JimPinto.com - Connections for Growth & Success™
No. 113 : March 6, 2003

Keeping an eye on technology futures.
Business commentary - no hidden agendas.
New attitudes, no platitudes.

  • Waiting, one hand behind
  • The Mid-East & terrorism
  • Lessons from the Great Depression
  • Invensys' precarious perch - piecemeal purchase possible
  • ABB record loss - but the worst is over
  • eFeedback:
    • Frustration over the impending war
    • Political labels
    • Depression backlash against globalization

Waiting, one hand behind

I've had a lot of good feedback and some pressure regarding my views on the impending war in Iraq. Some people think I should not confuse automation and futures news with political opinions, or at least put the editorials at the end.

My response (again) is that I would feel rather shallow if I wrote about other stuff, without addressing the primary concern in the world today. So, if you'd like to read about the latest status of Invensys or ABB, please simply scroll down.

Anna Quindlen is a Pulitzer Prize-winning journalist and best-selling novelist whose column appears every other week on the back page of Newsweek. In the latest issue of Newsweek (March 10, 2003), she expresses very well many people's feelings, and mine, about the current situation. Please read - I'd value your personal comments.

Click Newsweek: Anna Quindlen - Waiting, one hand behind

The Middle-east and terrorism

On Sept. 23 2002 in Lincoln, Nebraska, Thomas L. Friedman, NY Times columnist and 3-times Pulitzer prize winner, gave the 7th annual Governor's lecture in the humanities; his subject: "The Middle East and US Foreign Policy". My friend Perry Marshall sent this with the comment, "It's one of the most astute discussions I've ever read about the chasm between the West and the disenfranchised East." I have done my best to summarize the talk here. I hope it will stimulate you to read the complete speech online.

It is clear that we must rid the world of terrorists - but more importantly, we have to kill their ideas. We need to understand that terrorism is not about the poverty of money. It's about people feeling humiliated, feeling a poverty of dignity as they compare themselves to the West. That is the rage that caused 9/11.

In the past, we have treated Saudi Arabia as if it were just a big, dumb gas station. All we cared about was that when we drove up, the pump was open and the price was low. Today, we must discover why it is incubating terrorism more than any other country.

The 9/11 hijackers were from two groups - Saudis and Europeans. The Saudis were the followers - to them it was simply some sort of martyrdom. They were typical of young men all over Saudi Arabia and the Middle East today. Oil resources have increased the standard of living, but there is high unemployment and an army of young people with a lot of resentment. They go to the mosque and the preachers there fill their heads with ideas that all their problems as caused by America, or Israel, or the West. That is the pool of people from which Al Quaeda draws.

Then there is the second group of 9/11 hijackers - the 'Europeans', Saudis and Mid-East born, but moved to Europe. These were the key terrorism plotters. Not one of these young men left home a Muslim radical - they were radicalized in their encounters with the West, particularly with Europe, where a spark of rage got ignited.

In the US, we aspire to be a melting pot; it is a part of our self-identity. That is not true of Europe, which is culturally mostly Christian. There are mosques in all European countries; but European Muslims, even to the third generation, really don't feel welcome in the local societies. So the young men who come from the urban Muslim world feel estranged and they gather in mosques for solidarity. Some drift into more radical circles, and some clearly drifted all the way to Al Quaeda. These are the angry, educated killers.

Friedman goes on to outline how religion plays an important part in the development of feelings of disrespect and rage. In the West, clear separation between Church and State has developed over past centuries. In contrast, the Mid-East (Saudi Arabia is the prime example) has autocratic, nondemocratic regimes that get legitimacy through striking deals with the anti-modernist religious leaders. The non-democratic regime is "blessed" by the clergy in return for official sanctions and funding. The anti-modernist religious educators produce a young generation of people unprepared to succeed in the modern world. That reinforces the poverty, the poverty reinforces the autocracy, the autocracy reinforces the religious affairs and education, which reinforces anti-modernism, which reinforces the unprepared youth, and the wheel of Al Quaeda type terrorism just goes around and around. This is the cycle that must first be broken for terrorism to be defused.

Click Archived video of Friedman's speech

Lessons from The Great Depression

The US stock markets greeted 2003 with a healthy jump. But alas, that didn't last and the economy reflects continued uncertainty. During 2002, the S&P 500 index dipped by 22.1%, completing a third consecutive year of negative returns (-9.1% in 2000, -11.9% in 2001). If the S&P also dips in 2003, for four consecutive years, this will be the first time since "The Great Depression" - the last great deflationary event in America (1929, 30, 31 and 32).

The 9/11 attacks and the subsequent fear of terrorism have deepened the parallels between present-day America and the America of the 1920's. In the early 20's, Americans also felt assaulted by alien forces - radicalism and Bolshevism imported mainly by immigrants. There was fear of terrorism then, too. These are eerie extensions of similarities between the two periods.

In both periods, Americans enjoyed astonishing prosperity. In both, novel technologies generated a boom. In both, there was faith that the economic system had permanently changed things for the better. In both, the stock market rose to unanticipated heights before it crashed. The SEC itself was formed in response to the market-crash of 1929, and the new, stiffened post-Enron rules are still playing out. We know what happened to the 20's - the depression lasted 10 years; the 90's endgame is still unfolding.

In the 20's new technologies helped propel the pre-depression boom. The spread of electricity stimulated markets for new appliances: irons, toasters, stoves, washers, vacuum cleaners and radios. Along with the spread of movies, radio's arrival fostered a new national pop culture and politics. Even more transforming were automobiles - from 1920 to 1929, car registrations tripled. The hunger for mobility spurred feeder industries, from filling stations to road construction to motels. Mutual funds, then known as investment trusts, were booming. Stock market setbacks were temporary; people bought on the dips, and warnings about speculative excesses were dismissed as old-fashioned. Sound familiar?

The Great Depression caused enormous hardship for tens of millions of people and the failure of a large fraction of the nation's banks, businesses and farms. It transformed national politics by vastly expanding government, which was increasingly expected to stabilize the economy and to prevent suffering. Social Security, unemployment insurance, and federal family assistance all began in the thirties.

At its nadir, the Depression was collective insanity. Workers were idle because firms would not hire them to work their machines; firms would not hire workers to work machines because they saw no market for goods; and there was no market for goods because workers had no incomes to spend.

In the US today, globalization is causing job-shifts to lower-cost countries and major domestic upheavals. In 2002, China's foreign trade increased an amazing 21% when that of most others declined. There is no question that China is exporting deflation to the rest of the world. The Great Depression and political upheaval in the 1930s destroyed the last great age of globalism. Today, whether globalism continues unchecked remains to be seen.


Click NY Times - Two books seek lessons from the great depression

Invensys' precarious perch

Invensys shares closed at 12p on Feb. 25 03, against 52p at the start of the month. A mooted break-up valuation of nearly 3 times its fallen share price halted the steep slide. Curiously, Invensys was among the biggest FTSE risers when it jumped back to 16p.

I got lots of chuckles on my previous comment that "the Lord may soon lose both his FTSEs." As we went to ePress (Wed. 5 March 03) shares closed at 13.25p, with market-cap of 464M.

Credit Suisse First Boston valued the production management business at 810 million, and suggested that GE and Siemens would be interested in picking up the process controls pieces. CSFB valued the energy management business at 2 billion and felt that private equity players such as KKR could spin it off. And CSFB thought (correctly in my opinion) that Schneider could be interested in power-systems.

Hard to believe that Invensys, formerly BTR and Siebe, was the second largest company in Britain just a few years ago. After being overstretched by former CEO Allen Yurko, it seems ready to be dismantled. Now the battle is against time as the bank covenants could be breached soon and investors are fretting about asbestos related liabilities. Faced with an estimated 600M hole in the pension fund, there is also pressure to end or modify the pension scheme. Analysts, customers, vendors and employees are wondering how long Invensys can survive intact.

With economic recovery unlikely, shareholders recognize that Haythornthwaite's "plan" will inevitably give way to a fire sale initiated by the banks. Meanwhile, Haythornthwaite and his horde of hangers-on continue to operate bravely. Loyal employees worry that inexperienced managers continue to be hired, stretching budgets and learning curves beyond credibility.

One long-term employee reports on the weblog: "I work with one new manager who seems to have no more experience than reading the GE manual on 'How to be like Jack', 'How to forget customers' and 'How to punish winners by treating them like losers'. He has coined the new phrase 'If it's working change it'. When he exits the company (soon, I hope) he will still be humming 'We are INVENSYBLE' (to the tune of 'We Are The Champions') and carry away a big check."

Pinto's Prognostications:

Haythornthwaite and his minions are fighting a losing battle. While the big segments (Foxboro, APV, Wonderware) can be sold off to the likes of Siemens and GE, several smaller companies (Eurotherm is a prime example, with totally ineffective management) will simply be dangling in the wind, to be used by Invensys as pawns in the process.

My advice to key managers in strong, independent companies such as Triconex: Get your management group together and attempt a leveraged buyout. You can get bank financing based on independent cash-flow, plus strong venture capital that would be willing to support a good management team.

Click Break-up hopes help Invensys to halt slide

Click Invensys may scrap pension scheme

Click The latest news and comments on the Invensys weblog

ABB posts record loss - but the worst is over

ABB Ltd. posted a record $787M loss for 2002, including provisions for asbestos claims and asset disposals. This exceeded the previous record loss of $691M for 2001. ABB subsidiary Combustion Engineering recently filed for bankruptcy after the asbestos lawsuits were settled for $1.2B.

ABB's revenue declined 6% to $18.30B in 2002, from $19.38B in 2001. Operating profit rose to $336M from $179M in 2001, meeting Dormann's key goal to have better operating margins. Dormann said the company is confident about reaching its 4% revenue growth target for 2003 and that operating profit could improve to 4%.

ABB reported that results improved in its power technologies and automation technologies businesses, the core divisions. Despite a difficult market, full-year automation orders increased 5% to $8.70B and fell 8% in power to $6.84B.

ABB is in talks with several bidders for the sale of the oil, gas and petrochemicals division and expects to book a gain on the sale. Debt is expected to reduce from $8B to $6.5B by the end of this year.

With its market capitalization at just $3.5B, ABB looks like a takeover target and CEO Joergen Dormann warned that it might fall prey to a bid; he didn't say whether he'd consider such a move hostile or friendly. Given the current low ebb in the power and automation industry, ABB is not a good target. The current low price has a big risk attached and ABB will probably be left to solve its troubles on its own.

On the ABB weblog, an ex-employee commented: "I like ABB and hope to perhaps return one day. ABB needs to get back to its roots (as Dormann is doing) to think intelligently, not knee jerk. Shareholders' views have had an enormous effect on ABB strategy and response recently. They have not reacted well to this in the past. I hope they will continue to listen. I have just bought some shares in ABB."

Click ABB Posts Record $787M Loss for 2002

Click Latest comments and feedback on ABB weblog


Patrick K. Gladd [Pat.K.Gladd@conocophillips.com] expressed the mixture of frustration and exasperation that we all feel about Iraq and the impending war:
    "What is the answer on how to deal with a leader who uses biological weapons on his own people, allows his elite guard to rape Iraqi women, allows his son to be in charge of the Olympic athletes of Iraq and when they don't perform they end up in prison for life, or are shot?

    "War is ugly, war is a last resort but sometimes it is justified. It makes us realize that there are people out there that would do anything to get what they want, at any human cost.

    "We are all cut from different pieces of cloth, so we can respectfully disagree. Even so, I would die for you in battle because you are my brother as an American citizen, from the not-so-perfect but the-best-we-can-make it, greatest country in the world.

    "To a point, our differences are what makes this country great. Must we debate to death while the Trojan horse is planted on our soil as it was on 9/11? I don't mean to go back to the days of McCarthy, not by a long shot. I just want to get back to life as it was before 9/11, when one could get on a plane and the only worry was when the peanuts would be served...."

On the subject of political labels, Tom Collen [tomcollen@attbi.com] commented:
    "It is not surprising to me, after years and years of screaming by right-wing windbags like Rush Limbaugh and others of his ilk, that so many people have been trained or conditioned to simplify their thinking down to the labeling that is so prevalent now. I remember too, when a liberal was not the evil beast that many seem too think they are now. Liberals are now so demonized and pigeonholed, that many "good" ones have gone into hiding. Look at the Democratic Party. The only way this dangerous trend can be reversed is to keep speaking out and exercising your right to do so."
Christopher Schene [karate_dad@hotmail.com] triggered my own thinking on the many parallels between the Great Depression and current political and economic conditions:
    "This time period in history shows many disturbing parallels to the time just before the 30's depression. I expect an upheaval and revolt at the ballot box when western workers realize they have been sold down the road. Roughly, I would expect this to crystallize in a major way around the 2007 - 2009 time frame. The 30's revolt at the ballot box ushered in a socialistic backlash in the US and the democrats controlled the house and senate for two generations after that. I expect that you will see much of the corporate power taken back and for the US to become more isolationist.

    "I also would expect to an upheaval in China around the same time. The country is changing too fast for the economic and societal structure to absorb it without some sort of conflict related to the growing pains. The problem with educating people is they will become too smart to accept the oppression that China is known for. Look for a China revolution circa 2009."

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