Forget Gentrification – Try A Market Solution

I love Megan McArdle, the BloombergView writer who feeds my Libertarian beast. Megan wrote a comprehensive piece about the awful problems surrounding the awful-sounding, Gentrification, detailing the legal and social warlords who who summon forces against what some perceive as the holiest of grails in the forming of an egalitarian society, a housing policy that all can be happy with. It will never work, of course, and why it won’t is thoughtfully detailed by Ms. McArdle. I’d like to offer an alternative perspective.

Rather than trying to move the housing to the better neighborhoods; why don’t we work harder to move the things that make a community better, into the denser neighborhoods. Given the cost and scale of zoning, courts, property, construction and then moving people in waves, the very idea registers in my Average Joe brain as kind of, well, stupid, not because we don’t want to improve the lives of working stiffs but because the the whole relocation concept is proved time and again by the Chinese to be both impractical and unproductive. And in our society, with the glacial manner in which governments move, you have to add in, inefficient.

You can’t change hearts with legislation, much as the government-as-Bob-the-Builder crowd would like to believe. About two years ago, CNBC’s Michelle Caruso-Cabrera appeared on MSNBC’s “Morning Joe’, discussing a variety of economic news de jeur, market conditions, yada yada. They discussed inadequate food options in fast-food restaurants, the type that tend to prosper in poor neighborhoods. Joe’s sighing side-kick, Mika Brzezinski , said she was “looking forward” to legislation that would force fast-food chains to include healthier items on their menus. Just what we need—the state telling private companies what they must serve the proletariat. Gag, ack, cringe, shiver, socialism.

As they went to commercial, Ms. Caruso-Cabrera pointed out that people have freedom of choice. As they faded to the spot we could hear Ms. Brzezinski remind Ms. Caruso-Cabrera that people live in ‘food deserts’ and don’t have the options that her caring government could impose. Enter Wendell Pierce.

A few days later, actor Wendell Pierce was interviewed by CNBC’s Andrew Ross-Sorkin about his new venture. Wendell Pierce appeared with his business partner, Troy Henry of Sterling Farms, to discuss their plans to bring fresh grocery stores to downtrodden neighborhoods in and around New Orleans. Well, lookey here, a market-based solution to the gentrification issue. Don’t move the neighbors; make their lives better.

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Wendell Pierce image: Foodista.com Click for CNBC interview

I’m sure Meg McArdle could explore the economic dynamics of this much better than I can but my Average Joe brain sees this as a simple, innovative, practical and efficient way to fix a problem. If you can’t move people from a food desert, build an oasis. The local builder makes money, the community has opportunities for employment, the adjacent businesses (delivery, trades, coffee shops) all prosper as the neighborhood betters itself. Each of Mr. Pierce’s stores would employ about fifty people, who will spend money in their community. It’s kind of how free markets work.

I also think, to add the corporate POV, that larger companies, those such as Whole Foods, Krogers, Lowes, etc, could build ‘right-sized’ versions of their enterprises that fit the scale of the neighborhood. This eliminates the notion of displacing people to build a massive shopping center. This would be a much better use of venture capital, and the brains behind it, than making the next overvalued app that will be replaced in a few years anyway and fund real community projects that foster a sense of ownership, vitality and dignity. I didn’t ‘invent’ as Rocky Balboa would say, this idea; I’m just reiterating it.

Problem is, this kind of small-scale, gradual improvement doesn’t make a big enough splash in the press to satiate activists. Better to pound fists on pop-up pulpits at press conferences, held to call out those highfalutin hipsters and greedy gentry (hey, it’s National Alliteration Day). To be fair, it also doesn’t sound like enough of an ROI for VC firms who have to keep multi-million dollar war chests in hand in case some litigious couple files suit—and surely there are bigger returns to be had with the next disruptive platform.

So it’s left to the smaller operators to risk their capital and Lord bless those who do. I wish I had the cash to participate.

Sweeping cultural and legislative changes are impractical and only serve the self-serving. It’s the little things; the grocer, the hatter, the ethnic restaurant, the hardware store and the butcher, who change neighborhoods. It’s the lady who sweeps her small parcel of cracked concrete, every day. It’s not scatter-housing, reverse gentrification, dis-aggregating dense neighborhoods or any other convoluted idea. Whadya say, Meg?

Fascinatin’ Algorithms

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Image: Roblox

There’s a provocative post by finance professor, Noah Smith on BloombergView today regarding the rise of the robo-trading money managers (Wealthfront, Betterment et al). Mr. Smith doesn’t take sides but points out the industry is clearly moving away from active money management and toward passive, algorithmic keepers of our investment and retirement dollars.

The great John C. Bogle must feel vindicated by this trend, though decades ago when he founded Vanguard, an inexpensive index fund, he could not have imagined the digital strategies that are now marching over failing hedge funds and weepy money managers.

The jig is up. We know the excessive, opaquely structured fees of mutual funds have sucked off the gains of investors to averages below the stated returns of the funds. Over time, actual returns for investors are dramatically reduced by these fees. Is it any wonder why so much money is spent on advertising investment funds? The competition for your fees is fierce and every one of them beats some arcane benchmark, at least according to the copy writers. The problem is, as Saint Jack Bogle has been saying for years, “You can’t beat the average when you own the average.”

The rise of companies such as Wealthfront and Betterment is driven by two factors: a mobile-friendly millennial generation that thrives on connected models, and a growing disdain for those highly paid asset managers who often do not make good on their promises, but have facile excuses for keeping you invested with them.

I agree with Mr. Bogle as well as the concept of automated (low cost) investing. The S&P will provide you wonderful returns over the long run. Picking individual stocks is not for the lazy or risk-averse, or those whose who are too busy running their perfect progeny from lacrosse practice to Mandarin classes to bother. If you’re not willing to toss an extra scoop of coffee in the basket and pore over a 120-page 10K you shouldn’t gamble on individual stocks. However, I see a different issue down the road which we can file under, unintended consequences.

“Professor Smith asks, “What will replace active management? What form will the new passive world take?”

I ask, what will people say after this paradigm shift, when those managers remaining after the ‘great fall from grace’ are outperforming the herd by even larger margins? The best of the best, including the likes of Blackstone, Ray Dalio, David Tepper, Cliff Asness and Bill Ackman (Mr. Asness having the distinction of being the only one who is actually funny) will continue to do well and will undoubtedly attract more investments from those who eschew robotic returns.

This tiny legion will grow even more elite, drawing in more money, hiring the brightest stars of beta and creating a situation where the rich get richer, yet again, while the robot minions languish with average returns. As a Libertarian I’m all for it, of course—the whole free market thing. But I can envision an Elizabeth Warren trying to outlaw these beta outlaws, because, ‘it’s not fair’. Progressive crowing may create a cyclical shift back to active management, which would be wrong-headed.

The problem will be trying to prove a negative, to show those invested with passive systems that they should stay there, not despite average returns but because of them. It will be hard to convince those eyeing up the big players that, irrespective of the outsized gains of the Hedge/Quant/Big-Beta cohort, they are better off than they would have been had they left their money in mutual funds or worse, tried to pick and time the market with their own limited information. Average returns may sound, sort of, average, but they are actually very good. What we will need is not a shift away from robotic trading but a change in what we call the returns, so folks just feel better about them. Perhaps something from a gladiator movie, such as, Magnificum Returnas, or something start-up-ish like, Robucks (too Searsy?).

Overheard at a micro-single-malt-scotch-and-sushi bar on the Upper West Side:

“How many Robucks did you earn this quarter?”

“My nine-year-old daughter can speak Mandarin while playing the violin and writing code with her feet.”

“Go screw yourself.”

 

The Timken Company – Gestating the Spin-Off

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Image: The Timken Company

Nine months ago in June of 2014, after a prodding campaign from activist investors, the 100-year old Timken company, reluctantly spun off its steel division, forming two separate, publicly traded companies, (TKR and TMST).

The Timken Company is in the anti-friction business, manufacturing bearings and power transmission components. The steel division makes hi-spec steel tubes and SBQ (special bar quality) steel products for the automotive, aerospace and energy industries. I’ve previously written about the new steel company, TimkenSteel.

I thought about this particular spin-off as a lesson/debate in financial engineering, which, like it or not, is a large facet of our equity markets. You can make your own determination as to its real value for investors after you read the full story here in Seeking Alpha.

Elaine Russell Reolfi / Woman of Steel

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Image: Elaine R-R

I recently interviewed Elaine Russell Reolfi for Women in Business at About.com. She is a worthy addition to this growing gallery of strong women in the arts, sciences and business.

Elaine is VP of Corporate Communications for TimkenSteel, headquartered in Canton, Ohio, US. This is an industry and sector managed mostly by male engineers but to their credit, have accepted Elaine and count on her insight and drive to help grow the business.

Elaine is also deeply involved in the community and charitable organizations, all while being a dedicated professional, a mom to three and a wife to her professor husband. See her full story here.

Feel free to check out the expanding gallery of excellence thru the Image Gallery.

TimkenSteel – An American Company

Hot rounds

Image: TimkenSteel

I view investments with a similar buy & hold philosophy of Warren Buffet, but I’m not completely averse to trading out of positions if necessary, which is akin to the “buy and homework” philosophy of Jim Cramer. I suppose that makes me a Jimmy Buffet investor (rimshot).

I’ve been watching TimkenSteel (TMST), which was spun off from Timken Company (TKR) in June of 2014. You can read my complete analysis of the company’s business model and future here at Seeking Alpha.

TimkenSteel is an American manufacturer of specialty steel products for the energy, automotive and hi-spec industrial sectors.

In doing my research, I learned some interesting things about the steel industry.  A sidebar for you; comparing/contrasting steel and aluminum. Steel is a very recycle-friendly commodity, actually 100% recyclable. It maintains it’s steel essence regardless of the number of times it’s melted and reformed. Other metals are less so. In their production and life-cycle phases, such as in building autos, other ‘lightweight’ metals such as aluminum and magnesium emit more of the heavy, toxic greenhouse gasses GHGs (perfluorocarbons and sulfur hexafluoride) which have a much stronger global-warming impact than CO2. Betcha didn’t know that.

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World Steel Association, Environmental Case Studies

 

The Trilogy Expands

I’ve just released Book II of my Texas crime trilogy.

“Alice” is another noir look at the synesthetic Texas ranger, Lamar McNelly, but with a transition to a new joehefferton_alice_3d (1)character, Lieutenant Chucho Zarate, a stalwart family man who suffers for the actors in his investigations.

One of the goals of this series is to tell overlapping crime stories about recurring characters, but with distinctions in voice, as if a few guys in hats are occupying the smokey corner of a bar, each telling a different story about McNelly or some other tangent tale.

Men like to tell stories in bars. It keeps them busy so there’s more time to marinate ice cubes. These Texans share similar histories and other commonalities, but have unique styles of recounting the events of their lives. The facts, well; they’re just sort of a jumping-off point. It’s what stays with you after the story is told that matters.

Book one was written in a southern vernacular, book two is more urban, a little Elmore Leonard with a string tie and a Chicano accent.

The first story is self-contained. Book two keeps the door open to a sequel. I’ll get there, the yeast is in the brew.

I’d like to thank Maggie Pazian and Mike Palestina of The People-Intell Institute for helping me understand the nuances of emotional expression. They are the best there is.

I’d also like to thank my UK friend, Rachael Spellman, for her insight to the world of synaesthesia (British spelling for her). Rachael is a wonderfully talented writer. I enviously recommend her work. Spoiler alert: she’ll captivate you.

‘Texas Noir’ doesn’t really flow well off the tongue, but screams for help do. Own the series today or wait for the set. Whatever lets your blood.

Free Speech Matters

tempThe terrorist attacks on French targets has reignited the debate over free speech in the US, along with the overtly subjective term, hate speech, which the everyone-gets-a-trophy crowd seeks to ban without considering the implications.

The First Amendment is not there to coddle niceties, but rather to vehemently protect the most reprehensible of speech, because all freedom of expression matters, because when you begin to stifle one type of speech you put the government in the position of deciding what they are offended by. The point of the Constitution in general and the Bill of Rights specifically, is not to tell us what we have the right to do but to remind the government of what they cannot do.

How would we feel if fundamentalist Christians were the majority in the Congress and passed legislation that said public proselytizing by Jews, Muslims and Buddhists was forbidden because it offended the majority of Americans. Is that the country we want to live in? What if a liberal-oriented Congress said that statements about big government or wasteful entitlement programs or support for entrepreneurs was ‘hateful’ to poor people and therefore banned? orwell

The hate-speech feel-gooders need to get their heads out of their asses and remember that the best way to protect all our freedoms is to staunchly protect the rights of every American, including the journalists, to hold any opinion they choose, so long as they don’t further their cause through violence against persons or property.

Here is an excellent article on the subject from Reason magazine from this past September. I urge you to read it. Don’t like that one? Read this one with comments from one of the great thinkers of our age, the late Christopher Hitchens.

Navios Maritime – A Strong Woman Has the Con

Courtesy Navios Maritime

It’s with a sort of sheepish enthusiasm I admit I’m fascinated by the massive vessels that move goods and commodities around the world. I recently published an overview of international shipping company, Navios Maritime, on Seeking Alpha.

Navios is led by Chair and CEO, Angeliki Frangou, who runs four shipping companies valued at more than $4Billion. Ms Frangou is a fifth-generation shipper who says simply, “Shipping is in my DNA.”

The shipping industry can be turbulent and the factors that go into evaluating such a company are varied and in a constant state of flux, shifting under commodity prices, world economics, weather and market capacity. “Shipping is a notoriously cyclical business. You have to be able to adapt and change to the new situations.”

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CEO Angeliki Frangou

But Ms Frangou has the kind of calm demeanor that commands respect and a vision for the future of her company that fosters confidence. She is typical of the kind of leader I’ve profiled for About.com. “The best companies in the world survive when you have a diverse way of thinking.” She stands alone and unflappable in a male-dominated industry.”I am blind to gender, race or religion, and, if you don’t see limitations, the future is ahead of you.”

Read the full review of Navios Maritime here.

Celebrating the Year End with Music

Take good care, 2014

What a great way to end an interesting year. I had the rare opportunity to interview a future star of the concert piano circuit, Russian-born virtuoso, Anastasia Huppmann. She spoke to me via Skype from a café in Vienna. Her friend, Dr Maria Babak, graciously and patiently helped with the translation. anastasia at piano

Anastasia is a child prodigy, coming of age in a competitive and challenging profession. Her drive is admirable; her insistence on knowing not just every nuance of the piece, but the composer as well, push her performances to higher plateaus.

Anastasia typifies the women I’ve been honored to meet, thanks to a little good fortune, but mostly because of the support of my friend, mentor, guide and editor at About.com, Lahle Wolfe. This is a woman who runs companies, edits her site, raises a family—one with more than a fair share of health issues—and manages to find the time and room in her heart to rescue horses. I’m guessing she gets roughly 2-3 hours sleep a night.

All the women I’ve been privileged to meet this year, including Anthoula Katsimatides and Divine Capital Markets CEO, Danielle Hughes, possess an uncommon grit and perseverance that essentially says, “Yeah, there’ve been obstacles—so what? I’ve got goals, and family, and I set a higher standard for myself than others expect of me, so get out of the way.”

I’m looking forward to my next interview. I can’t wait to make a new friend and learn another valuable lesson in positive drive.

I’m a better man because of the women I’ve learned from. It’s a lesson we all should embrace.

Read the full profile of Anastasia Huppmann here.

Enjoy her latest video

“What Will People Think?”

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Anthoula Katsimatides – actor, writer, entrepreneur

I almost began this review of a one-woman show written and performed by Anthoula Katsimatides with a cliché, ‘last night I had the pleasure of…’, but it strikes me as more of a humbling experience I feel honored to have attended, and I would dishonor such a terrific show by starting with a hack line. Yet…

Her show has all the trappings of a complete production: laughter, music, memories, sadness and hope. Well-written and thoughtfully directed. It was indeed a pleasure.

Anthoula’s show follows her family from the poor volcanic island of Nisyros, where her parents were born, through her small family’s accomplished yet tragic history and finally to her reconciliation of old-world rules with the lion-hearted actress aching to be an individual.

Anthoula is a funny, scrappy and passionate Hellenic woman, who tells her story in a way that grabs you by the shirt and dares you to look away. In the classic comic/tragic manner, Anthoula brings you in closer by sharing a laugh about family rules, then punches you in the heart with chunk of reality that had more than a few people in the intimate setting of Theater Row reaching for tissues.

The audience seemed to be experiencing her pain together, maybe dissipating it a little for her—a sort of collective effort of support, an emergent behavior of the group, sharing in her charisma, the cursing, the tears and the unanswerable questions. This kind of thing doesn’t happen by accident. Anthoula made it so.

Rule Number One: Preserve, promote and perpetuate your Hellenic culture, because ‘what will people think’ if you don’t.

No worries, Anthoula—you did your family, and your culture, proud. Watching Anthoula perform her story, I felt as though I got to participate in rhetorical history. I found myself inching forward on my seat as if it would bring me closer to the energy. She often speaks in Greek during the show, but it is so perfectly in context that even the unwashed like me can get the jokes. If you’ve ever seen Eddie Izzard perform you know that’s no easy task.

The order of the other rules is immaterial, mostly because they are of equal value, and subordinate to a central question every good little Greek woman must ask about her actions, “What will people think?”

It’s a question that plagues more than a few ethnic cultures. It can prevent you from doing something stupid but can also be stifling. It prevents families from searching for help for the pregnant teen or the alcoholic son, because the family tries to keep the dark secret in-house. It inevitably destroys it like a parasite from the inside out. Anthoula worked for many years to sort through it all and it seems she’s finally figured out how to hang on to the goodness of culture and tradition while defying the corrosive parts with honesty and joy. She jokes that when she finally went on vacation alone for the first time it was like ‘being on parole’.

Technically speaking? Anthoula is a marvel of efficiency, giving us just enough of the important characters in her life to make us laugh or relate, but more than enough for us to recognize them in an instant. All Anthoula had to do was cross her arms, stretch her neck and thrust her chin just so and we knew ‘Baba’ (her dad) was about to speak. It was brilliant in its simplicity, giving us precisely what we needed to be entertained.

The show, which ran about 50 minutes, was peppered with music, videos, snippets of dance and sudden sadness. All of it perfectly timed to enhance the book, or portend the drama. When that telephone would ring…oh boy.

It was never good news. We relived her horror of learning of her brother Mikey’s suicide from her brother John’s call and an audio of what could only be described as a New York cop’s voice, reading from the report of the cause and manner of death. Direct, clinical, heartrending. You could feel the silence in the audience. Whenever she spoke of death, her father’s or Mikey’s or John’s (hang on), she donned her black veil and lit a candle. The room fell into darkness and we heard the most beautiful and haunting Greek lament, sung by a men’s choir. It played just long enough to make the point, give you chills and yes, well up. Hey, it’s family.

Within moments we were smiling again as Anthoula told us how her brother John pulled her from the crevasse of sorrow and made her, and us, appreciate life. We laughed, danced and tossed back a shot. “Life is friggin’ awesome, Anthoula.”

John Katsimatides worked for Cantor Fitzgerald in the World trade Center and was killed on Nine-Eleven. Heart punch.

Anthoula worked for Governor George Pataki, who asked her to be a part of the healing for families of victims of the attack as Vice President for Family Relations of the Lower Manhattan Development Corp. Anthoula KatsimatidesHe must be an insightful man to know that only such a resilient and loving woman like Anthoula could struggle with her own grief while giving countless hours to helping others deal with their own. She pulled it off, of course, and through friends and chance, found herself expressing her acting genes. We’re lucky she did. I predict great things from her. It’s her time.

Anthoula is a naturally funny woman, with a deep, clear voice that holds your attention. I’ve met her before, here .

She had the audience in hysterics, but the laughter also served to counter her vulnerability, the woman who is one more sudden family loss from giving up. We pray she won’t have to.

In the HBO drama series, ‘True Detectives’, Matthew McConaughey’s character says, “The world needs bad men. We keep the other bad men from the door.” It’s a simple truth .

http://www.youtube.com/watch?v=DJXznk6cFk0

Here’s another. The world needs strong women. They make us work harder, force us to see the light and push us to be better than we were yesterday. They make us desire more while reminding us to be grateful for what we have. Some of them make us reach for our swords to follow her through the battle, to fight alongside her. To protect her.

Thanks for the honor, Anthoula.