Sunday, July 7, 2013

Barack Obama: The first "Blackwhite" President?

It's been a long time since I've posted to the Feldman Off Topic blog, but political events have gotten to the point where I need to post something that has absolutely nothing to do with The Feldman File. I'm talking about the revelations of broad domestic surveillance and (apparently) all-encompassing international surveillance by the NSA. That the NSA's actions violate the Fourth Amendment of the U.S. Constitution is, in my opinion, very clear. That the regime for protecting U.S. citizens from illegal search and seizure by the intelligence community is full of holes is equally clear:
  • The Executive branch, including the Attorney General, makes rules and interpretations that open domestic U.S. citizens to widespread surveillance, and to the storage of that information for up to five years, but the rules and interpretations are entirely secret, so there's no way to challenge or even debate them in an open forum.
  • The FISA court acts as a rubber stamp for actions of the intelligence community and Justice Department. It has an appeals process, but the vast majority of parties who would be affected by the FISA court's ruling never even know that the court is considering their cases, because the cases are all conducted in secret and third-parties are prohibited by law from disclosing requests for personal information. Therefore, the only parties that have any effective right of appeal are the intelligence community and the Justice Department.
  • The U.S. Congress provides oversight, but few members of Congress have any way of knowing whether the information they're being given by the Executive branch and military to justify their actions is correct. Most briefings are in secret, and the public briefings are largely an exercise in disinformation.
One of the most disheartening parts of this entire situation is President Obama's tendency to say one thing and then do another:
  • The President and his spokespeople say that he wants a public discussion of the cost to society of the "war on terrorism", but his administration has done more than any other administration in U.S. history to squelch debate and keep information from coming out. The Obama administration has filed more Espionage Act cases against whistleblowers than all other Presidential administrations combined. In addition, it charged that Fox reporter James Rosen was a co-conspirator in an Espionage Act case, in clear violation of his First Amendment rights.
  • The President said that the U.S. wouldn't "scramble fighters" or take other overt actions to try to capture Edward Snowden, and then, just a few days later, Bolivian President Evo Morales's plane was forced down in Austria when Spain, France, Germany and Portugal all denied entry to their airspace. The reason, we subsequently learned, was that a party informed all the countries that Edward Snowden was "definitely" on Morales' plane. The only possible source for that false story was the U.S. Government.
  • Both the President and Vice-President argued against the expansion of domestic intelligence when the Bush Administration was in power, but they've adopted and expanded the Bush Administration's domestic intelligence program since taking power.
When President Obama says that he'll do something, he might do it, he might not do it or he might do the opposite. When he says something, it might be true, it might be true but very misleading, or it might be false. There's no way to determine what he'll actually do or what he really means by what he says. Given the President's record on these and other promises made and not kept, and assertions made by him and members of his administration that the Government was doing one thing when, in fact, it was doing something very different, I now follow a personal rule: Pay no attention to anything that President Obama says, and focus only on what he actually does. That's why I refer to him as the first "Blackwhite" president in U.S. history; here's how George Orwell defined the term in 1984:
“ ...this word has two mutually contradictory meanings. Applied to an opponent, it means the habit of impudently claiming that black is white, in contradiction of the plain facts. Applied to a Party member, it means a loyal willingness to say that black is white when Party discipline demands this. But it means also the ability to believe that black is white, and more, to know that black is white, and to forget that one has ever believed the contrary. This demands a continuous alteration of the past, made possible by the system of thought which really embraces all the rest, and which is known in Newspeak as doublethink. ”
I haven't accepted that rule lightly: I'm a lifelong Democrat who voted for Obama in the 2012 election and would have voted for him in 2008 except that I was in the process of moving from California to Illinois during election time. However, Obama's actions in office would have been totally consistent with those of a moderate Republican from 20 or 30 years ago. In fact, I doubt that a moderate Republican from that era would have had as easy a time as Obama has had in justifying massive domestic intelligence gathering.

Sunday, December 28, 2008

Taking stock

This is the end of what has been the worst year of my life. I was out of work for six months, and had to file for bankruptcy last October. I had to euthanize my older cat on Christmas Eve, less than two weeks after we got to Chicago for me to take my new job, and just a week after his 17th birthday. (We had been together since he was four months old.) The good news is that my other cat seems to be healthy, if still a little disoriented by the move from California. I've got a good job with a great company, and I'm working with a wonderful team of people. I'm living in a beautiful condo.

In many ways, this is the start of a new phase in my life. I've come full circle, from going to graduate school in Chicago from 1978 to 1980, to returning 28 years later. I've got a fairly young cat to raise in a new city, with new friends, neighbors and co-workers, and a new area to learn. I'm not sure how relevant this blog is to my new life, since what I'm doing is only tangentally related to what I used to do. Therefore, as we wrap up the holiday season, I'm rethinking what this blog should cover, and whether I should even continue it.

For now, I'm putting the blog on pause, at least until after the first of the year.

Sunday, November 30, 2008

I've got a new job!

As some of you know, I've been looking for a new job for almost six months. Last week, I accepted an offer with a large, privately-held company outside Chicago, IL, USA. I'll be starting in mid-December, so I have to find a place to live, move and get settled in over the next two weeks. As a result, I'll be posting on this blog intermittently (if at all) for a while. Thank you for your patience!
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Thursday, November 20, 2008

Bankruptcy is looking ever more likely for one of the Big 3

The possibility of any kind of large-scale bailout of the U.S. automobile industry has been pushed back to December, according to this article from The Wall Street Journal, and may not happen before the Obama Administration comes into power on January 20th. Earlier today, it looked as though members of the Senate had crafted a compromise plan to use the $25 billion already allocated for the development of fuel-efficient vehicles for the bailout, but both Democrats and Republicans in the House of Representatives rejected the idea. It now appears that the U.S. automakers will have to come to the Congress with business plans that explain how they'll work themselves out of the situation they're now in before they can get the money.

Of the Big 3, GM appears to be the likeliest to fail, and Ford is the strongest, having borrowed a huge amount of money before the credit markets closed down. Chrysler is the hardest one to read, since it's a private company owned by Cerberus Capital Management. Of course, it's not clear that any of them will actually declare bankruptcy; GM's management still shuns the use of the word.

From everything I can see, legislators and their constituents who are opposed to a bailout believe some or all of the following:
  • The automakers don't deserve the money because their senior managers are incompetent, or because the union jobs that would be preserved pay so much more than what many other workers make
  • The automakers would waste the money
  • The automakers will soon be back with demands for more money
  • The banking bailout has turned out to be much less effective than originally advertised, so why should be believe that an auto industry bailout would be any different?
  • The ripple effects of one or more bankruptcies won't be as bad as the companies and their supporters are saying
  • The companies can survive bankruptcy, and will emerge stronger and more competitive
What these arguments miss, of course, is that once a company files for bankruptcy, its pension liabilities will be transferred to the Federal Government. The workers that were getting health care from their employers will have to get health care somewhere, and will overload already overburdened emergency rooms and hospitals. The ripple effect is quite real--as I wrote about in an earlier post, I saw it when the U.S. steel industry collapsed in the 1980s. Finally, given the frozen credit market, the risk is extremely high that any Chapter 11 bankruptcy would quickly degenerate into a Chapter 7 liquidation. In this market, who would, or could, acquire the assets of GM, Chrysler or Ford? In a growing market, you could argue that a Japanese, Korean, Chinese, Indian or European company might swoop in and buy them "on the cheap" for a quick foothold in the U.S. market, but we're in a worldwide recession, and everyone is hurting.

So everyone now waits as the Congress and automakers play a dangerous game of "Chicken."

Sunday, November 16, 2008

The Truth About Forecasting: Part Two--Obviousness

In the first part of this series, I wrote about the errors that make most forecasts meaningless, and gave examples of how I committed most of them in my very first job. Now, I'd like to tackle the one error that I didn't make at that time, the error of obviousness. A forecast that tells you what you already know isn't a forecast, it's redundant. This example comes from when I was working for Toshiba in the late 1980s. I had a conversation with my boss, Hank Yamamoto, about where the design of laptop computers was going. Keep in mind that the standard at this point was VGA (640 x 480) monochrome LCD displays, with Toshiba and Fujitsu also selling portable computers with monochrome plasma displays. Toshiba was already experimenting with pen computers, and was delivering a small number of them to customers.

Hank pointed out that there were several areas in which laptop design would change over time:
  • Processors would get faster
  • Displays would move from static to active-matrix thin-film LCDs (better for handling graphics), resolution would improve, and color would become affordable
  • Hard drives would get bigger and faster
  • Memory would also get bigger and faster
  • Battery capacity, and thus run-time, would improve
  • Everything would get cheaper
That was 1989, and all of that happened. Everything that Hank said was simply an extrapolation of the components and capabilities of existing laptop computers. He didn't try to forecast what prices would be for each of the components, or for the finished computers, at any given time, but Moore's Law could have provided guidelines for timetables. The same extrapolations can still be made today; the only component that we didn't consider back in 1989 was flash memory, which is now being used to replace hard disk drives.

There were plenty of companies in 1989 that were selling research reports and forecasts that stated essentially the same things that I just listed above, albeit with more charts, graphs and tables. These reports sold for thousands of dollars, and would have told us what we already knew. However, these reports usually added prices, dates and even sales quantities, most of which turned out to be wrong. Companies that bought those reports and relied on their forecasts were in worse shape than those that simply used the component breakdown and extrapolation method. Hank knew that he couldn't forecast prices, dates and sales quantities, but he could forecast the direction of development and its eventual payoff.

In the third and final part of this series, I'll revisit the five sources of error, examine what I consider to be the worst ones, and discuss a few ways to be a better forecaster and consumer of forecasts.

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The Truth About Forecasting: Part One--The Five Deadly Errors

I've been reading Nassim Nicholas Taleb's book "The Black Swan," which has gotten a lot of attention recently due to the financial meltdown. I may go into Taleb's core arguments in a future post, but one of his arguments is that forecasting of things that aren't physically based is all but impossible. Here's an example: We've learned how to forecast the weather fairly well, at least in general terms over short periods of time, because we increasingly understand the underlying physics. However, the five-year forecast that was undoubtedly assembled by product planners at GM last year has long since been shredded and recycled. The numbers, even for 2008, were useless because while the forecast might have had some allowance for the impact of $4/gallon gasoline, it certainly didn't allow for the possibility of a financial meltdown and complete collapse of the consumer credit market.

This brings me to my own experience as a forecaster over a nearly 30 year career in high tech. It's my belief that most forecasts aren't worth the paper they're printed on, because they're:
  • Obvious
  • Based on false assumptions
  • Biased to satisfy the audience
  • Cover too long a time horizon
  • Don't (and can't) take into consideration massive, but in hindsight predictable, discontinuities such as our current financial mess
Here's a case that demonstrates four of the five errors. In 1980, my first job out of business school was at Hewlett-Packard's Corvallis (Oregon) Division. At that time, Corvallis was responsible for HP's calculator product line, but they also had a line of personal computers called Series 80. The Series 80 machines were based on a processor designed by HP and derived from calculators. They were incompatible with any of the other PCs in that still nascent market, so software, hardware, peripherals—everything—had to be designed especially for them.

I was hired to be the Product Manager for Series 80 software, and part of my job was to forecast the potential sales of new software products. Since our software only worked on our computers, we had to start with sales of Series 80 machines, which were a few tens of thousands a month and growing, modestly. I was responsible for an array of software packages, each of which had its own appeal, including a database, a word processor, and even a Series 80 version of VisiCalc, the original spreadsheet. However, our primary market was engineers, the market for most of HP's products at the time. Were we going to branch out and try to reach consumers and businesspeople? That could make a big difference in the potential market size, and if our software was very successful, it could drive sales of computers.

One of my first questions was whether I could go out and poll current and potential customers to find out their receptivity to our new products. That idea was shot down, because we didn't have the budget for primary research. The industry was so new that there weren't any research services that we could subscribe to in order to independently gauge the market potential (and, as we'll see later, their own forecasts were likely to be of dubious value.) That's when I was introduced to the concepts of "WAGs" and "SWAGs" by one of our most experienced product managers.

"WAG" stands for Wild-Assed Guess, and "SWAG" stands for Silly Wild-Assed Guess. Neither WAGs nor SWAGs are entirely guesses, but they're close. When you don't have hard historical information, you have to estimate what percentage of the existing installed base will buy the product and how many new users will also buy, every month and every quarter, for five years. So, you start with a "rule of thumb"—say, 10% of your existing and new PC buyers over time will buy a particular piece of software, with that number going up to 15% in Year 2 and 20% in Year 3. What's your proof? You don't have any, but it sounds reasonable. By using WAGs and SWAGs, I committed the error of basing the forecast on false (or at least dubious) assumptions.

Once I completed the unit sales forecast, I then had to determine what price we should sell each product at. HP had sold software for "personal computers" over the years, but these were massive, specialized desktop computers that sold for many times the price of our Series 80 models. The company's prevailing model for pricing software for these models was to look at the software's manufacturing cost, and then mark it up by a given percentage. (Development costs were part of HP Labs' budget, and were not factored into product costs.) That's where I began with the pricing for Series 80 software, but it became clear in some cases that the software would be too expensive for buyers, and in other cases, the profit margins were simply too high. (Too high? In those days, HP management felt that charging too much for products—based on their costs—was unethical.)

Now I had a units forecast and a revenue forecast. I even used a WAG to estimate price changes over time. But before I could formally present them to management for approval, I had to calculate the overall rate of return on the product—too high, and the forecasts would go back to be redone with lower profit margins; too low, and the product would be scrapped. My first time through, the margins were too low, so I was told to go back and try again. I raised the units forecast over time, but it was unrealistic compared to separate forecasts for hardware sales, so I fiddled with initial prices and changes over time in both prices and market penetration until I got within the company's rate of return guidelines. (It turned out that competitors were selling comparable products for considerably more money, but those margins wouldn't wash within HP Corporate.)

So I had committed my second error, that of biasing the forecast to satisfy the audience. Virtually any connection between the approved forecast and reality was lost in order to meet HP's financial guidelines. But wait, there's more. My forecast had to cover five years. We now know that five years is a very long time in the personal computer business, but it was all new back then. So, I forecasted five years of growth, assuming updated versions of the software over time. What happened was that the next year, 1981, IBM introduced its first PC, which revolutionized the industry and created a new standard, and in 1984 the Apple Macintosh came out, helped in no small part by two PC product managers from HP Corvallis who went to work on the Mac in 1982. The Series 80 product line simply couldn't compete in this new world, and was discontinued altogether in 1984.

With my five-year forecast, I committed errors three and four: First, five years was far too long to forecast, given the rapidly changing nature of the PC industry. Second, there was an "unknown unknown" being developed in Boca Raton, Florida, which made my entire forecast and product plan moot. In hindsight, the flaws of the Series 80 platform made it very vulnerable to competition, but I was too entrenched with the nuts and bolts of getting my products out the door.

In Part Two of this discussion, I'll discuss the problem of obviousness.

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Saturday, November 15, 2008

A way to save the Big 3: Turn your clocks ahead one year

The cost for bailing out the Big 3 automakers (if they get everything they want) is now $75 billion and rising, yet the problem for the automakers is time as much as it is money. In John McElroy's column in Autoblog, he argues that the contract between the automakers and the United Auto Workers that goes into effect in 2010 will dramatically decrease the automakers' costs by shifting the burden for medical expenses to the UAW. In addition, a two-tier pay scale will be implemented, with new hires getting significantly lower salaries than existing workers. Therefore, a key goal of any government bailout should be to keep the automakers alive until the new contract goes into effect.

If McElroy is right, one way that the U.S. government could help the automakers would be to turn the clock ahead one year, figuratively speaking. Here's the idea: In return for Government financial aid, the contract scheduled to go into effect in 2010 would go into effect one year earlier, on January 1, 2009. The initial cash payments into the UAW's health care funds would be paid by the U.S. Government, not the automakers, in the form of loans to the automakers. (The money would go to the UAW directly from the U.S. Treasury, so that the automakers couldn't divert the money for other uses, just as banks are diverting funds that were supposed to be used for lending to other purposes.) This would save the automakers billions of dollars that they can use to finance their operations. The loans would be repaid by the automakers once they regain profitability.

This plan would give the Big 3 more flexibility to open and close plants as needed to meet customer demand, and it would also give them incentives to implement the kinds of cost-saving platform engineering strategies adopted by the Japanese manufacturers decades ago. With labor costs under better control, and with more flexible production, this plan would do many of the things that bankruptcies would do, with dramatically less "trickle-down" impact.

One other thing that the U.S. Congress could do would be to preempt car dealership franchise laws in the states. These laws require massive payments by car manufacturers to dealerships that they want to close. There's plenty of attrition in the ranks of car dealers today, but it would make much more sense for the car manufacturers to be able to take active control of their distribution strategies. This wouldn't cost the taxpayers a thing, although it would increase unemployment due to the closed dealerships.

The key is not to simply throw money at the problem, but to make business changes that will finally bring the U.S. auto industry into the 21st century.

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