March 2004 Newsletter
Issue Three, Volume Five

A WORLD OF TROUBLE

By Mike Gasior

PROBLEMS WITH THE FEBRUARY NEWSLETTER

I want to open with an apology for anyone who didn't receive their copy of my February newsletter, and also for my lack of a response to your email inquiries as to why it never showed up. The server that handles the mailing of the newsletter each month crashed in the midst of sending last month's issue and it was impossible to identify precisely who did receive their copy and who didn't. Frankly, I was very happy with what I had written last month and was personally aggravated that not everyone got to read it. The amount of email that I got from people asking where the newsletter was too massive to even begin responding to, so I figured I would address the issue first thing in the March edition.

To view the February newsletter, simply follow this link:

http://www.afs-seminars.com/newsletter_Feb_2004.html

The topic for the February video clip was Hedge Funds and I thought it was informative as well. We have decided to leave the clips on the server for an extra month if you didn't get to view them.

To view the clip on a high-speed Internet connection, click on the following links, or cut and paste them into your browser:

http://www.afs-seminars.com/video/2004-Feb-768K.wmv

To view the clip on a dial-up Internet connection, use this link:

http://www.afs-seminars.com/video/2004-Feb-56K.wmv

I apologize again for any problems, and we have changed servers for this month and things should work more smoothly and dependably.

A TREMENDOUS OFF-SHORE PROGRAM THIS YEAR

I just wanted to quickly announce a blockbuster seminar that we will be hosting in Bermuda and Grand Cayman this year. It is the first program we have ever designed exclusively for the offshore markets and is completely groundbreaking.

The program is titled "Providing Services to the Hedge Fund Industry" and is an athletic three days covering every conceivable aspect of the Hedge Fund industry. Anyone or any organization offering services to hedge fund client will want to attend these sessions.

You can view a complete program description and course schedule at these following links:

The Grand Cayman program will be at the Hyatt Regency - Grand Cayman on September 27, 28 and 29, 2004.

http://www.afs-seminars.com/cayman.html

The Bermuda program will be at the Elbow Beach Hotel on October 12, 13 and 14, 2004.

http://www.afs-seminars.com/bermuda.html

Unfortunately, due to meeting room availability, we have to limit the size of the groups, but I look forward to seeing many of you there. Now on to the more pressing topics.

A WORLD OF TROUBLE

This may be the saddest and most troubling prediction I have made in the five years that I've been writing this monthly missive, but unfortunately I feel tremendous clarity in making it:

--There will be a major terrorist attack on U.S. soil in the next eight months.

The reason I say such a thing is because of the events that unfolded in Spain over the past month. The terrorist attack on the Madrid rail system was clearly horrific and loss of life devastating. I woke that morning and flipped on the television and wished that perhaps I was actually still sleeping and was dreaming this terrible thing.

As sad as the actual terrorist attack was to me, what troubled me even more were the election result just days after the bombing. Now I claim no intimate knowledge of Spanish politics, but I did get the message loud and clear from the voters in Spain. The message they sent was simply that terrorism works. Terrorism can change the course and direction of large governments like Spain.

I read in the newspaper that the Socialist Party won the election, and that the new Prime Minister was announcing he will pull all of Spain's soldiers out of Iraq and was mouthing off with regard to George Bush and Tony Blair.

The truth of the matter is that al-Qaida won the Spanish election, and anyone who thinks otherwise is kidding themselves. The leaders of al-Qaida can now be confident that a well-timed terrorist attack can sway the opinions of voters and perhaps help install political leaders that might be more sympathetic to the al-Qaida cause. One would have to assume that two other world leaders that Osama Bin Laden and friends would like to see replaced would be George Bush and Tony Blair. This is the very simple reason I think a significant terrorist attack will certainly take place on U.S. soil in the coming eight months. You can also extrapolate from my thinking that an attack in Britain would be logical as well.

For the purpose of full disclosure, John Kerry and I agree on very little politically and plan to poke a little fun at him in my March video clip. With that in mind, I do not believe for one moment that Senator Kerry would ever leave Americans unprotected from terrorism, or that he would weaken the U.S. military in any meaningful way. Frankly, the difference between Democrats and Republicans with regard to defense spending tends to be statistically insignificant and most discrepancies are usually pork barrel related, or tied to fringe programs and not the core defense spending.

Unfortunately for Americans and the British, this is not how al-Qaida views the situation. Quite simply, al-Qaida would prefer literally anyone else in the Oval Office than George Bush, and anyone other than Tony Blair living at 10 Downing Street.

So to summarize, I think the events that took place in Spain will contribute to the world being an unstable place for the rest of the year. I don't want to discuss the killing of Ahmed Yassin in Gaza just over a week ago at any length. Suffice it to say, however, that this will prove to be a destabilizing event as well.

THE EU RULING AGAINST MICROSOFT

Last week the European Union ruled against Microsoft last week for monopolistic behaviors and fined the company a record $613 million. Worse than that, the EU said that Microsoft will now have to reveal insights into their Windows operating system works, which was previously secret. This was another destabilizing event in the world during the past week, and I believe will create political instability too.

There have been many rulings in recent years by the EU that were detrimental to U.S. companies. They imposed many onerous and problematic restrictions when Boeing acquired McDonnell Douglas back in 1997. When General Electric was looking to acquire Honeywell, it was an EU ruling that prevented the two companies from merging. Even now, the EU has been very active in the possible hostile takeover of PeopleSoft by Oracle.

The past decade has been revolutionary for the globalization that has occurred, and not unexpectedly, many U.S. companies have fared well in this environment. The problem in this recent ruling against Microsoft is that it may serve to fundamentally change the way Microsoft conducts its business. True, the ruling by the EU only effects the way that Microsoft conducts itself in Europe, but it is difficult for an enterprise their size to begin operating with two business plans. One for Europe and another for the remainder of the world. Not to mention, if Microsoft now has to reveal secret insights to European software companies you would have to expect for those secrets to quickly circle the globe at the speed of light.

Now on one hand, you could say that all the EU is trying to prevent are mammoth companies abusing the economies of Europe with their unfair, monopolistic behaviors and that the EU is simply protecting their own consumers.

But on the other hand, a cynical person like myself might just think that the EU is using its powers to weaken American companies allowing European companies to catch up. This is where I believe the gasoline is now moving very close to the fire.

Senator Kerry was just quoted days ago, referring to U.S. companies who are moving jobs overseas as "Benedict Arnold" companies. For my non-U.S. readers, Benedict Arnold is America's most famous traitor who was hung in public a little over 225 years ago. There is already PLENTY of political capital available in the U.S. for any politician who wants to spew protectionist venom into the ears of American voters. The climate is extremely ripe for the U.S. to pass some horrible, protectionist legislation to cut our global trading partners off at the knees.

Before you try to insinuate my opinion about this sort of legislation, I tell you in a clear voice that any moves like that at this point in history will prove to be an unmitigated disaster. Period. Paragraph.

The American economy is extremely fragile right now and any trade wars whatsoever will be devastating to not only the U.S. economy, but also whatever country decides to enter such a war with us. This is why I'm frankly shocked that the EU has launched a shot over the bow of the U.S. economy like the ruling on Microsoft. Trust me when I tell you that there are LOTS of U.S. companies who saw what happened and don't like it one bit. And you can also believe me when I tell you that these companies are healthy contributors to the campaigns of candidates of both parties and for all major offices. Any legislation that "protects American jobs" is going to be an easy sell to voters. The sad truth, however, is that it will prove to be a train wreck.

So the mainstream public heard the announcement about what happened to Microsoft on the evening news and it rolled immediately off their backs since it outwardly seemed to have nothing to do with them, and could not impact their lives in the least. Oh, how wrong they might be.

ANOTHER PROBLEM FOR EUROPE REGARDING ACCOUNTING

This is a topic where I want to be quite brief and completely efficient. About three years ago a new accounting rule took effect in the United States you will hear referred to as "FAS 133". This accounting standard dramatically changed the way companies reported their derivative holdings, and the idea was to make financial statements more transparent and more realistic. While I was not completely in favor of the ruling by FASB and believed the new rule had many flaws, it was at least progress in the right direction. For this reason I tried to stay open minded about it.

As many of my readers know, the derivatives marketplace has grown to an enormous size and knows no borders. Companies and financial institutions the world over enter into a vast array of derivative contracts each and every business day. One concern for all these participants has been understanding the financial status and condition of the party you are entering into these contracts with. Given that the rest of the world does not follow U.S. GAAP accounting, the hope has been that some of the other major economies would adopt standards similar to the U.S. FAS 133 to allow a more "apples to apples" type of comparison between parties. We were about to get that continuity in Europe with the adoption of IAS 32 and IAS 39, which would have brought much global reporting into line with FAS 133 and make the markets more transparent. By the way, the FAS stands for "Financial Accounting Standard" and the IAS for "International Accounting Standard".

But here comes our friends at the EU, bowing to pressure from a variety of European banks (particularly the French) that are mortified at the idea of having to mark their derivative holdings to market and reflecting the changed value on their balance sheets the way U.S. companies are now forced to do. The plan was for IAS 32 and IAS 39 to take effect in 2005, but now it appears the implementation will be at least delayed. If not cancelled altogether.

I'm not going to insult your intelligence by re-telling you my opinion of the Microsoft ruling by the EU, but you tell me how this accounting situation is much different. If behavior like this continues, where political pressures cause the playing field to always be shifted away from U.S. companies, I can guarantee you the U.S. will lash out with legislation of their own and it will not be a pretty sight.

Please don't read any sort of political inferences into what I am saying. I always try to take an economic approach to matters such as these, but that doesn't make me a fool. It will be an economic disaster as protectionist walls begin to go up around the world for everyone involved. But U.S. companies and U.S. politicians are not going to sit still either while other countries whittle away the ability of the U.S. to compete abroad. My suggestion to these countries is improve your markets and products to better compete with your American competitors. If your so afraid to compete on a level playing field you will give the U.S. no choice but tilt their own field to your disadvantage.

ARE YOU ALWAYS LOSING YOUR CAR KEYS??

Well have I got a product for you. It isn't quite ready yet, but when I read reports of a new idea being developed my Microsoft in their research center in Cambridge, England.

The product is tentatively being called "SenseCam" and is a tiny, digital camera you wear around your neck as sort of a pendant. What this little camera does is periodically take photos throughout your day as you do things and move around. So every time you move from room to room, or come face-to-face with someone, SenseCam fires off a digital photo of the event. In a 12 hour period, SenseCam will have fired off somewhere in the neighborhood of 2,000 images of basically every single thing you did during the day, creating a visual diary of your life. At the end of the day, simply load the results of the day onto your hard drive, and when the honey asks you what you had for lunch Monday, you simply go look it up. You can even tell them what flavor yogurt you ate, how many cans of Diet Coke you drank, and that driver you flipped off on the commute home. Pretty cool.

Now I don't honestly know if this is something I would EVER want to own myself since I am personally thankful I'll forget 99% of stuff that happened to me last week by next week. I did immediately think it is a very interesting day and age we are living in though. Imagine strapping one of these SenseCams around the neck of your 18 month old right when they stand up to take their first steps. Then imagine leaving the darn thing around their neck until high school graduation. This would leave you with a photo album of your child's life that contains about 1,250,000 images. That should keep the grandparents busy for a while, no?

Anyone who knows me, knows I am a fool for technology and am fascinated by every kind of gadget. What I remain unconvinced about is whether or not it all really makes our lives better. I mean, before cell phones who did you need to talk to so badly that you would do it standing at a urinal next to me in the men's room? Come on now. Nobody needs to be that connected to anything. Even if North Korea were to suddenly launch a nuclear warhead toward someone, nobody on the White House staff is going to be pumping a phone into Bush's hand while he's...you know...taking care of his business. He can talk after he's done...and has washed his hands.

So the next time I see you in an airport men's room yakking on your cell phone, please remember that people don't think you're important or successful. We think you're a pretentious and shallow fool. If you were any kind of successful (or at least more successful than me) you wouldn't be in a public restroom at an airport. You'd wait to use the facilities on your Gulfstream V.

ANOTHER TOP 10 LIST

As many of you might even suspect, the broadcast of the Rock & Roll Hall of Fame inductions is must see TV for yours truly. I'll even confess to having watched it several (four I think) times since some of my favorite artists were either being inducted, or inducting someone.

What causes me to bore you with yet another top 10 list was the entirely amazing finale that featured an all-star cast of artists performing inductee George Harrison's "As My Guitar Gently Weeps". What blew me completely away was the guitar solo by fellow inductee, Prince who will likely go do as the most important artist of his generation. More important than Michael Jackson. More important than Madonna. More important than the grunge movement.

People seem to forget the level of musical talent possessed by this man, even including his fellow musicians on occasion. I'll take this opportunity to remind anyone who doesn't know that on his breakthrough album, Purple Rain, Prince wrote all the songs, played every instrument and sang every vocal on every single song on the record. And, oh yeah, he produced the whole thing himself too. Not bad for a guy who was still in his 20's at the time.

And should anyone believe that his music is an electronically produced, studio creation, they should have watched him play the guitar solo at the end of "As My Guitar Gently Weeps" (played originally by George Harrison's best friend Eric Clapton on the Beatle's White Album...the only instrumental solo ever played by a non-Beatle on a Beatle album). Prince's solo was jaw dropping as he just shredded the piece leaving everyone on the stage with him in simple awe. Most people probably would never put Prince and guitar solo in the same sentence, but they should take a peek at that finale the next time VH1 re-runs it.

Which prompts yet another top 10 list that hundreds or perhaps thousands of you can criticize, and that is my list of the best guitarists of all time. Now even after all my previous gushing about Prince, he will not make my top 10, but here are my choices for your consideration.

1) Jimi Hendrix - This one was the easiest one. Even after all these years, nobody can make the noise that Jimi Hendrix was able to make come out of a guitar.

2) Jimmy Page - The term "super group" was invented for the Yard Birds since the band contained three guitarists who will make my top ten. I think Jimmy Page was the best of the three.

3) B.B. King - There is one word that perfectly describes the sound produced by B.B. King and Lucille...smooth.

4) Eddie Van Halen - At his best, Eddie could play unlike anyone else and continued to explore and experiment throughout his career ala Jimmy Page. The guy has some amazingly fast hands.

5) Stevie Ray Vaughan - It was a shame that he got taken from this earth just when many people were beginning to realize what struck me the first time I saw him play. He was amazing and hypnotizing.

6) Eric Clapton - Some people will be angry that I put Slowhand this low on the list, but frankly I found it impossible to put him above any one of my first five guys. He still is one of the most amazing players who have ever lived though and the second member of the Yardbirds on my list.

7) Pat Metheny - Although he never received a ton of mainstream exposure and success, the Pat Metheny Group could bring down the house if you ever got to seem them live. And a Pat Metheny solo will rival the best that any member of this top 10 could offer.

8) Chuck Berry - I am now taking you back a full 40 years to Chuck Berry's apex as a musician, but he was not only an amazing guitar talent, but also a visionary with an idea of what the future would hold for Rock and Roll. They didn't pick a Chuck Berry song to use in the movie Back to the Future for no reason.

9) Alan Holdsworth - This is a choice from outside Rock and Roll, which means many of you will have never heard of him. While primarily a jazz artist, try finding a song with Alan Holdsworth playing guitar and you'll see why he is on my list. Look for one of his albums while he was with the group Tempest, or check out one of his 17 solo albums.

10) Jeff Beck - The third member of the Yardbirds in this group, and a major league guitarist in his own right. Only very small fractions separate Page, Clapton and Beck and keep that in mind if you have never listened carefully to a Yardbird album. I remember when they were inducted into the Rock and Roll Hall of Fame (many years ago now) and a younger person actually asked, "Who are they? I've never even heard of them." All I could say to the kid was that was a real shame.

And as much as I would have liked to add two sentimental choices to the top 10, I couldn't quite include Keith Richards or Pete Townsend. I would definitely include them within my next 5 choices, but jamming them into the group I went with would have been unrealistic. Keith and Pete are legends and fabulous guitarists, and I will give them honorable mention here.

YOUR MARCH BRAIN TEASER

Since so many of my readers are extreme math geeks, I have taken enough abuse about the lack of mathematically based brainteasers and am going to throw some red meat to this angry mob.

Even if you aren't a math major, you can successfully solve this one if you remain calm and logical. Good luck.

Here is this month's brainteaser:

"The term Egyptian fraction refers to those fractions whose numerator is 1 and whose denominator is any other whole number. How can the fraction 19/94 be expressed as the sum of two Egyptian fractions?"

Give it a good effort before becoming a weasel and peeking at the answer on my website.

You can view the solution at this URL:

http://www.afs-seminars.com/brainteaser_Mar2004.html

And the answer to LAST month's brainteaser is:

Horse, pens (female swan), cat, dog, lion.

http://www.afs-seminars.com

Copyright 2004, Michael Gasior. All Rights Reserved.

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