedral was modeled the modern engineering math said the structure would not work. In  other words the Masons of the mid 1600 knew something that had been forgotten. Historians began to look into how the building was created. The Notre Dame Cathedral was among the first buildings in the world to use the flying buttress (arched exterior supports). The building was not originally designed to include the flying buttresses around the choir and nave. After the construction began and the thinner walls (popularized in the Gothic style) grew ever higher, stress fractures began to occur as the walls pushed outward. In response, the cathedral's architects built supports around the outside walls, and later additions continued the pattern. Some supports fell down, while others held. The designs that were stable became the standard for the rest of the supports. This is an example of organic design based on natural feedback. There was no powerful math, just trail and error, leading to an efficient effective design. Feedback once again was the simpler and more effective answer. 

People who work in certain reality based professions must be very prosaic about the process – there work demands this. Policemen, Nurses, Collection Agents, Judges, Auditors and even Assassins require a certain professional distance from the people they become involved with, in order to do their job. These professions contribute the vital feedback in our society that keeps it in a fine balance.   

Human emotional and moralistic norms often compel us to interfere with balanced systems without understanding the full consequences. This is often is what unbalances economic systems. For example in a capitalist economy, housing price rise and fall based on supply and demand, so does food, fuel and clothing costs. The system is elegant and self-regulating. In a command economy prices are set by an all-knowing central control committee. In Cuba that ratio of what rent, tomatoes, gasoline and pants sell for is very different than here. India has been enjoying an economic boom, with steady job growth and a rapidly growing economy. Yet the government is nearly bankrupt because it cannot muster the political will to eliminate fuel subsidies. India is clogged with inefficient polluting vehicles because fuel subsidies have removed any incentive to conserve fuel, upgrade vehicles or to use public transit. In Portugal youth unemployment for the summer tourist season of 2013 has passed 50% but the local bars and cafes cannot find staff because the socialist state welfare is so lucrative and tipping in socialist Portugal is considered bourgeoisie. In Both India and Portugal the problem is clear -- but the governing politicians are unable to get past the deep emotional ties these subsides are linked to. 

You can see many examples of how taking feedback out of a system ruined many government controlled economies. For example in the United States feedback from supply and demand created the Fox television network. The news is biased and reactionary the entertainment is rude crude in your face blatant bad taste. It is by all measures a bad product -- but it is financially successful because it has viewers in large numbers. In January of 2002, Fox News surpassed CNN in total viewers and held its lead. Meanwhile on the other side of the globe, in a command and control economy we have Bolshoi Ballet, one of Russia’s national symbols. It has an annual government subsidised budget of $120 million. The theatre reopened in October 2011 after a five-year, $1.15 billion renovation that had been a personal pet project of former president and current Prime Minister Dmitri Medvedev. Despite all these taxpayer patronage, attendance is down, often playing to a half-full house and in five years they do not “entertain” as many views as the Simpson’s do in any one episode.

We have all heard the socialists and their cries for more funding of the arts. One over educated intellectual snob even told me that people should be forced to listen to classical music. Every developed country has its bit of socialist funding for so called “quality” information and entertainment. American PBS, the UK has the BBC and Canada has the CBC. There are also numerous corporate sponsors of ballet, orchestras, opera and museums. Even some success in the private sector with shows like cirque du soleil. But still the facts remain clear that more people enjoy WWF and Nascar than museums. Many more people will pay $300 to hear the Rolling Stones or Justin Bieber and they don't line up to listen to baroque or Rachmaninoff.  The feedback loop of viewer choice is telling you something - something that some people don't want to hear -- to quote Don Henley “We all know that crap is king”.

In the early 1990’s Canada and US deregulated long distance billing. Despite dire warnings from phone companies like AT&T and Telus, that without long distance revenue, land line home phone rate would top $200 a month -- in fact the opposite occurred. Landline rates dropped and deregulation in the long-distance sector has shown that competition is a key factor in keeping telephone service prices low. Domestic prices for long-distance calls have dropped from an average of $2 a minute in 80’s, to approximately 5 cents a minute today. And these price decreases occurred mostly in 1998 and 1999. That’s just after the CRTC deregulated the long-distance rates of the former monopolies.


Not all moves to free market systems go smoothly. In fact often what goes wrong in these transitions is that only part of a system can be deregulated. For example Enron convinced many regional government including Alberta and California that power deregulation would bring with it the same benefits that long-distance deregulation did. This was doomed from the start. The system was split between energy production and power line infrastructure. Under the new system energy would be competitive but power lines could not be run twice so that was to stay a monopoly. The power companies all fought to control their traditional lines and kept charging under continued regulation what they always had. The energy production was split among players and sold to the grid by an auction process. Efficient plants like big coal plants bid low and ran 24/7 as demand crept up the price would rise and less efficient plants, at higher prices, would come on the grid. That was the theory. The reality was very different; the middle efficiency plants would refuse to come on line until the price swung out of control then they would come on. Some plants could not start up quickly and the system was gammed to convince them to shut them down prematurely at key times and then over charge for power while they scrambled to come back on line. Despite having all the components of an adequate and functioning power grid, there were blackouts and sharp price increases. 

If a small business is unable to adjust the realities of the market make it disappeared. It is a delicate balance. Enterprises have been destroyed by both, lavish overspending and by penny pinching overt cost cutting. Businesses fail quickly when they misdirected finances or misunderstandings the trends and conditions. 7 out of 10-business fail to complete their first year, they are the still born of the business world, often starter by the over optimistic or the outright delusional.  All private enterprise must answer to the harsh mistress of the marketplace, that is why it works so well. 

Business that are over financed by benevolent venture funding or are protected by government sponsorship may endure longer but they never become world class. They fail to learn to compete. The list is endless of organizations that are limping bureaucracies, because they are not subject to market feedback. French automobiles, British banks, American trains, Landline phones in Thailand, Italian and Spanish Airlines, subsidised farming almost anywhere in the west, real estate development in Dubai, Ferry service on the Canadian west coast, Natural gas development in Russia, Construction companies in Japan.

In the public sector you have no real feedback. If too many civil servants are stamping forms, you don't layoff, you adjust the budget and move on. If the Union negotiates too hard, there is little political will to fight, simple give in. Unless you reach a breaking point like Greece the bureaucracy just builds and metastasizes. This is at the core of why communist countries and dictatorships do little more than kick money up to the leaders. Free Press and Elections are not a perfect feedback system, but at least it is some feedback.


When I worked in the department of Education (finance division) we were always faced with these politically correct dilemmas. There were large numbers of children with physical and emotional disabilities who were unable to function in the school system. Their parents saw the treasury as a bottomless pit of cash that cruelly turned away their children. A ground swell of media attention required the minister to pour ever-increasing portions of the education budget toward these students. Some of these students required two full time aids to help them do their schoolwork and navigate the schools. What the public did not see, that we who ran the chequebook could clearly see, is the harm the rest of the students -- without them even knowing it.  A promising group of thirty athletes did not know the school was suppose to get a better gym – instead it got an unused wheelchair ramp. Some gifted computer wiz kids did not have access to machines, a struggling student was not able to get more attention because we had to raise the student to teacher ratio. But the truth in government is the minister cannot be accused of tossing even a small number of kids in wheelchairs out of the schools, regardless how many others suffer.  Don't get me wrong the answer is not forgetting about those that fall behind, I am just saying that emotional issues are tough, they are not just one sided and political solutions are imperfect because they often hurt the parties who are not aware they are being held back. There is no free lunch.

Some called World War II the “last good war”. What they meant was that it was an all out war. The objectives were clear and the conflicts unbridled, in a winner take all battle of ideologies. The Wars that followed had many conflicting agendas. The Korean war technically never ended. In the Vietnam war the superpowers fed arms to the local sides in attempt to fight each other but not openly as this could lead to nuclear war. Secretary of Defence Robert Strange McNamara oversaw the US effort. He was a former Harvard professor, his is speciality was accounting and control. He demanded and got a vast array of reports and statistics from up and down the command chain. Enemy dead body counts, miles or road taken, ammunition expended, bridges controlled the list was endless. Retired Army general, Douglas Kinnard, published a landmark survey called The War Managers that revealed the quagmire of quantification. A mere 2 percent of America’s generals considered the body count a valid way to measure progress. “A fake—totally worthless,” wrote one general in his comments. “Often blatant lies,” wrote another. “They were grossly exaggerated by many units primarily because of the incredible interest shown by people like McNamara,” said a third general.

In retrospect the whole war was run on a broken feedback system. Data collected was inflated at each level of the command chain. It also resulted in certain military targets being lost and retaken over and over again just to meet quotas. There is a great truth in what HP founder Bill Hewlett used to say, “What get measured gets done” but they also said you had to be careful what you measured. Vietnam was a humiliating triumph of bureaucracy over getting down to the business at hand.

McNamara made a mistake as old as time. Setting objectives and expecting ridged results in the field to fulfill the master plan and never questioning if the results were what you really set out to achieve.

Systems based on pure feedback are ruthlessly and efficient but once stabilized they are rugged and stable. Human intervention has always run counter to this as we try to invoke our emotions, our perceptions and our will on chaotic systems. These unnatural systems seldom achieve long term success.