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Friday, September 25, 2015

#Israel wants to be the next financial center. #Fintech is the way

Looking to harness both its technological and financial assets. 

Finance guru’s mission: Bringing Jews and their money to Israel

American-Israeli financier Tal Keinan has a dream: to transform Israel into a global financial center and lead the revolution using his Clarity Capital investment house. His near-term goal is to have $20 billion under management within five years.

To get the process started, 45-year-old Keinan moved to Clarity’s New York offices. Keinan wasn’t giving up on Israel; rather, he views his business like an Israeli startup. It does its research and development to take advantage of Israeli engineering talent, and does its marketing in the United States, where the customers are.

“Investment management is our R&D and client management is our marketing, which needs to be close to the market here in New York,” he explains from his office overlooking Central Park. “Like high-tech companies, we have a front in New York … that’s where the clients are.”

New York is the company’s U.S. headquarters, but Clarity is also opening offices in Florida and California. Keinan believes that Israel should become a major world financial center that provides services around the globe.

“If Israel starts to think of the financial services industry and investments in terms of exports and that we have to be the best in the industry, it will bring the best minds to Israel — and not just new immigrants,” Keinan says.

“There are a lot of Israelis who work in the U.S. and Europe in money management and they do excellent work. Many of them are looking for a way to return home. Our company has Israeli staff like that.”

The new Tel Aviv Stock Exchange building            
The new Tel Aviv Stock Exchange building. Yael Engelhart
Keinan’s Tel Aviv team includes Soviet-educated mathematicians and seasoned alumni of Goldman Sachs, Deutsche Bank and London- and New York-based hedge funds, all of whom have returned to Israel to work with Keinan.

Gabriel Low, a Stanford MBA who ran large debt portfolios for two decades as a managing director at Citibank in London, runs Clarity’s Special Situations Group. Chief Investment Officer Eran Peleg earned an advanced degree at Oxford and managed large portfolios at the asset management firm Gartmore.

Peleg and Low both returned to Israel for family reasons, but instead of retiring, or just managing their personal portfolios, they joined Clarity. “These kind of people don’t want to work at an Israeli bank. The want to play in the big leagues,” Keinan says.

From nothing to Check Point and Waze

So does he really think Israel can become a global financial center?

“We are competing in the world market in the area of finance. Historically, the Jewish brain was good at finance. That’s why I believe that Israel has the potential to go work in the field. In 1990 Israel didn’t have any impressive high-tech companies — we didn’t have a Check Point or a Waze,” Keinan says.

“But look what a wonderful tech industry we have today in the country. There are a lot of talented Israelis who could be working in finance. Israeli abilities are fantastic and we’ve learned this in technology. A lot of Jews connected to the financial services industry worldwide would want to come to Israel and join an international financial centered in Israel.”

Keinan also has confidence concerning the goal to raise $20 billion.

“It’s an ambitious goal, but it's doable,” he says. “Our growth won’t be linear. Growth can come from acquisitions of other investment companies. A sum like that will put us on the map in New York.”

Eugene Kandel, head of the National Economic Council in the Prime Minister's Office.             
Eugene Kandel, head of the National Economic Council in the Prime Minister's Office. Emil Salman
Keinan was born and raised in the United States. His father, who was married four times, was a member of the team that developed the first atomic bomb during World War II.

Keinan’s mother was his father’s third wife, and after they separated after nine years of marriage they sent young Tal and his brother to boarding schools in New England. Tal attended the prestigious Phillips Exeter Academy in New Hampshire where, perhaps oddly, he discovered his Jewish identity.

At 15 he made his first visit to Israel and fell in love with the place. Five years later he immigrated and was drafted as a lone soldier — one without any immediate family in the country. But unusually for a new immigrant, he became a fighter pilot, serving 19 years flying F-16s and retiring as a lieutenant colonel.

Keinan went to the United States to earn an MBA at Harvard and then returned to Israel to work at private equity fund Giza Capital. Formed in 2006, Clarity manages $2.5 billion in assets for endowments, charitable funds and wealthy individuals mainly based in the United States.

On Clarity’s board is a man some have described as Keinan’s patron, the American hedge fund manager and billionaire philanthropist Michael Steinhardt. Michael’s son David, a hedge fund manager in his own right, is Keinan’s founding partner.

Prof. Eugene Kandel, Prime Minister Benjamin Netanyahu’s chief economic adviser and head of the National Economic Council, says Keinan isn’t alone in the goal of transforming Israel into a global financial center. So far the efforts have fallen flat.

“The Ariav committee, established in 2007 by the Bank of Israel and the Finance Ministry, addressed it. The commission enacted reforms, but the global financial crisis cut its work short. It did plant seeds for legislation, however,” Kandel says.

Another London or Singapore

“The idea was to make it easier for financial institutions to come to Israel. There are a lot of Jews and Israelis who live abroad, and we thought it would be a good idea to turn Israel into something like the financial centers of London, Singapore and Hong Kong.”

When he was the treasury’s director general, Haim Shani brought Citigroup’s and Barclay’s fintech operations to Israel. After all, why shouldn’t there be global financial services companies here?

“Clarity is an example of how you can manage in Israel money coming from overseas. It can create high-quality jobs for people thinking of leaving Israel. I don’t think half the country will start managing money for overseas investors, but this is definitely an industry that could grow by hundreds of percentage points,” Kandel says.

“Financial services includes many areas like back office administration for big financial firms. Work like that can be done by the ultra-Orthodox and Arab communities .... You don’t need an MBA to do work like that. Work like that can be done in the big cities and also in cities like Nazareth,” he says, referring to a largely Arab town.

Dan Senor, who co-authored the book “Start-Up Nation” and now serves as a partner at the hedge fund Elliott Management, agrees that the drivers of Israel’s high-tech success could apply just as well to finance. He notes that Israel is a nation of highly skilled risk-takers, with drive and a powerful work ethic that he traces to the ethos and leadership traits they develop in the army.

Keinan, for his part, spends his time not only thinking about finance but about the fate of American and world Jewry.

“This is a defining moment: 72% of non-Orthodox Jews marry outside the people. The children of these marriages don’t always stay Jewish. Within two generations we’ll be only 9% of what we are today. So what is happening now is extinction,” he warns.

“My three older brothers all married non-Jewish women, wonderful people. I love them but they’re not Jewish. I don’t know if this tragic or not.” Israel has problems, too, but they’re of a different order, Keinan says.

“Genetically we’re no different from the Jews of the U.S., but the results — educational achievements, per capita GDP, language ability and understanding of the world — we don’t come close to them. GDP per capita in Israel is $37,000 to $39,000 annually. That’s similar to the European average,” he says.

“But Jews never take pride in being part of the average. We don’t pay attention to the fact that per capita GDP for American Jews is $110,000 to $120,000. Yes, an American Jew doesn’t serve in the army, he lives in an open environment and doesn’t have a war right next door.”

So when is he coming back to Israel?

“I don’t know. There are a lot of moving parts surrounding that question. It’s not in the next year or two, I would guess, but I have an obligation to my children and their education. I haven’t left Israel; Israel is my home.”

-- The MasterFeeds

Saturday, August 29, 2015

The advantages of being the world's reserve currency are many #USD

A new paper from the Kansas City Fed presented in Jackson Hole, WY states that U.S. Dollar  Moves Don't Put Much Pressure on US Inflation. The Wall Street Journal reports:

"U.S. import prices are less sensitive to exchange-rate movements. While a 10% depreciation of the lira leads to a 10% rise in Turkish import prices after two years and a 10% yen depreciation causes a 9% increase in Japanese import prices over the same period, a 10% dollar depreciation causes just a 4.4% increase in U.S. import prices"

"There also is less pass-through to domestic inflation. Ms. Gopinath estimated that a 10% dollar depreciation would raise the Labor Department's broad consumer-price index by 0.4 to 0.7 percentage point over two years, while a 10% lira depreciation would cause Turkish inflation to rise by 1.65 to 2.03 percentage points."

Read the article on the Wall St. Journal site here:  Dollar Moves Don't Put Much Pressure on U.S. Inflation: Fed Conference Paper - WSJ 

Wednesday, August 26, 2015

The Fallacies of Argument @stratfor

If it is true that one should ignore, or at least sharply discount, the views of those who supported the war in Iraq but are now dissatisfied with the proposed Iran nuclear agreement, what do we do with those people, of whom I am one, who supported the removal of Saddam Hussein from power in Iraq but also support the Iran nuclear agreement?

Fallacies of Argument

By Philip Bobbitt

In these columns, I will offer general observations on the relationships between strategy, history and law with an eye to showing how we might strengthen our geostrategic analyses. Occasionally I will introduce an exemplary case. But I am not so much interested in trying to convert my readers to my prescriptions as I am anxious to offer ideas and approaches that I think are helpful in thinking about contemporary issues. A grasp of unfamiliar ideas such as "Parmenides' Fallacy," the "triage of terror," an "epochal war" — or even the familiar notion of "loss aversion" in the unfamiliar context of grand strategy — can be useful in framing a debate and assessing its merits even when the debaters share little in the way of partisan preferences.

Nevertheless, I sometimes come across a point of view that goads me into abandoning my customary forbearance. One such case is the outrage one often encounters that decries the allegedly lenient treatment given senior officials who are accused of leaking classified information when whistleblowers — as they describe themselves — like Julian Assange, Edward Snowden or Jeffrey Sterling are prosecuted or threatened with prosecution, should they enter U.S. jurisdiction. This complaint, usually served with a garnish of resentment that establishment figures are being favored over "the little guy" (a description one can scarcely imagine Assange, Snowden or Sterling applying to himself), will doubtless make a new appearance in the aftermath of the investigations into former U.S. Secretary of State Hillary Clinton's handling of her emails. I am here giving warning that when it does, I may well write about the persistent attention to what seems to me to be a non-issue (Clinton's email habits) as contrasted with the lack of moral concern about paying or otherwise rewarding persons for the theft and exposure of national secrets.

But this time some other absurdity has inflamed me. In my defense, I note that it is part of a much larger pattern of substituting the characterization of a person — or her role — for argument. One sees it all the time. Suppose a scientist submits experimental evidence that can be used to discredit a proposed regulation — let's say e-cigarettes don't lead to the adoption of tobacco addiction and in fact are a potent method of breaking such dependence. And then suppose it is revealed that the scientist's work has been funded by a corporation that sells e-cigarettes. One can easily imagine the mockery of the experimental results on the grounds that they simply must be contaminated by the experiment's source of funding. Or imagine a lawyer who submits testimony tending to persuade Congress that a trade agreement is likely to spur employment growth in the United States rather than cause a net loss of jobs. It's not hard to guess the reaction when it is revealed that the lawyer is a lobbyist for the International Chamber of Commerce. We all know that these revelations aren't really arguments. But we can't seem to help feeling that a position is tainted if it is revealed to be associated in some way with an interested party.

The Guise of Accountability

The example that set me off is an extreme version of this logical fallacy, sometimes called the argumentum ad hominem circumstantial. It occurred in an essay on the proposed Iranian nuclear agreement that begins, "Without commenting on the ins and outs of the arcana of the Iran nuclear deal, it may be instructive to examine the issue of accountability that surrounds it." The essay then proceeded to quote U.S. President Barack Obama's observation in his American University address last week that "many of the same people who argued for the war in Iraq are now making the case against the Iran deal." There are two points being made here, and both are insidious.

One is that it is necessary to hold our leaders "accountable" for their alleged mistakes by ignoring their arguments in a current debate in favor of reminding them, and us, of the errors they have made in the past. This is not an argument about the merits — the "arcana" — of a proposed treaty or statute but rather an effort to dispense with such hard work in favor of embarrassing the people with whom one disagrees. Its claim of retribution or payback — "accountability" — for past actions is in fact merely a forensic weapon in a present debate.

The second point is a simple logical one. If it is true that one should ignore, or at least sharply discount, the views of those who supported the war in Iraq but are now dissatisfied with the proposed Iran nuclear agreement, what do we do with those people, of whom I am one, who supported the removal of Saddam Hussein from power in Iraq but also support the Iran nuclear agreement? This group includes the vice president, the current secretary of state and his predecessor, who is also the likely Democratic nominee for president, among others. Are we to hold them accountable by depriving ourselves of their assessments, too? What sort of accountability is that? Suppose that more congressmen who support the Iran agreement also supported the Iraq invasion than the number who support the agreement but did not support the invasion; should this really militate against the agreement on "accountability" grounds? Because those numbers are exactly what the White House is hoping for if it is to have a chance of sustaining the president's veto.

Finally, this lurid smokescreen obscures (if it does not reflect a total obliviousness of) the most fundamental issue that unites the decision for regime change in Iraq and the decision to seek an accommodation with Iran: the denuclearization of the region. It is inconceivable that Iran would ever have agreed even to discuss the sidelining of its nuclear ambitions if Saddam Hussein were still in power in Baghdad. And it is similarly impossible to envision a day when the region is confident enough of the non-nuclear ambitions of Iraq and Iran that Israel — with the right set of guarantees, sophisticated weapons and other assurances — would be able to bring about that policy which its beleaguered populace, when polled regularly, endorses: the standing down of its nuclear force.

Perhaps I may be forgiven this foray into a contemporary dispute if I offer up one of my favorite moments from the life of Ludwig Wittgenstein, who, though resolutely fixed on the most fundamental philosophical problems, lost his temper with his good friend Norman Malcolm over a discussion about the notion of "national character." Six years after the disagreement, Wittgenstein wrote Malcolm:

"I then thought: what is the use of studying philosophy if all that it does for you is to enable you to talk with some plausibility about some abstruse questions of logic, etc., and if it does not improve your thinking about the important questions of everyday life, if it does not make you more conscientious than any ... journalist in the use of the dangerous phrases such people use for their own ends. You see, I know that it's difficult to think well about 'certainty,' 'probability,' perception,' etc. But it is, if possible, still more difficult to think, or try to think, really honestly about your life and other people's lives. And the trouble is that thinking about these things is not thrilling, but often downright nasty. And when it's nasty then it's most important."  
"Fallacies of Argument is republished with permission of Stratfor."

-- The MasterFeeds

Tuesday, August 25, 2015

A Latin Spring? @ISAIntelligence

Will the political unrest in #LatinAmerica lead to a "Latin Spring"? An interesting analysis from ISA. 

25 August
ISA News
A Latin Spring?
Crime, Corruption and a Weak Economy
Taking it to the Streets
In recent months, the combination of a number of major corruption scandals and a sharp economic downturn has led to an increase in political unrest across Latin America. This has resulted in massive street protests and strikes in many countries in the region, leading some experts to proclaim that the region is on the verge of a "Latin Spring", much like the popular protests that brought down corrupt governments in the Middle East and East Europe in recent years. With the outlook for the region's economy worsening thanks to the economic downturn in China, the potential for even higher levels of political unrest in the near future is great and this could result in a series of major political changes across Latin America.
Corruption at the Highest Level
From Mexico in the north to Argentina in the south, most Latin American countries are plagued by high levels of crime and corruption. The northern half of Latin America (including Mexico, Central America, Venezuela and the Caribbean) suffers from some of the highest murder rates in the world, while Brazil's largest cities are also plagued by dangerously high levels of crime. Meanwhile, corruption has long been a problem in Latin America, but recent scandals in the region have reached to the highest levels of government, resulting in popular outrage in many countries in the region. Nowhere has this been more evident than in Brazil, where the ongoing Petrobras scandal has implicated a number of current and former government leaders and has resulted in President Dilma Rousseff's approval rating falling to less than 10%. Altogether, crime and corruption are spiraling out of control in much of Latin America, despite the fact that nearly all of the region's political leaders have been popularly elected in relatively free and fair elections.
Economic Troubles
There is also an economic element to the popular unrest that is growing in Latin America. A few years ago, much of Latin America was recording relatively high rates of economic growth, thanks to soaring demand for the region's natural resources in China and other large emerging markets. However, a downturn in demand in these key export markets, coupled with the weakness of the region's domestic markets, has resulted in a serious economic slump across Latin America in recent years. Moreover, many governments in the region have failed to enact policies that would improve their countries' economic competitiveness and this has resulted in a lack of foreign investment and economic diversification, key factors in the region's current slump. As a result, the region's economy, with a few exceptions, has failed to develop many high-growth manufacturing and service industries that are needed to ensure higher rates of economic growth over the longer-term and to compete in a highly competitive global economy.
Little Faith in Democracy
It remains to be seen if the massive street protests that have been taking place in countries such as Brazil, Venezuela and others will spark major political changes in the region. Unlike in the Middle East, Latin America holds relatively free and fair elections and voters in the region have had the ability to oust unpopular leaders and governments at the ballot box. However, elections in Latin America have largely been dominated by personalities rather than political parties and this has led to a political system that can change dramatically with the emergence (or disappearance) of individual leaders. Moreover, this access to democracy has done little to reduce crime and corruption in the region, nor to boost the region's economic fortunes. As a result, an increasing number of people in the region are disillusioned with their democratic systems and this could lead to the rise of more extreme political movements on both the right and left of the political spectrum in the coming years. This would prove to be a major step back for Latin America and a major deterrent to the region's economic development, to the detriment of the region's 600 million inhabitants.

ISA publishes a range of reports and forecasts that are utilized by many of the world's leading businesses, universities and government bodies to to help them to better understanding international markets.  These include:
  • ISA Country Reports
  • ISA Economic Forecasts
  • ISA Risk Forecasts
  • ISA Region Reports
  • Customized research from ISA

To learn more about how your organization can benefit from ISA's international research products, contact us today. 

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