I have to admit, when I first heard about it,  the idea of 3-d printing it blew my mind.  “Printing” an actual object in 3d, it was hard to wrap my head around when i looked over at my 8 year old laser printer noisily toiling away.  But for about the last 10-years, 3-d printing technologies have continuously been improving their costs, quality and manufacturing.  Currently you can print in a variety of materials including plastic, metal, wax, and acrylic.  There’s even a 3-d printer that prints stuff out of a stack of  office paper. Its like turbo paper mâché!  Nowadays, your dentist might even have a 3-d printer and print your crown out right in his office; cutting the time of production from 2 weeks to 2 hours and 3 office visits to just one.  A company I own, which makes custom bobbleheads, recently purchased and uses a 3-d printer in place of the old fashioned physical sculpting and molding methodology for making the dolls.

 

The New York Times even ran a big story recently under the headline “3-d Printing is Spurring a Manufacturing Revolution.” (http://www.nytimes.com/2010/09/14/technology/14print.html)  It lists a variety of applications that 3-d printing is being applied to, most customization of items such as important as prostheses, ranging down to the mundane iphone cover. A very compelling argument can be made that Western consumers have grown tired of mass produced goods and they now have the money to pay more for customized products that suit their own needs and tastes.

 

But is this really going to be a revolution? From the inside looking out, I personally find it very unlikely.  In the first place, there are some short term practical barriers, the first being that printing in 3-d is still very expensive.  Material costs for a 3-d printing plastic can be 20x or more the equivalent traditional resin.  3-d printers are also slow, so printing just a few objects on a 3-d printer can take 5-10 hours.  In general they can only print objects that are small as well, ranging up to something like a breadbox in size.  With machines costing $30,000-$100,000, you are really going to have to value customization to make up for the capital costs on each object printed.   The optimist might say that competition and innovation will overcome these barriers, and given the pace at which 3-d printing has advanced over the last 5 or so years, I would tend to agree with them. If these were the only barriers to the revolution, the revolution might almost be upon us.

 

More practically speaking though, 3-d printers are in general good at printing solid and hollow objects out of a few general materials.  Take a look around your house and figure out what percentage of the items are made of a single material, with few moving parts and have no electronics and are somewhat small in size.  These are the things that 3-d printing can easily produce. So if a revolution constitutes having a drinking glass shaped like your head, an ashtray in the shape of a rhombus, or even a pair of shoes that look like these (http://fabbaloo.com/blog/2011/1/4/3d-printed-couture-shoes.html), then we may be well on our way.

 

The truth is, 3-d printing is a somewhat expensive way to offer complete 100% customization of a form.  There are certainly applications where it makes a lot of sense – things like crown-making and prostheses and even custom bobbleheads are perfect examples of where this can be utilized. Probably one of the most promising mass market applications of 3-d printing is anything where customized fit is important and the materials are fairly rigid.  One of the biggest markets for 3-d printing right now is customized hearing aids. It fits the sweet spot of 3-d printing perfectly – high value to complete customization of form (for fit), small size, single material compatibility and a high value object.  There are probably some other applications like this one that are viable, but have not taken off yet.

 

Overall, the case for using 3-d printing as a basis for mass customization of objects is probably overstated. Even if 3-d printing were able to produce electronic or mechanical items somehow, would you really want to design your own iPod and print it? Most companies that offer mass customization actually generally do so on a modular basis, allowing consumers to build their products from a finite set of option. This in the end is easier for the consumer since for the most part, they are happy to vary their customization on a few dimensions and still consider their purchase to be customized.  Dell is famous for being a trailblazer in mass customization, and I have always heard that in the end a high percentage of consumers end up choosing just a few different configurations, even though the number of customization permutations is practically infinite.  If I had to bet on where a manufacturing revolution would come from, I’d place my money on modular mass customization.

 

The science fiction like aspect of 3-d printing will continue to attract media attention I think, and I have to admit it’s pretty cool to press print and get an object out of a printer a few hours later.  I’ve even started reading a 3-d printing blog recently called Fabbaloo, and I’ve come to find that there is a whole movement of people clamoring for a low-cost 3-d printer they can use to print objects at home.  Breakthroughs of late have gotten the price for a 3-d rep-rap machine down to around $1500 (shipped UNASSEMBLED!), and for this price you can print ashtrays to your hearts delight right from the comfort of your own home.  Perhaps for some, this is a revolution.

Jaeson

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http://www.economist.com/node/17800101?story_id=17800101

The Economist struck an unusually pessimistic tone in their recent commentary on Las Vegas, titled “Party Over” (pasted below).

 

I think things will turn out a bit better than they suspect.  I still believe the world’s ending, but I’m very optimistic about the future of vice, and I think

this will work in Las Vegas’ favor.

 

There are a couple of strange macro factors that have had a strongly positive influence on Vegas lately.  First, the casino business in Asia is on fire, and, as a result, the cash flow (and stock prices) of the Western casino companies (especially WYNN and LVS) are far, far better than they otherwise would be.  Las Vegas Sands would likely be bankrupt without the Asian market.

Second, the emphasis of economic policy in the US over the past couple of years has been asset price support (for Treasuries, mortgage securities, home prices, and equities).  The result is that many of the very rich have stayed very rich, after a brief swoon in Fall 2008 and Spring 2009.   As in the Great Depression, the strong downturn that started in 2008 has acted to exacerbate wealth inequality.   The poorest in Las Vegas, as in the rest of the country, are faring terribly, but the exorbitantly priced food/beverage/entertainment sector has held up fairly well.

Nevada ranks with California and Illinois as having some of the worst state government finances in the country.  Nevada actually makes California’s situation worse than it otherwise would be because, during the long real estate boom, hundreds of thousands of wealthy Californians bought homes in Nevada (Nevada has no state income tax) and established residency there to avoid California state income taxes (many of these people continued to live and work in California).

To me, the big question for Las Vegas is whether it holds the fort socially.  Will people feel safe there?  Will they feel that the police are effective?  Will they feel they can get good health care if they need it?  If it can remain socially healthy, I think Las Vegas will whether any economic storm reasonably well.  A decline in social health (a big uptick in crime, for instance) would be destructive for Las Vegas because it would set off a vicious cycle whereby the ratio of thugs to friendly tourists is continuously on the increase.   Las Vegas has always had its deviants, but in good times their numbers are dwarfed by friendly, rich tourists.  If fewer tourists come b/c they feel unsafe or otherwise uncomfortable, the ratio of deviants to tourists increases, causing fewer tourists to come, and so on.

A big question mark for the long future of Las Vegas is oil.  Few cities are hurt more by a big uptick in the price of oil.  Las Vegas is just  the epicenter of waste when it comes to oil (well, not quite the epicenter — that would be the indoor ski slope in Dubai).   Brightly lit, heavily air-conditioned hotels in the middle of the desert; employees living in desert houses driving twenty miles to work; tourists flying in from all over the world — all of it makes for extremely intensive use of oil.  One would think that an oil price of around $130/barrel (the July 08 price) would be deadly for Las Vegas.

Brandon

 

 

Party over

The city’s troubles are part cyclical, part existential

Las Vegas in crisis

Dec 29th 2010 | LAS VEGAS | from PRINT EDITION

    A palace somewhat short of Caesar’s

    AS MAYOR of Las Vegas for almost 12 years, Oscar Goodman has made it his mission to personify what he calls this “adult playland” in the desert. He prances through the casinos with scantily clad showgirls draped on each arm (although he is happily married). He claims to drink a bottle of gin every night (but “never before 5pm”). In his office he sits on a carved throne and gives visitors a symbolic gambling chip that depicts him, with his trademark Martini glass, as “the happiest mayor of the greatest city in the world”.

    Alas, much of this, like most things in Las Vegas, is purely show. This is not merely because the famous Strip of hotels and casinos that accounts for more than half of all gaming in the state is deliberately (for tax reasons) just outside the city limits, and thus beyond Mr Goodman’s remit. More important, few residents of Las Vegas would any longer agree that their city is either great or happy.

    Nevada has America’s highest unemployment rate. In Las Vegas, unemployment has risen more this year even as it has flattened in the rest of the country; it peaked at 15.5% in September. Nevada also has America’s highest foreclosure rate. In Las Vegas more than 70% of homeowners with mortgages owe more to the bank than their houses are worth. This desert valley, which once represented the most extreme pleasures in American consumerism, now has the most severe hangover.

    There are signs of recovery, but they lag those in the rest of the country. Whether house prices, visitor numbers or gambling revenues, “the numbers are bumping along the bottom”, increasing in some months and flattening again in others, says Stephen Brown, director of the Centre for Business and Economic Research at the University of Nevada, Las Vegas.

    The question is whether there will ever be a complete recovery, or whether something more fundamental has changed, threatening the existence of places that rely directly or indirectly on gambling. (Nevada has no income tax, for example, financing its services largely from gaming and sales taxes paid mostly by tourists.) Mr Goodman, typically sunny, says “We’re heading back to where we were.” Others have their doubts. Las Vegas “needs easy money and easy virtue” to prosper, says Eric Herzik, a professor at the University of Nevada, Reno. Well before the last boom the state was built on excess, and with Americans and foreigners (ie, most potential tourists) “down on excess, our whole model is now being questioned.”

    Once the famous Comstock Lode ran out of silver in the 1880s, Nevada made legalised sin its new foundation. It started with prizefighting, illegal elsewhere in an era of bare-knuckle boxing. Then—in 1931, conveniently pre-empting the Great Depression—the state introduced the country’s laxest divorce laws to attract frustrated spouses. On the very same day it legalised gambling, which has been the mainstay of its economy ever since. It is supplemented by complementary industries, from prostitution (legal in the rural counties and allegedly available in Las Vegas) to gourmet cuisine.

    Las Vegas also “thrived on irresponsibility” in a second, related, way, says Michael Green, a historian at the College of Southern Nevada. Just as the booming gambling and tourism industries provided new jobs, the parched but spacious valley provided new housing. Thus the population of Clark County, the area around Las Vegas, quadrupled between the 1980s and 2008 (before shrinking slightly in 2009), as people from southern California, in particular, fled overpriced houses and moved to Las Vegas. This caused one of the biggest construction booms and housing bubbles in the nation.

    Then, in 2008, all these bubbles popped. Whether in or out of state, Americans, who had recently felt rich because of their inflated house values, suddenly felt poor and out of luck. They stopped coming or, if they came, sat for less time at the tables and gambled less. They became “gun-shy,” says David Schwartz, the director of the Centre for Gaming Research at the University of Nevada, Las Vegas.

    Tourists are now returning, but in numbers too small and with mindsets too cautious to help Las Vegas much: they are spending less on each visit than before the bust. Two huge and glitzy casino-hotel complexes, both conceived before the bust, opened recently, adding yet more rooms to the city’s already dire overcapacity and forcing other hotel operators to discount even more. And yet, even though Las Vegas has become “a bargain”, as Mr Goodman says, many tourists who want to gamble increasingly ignore the city (and intimate airport pat-downs) altogether by patronising Mississippi river boats, Indian casinos or the internet.

    Mr Goodman, who insists that the city’s only big problem is the term limits that are forcing him out of office next year, rejects all such pessimism. He wants people to be aware of the cultural offerings he has brought to the city, from classical music to a new mobster museum due to open soon (a lawyer, Mr Goodman once defended alleged mobsters in court and even starred in the film “Casino” in that role). He dreams, too, of attracting a big sports team. A new hospital has opened, and Mr Goodman predicts a boom in “medical tourism”, as boomers come for new hips while their families have fun on the Strip.

    Las Vegas has never been much good at diversification. It is good at one thing, and for now the zeitgeist has turned against it. But one day flamboyant sin will be back to help Mr Goodman and his city out. Just not very quickly.


    Crime Part I: A History of Violence

    In the 1960s some forensic scientists and historians toured the American Civil War battlefield of Antietam to examine the bullet fragments left in the soil. They were trying to understand how well American soldiers back then could aim their guns and were using the position of the bullet fragments in relation to where the enemy was standing at the time to try to determine this.

    What they found to their great surprise was that the bullet fragments were so off target that it seemed as though soldiers on both sides were purposefully not firing at the enemy. Baffled they toured other civil war battlefields and were able to conclude that fully 80% of the soldiers on either side didn’t take direct aim at the opposing enemy. They still fired their guns and looked like they were playing the part of soldier, but they were aiming several yards wide of their targets.

    Researchers went to other battlefields from other wars. They generated similar results examining the Revolutionary War battlefields of Massachusetts, the Napoleonic battlefields of Germany and the trenches of World War I in France. Given how many people die each year at the hands of their fellow man and how many people have died this way throughout history, one might have thought that taking human life is relatively easy, an almost natural instinct we have buried in our genes. What these findings should was that the opposite is true. It is incredibly hard to kill someone even when they are trying to kill you.

    Given that their business is war and war often involves killing people, the US military has extensively researched this topic – the psychology of killing. Part of their findings – and again I don’t know how they determined this – was that only one half of one percent of the general population is essentially able to kill automatically. Really only a person with sociopathic traits can do this. For the rest of us, the large mass of humanity, the threshold of stimuli required to pull the trigger is very high.

    These military researchers discovered that while almost everyone had a very natural inhibition to not kill, there were still ways to significantly lower this naturally high inhibition. The first and obvious way was through training. It was famously said that the SS used to train their soldiers to kill pigs over and over again. Once you could do that slaughtering a human wasn’t as psychologically difficult. Now the US military has other less crude forms of training that don’t involve animal sacrifice. However, the result is the same though – Special Forces in the present day US Military aim at their target a 100% of the time and when they need to kill someone, they are not thinking twice about it.

    Now the other way to lower this threshold was through drugs. The US military has famously experimented with drugs on soldiers in the past for various reasons. Although there has been discussion in the past about giving soldiers Adderal type drugs to help them concentrate and work 24/7, as far as I know no one has ever tried giving them drugs that would help them kill better. This is not the case though with the gang bangers in the flavella. To understand how people kill in the modern inner-city of Rio De Janiero, you begin and end with drugs. They are able to kill because they are on drugs and they do the killing for drugs.

    Crime Part II: How Flavella Gangs Do It

    I talked to a journalist when I was in Rio and she told me that if you got shot or killed in Rio, chances are it was by someone who was ridiculously high. I am not saying that they got high and then accidently went on a murder spree. They got high to be able to murder. Brazilian gang leaders have recognized something that took the US military a while to fully flesh out. Normal sane, sober people have a really hard time killing each other. However, 12 year olds high on Cocaine can do it pretty easily. This woman sent me some sites of these 12 year olds from Rio talking about how they kill people. I watched one video of this kid coolly joke around an talk about how he took a cop and tied a tire to him and poured gasoline on the tire and let it. Afterwards he went to a barbecue to celebrate with his friends.

    Universally she said that every one’s first time killing someone in these street neighborhoods would involve getting high on drugs before doing it. Once they were high, they could pull the trigger. And if they pulled the trigger once, their natural abhorrence to violence would be significantly lowered and they could do it again until it is possible to kill someone automatically with no drugs in your system. At the end of the day, drugs mainly cocaine provide the how and the why of all the killing.

    So how do you solve the drug problem? Can you? Is it completely pointless to even try? I don’t know what the answer is. I personally am holding out hope that a pharmaceutical company will invent a drug like Soma from a Brave New World – it will be so perfectly intoxicating and healthy at the same time that no one will want to get high from dangerous, potentially lethal drugs like cocaine and heroine. Science will hopefully make the world a better place.

    Crime Part III: Why China is Safe but Brazil isn’t?

    Before I critique Brazil, I feel like I should point out that I love the country and feel very much at home here. The one thing though that is constantly on my mind in part because of where I am living and in part because it is a reality of the country in general is the issue of crime. I have brought it up a lot in this blog perhaps over exaggerating it but it is an issue that very much matters – it matters to people investing here to the communities and to the overall political discourse. Everyone you meet here has a story about getting mugged or kidnapped and it is something that holds the country back.

    One thing I have thought about a lot is why Brazil is violent and China or India, relatively speaking are not? When I went to China last year I went to some of the poorest areas of Beijing and to some of the less prosperous cities in the interior and I never once felt unsafe. Here in Sao Paulo even in some of the nicest districts, I am wary. Why is that? Why is a nice neighborhood in Sao Paulo infinitely more scary than a poor neighborhood anywhere in East Asia.

    The first answer everyone gives you is because it’s poor. I hate this answer because the fact of the matter is that Brazil on a per GDP basis is multiples wealthier than China or India or many other Asian countries with much lower crime rates. The “Brazil is poor explanation” is then usually followed by the Brazil’s income is more unequally distributed. This one rings a bit more true.  Brazil has a gini coefficient of 56. Other countries that are in this neighborhood are mainly African ones that like Brazil have incredibly high crime rates. Still many Asian countries, China in particular have seen their gini coefficients rise a great deal without their crime approaching Brazil’s levels.

    I think the answer at the end of the day is the government. The government in Brazil is corrupt, over taxes the population and is generally in the business of enriching itself. The police force often turns a blind eye to crime or supply the criminals with weapons. You solve government corruption in Brazil and you solve a lot of the crime problems.


    Finn and I are heading to what is supposed to be the best oil conference in the world next week…..

    http://theoilandgasconference.com/event_info.shtml

    I think we will be as far outside as possible.  But we’re hoping to get the scoop on the oil industry directly from the people who know what they’re talking about.  As a side benefit, we’re hoping that it will help Finn’s insane speculations in oil stocks.

    Brandon


    A Little Rant About Metals

    We have more or less forgotten about the metal industry in the US. Metals companies as a whole compromise almost 3% of total world market capitalization. However, most of these companies are domiciled in Australia and the UK. There are practically no major American mining companies left. Nor is America, the land where big steel began its life, home to any great steel or finished metal product companies. We have by and large let the rest of the world worry about mining and metals.

    The fact is that it is easy to forget about metals. When is the last time you went shopping for a metric ton of zinc? You probably have never been a primary consumer of an alloy or metal in your entire life. However, practically every consumer item you have ever purchased contains some amount of metal or alloy that was mined somewhere in the world. Not only that but big things, things like apartments, roads, infrastructure in general require a ton of metal. When a country such as China goes from being an agrarian one to an industrial one, the most important input is metal.

    While our media has us focused on other things, huge sweeping economic changes are occurring throughout the world with billions of people joining the industrial society and the relatively higher standards of living that that gives. The two most important input variables to bring about this transition are metals and oil. Hence when a country like China invests abroad to secure assets – it is not looking to buy software companies or manufacturers. It is after mining assets and oil fields. They know that without being fed a constant supply of metal and oil the whole game would be over.

    The fact is that game isn’t over. Those guys are not close to getting to where they need to be as far as infrastructure and economic modernization is concerned. When that game finishes, it will be unto India, Indonesia, Latin America, Africa, everywhere else in the world where people are still scratching out a squalid existence using more or less the same infrastructure that they have had place for the last hundred years.

    I say all this I suppose to justify my interest in this field and explain why I think at least from an investing perspective, there are few industries with better long run bull market characteristics. The last bull market in commodities happened in the 1960s/1970s when 70 million Europeans and Japanese entered the middle class. This current bull market is happening as roughly 2 billion people spread out across Asia and Latin America try to enter the middle class. Yes our technology is better to access different resources but the size of the upcoming demand will swamp whatever improvements we have made in acquisition methods.

    If the economic crisis had not happened when it did, who knows where the price of oil and basic metals would be right now. The fact that oil and these other commodities came back so quickly illustrates that supply is not keeping up even with demand relatively tepid as it is. Once demand really ramps up, all commodity prices will shoot up. We are running out of stuff. People haven’t quite figured this out yet but we just wont be able to all enjoy a middle class lifestyle at current prices. Something will have to give.


    Malcolm Gladwell Owes Me a New Pair of Shoes

    I finally found a basketball court in São Paulo that was in good condition in a nice area and felt reasonably comfortable to play on. The last couple of weekends, I have played pickup basketball there. Usually it is a pretty motley crew of Brazilians. In general it is funny to watch Brazilians play basketball because it is not a sport that most of them played growing up at least in any organized way. Their mechanics are therefore terrible. This one guy shot a basketball by putting sideways – left to right – spin on the ball. I´ve never seen anyone do that in the United States but he managed to make a fair a number of shots. The innate athleticism of most Brazilians more than makes up for the fact that most of them have the basketball IQ of a 5 year old.

    The other thing about pick up basketball in Brazil is that version of basketball they play is strange. They typically only play 3 on 3 and the game is not 3 on 3 as you or I would imagine it but rather the game 21 but with teams. You make a shot and then you get a free throw. If you make the free throw it is your ball. If you miss the free throw and the other guy puts it in then he gets the 2 points and a free throw himself. It really made no sense. I think they might have watched NBA games and been confused about what a foul shot was and thought it was something that you were awarded after making a basket.

    Anyways, I go there to play the other day and played for about an hour and a half with these five other guys. It was a normal day of basketball. Over the course of the day, you generally make friends with the guys you are playing with and joke around a bit. For a brief moment in time, these random Brazilians and I were teammates.

    So after several games, I tell them – ¨nao posso jogar mais, esto muito cansado – I can´t play more, I am very tired.¨ They give me high fives and say some stuff in Portuguese. I then grab my shirt that I had taken off and used to hid my wallet and IPhone and begin to walk off. As I am getting ready to leave, one of my teammates comes up to me and starts talking in Portuguese. He comes up with a smile on his face and so I stop and entertain what he has to say. It takes me a few seconds but I realize he is asking me for my shoes. It seemed like the strangest thing in the world to be asked at that moment. If he had asked me for a pencil sharpener, I wouldn´t have been less surprised.

    Anyways I pretend to not understand what he is saying. I smile back, laugh and turn to walk away and he grabs me. Then another guy comes up from behind, my other teammate who had moments earlier helped me get back on my feet after I had fallen following a pick and roll, and they both basically corner me against a tree. They are still smiling and trying to make the whole thing seem funny but still nonetheless they are in the process of mugging me for my New Balance sneakers.

    I slip the shoes off without untying them and walk away. Amazingly enough they never figured out that I had an IPhone in my hand. Iphones cost about a thousand dollars in Brazil because of all the import taxes. That would have been worth slitting my throat over to guys who don’t make more than 5k a year. I guess they figured no one would be stupid enough to come to this basketball court with more expensive items then their shoes. I guess they underestimated my stupidity.

    Stepping back, I am wondering what this episode is supposed to teach me. The problem is that if you don´t trust anyone you will end up afraid to do anything in a foreign country. I had a lot of fun playing basketball with random Brazilians the last few weeks. If you do trust people and they turn out to be bad dudes, then you´re left walking home shoeless or worse. The only take away that I get out of this experience is the fact that I thought that by playing an hour and a half of basketball with these guys, I had somehow dramatically altered the natural order of the world and the normal rules that applied to the Gringo-Flavella kid relationship did not apply anymore because I was now friend´s with these guys.

    I had let me first impression of these guys – I honestly thought that they were good dudes – overrule rational thought being that if anyone was likely to rob me it would probably be flavella kids who enjoy basketball. Malcolm Gladwell is in part to blame.  Gladwell made his journalistic name writing that you can basically tell everything you need to know about a person by first impressions. The argument he makes is a bit more nuanced but the gist of it is that you really don’t need that much information to judge someone, just a small sliver of personal experience and your intuition. Your judgments from that small sliver of personal experience will in all likelihood be more valuable then reams of analysis or will at least get you to the same conclusion as all that analysis.

    This line of thinking is actually complete bullshit. First impressions, I think are more often random or worst manipulated. These guys wanted me to have a good first impression so I would let my guard down. The fact that we base all these decisions like who we are going to hire, who we are going to date, who we are going to trust largely on first impressions is incredibly irrational. It is hard and annoying to spend a lot of time trying to really drill down to the bottom of something and understand – it is much easier to just apply heuristic thinking. Rather than pointing that out, Gladwell offers cute anecdotes that seemingly support our natural disposition to be lazy and trust our first impressions.

    The Economics of a Modeling Agency

    One of the great things about Brazil that more than makes up for security concerns is the two hour daily lunch. Every day at work, I get about 1.5 hours of time allotted for lunch but can take 2 if I want. It is taken very seriously. You usually go out to a pretty nice restaurant and order a lot of food and the firm pays for it, which is also sweet.

    Anyways, I say all this as an exposition to a lunch I had the other day with a guy from work and two of his friends. One of the friends was in the real estate business down here and had recently quit his job to try to start a modeling agency. In America, rich kids will quit their jobs and try to make shitty films or start useless NGOs. In Brazil, rich kids quit their jobs to start modeling agencies. A million times more hilarious and productive use of one’s time.

    Anyways, he explained to me during the course of the lunch the economics of the industry which were actually quit fascinating. To begin with, what is a model? A model can be anyone, it isn’t just girls between the ages of 14-24. You get old guy models who do Brooks Brothers catalogues to hand models who put on watches. Models aren’t even particularly good looking they just have to have distinctive look.

    Now you can actually make more money focusing on the old distinguished looking man and hand model sector. It is relatively overlooked. However, this kid is not getting into this industry to make money. Like Donald Trump and everyone else whoever started a modeling agency, he pretty much just wants to have an excuse to hang out with hot girls.

    How does he find them? Well there are two types of models. You have the girls who have stage mom type parents who got their kids into modeling when they were young – the Dina Lohans of the world who for whatever screwed up reason thought it was good for the child to be exposed to the bizarre world of modeling and entertainment at a young age. These models have been doing baby gap print ads and car commercials since they were 3. They might still be attractive when they are older or they might not. They have usually been with an agency for a while and can get jobs based entirely on their connections. He says there is no point going after those models because they usually aren’t that attractive at least relatively speaking and they are already with someone else.

    The next type of model is the discovered on the sidewalk model. He explained to me that Gisele falls under this category. One moment Gisele was just a random 14 year old waiting in line at a McDonalds, the next moment she was discovered by a talent agent and the moment after that she was living in Milan making $15,000 a day.

    I have no idea how he builds his stable of clients or whatever you want to call it. What he tells me is that he focuses on finding girls through scouts, which leads to the follow up question what is a model scout? A baseball scout makes sense. You need someone to go to millions of high school and college baseball games to check out the talent and report back. A model scout? Your job is to go to malls and other places that where 14-year-old girls hang out and approach them while their parents are there. Are you basically like a professional pedophile?

    Now, I didn´t grill him on whether this operation actually makes money or not. I have a feeling it probably doesn´t. After all, with any glamour industry such as movie making, professional sports; people get into it for reasons other than making money. If people are throwing money at projects to derive something other than a rate of return than that means more money than is economically justifiable is being thrown at these projects and therefore everyone´s returns are lower. Running your own modeling agency is an expensive and ultimately hilarious hobby posing as a business.

    The Economics of Clubs

    I don´t know how many people have read that HBS case study of Marquee – which was once the best club in NYC in the 2003-2004 era (in club years that is a long time ago). The article basically talks about the cash flow and life cycle of the New York night club business. Its an incredibly interesting read esp. if you´re familiar with the vagaries of NYC night life.

    To elaborate, the first stage in the life of the club is the opening. This is the ridiculously exclusive stage. At this initial stage, making money takes a back seat to building prestige. How do you build prestige? You basically don’t make money by not letting in douche bags with money. Clubs at this point would rather let in a bunch of actors, models, random people that they deem cool, rather than investment bankers who actually spend money. Once the club has built up a sufficient amount of prestige and the finance crowd is just dying to get in, the clubs then let them in but let them only if they spend obscene amounts of money. Your cash flow goes through the roof at this point and you try to milk this stage for as long as possible. Your club is cool but getting less cool by the second but you are making a ton of money. Once the prestige begins to wear thin and the original model/actor/grade-b celebrity list is moving unto a new club, you begin to let in not only people willing to throw down a lot of money but any body willing to pay a slight cover charge. This is when the flood gates open and everyone from the Bridge and Tunnel crowd to the visiting bachelorette party from North Dakota is allowed to come in – think Libation in the LES. You can stay in this stage for ever assuming you keep the costs low. However, if owning a prestigious club is more important than running a profitable business, you will likely close the club and start a new one to begin the process all over again. The whole life of the club – from birth to middle age to death – takes about two years from start to end.

    Clubs in Sao Paulo follow similar life cycles as the ones in NYC. The last couple of Fridays I have been going with some Brazilians and Americans to Kiss N Fly. Kiss n Fly is in that in between stage of going from an exclusive club to a club that lets in anyone with a ton of money. The cousin of the Brazilian lawyer we were with co-owns the place with another guy so we can get in for free. However, it normally costs about $250 to just to get in and several multiples of that to get a table – people in Sao Paulo spend that without batting an eye.

    The scene inside the club itself is ridiculous as one might expect. I have always wondered in general how clubs like this one are able to guarantee that the place is full of models. Talking to one of the guys who ran the place, I learned how. It is not an accident and it is actually pretty carefully thought out and somewhat necessary for the functioning of the club because without good-looking 20 year old girls, you don’t get the 32 year old guys with money.

    What they have are ¨special relationships¨ with the different modeling agencies. They have a guy – a funny little gay guy wearing a fedora hat to be exact – who arranges pick up and delivery of models, basically running shipments of models into the club all night. I saw him roll up in an oversized suburban SUV and unload a gaggle of giggling models who proceeded to fall out of the car and stumble into the club. He pranced around for a bit, fussing over the models and then left on another model grab mission. The models that he brings are barely out of high school like between the ages of 16-22 and pretty drunk.

    These models immediately get gobbled up by the different tables of much older guys throwing down thousands of dollars for bottle service. Basically, it was the equivalent of watching a bunch of laughing gazelle get herded into a lion´s den. Had I been the older brother of any of these girls, I definitely would have stepped up and said something to the gay guy in the Fedora hat for getting my sister drunk so she could sit on the lap of some 44 year old. But alas, I had no relation to anyone there, so I couldn´t help but be amused by the whole spectacle.


    Mining and the Environment I: Age of Empires I and the history of Metals

    Anyone who has played Age of Empires knows that Ancient Civilizations were defined not by the poetry they wrote but by how good they were at manipulating metals. Civilization advancement occurred by how you progressed in this respect.

    Civilizations in the video game and in history started in the Stone Age. In this age, man is using stone objects for various tools and building equipment. This Age has different dates for different areas of the world. Some areas of sub-Saharan Africa, Oceana and much of the Americas never left the Stone Age phase prior to being “discovered” by Europeans.

    Those that did advance, advanced to the Copper Age. This age was marked by the realization that stones were composed of different metal elements and it was possible to find or mine for those particular elements. In other words, rather then just finding a rock, you would look for Copper rock because it had certain properties you wanted.

    After the Copper came the Bronze Age, in which people figured out that not only different singular elements existed but through the use of a furnace you could forge elements together. You could mix Copper and Zinc together to create a new alloy, which had even better properties than Copper for certain purposes. Your swords became that much stronger and lighter and able to kill guys quicker. In Age of Empires, one Bronze Age soldiers can pretty much take out a whole army of Stone Age warriors.

    We are now in the Information Age. At this point we have completely forgotten the role that our mastery of metals played in getting us to this point.  However, at the end of the day, metals underline everything about this current age. From our silicon chips to our copper wires to the palladium we use in our atennas, without these metal sources we would be done.

    We have forgotten that but the Chinese haven’t. They have made a point of going to places like Africa and developing their metal resources. They have bought billions of dollars of assets in Australia and South America. As for their own metal resources, they guard them jealously. You are basically not allowed to export rare earth metals from China – metals we need for a lot of our advanced military weaponry. Chinese zealous exploitation of metals across the world will at some point catch the attention of our great political leaders.

    At some point in the future, a war will be fought not over religion or high minded political philosophies like communism but it will be fought for the basest most common thing a man needs to build his kingdom, rocks.

    Mining and the Environment II: Why Large Corporate Sanctioned Destruction of the Rainforest is Good For the Rainforest

    When I visited the mine in the Amazon, I saw whole rainforests utterly destroyed and wiped off the face of the planet so that all that was left was red dirt and trucks. I saw destruction of the natural environment that would shake even a complete cynic – destruction that would probably make James Cameron cry. However, the paradox of all this was that these seemingly horrific scenes of destruction are actually the Amazon’s best hope of long-term survival.

    It might take a while to get your head around this paradox. How could a mining company destroying acres of rainforest to make way for a mine be good in the long run for the environment? It sounds like something a radical conservative would say but give me a few sentences to explain.

    It is a basic fact of life that people need to earn a living and will do what they can with the options given them to do so.  If you’re a young man in the Amazon, your options are fairly limited. Your only option is often to work in the ranching or farming business, which means that you burn down forests to make way for cattle and crops. The “slash and burn” method is fairly crude and the cost to the environment is extreme – You burn, graze and then burn again, moving from forest to forest. Although it is often illegal, if the authorities catch you and fine you, you are too poor for them to force you to pay up. The authorities can tell you to stop but at the end of the day, getting you and your children fed is more important.

    If you want to stop him from doing it, you just have to give him better options. If that person has an option to work in a mine where he gets paid more and receives health care coverage, he will gladly take it and he will quit his old slash and burn job. Now the mining company also does destroy the environment too but there is a major difference between the way the mining company works and the way the small time rancher works.

    The mining company is a large often publically traded company and as such is exposed to lawsuits. If the mining company screws up and you sue them and you win, then they pay up. If the mining company does anything that you view to be out of the ordinary, you refuse him his permits or you shut down his operations. Unlike the small farmer and rancher who can quietly tell you to fuck off while he goes on with his livelihood, this mining company has to work with the government. The government gets to say how he uses the environment.

    Given that governments have leverage over mining companies and not over farmers or ranchers, there are a number of rules that govern how mining companies operate and mining companies abide by these rules. The mines are required by law to return the environment back to the way it was prior to their arrival. They have to replace all topsoil and replant the seeds and trees. They have to essentially leave the place the way they found it.

    The fact is that they do it and do a pretty good job for the most part. As terrible as the destruction looks, it is only temporary. The reforested areas look more or less like they had never been touched. It takes a while but things do grow back. I saw both the destruction and the re-growth.

    Mining and the Environment III: Rewriting Avatar

    Avatar was a brilliant movie for its technical effects but if it was trying to be an allegory for the destruction of the rainforest, which I think it was trying to do, it couldn’t have been more off base. As I explained before, large law abiding mining companies are better for the environment then the other economic alternatives.

    If you really wanted to write the script of Avatar right to reflect what really happens in the rainforest, you would depict the Navi, the natives, as honorable poor folks trying to make a meager living by clearing out sections of the rainforest. The big mining company would be a behemoth that takes those people out of their jobs that devastate the environment and into mining jobs that have a substantially better relative effect on the environment, both in the sense that it causes less long term ecological harm and provides higher economic benefits.

    But still who would want to hear a story that demonizes the poor natives? After all, how can you blame them for doing what they need to do to survive and improve their lives? Who are you to say that they can´t cut down trees so their family can afford a better living standard? You really have no right to tell people that. At the same time though, if you really want to examine what populations, parts of the world are causing the marginal damage that is really straining the environment it is the areas that have massively growing populations of poor people. It is the Chinas, Indonesias, Brazils and Indias of the world. Those are the countries that are seeing their resources strained to the limit. The strain is not coming from big businesses like Exxon Mobile but from small time operators, basically small ranchers and farmers and businessman. Guys who are trying to make a buck any way and are not following any guidelines. If you can get those guys employed by big businesses that are under the regulatory control over the government you would solve a lot of the world´s environmental problems.

    Rio Part I: Flavella Economics

    People like to pretend that flavellas don´t have laws. They do have laws. Just the laws are not handed down by some democratically elected legislative body or by the mayors office. The laws come from the strongest drug dealer. The first and most important law is to put your client first. That means that contrary to what you might think if I went into a flavella, I would actually be the safest person there. It would be assumed that as a gringo looking guy I would be there to buy drugs. No kid would touch me or they would be hurting their bosses business.

    You might think that it makes sense for them to kidnap me? After all a random wealthy Brazilian looking to buy drugs might only bring a few hundred dollars to the community but a kidnapped Brazililan would bring multiples more. I asked that question to my friend and he told me that while kidnapping might make short term sense it crushes the long term value of the business. If word of the kidnapping got it, it would hurt the drug dealer´s brand. It would be as intelligent as running an airline and purposefully crashing an old airplane to get the insurance money. Maybe you make some money but no one would fly your airline anymore (you´d probably also go to jail). If you let clients get robbed or kidnapped in your flavella, no one would go there to buy drugs anymore.

    That is not to say that these slum lords are not into the kidnapping business. It is still a very lucrative business and they recognize the huge potential of one off gains from it. They just choose to seperate the two enterprises – the drug dealing and the kidnapping. They don´t let the kidnapping business screw up the brand image of their drug dealing business so they conduct all the kidnappings outside of the flavellas. The most dangerous place for me in Rio is the area in between the flavellas and the beaches. It is kind of like a big multinational owning both a tobacco business and a health food company. You don´t want the ciggarrete business to tarnish the brand image of the health food company so you keep them walled off in seperate subsidiaries.

    For the most part the flavella drug businesses can run as a well oiled machine as long as the guy in charge is firmly in charge. However, given the inherent volatility of running a drug/kidnapping/exportion operation, no one´s power position is that stable for all that long. Guys are constantly getting replaced. When a power struggle arrises thats when the mattresses hit the wall and the body count rises. It is one thing to have an intra-flavella power struggle. It is another thing when the outside world – the city and state governments – try to impose their power.

    While it rarely happes, when it does happen things get wierd. That is when it really bleeds into the streets into middle class and upper class neighborhoods. Last year, after a large scale attempt to wipe out one of the flavella gangs, the gang responded by sending a truck full of guys with machine guns who sprayed the mayor´s palace with bullets and RPGed a police helicopter.

    Its sad to say but you are better off letting sleeping dogs lie.

    Rio Part II: The Time Machine

    Every time I go to Rio I am reminded of the book The Time Machine by HG Wells. HG Wells describes some future society where you have a group called the Elois who are happy, pretty people living in an idyllic life above ground. They live their life of leasure based on the hard work of the Morlocks who live below ground. The Morlocks grunt and sweat under a weary life. Unlike the Elois who are naïve and dumb, the Morlocks are intelligent. Occasionally the Morlocks will come up and eat one of the Elois. Both groups are terrified of one another.

    In Rio, I have been to a club and seen some incredibly happy, good looking well off people living better than 99% of all Americans. I remember one time noticing just how happy and prosperous these people looked in contrast to the guys hustling around, trying to clean up the bottle service.  I am sure the workers at the club were not getting paid a whole lot and some of them were likely heading back to the flavellas. Meanwhile the wealthy Brazilians were going home tonight in armored vehicles always conscious in the back of their mind that a distant relative of the guy who was cleaning up his bottle service could try to rob him.

    It is a unique dynamic and it is not one that is common only to Brazil but to many Latin American countries and other emerging market countries. In Brazil, the income inequality is actually going down – unlike many African and Asian countries where it is going up. The one thing you do notice is that everyone aware of this issue. The people I have gotten to know here don´t think that the income inequality is good even if they are part of the small very successful percentage of the population that benefits. They too would like to see it go down. If not out of their own altruistic sense of social justice then because they would like to live in a safer world, a world where they don´t have to drive around in armored cars

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    A little introduction to the Amazon…

    The Amazon is to Brazil and its history as the Old West was to America. The Amazon region has been this vast untamed expanse of jungle that Brazil has looked to for growth and opportunity. Brazil’s flag is green because of the Amazon and the Amazon is as heavily associated with Brazil as the Cowboy is with America. The difference between the two national experiences is that while the American Old West was eventually settled and effectively integrated into the rest of the country by the early 20th century, Brazil is still trying integrate the Amazon and figure out what to do with it.

    I am in the Amazon for a week to check out some mining outposts. I am with another executive from my company and we decided to take two extra days to actually explore the Rainforest. Manuas, the capital of the Amazon region was our jumping off point. Despite the fact that there are no roads to get to it, the city itself has a pretty sizable population of 1 million people. This comes partly as a result of the Brazilian government actively encouraging people and businesses to move to this out of way region with all sorts of tax breaks and incentives.

    The city looks like the old sleepy South American port towns that Gabriel Garcia Marquez wrote about in Love in the Time of Cholera. There are grand Colonial buildings next to haunted looking back alleys with worn out storefronts. It is clear that the city has gone through “My God, we are rich” periods to “Shit, we all have Malaria” periods. Every time the city became prosperous some great public buildings were erected only to go into disuse when the city entered the poor cycle.

    Being on the frontier, Manuas is a bit wild. Not in the “City of God” kind of wild but in the “Times Square” kind of wild. Walking through the down town square, Marcos and I passed a man in a suit with a bible who was screaming at the top of his lungs and jumping up and down to an audience of two old women. Next to him, there was a boy singing on top of a truck. He may have been about eight years old but he was serenading the crowd with songs about his sexual prowess and how many women he regularly took home. Juxtaposed to the boy was a woman selling halucigenic tree bark. Not a lot of places in the world where you could find this much absurdity strung together on one block.

    A few things to clarify about the river…

    The Mississippi river is a river. It starts at one-point ends at another. The water flows through the two banks and when you are the middle of the river you can see land on either side of you. I don’t know what the Amazon is but I have a hard time calling it a river. The Amazon doesn’t go from one clear point to another. It is so wide that you can’t see the other bank. When you are the middle of it, your boat rocks as it would in a large lake or ocean. There are beaches on either side of the river with waves on those beaches. You could probably surf the swell generated by a thunderstorm on the Amazon.

    Marcos and I hired a guide with a boat and begin a trip up the river to see some of the Indians, who lived on the river bank and check out the actual jungle. After several hours going north on the river, we eventually made our way to the Indians who had a small village on an isolated river beach. Antonio our guide introduces Marcos and I to the Indian chief who is in charge of the twenty families on this beach. The Indian chief is dressed up in ceremonial headgear but looks remarkably like a very tan Japanese businessman on vacation in Hawaii. He is also wearing brand new Umbro Shorts, which was kind of killing the experience for me.

    You see, I was hoping we could meet a true Stone Age Amazon tribe – the sort that are completely cut off from the rest of the world and too isolated to make a trip to Wal-Mart for mesh shorts. The woman in the tribe walked around topless which I guess made the whole a bit more legitimate. Still I couldn’t get over the fact that this guy was wearing a textile product produced thousands of miles away in Taiwan.

    The jungle hike quickly dispelled my concerns over whether this guy was authentic enough. We tell him that we wanted to spend a few hours getting deep into the forest to see some animals. We pay him 20 reales and he begins to lead us down a small path into the forest. Within five minutes on the trail, he just inexplicably turns left and starts walking straight into the forest. This is dense forest, the densest forest I had ever walked through and this guy is practically running, skipping through it. Not only is the forest ridiculously dense but there’s no way to tell where you are going. It is dark and you can only see about three feet in front of you. You can’t just head west in a rain forest until you hit a river. You don’t have the sun to tell you which way west is. The fact that the guy knew where he was going and how to move through the forest was incredible.

    I asked Marcos to ask him how he knew where we were going and he gave an answer that would have made an environmentalist tear up – “The trees speak to me,” he said. “I guide myself by the trees.” The guy loved trees. He would stop about every twenty minutes to talk about some tree with Marcos in Portuguese. I understood bits and pieces of it. He would talk about how the leaves of this tree are used to treat sleep problems, use the bark from this other tree to cure pain. He comes up to one tree and he says that they use the roots of this tree to “expand their mind. He went on to say something to the effect that In life, when you are confused and you are trying to organize your thoughts this tree root helps you put together and organize your spirit. I think what he was trying to say was that the tree roots gets you stoned out of your mind.

    We spent two days visiting the Indians and some of the poor river flavella communities. There is not much to say except that like all Brazilians, everyone in even in these poor out of the way areas, were incredibly kind and gracious. The only story worth telling is that one of these poor run down river houses had a flat screen television and a karaoke system. It was so bizzare. We were visiting all these depressing river houses and saying hi to the kids and then we pull up to one and they had a flat screen television with power hooked up to it, playing Thriller in the middle of the Amazon. I still have no idea how they generated the power and where they got the television and karaoke system.


    World Cup Part I: Soccer and the American Psyche

    I remember when I decided to quit playing organized soccer. I was eleven years old. I had just played a game in which my teammates and I had worked incredibly hard for what seemed like a long time only to have the whole thing end in a scoreless tie. I came home took my cleats off and never put them on again.

    Team sports are supposed to have definitive outcomes as reflected by a score that reflect the level of play between the two teams.  If you could dominate another team and still have the outcome be a scoreless tie or end in a lost due to a fluke goal as determined by a bad reffing decision then that activity isn’t a competitive sport but rather a strange exercise in chance that involved physical activity. As beautiful as soccer can be at times, it has always been hard for me to care about it as a player or fan.

    I am not alone. Most of my countrymen share a similar emotional dissatisfaction with the sport’s low scores and capricious outcomes. However, for some reason the media is always convinced that soccer is just about to catch on. They said it when we hosted the World Cup in 1994. They said it when we got Beckham in 2006. They’re saying it again now that the US scored a late minute goal against Algeria. However, the fact remains that America is and will always be the country where Tiger Wood’s marital problems will generate more coverage on ESPN.com than the World Cup. Here in Brazil we get a day off when the national team plays. In America we can’t name a single player on the national team.

    Brazilians are fascinated by American indifference to the World Cup. They want to know why we don’t care. It is after all such a beautiful game and the rest of the world loves it, why not us? I tell them that I think that our indifference is not a testament to some narrow mindedness or cultural isolation, as some people would like to suggest. Rather, our indifference reflects our unique “awesomeness” as a nation (this response goes over really well).

    America as the richest and most powerful country on the planet doesn’t need soccer to define itself. We don’t need to win a soccer game to have patriotic pride, to feel like we’re good in the world at something. Mexico might need it, Serbia might need it, but we don’t.  Again I know this response is in many ways condescending and arrogant and I apologize for sounding that way but it is really the only way I can explain the fact that Americans don’t get all hung up on soccer the way smaller countries with less geopolitical and economic dominance do. If you have a better explanation, let me know.

    World Cup Part II: Picking North Korea over Brazil

    It is hard not to like a lot of things about Brazil. It has to be one of the most likable countries on the planet. Brazil’s soccer team is just as likeable as everything else in the country. The national side is led by Kaka who is by all accounts a good dude, – humble and charitable in the community. The rest of the players from Elano to Fabiano are much more joyful and sportsmanlike than the players from a lot of the European teams. The Brazilian team has no scowling, over hyped Wayne Rooneys or whining quitters (e.g. entire French National Team).

    That said, when I watched the first match at my friend Arno’s friend’s house in Jardim, I was the only person in a roomful of 25 Brazilians not rooting hysterically for Brazil’s side. I would have liked to root for Brazil because I love the country but the fact is that as a rule, during the World Cup, I always root for the country that has the lower GDP per capita and the most miserable living conditions. North Korea for this reason is by far and away my favorite team in the World Cup.

    Why does this make sense? Well, the way I look at it is that if North Korea wins or does marginally well, it will provide millions of people with a brief moment of pride and joy before they go back to their shitty lives of getting starved to death on collectivized farms. Yes, the win would be used by the regime for propaganda purposes but who cares. It is not like Kim Jong Il is going to retire anytime soon. It is not their fault that they live under an oppressive regime and like everyone else on the planet they deserve some modicum of joy every now and then.

    After North Korea, my other favorite soccer teams are the African and Islamic ones. I know a soccer win for a country like Ghana will provide people there with happiness for weeks. Have you ever seen how happy people get in an African country when they win a World Cup game? It is unbelievable. Watching footage of Senegal after they beat France in 2002, left me with a lump in my throat.

    When a developing country wins, you can’t help but feel that their joy is a deeper, more meaningful kind of joy. The win is evidence of some higher affirmation and relevance in the scheme of the world. Not to say that people in Italy don’t get extremely happy when their team wins. They do. It is just that a soccer win for a country like Italy will be enjoyed the way getting drunk at a carnival is enjoyed. Furthermore, the Italians when all is said and done still get to be Italians and enjoy beautiful weather, girls, ancient buildings and Capuccinnos. After they are done watching the game, the North Koreans have to go back to barren one-room houses that feature wood stoves and nothing to adorn the walls except for a picture of the Dear Leader.

    World Cup Part III: Why Game Theory Says Its in America’s Interest to Lose

    My desire to see crappy countries win holds true even when America plays. I very much wanted Algeria to beat America the other day. That might sound unpatriotic but I actually think losing to Algeria would have been the most patriotic thing to do. Let me explain.

    Algeria was representing the Arab world. The Arab world is not enamored of the United States, in fact for the most part the Arab world hates the United States. A good chunk of that hatred comes from the fact that the Arab World feels overwhelmed and impotent in the face of American/Western dominance in economics, military and culture.  Time and again, Arab countries have failed to significantly challenge this American dominance and this consistent failure has over time yielded an inferiority complex.

    America’s main geopolitical challenge is how we assuage this inferiority complex so that we can work with these people. We need to assuage this inferiority complex while at the same time preserving our own superiority. This is where soccer comes into play.

    You see, I do care about America’s relative superiority in areas like economics, military and culture and I care about how we can preserve that dominance for the decades ahead. However, I don’t give a shit about how good we are at soccer. Neither do most Americans. These Arab countries on the other hand do care about soccer. Like most other people around the world, they remember victories and defeats for decades. The joy of beating the United States and knowing that they have something in which they are superior to us will help them forget about the other hundred things that we do better then them.

    This is the essence of good game theory bargaining. You give your opponent something that he values a great deal that you pretend to value a great deal but you know is actually worthless to you. You then get something in return that you actually value. If he knew you didn’t value that thing you were giving up, he wouldn’t give you a good trade, which is why you have to pretend that thing you’re giving up is valuable.

    I propose that the State Department develop a plan to ensure that the US soccer team lose every single soccer game they can to Muslim countries. We then stage fake riots to pretend like the loss is meaningful to our national psyche. We can then watch as the Muslim countries gloat about their win and their dominance over America’s evil empire and while they are doing that, we go about our business making oil deals, moving troops into certain regions, securing sea lanes and selling them our television shows. In other words, we can go about being America and they won’t care because they beat us in soccer.


    Ricardo´s Theory of Comparative Advantage and Brazilian Television

    The only countries that don’t have a massive number of American television shows being shown around the clock in original English or in the dubbed native language are those countries that simply don’t trade with the United States – e.g. North Korea, Iran. If you have historically had good relations and relatively free trade with the United States, then chances are your television channels will be dominated by American programs.

    Brazil has generally had good relations with the US. Ergo its television channels are filled with American television shows. Probably the person who could best explain the absolute dominance of American television in Brazil and around the world is David Ricardo, an English economist who died several centuries ago. His theory of Comparative Advantages in a nutshell suggests that countries should focus on what they are relatively good at it. The term of note is relatively. One country can more efficiently produce two products than another country like televisions shows and baseballs. However, if country A is much better at producing television shows than country B but only slightly better at producing baseballs than country B, then country A should specialize in television shows and let country B take the baseball market. If you were to repeat this exercise several times with different countries, you can end up with a situation where Country A´s relative strength in television production always wins out. Hence, Country A produces most of the world´s television.

    Why did America end up being Country A? Well, Hollywood for all its faults, is a well oiled and beautiful run machine and has certain economies of scale that will be impossible for other countries to duplicate. It took years to build up the studio system with its accompanying phalanx of agencies, casting and production companies and network of stars. Building up an entertainment industry is not the same thing as building up a manufacturing industry.

    It will always be possible for countries or for anyone for the matter to produce a great movie. Movies are one off things and don´t necessarily require the same economies of scale to be produced. They can also earn back their money in a short period of time. Television is a different matter. Big television show productions are more costly and rely on longer time horizon revenue streams. If you are going to commit to producing The Pacific you have to believe that that miniseries will earn your money back over decades rather than weeks.

    America having the best television production means that countries like Brazil don´t devote much in the way to creating productions like Mad Men. They instead buy the syndication rights to Mad Men. However, not all television stations can buy the syndication rights to hit American television shows. If you can’t buy the syndication rights and you don’t have the money to create an expensive show like Mad Men then what else can you do to draw viewers. Again Ricardo has the answer. You look to your comparative advantages. One thing Brazil has a comparative advantage in are lots of very attractive females who are comfortable in bikinis.

    While one half of the television channels in Brazil are showing American shows like Mad Men, the other half are showing variety shows and talk shows that make great on camera use of attractive, half naked woman. Chicks in bikinis are all over Brazilian television. You´ll be watching the Brazilian version of Dr. Phil, featuring a pop psychologist giving serious life advice to drug addicts and his guests will be brought on stage by three girls wearing bikinis. You´ll be watching their version of the Late Show and some rock star will be getting interviewed and there will be chicks in bikinis gyrating in the background. It is as if all Brazilian television producers live and die by the mantra of “when in doubt, put a hot girl with fake breasts on camera.”

    The tactic works beautifully. You will sit there dumbfounded and watch variety show after variety show and not understand anything anyway is saying but be continuously amazed at how good looking the girls are that they put on camera. The girls will do things like get into water balloon fights or have kissing contests with homeless people. It makes no sense but it is profoundly entertaining. It could be the case that the Brazilians are unto something. Maybe, someday Brazilian talk shows will overwhelm American television content as countries decide they would rather watch girls in bikinis juggling soccer balls than watch Jack Bauer blow up a terrorist complex for the tenth time.

    Brazilian Elite

    The Brazilian elite for the most part don´t flash their money. The ones I have encountered reminded me more of old WASPY New England aristocrats then new money Hollywood or Wall Street millionaires. I had come here under the impression that it was normal for Latin American oligarchs to drive $100,000 cars and spend thousands of dollars at clubs. Wealthy Brazilians may do this but they do it discreetly. A wealthy Brazilian might drive a car that cost a $100,000 but more than half that price tag is from the cost of bullet proofing the car. The car itself would have a humble or unrecognizable brand, certainly not a Mercedes or Porsche. The clubs might be ridiculous on the inside but they do their best to hide themselves from the outside world.

    In a country with a Gini coefficient close to 60, the goal is to draw the least amount of attention to yourself at all times. Driving an absurd car even if you could afford several of them is asking to get kidnapped. If you drive that car, it just takes one guy to notice it. If he sees where you park it, he can start casing out your house and your work place. This guy doesn’t go through all this effort to steal your car, he does it to kidnap and then ransom you.

    Even beefed up security is no match for most of these gangs. One of my Brazilian friends down here who generously showed me around when I first got here mentioned a story about one of his friend´s father who had taken all the precautions of having body guards and armored vehicles etc but still managed to get kidnapped. The criminals did their due diligence on the guy and when the time was right they pulled up to him on a red light, opened fire with armor piercing bullets on the car killing all his body guards and his driver. They killed everyone but the father who they then kidnapped for several months.

    In other words, Brazilian gang´s don´t screw around.

    The Economics of Getting Mugged

    Crime is Brazil´s Achilles Heel. It is hard not to be hyper aware of crime when you are walking around. I am living downtown in central Sao Paulo close to Votorantim´s main offices. Although the streets are filled with beautiful old colonial buildings, relics of Sao Paulo´s past as the coffee trading capital of the world, the area itself is decaying and full of liter and homeless people. I am told never to walk around the area past 6 o’clock at night. Still the thought of paying 10 reales for a cab ride of 4 blocks back to my hotel kills me so I end up walking home on most nights.

    When I walk home, I walk briskly and I don´t make eye contact with anyone. I usually walk on the road so if someone does try to come at me from the sidewalk, I have time to react. A friend in my office has been mugged four times in the last year. Usually the guy will pull a knife, sometimes a gun. You just give them whatever they want and they go on their way. You hope that they are good at their job and not amateurs who might get nervous and prematurely pull a trigger.

    So far nothing of the sort has happened to me. However, I did see it happen to someone else the other day. I didn’t realize at first what was happening because everyone else was walking by like nothing was going on but in short order I saw one guy approach another guy and the other guy gave him his wallet and then the guy taking the wallet scampered off. The transaction seemed as ordinary as asking your parents for allowance money. It took me a second to realize that “holy shit, that guy just got mugged.”

    To be honest with you it seemed so easily and beautifully executed that I wondered why more people aren´t in the business. Assuming you choose your targets right, there is little chance that your target hurts you. The risk really comes from bystanders and cops. Now as I saw, bystanders seemed totally averse to interfering. Why risk your neck for a stranger against a guy who might be armed? As far as Brazil´s police, they are largely absent and are underpaid as it is. Why should they risk their lives or energy to chase a small time crook? Given there is little in the way of barriers and a remote chance of getting caught and sent to jail, mugging people probably seems like a good way to get by for a large swath of people.

    Manuas: The Dubai of the Early 20th Century

    In five days, I will be on an eight seat airplane headed to the deepest, darkest interior of the world’s largest rain forest. There are no roads to get to the place I am going to. By boat it takes two days. By plane it takes several flights. It is one of the most secluded, isolated places on the planet and it is also home to the world’s largest bauxite mine. However, before we head to this Pandora to destroy the habitat of blue aliens, we will be spending two days in Manuas, the capital of the Amazon region.

    Manuas is the Dubai of the early 20th century. For a brief period of time, this completely isolated city in the middle of the Amazon, was the richest place on the planet. It had something that with the rise of automobiles everyone needed – rubber. Owning a rubber tree plantation in Manuas was like being a GoldmanSachs partner pre-IPO. You killed it. Rubber barons had the money of a dotcom billionaire combined the spending sensibilities of a rapper who had watched Scarface too many times. These barons would do things like clean their horses with champagne, import rare tigers to stage fights with Pumas. They also built an absurd grand opera house and outfitted their houses with vast domes and gilded balconies. Manuas was one of the first cities in the world to gain access to electricity.

    However, over night the lights went out literally. It just took one enterprising guy to realize that he could grow these same rubber trees in Malaysia. With the rubber seeds successfully smuggled out, the Brazilian rubber plantations lost their monopoly pricing power and become like any other agricultural plantations. The city with one of the first electric grids lost their ability to maintain it and went dark. They went from absurdly rich to dismally poor in 5 years. Considering the fact that it takes most rappers and NBA stars only 3 years to make that journey, I suppose these guys held out better than one would expect.