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GP24June:  Risky Business

Danger.  With Don John Gotti safely in his grave and all the wakes in his honor subsiding, we can now start writing odes In Praise of Living Dangerously.  As the Chinese would have it, there is no opportunity without danger.  But, equally, a life ruled utterly by caution is fraught with risk. 

The Hollywood Paradox.  The people out in Hollywood love to talk about risk, making movies like A Year of Living Dangerously or Risky Business, but they actually hate risk, and are in desperate search for a sure thing.  Most of their movies—failures—are put together to be sure things.  And yet the real profit arises on low budget pictures that ostensibly will go nowhere, put together by directors who are on the outs, like Robert Altmann, who perversely put together ensemble hits such as Gosford Park.  Hollywood scores when it can bet on talent, cheap on expenses, and try to do something that has not quite been done before. 

Pascal’s Wager.  Franklin Roosevelt, mid-Depression, said, “We have nothing to fear but fear itself.”  The philosopher Pascal went him one better.  In telling us to believe in God, he said we have to make bets when you can’t resolve things rationally or empirically.  When the brain won’t pick out an answer, emotions and intuition must come into play.  Pick the option that will let you live better.  In this case, better a God than not.  Better to believe, than not.  Right now, business-wise, the majority of leaders are sitting on their hands, afraid to bet on a new idea, devoid of new ideas.  It will cost them.  Better to find a way to act. 

Baumol.  This week we have posted a note about William Baumol, economist extraordinaire, who says that overly paranoid, anti-terrorist thinking may get in the way of our economy and of business innovation (see Big Ideas).  Isn’t it funny, incidentally, that the best economists are really undercover philosophers pretending to be bean counters?  Playing it safe, he finds, is very risky.  There are and have been a host of examples of how ultra-prudence and safety-at-all-costs have been losing strategies. 

Below the Radar.  Some weeks from now we will begin to post our own Investment Outlooks on the Global Province.  Basically we will be telling you to adopt what appears to be a ‘high risk’ investment strategy—finding ways to short the market and picking stocks here and abroad that nobody has heard much about.  Avoid, we say, the big, safe, brand name companies, for the bigger they are, the harder they are going to fall.  Some big thinkers we have in mind claim we are mired in a 9-year Bear market.  If so, we must learn how to play the Bear.  We would contend that the usual ports-in-the-storm will not be safe havens this time around. 

Esprit de Corps.  You can also read this week that Esprit, the San Francisco clothing manufacturer and retailer, has been blown out of the water.  But its offspring, Esprit Holdings in Hong Kong, of all places, has now taken over the whole company.  It has turned the Esprit business model upside down, focusing on 28-year-olds and over, rather than the teeny boppers and the twenty-somethings San Francisco was targeting.  In other words, it is taking risks and living dangerously, upsetting the apple cart in order to survive.  Not to do so would be foolhardy. 

China Struggles, China Lives.  We also include thoughts on a survey of China by the Economist, which is an endless litany against the giant problems that threaten to overwhelm China in the years ahead.  Oddly enough, it’s these stupendous problems that probably will make China survive and flourish.  With all its obstacles, the leadership of China will have to take some very big chances in order to prevail.  This is exactly what it has done over the last 15 years, and we see no reason why it cannot do so again.  When you’re in an affluent country and bad times strike, you batten down the hatches and try to protect what you have.  But when you don’t have much, you try to wrestle the Bear to the ground.  Remember, China still does not have much.  Things have gotten better over this last decade, however, so, as the Wall Street Journal has written, affluent Chinese are now once again building fancy tombs for themselves.  Even in these grave times, more Chinese are going out with style.

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