The Informal Economy Needs Elite Guidance During Its Maturation

The informal economy is out there on the fringes of mass consciousness.  It rears its head every so often when the mainstream media ask Burning Man attendees what they do for a living when they're not making art or smoking dope.  Gray market transactions enter the official economy through financial sleight-of-hand when auditors and inspectors are distracted.  There are many ways for underground entrepreneurs to go legit.

Wisdom Hackers seek philosophical explanations relevant to modernity.  The Human Agency takes wisdom a step further, transforming it into brand new things.  Social entrepreneurs outside large organizations can test-market their ideas with an Ashoka fellowship.  The League of Intrapreneurs leverages the guerrilla skills of people already working inside established enterprises, in the spirit of the social capital movement.  Ask Alexa Clay for examples of how an "Amish Futurist" would question technology.

The Anglo-American Establishment has taken note of the informal economy.  Attempts to channel its energy for the benefit of the existing order are underway.  OpenIDEO takes the open innovation concept out of its UC Berkeley birthplace and into the technology sector.  Google Dot Org puts one of the world's most powerful brands behind tech ideas that can change the world.  The Aspen Ideas Festival works like a TED Talk that morphed into a salon conversation with an agenda to make the world better.

Elite guidance is essential if the informal economy's youthful enthusiasm is to produce anything beneficial on a large scale.  The movement's thought leaders have a penchant for multi-disciplinary thinking that risks becoming undisciplined.  Throwing around buzz phrases like "bohemian, sharing economy, sense of place, artisans," etc. tends toward verbal decoration of things that lack practicality.  I listened to one grown-up bohemian (a hot babe, I must say) wax on about how a small town is really an inherent company that resists outsiders and creates horizontal networks that scale across an entire country.  That sounds a lot like neofeudalism to me.  She didn't come out and say it but a member of the elite class will recognize the concept's future value in managing society.

Another buzz term is "pre-competitive collaboration."  It reminds me of the misfit squatters I met when I wandered into their Freespace temporary autonomous zone back in 2013.  Civic hacking needs room to experiment, and some experiments will fail.  Hackers need not be skeptical of MOOCs just because they don't offer the "deeply immersive conversations" (another buzz term!) that educated them in ivory towers.  Thought leaders hung up on wishy-washy thinking about the nature of the self, subjectivity, emotional intelligence, postmodernism, and cross-cultural metanarratives sound immature.

The "idea people" in social capital startups are prone to existentialist angst and alienation.  They need to put down the Albert Camus collection at some point and hand the informal economy over to the Big Data people who can calculate a social enterprise's potential.  The freethinking hippies and hard-core data nerds need each other provided they work with each others' strengths.  Misfits are simply wired differently, with brain chemistry far into the outlier range of what neuroscience measures.  They will not be found in the middle bulge of any normal distribution, and their ideas will thus be incomprehensible to most people.  They also risk being victimized by remaining too long in the informal economy, where the hustlers in pirate subcultures will eventually confiscate their wealth.  Get those open innovations out of the gray market and into the light of the above-ground economy's accelerators, where mass adoption and elite investment await.

We will hear a lot more about the informal economy in the years ahead.  The real economy in developed countries gets more dysfunctional by the day.  Underemployment is now a fact of life for Millennials with student debt.  Their constrained incomes need augmentation from micro-scale entrepreneurial action.  They will find profits in System D enterprises that deserve to be legitimized.

The Limerick of Finance for 01/22/12

The Davos elites will convene
As the world is perched on a ravine
They're all joined at the hip
But we need leadership
Total chaos could come to this scene

Day Of Rage Ignites In America

The Arab Spring's Day of Rage phenomenon has arrived in the United States.  A few hundred professional activists and unemployed do-gooders tried to occupy Wall Street on a day when no one's in business.  That shows how unserious they are at this stage.  Future protests will be more aggressive as economic conditions worsen. 

The ruling elite has begun to acknowledge that things are getting worse.  NYC's Mayor Bloomberg warns that unemployed college graduates are a paycheck away from becoming anarchists.  The country club set needs to get nervous after hearing this from one of their own.  Youth unemployment, income stagnation, and lack of upward mobility were necessary conditions for the Arab Spring but were not sufficient conditions.  The black swan of the Federal Reserve's dollar debasement drove investor capital into metals and commodity foodstuffs.  That was sufficient to spark the kindling for revolution. 

The Day of Rage phenomenon is a form of class warfare, pitting economically marginalized workers against members of favored sectors.  Wall Street is the most visible target but it will not be the last.  Union-controlled automakers backed by government favoritism hand out juicy bonuses while making uncompetitive products.  GM was not alone in getting a deal from Uncle Sam.  Solyndra's bankruptcy reveals that a politically-connected investor moved ahead of other creditors.  The Administration's investments in favored renewable energy companies are looking more and more like slush fund payoffs for campaign donors.  This kind of cronyism was the rallying cry of protesters in Tunisia, Egypt, and Bahrain. 

If the protesters are true to their public statements against cronyism, they'd enlarge their target set to include companies backed by government favoritism.  Omitting blue-collar beneficiaries would be an indicator that the protesters are instigated by the professional Left against the visible symbols of the American ruling elite.

It is interesting to note that the original "Days of Rage" were a Weatherman/SDS revolutionary action in 1960s America.  I don't think it is a coincidence that Arab Spring insurgent leaders branded their uprisings with this moniker after American left-wing organizers visited MENA countries.  Some memes retain their power to motivate action even after a generation.  Activist presence in MENA and on Wall Street begs the question of ultimate funding and strategic direction.  Ask yourself who would benefit most from the downfall of U.S.-friendly monarchies and the U.S. financial system.  Then ask yourself why well-meaning American activists - and their ideological sympathizers in government who are unskilled at performing link analysis - allow themselves to be used in this manner.

Goldman Sachs' New Euro Bearishness Proves Instantly Costly

We have fresh evidence that trading ideas from the masters of the universe over at Goldman Sachs aren't all they're cracked up to be.  In a "leaked" report that quickly went viral through the financial blogosphere, a Goldman Sachs trading strategist advised the firm's hedge fund clients to consider a complex bearish option play against the euro as a way to profit from multiple economic headwinds.  The headwinds themselves - capital-starved European banks, lack of U.S. job creation, questionable Chinese prospects - have proven costly enough to investors.  What proved even more costly today would have been any hedge fund action to follow through on GS's bearish options for the euro. 

The Swiss National Bank threw a big monkey wrench into that anti-euro strategy today by announcing a fix of the Swiss Franc at 1.2 to the euro.  The SNB's intent to buy unlimited euros would have destroyed any bearish options initiated against the euro prior to that announcement.  It remains to be seen whether GS will apologize to any hedge fund clients that acted on its leaked report's bright idea.  Investors also now have one less safe-haven currency available, as capital fleeing to quality recently bid up the CHF and priced Swiss exporters out of markets.  Now the SNB's frantic franc printing will inflate the price of any imports Swiss consumers need. 

Price inflation spawned by desperate central banks is rapidly becoming commonplace worldwide.  Soon no currency will be a pure safe haven (although a basket of them may be useful as portfolio diversifiers and arbitrage instruments).  The sovereignty crunch is in full swing.  John Robb at Global Guerrillas is proving more prescient by the day in tracking this truly global crisis of capitalism. 

Full disclosure:  No position in GS at this time.  No position in Swiss francs (commonly noted as CHF) or any CHF-derived instruments (such as the ETF trading as ticker FXF) at this time. 

IMF Attack Implies National Fingerprints

A major computer security breach at the IMF begs the question of the instigator's identity.  Why, who could have done such a thing?  (I've always wanted to say that line.)  Let's run through a lineup of the most likely suspects.

China.  The Chinese have the most to gain from penetrating the IMF's databases.  They've been shopping for European debt for some time, both to seek discounted value (Greece, et alia) and to diversify away from investments in a shaky U.S. dollar.  They certainly have the computing horsepower and brainpower to pull off this kind of stunt.  Motive + Means + Opportunity = fun speculation.

Russia.  Other BRIC nations have money to spend and agendas to advance.  Some in the post-Soviet Russian establishment have never gotten over the humiliation of losing the cold War.  The IMF is a leading institution identified with the American power. 

Non-state entities.  Here's where wild cards can come into play.  Big hedge funds have plenty of computing power at their disposal.  Some hedge fund executives may just be amoral enough to authorize a little extracurricular adventure for their whiz-kid traders.  A small, tight team of computer PhDs could probably whip up a spear phishing algorithm in their spare time between arbitraging yield differentials.  The motivation is obvious.  Getting a special look at sovereign debt valuation metrics confers the ultimate inside trading advantage.  The fact that such action is illegal on so many different levels won't deter a determined hedge fund team staring redemptions in the face. 

This is all guesswork on my part.  I have no idea who did this and I condemn any such action.  Hacker shenanigans make it harder for honest investors like yours truly to operate. 

Greece is Europe's First Hollow State

Some of you may know that I'm a fan of John Robb's work over at Global Guerrillas. His thesis that transnational actors are working to hollow out nation states is proving to be more accurate with each passing day. Check out this news item on how Goldman Sachs has appropriated Greece's wealth:

The bankers, led by Goldman’s president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece’s health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.


Athens did not pursue the latest Goldman proposal, but with Greece groaning under the weight of its debts and with its richer neighbors vowing to come to its aid, the deals over the last decade are raising questions about Wall Street’s role in the world’s latest financial drama.

Goldman bankers possess asymmetric information, i.e., they are probably more well informed of the workings of financial markets than Greek civil servants who are overpaid just to make it through the day. When this trend reaches full bloom here in the U.S., we can expect to see bridges and toll roads owned and operated by investment firms. Ownership of municipal assets will be auctioned off by your bankrupt city and state governments to feed their employee unions' pension funds.

If you can't beat 'em, join 'em. I'd like to get in line to buy some publicly owned assets. The Golden Gate Bridge would look great with the Alfidi Capital logo on it.

Nota bene; Anthony J. Alfidi has no investment position in Goldman Sachs or Greek debt at this time.

Preppies With Guns at Goldman Sachs

This makes me shake my head. These preppie fools are just now realizing that their business decisions have placed their lives at risk:

“I just wrote my first reference for a gun permit,” said a friend, who told me of swearing to the good character of a Goldman Sachs Group Inc. banker who applied to the local police for a permit to buy a pistol. The banker had told this friend of mine that senior Goldman people have loaded up on firearms and are now equipped to defend themselves if there is a populist uprising against the bank.

I have a couple of decades' worth of experience with firearms. Buying a handgun offers little protection without the willingness to use it at the moment of truth. Then again, pulling the trigger won't be difficult at all if Goldman Sachs' heavy hitters are really as amoral as they're often depicted.

I'll offer some free advice for preppies who're serious about enhancing their chances for survival against an angry mob. Forget the firearms, as they will only delay the inevitable if the plebes are at the gates with guns of their own. There are concrete steps you can take right now that are far less aggressive. Do the following. Unwind your firm's credit default swaps, interest rate hedges, and other derivative positions. Shut down your TARP-supported firms and allow the U.S. Treasury to assign their assets to local banks and credit unions. Deploy the bulk of your net worth to build resilient communities in your local area. In other words, taking highly visible steps now to distance yourself from Wall Street's greed is a better insurance policy in desperate times than arming yourself against your destitute neighbors.

Don't even think about fighting an angry mob all by your spoiled, arrogant self. The global guerrillas can easily defeat you.