What is Bitcoin? (part I)

Every semester, I take my students from Columbia College to Chicago Federal Bank’s Money Museum.  It’s a great experience for the students, and I also learn something new with every visit.  On our last visit, I pulled one of the PhDs aside (they all possess a doctorate degree in Economics) and asked, “what do you think about bitcoin?”  The presenter gave me a one sentence answer – it’s a safe haven for illicit traders.  Probably a little too harsh answer, so I did my own research.

  • What is bitcoin?  It’s a virtual currency created by an unknown Japanese programmer (only his pseudonym is known).  It’s not associated with any country or government, making it truly universal.
  • How does it work?  Every user has a “wallet” with a unique identifier.  While all transactions are recorded, user ID is kept anonymous (OK, so that supports illicit trade comment).
  • How  do I get bitcoins?  Various exchange sites / services let you buy and sell for cash.  You can also mine them (honestly I don’t get this concept).

To be continued…

Which Seeking Alpha blurb on the state of global economy concern you the most?

Mine – 3rd paragraph below…  Perhaps little rise in the rate and tightening on liquidity is not a bad thing however…

 

Brent crude fell for a ninth straight session this morning following weak gasoline demand in the U.S. The drop marks its longest losing streak in four years, falling 14 cents to $108.14 a barrel at 3:45 GMT. U.S. crude tumbled for a tenth consecutive session, down 48 cents belowWednesday’s close at $101.81 a barrel. The front-month price is on track to display its longest stretch of losses since July 1984.

Tensions are mounting in the Middle East, after Gaza militants fired new M-302 rockets deeper into Israel, armed with a range of 93 miles. Israel has ramped up its air strike campaign as a result, targeting 486 militant positions including rocket-launching sites and smuggling tunnels. The newly acquired rockets put about two thirds of Israel’s 8M people into Gaza’s range of fire, increasing pressure to neutralize any threats.

The Fed has agreed to end its bond-buying program in October. The new definitive closing date marks the end of the quantitative easing and controversial central-banking approach. The plan will decrease bond purchases in three increments until October, when the last $15B reduction is scheduled.

The results of Indonesia’s presidential election will remain uncertain for at least ten days, as 130M votes still need to be hand-counted. Presidential candidates Widodo and Subianto have both claimed victory in preliminary tallies. Indonesian stocks soared as much as 2.8% in early trading after foreign investors bought $263M worth of stock – nearly four times the daily average of foreign buying. The rupiah also gained, hitting a two-month high against the dollar.

The State of Global Economy…

…one quote at a time.

  • “I will read about it in the newspapers just like everyone else.”  – President Obama deflecting France’s appeal to intervene as BNP Paribas, the largest French bank, faces a potential multibillion-dollar US fine over currency transactions
  • “The worldwide concern is unfortunately waning as the international financial crisis recedes.” – German chancellor Angela Merkel in a speech about how the regulation of ‘shadow banks’ needs to be a central issue at the G20 summit this fall
  • “Zero is just a number.  The world goes on.” – Chief analyst at Danske Bank in Copenhagen Arne Rasmussen shrugging off a move to charge banks interest for deposits kept at the European Central Bank, given that no financial chaos erupted when Denmark’s central bank had a negative deposit rate in 2012.

Writer’s note – as I type this, BNP Paribas have decided to plead guilty and pay almost 9BN in fine for violating US sanctions.  As the world turns…

Generals Say Troops Understand Need for Pay Cuts

http://www.military.com/daily-news/2014/03/26/generals-say-troops-understand-need-for-pay-cuts.html?ESRC=dod.nl

As ex-military, I have mixed feelings about this…   Yes, the Armed Forces are all about the mission and defending the constitution of the United States of America.  But you still have to pay the bills and feed the family.  You decide…

Allegiance for Hire

10ahn-master675Hyun-soo Ahn was one of South Korea’s most decorated short-track speed skaters (5 World Championships and 3 golds at 2006 Olympics), so why did he change his name to Viktor Ahn and is now skating for Russia?

http://www.nytimes.com/2014/02/10/sports/olympics/ahn-rejected-us-to-skate-for-russia.html?hpw&rref=sports&_r=0

What NY Times failed to understand…  Sports federations in South Korea are like mini-mobs (maybe even worse).  There have been allegations of abuse of power, misappropriation of funds, physical mistreatment of athletes, etc.  I heard rumors that Ahn wasn’t supposed to win his 3rd gold at ’06 Olympics, rather it was supposed to go to one of his teammates so that he too could be exempt from mandatory military service (with mandatory military conscription, you are exempt if you win an Olympic gold).  Instead, Ahn competed like any athlete should, whether Pop Warner or world-class…  For that South Korean Skating Federation full of bureaucrats and fat cats, made Ahn’s life hell and disowned him when he was seriously injured ’08 and missed 2010 winter games.  Now Viktor Ahn is winning medals for Russia at Sochi and could become one of the most decorated short-track speed skaters of all time.  Talk about karma…  Good for Viktor (and 61% of South Koreans surveyed agree)…

Customer Service and Manners

CaptureGreetings from SFO Red Carpet Club.  There were days, pre-marriage and definitely pre-kids, when I enjoyed flying, whether for work or for leisure…   And the Star Alliance network, led by United Airline (now United Continental Holdings) provided the widest reach.  Fast forward a few years (after a couple of 200K+ annual air mile years and joining million miler club) and marriage and kids, I now fly only when needed and necessary.  So when I logged on almost 50K miles in the last 60 days (no I am not trying to reach 2MM miler club), it was like learning a new trick all over again.  Here’s what I’ve learned…

  • Automatic Premier Gold status for million-miler does not get you whole lot, except for premier check-in line.  No wonder while back, a United million-miler sued the airline for breach of contract (before the merger, million lifetime miles got you premier executive, not premier gold status).  I feel like I’m treated better by Star Alliance member airlines when I am traveling abroad that United, which I have most loyalty to.
  • US flight attendants really do need a lesson in customer service.  Just because you start the sentence with either sir or ma’am that does not excuse rest of the sentence / paragraph that comes out of your mouth.  Specifically, a couple of flight attendants in my recent flight from ORD to SFO were behaving like two frat boys at division II schools.  It was embarrassing…
  • My recent flights on KAL, Singapore and Asiana served to only affirm my view.  Of particular note, I caught an Asiana flight attendant cleaning the lavatories during downtime so that the customers can have more pleasant flying experience.  25+ years of flying domestic airlines, I’ve never seen any domestic flight attendant do the same.

I can certainly empathize with tight margins and cut-throat environment that depicts the airline industry (I was an early guy at Orbitz so I do have some insight).  But it just seems like many US flight attendants, especially those with senority, have given up and are just going through the motions and are waiting for retirement (with apologies to those flight attendants who care and bust their butts to do their job right)…  Much like networking, customer service is just good humanity.  It has to be something you want to do and take pride in.  So what’s my solution?  Depressed million miler benefit combined with poor customer service, I don’t have much choice except to fly Star Alliance network airlines instead of United on international flights.  Then again I do have 500K miles on American…  Perhaps time to try a different domestic airline?

Death of Fox & Obel

photo (63)I’ve written many “Death of” articles – death of Blackberry, death of the penny, death of the Encyclopedia Britannica. But this one really hurts…

Before Mariano’s Fresh Market, Whole Foods, Wild Oats, and Trader Joe’s (I’m still mad at them for not giving me an opportunity to interview after I submitted an application at a different point in my life out West, but that’s a story for another time), there was Fox & Obel, the Chicago-based, River East mainstay for over a decade. With rumored celebrity investors like Scottie Pippen, 5 dollar per ounce olive oil, truffle tasting stations, in-house wet and dry aged meats (initially the only grocer that carried Tall Grass Beef from Red Buffalo Ranch, owned by Bill Curtis), top-notch wine and apéritif lists, hard-to-find regional and international accoutrements, and a Zagat-rated cafe attached, people had flocked to what is arguably the first high-end grocery store in Chicagoland. And this was despite its sky-high prices (trust me, much worse than Whole Paycheck, I meant Whole Foods).

Manning the bakery was Phyllis, a lovely woman and native of South Africa who never hesitated to scold rude customers, who took it. There was Martha, the ever-smiling assistant manager greeting patrons as they walked in and out. And Juanita, café manager and a single mother (her son’s a star athlete at a local Catholic school). Juanita knew exactly how you liked your coffee. Fox & Obel managed the unlikely balance of Chicago Gold Coast uppity-up-ness with a neighborhood feel. My business partner (of Spend Matters fame) Jason Busch Ioved the bakery so much that its muffins, pastries and bread made it into our formal LLC operating agreement for our Spend Matters advisory business (i.e., written into the agreement was that one partner had to “stop at the Fox and Obel” bakery before business meetings – I kid you not, and yes we did honor the agreement!) Unfortunately, it’s now time to amend it.

For a while we’d heard rumors of additional investors, new stores in the downtown area, North American expansion. Then bam: the bottom fell out.

My wife Jenna and I walked around the closing sales event with heavy hearts. To Jenna and me, this was not just a grocery store – Tsige cooked for us, Sue babysat our kids, and on Friday afternoons I used to bring my RJSL and Spend Matters colleagues treats from the Fox & Obel bakery. So what happened? I can certainly make a few hypotheses.

  • Decreasing passion and sense of mission – After initial success, the original founders cashed out to private equity investors. And I could sense a gradual decline in quality over the past few years. Does that mean every buyout spells doom for those acquired? No, but it does mean that if cash flow buyers (as opposed to strategic acquirers) focus too much on the short-term bottom line, it will erode the X-factor that made the establishment special.
  • Hiccups in execution – It could be as minor as less crust on what used to be their signature almond croissant (Jenna noticed it after a new pastry chef came on board; the long-time head quit when his paycheck bounced), as major as multiple health code violations (fruit flies in food preparation stations is what I’ve heard), and everything in between, such as failure to pay electricity bills on time.
  • Poor inventory – Along with declining quality, I noticed that shelves were becoming emptier. No longer was Fox & Obel the go-to place for hard-to-find items, and even its staple trappings were sometimes missing, a cardinal sin for a grocery store. I am not a grocery industry expert by any stretch of the imagination, but even I could see tension between Fox & Obel and its suppliers.
  • Erosion of the foundation – No disrespect to technology and process (many economists claim these are the only two factors that could push the famed EFPC – efficient frontier production curve – outward), but people make up every business’s foundation, regardless of the segment. Again, towards the end, I heard grumblings from Fox & Obel’s employees. Perhaps they trusted me since I was a regular, but nonetheless, I never heard any complaints over the first few years.

I could go on and on, but it won’t bring Fox & Obel back. Furthermore, I think these causes of their failure are a good lesson for just about any business. And in case you were wondering what Jenna and I bought at the final closing sale, we stocked up on Fox & Obel water glasses and Mexican Coca Cola, made with real sugar. Coincidently, the sourcing of Mexican coke is a great personal procurement lesson – which involves having to pay significantly more for a far superior product (which also requires seeking out) albeit with the same corporate brand.

I promise to tackle more cheerful topics for the rest of 2014. Happy New Year, everyone.

We’ll also let you know what new Chicago bakery (La Fournette is highest on our current list) that Jason and I decided to amend and include in our operating agreement so that the entire Spend Matters and MetalMiner office continue to remain well-fed and sugared-up.

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