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CHAIRMAN'S CORNER
Tom Barrack



Colony Capital

Colony Capital



A Holiday Thought

If I Had My Life To Live Over

I'd dare to make more mistakes next time.
I'd relax. I would limber up.
I would be sillier than I have been this trip.
I would take fewer things seriously.
I would take more chances.
I would take more trips.
I would climb more mountains and swim more rivers.
I would eat more ice cream and less beans.

I would perhaps have more actual troubles but I'd
have fewer imaginary ones.

You see, I'm one of those people who live sensibly
and sanely hour after hour, day after day.

Oh, I've had my moments and if I had it to do over
again, I'd have more of them. In fact,
I'd try to have nothing else. Just moments.

One after another, instead of living so many
years ahead of each day.

I've been one of those people who never go anywhere
without a thermometer, a hot water bottle, a raincoat
and a parachute.

If I had my life to live over, I would start barefoot
earlier in the spring and stay that way later in the fall.

If I had it to do again, I would travel lighter next time.
I would go to more dances.
I would ride more merry-go-rounds.
I would pick more daisies.

By Nadine Stair (age 85)

 


"Together We Can Do It Again"
November 7, 2011
by Tom Barrack

Click here for printable version

A common misconception amongst growing constituencies is that the paradigm has shifted and the world is imploding as a result of a new breed of toxicity in the global system. It is not. There is one truism – the American Dream is always stronger and longer lasting than our perception of reality. We will definitely climb out of this current parade of horribles and perhaps the magic elixir is listening to a melodically simple voice of "the dream" rather than the fragmented cries of "the nightmare."

My tortured brain waves ran rampant over my third 4am espresso, as I attempted to bring literary clarity to our confusing economic mess in the world today. As I recalibrated thought after thought and rewrote paragraph after paragraph, my memory came to the rescue as I recounted a clear and bold Explanation by a clear and bold Explainor, of a time and situation much like the one we confront today. As a young man I was blown away by the clarity and simplicity of the first presidential speech I had ever heard in person. Several decades and economic wars later I am even more stunned by the timeless astuteness of the message and the brilliance of the messenger.

Please, please, please take the time to watch this video of President Reagan's economic address to the nation circa October 13, 1982. It will amaze you!!!

 




From Pearl to Necklace
November 1, 2011
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Many of you have asked me to share my personal point of view and impressions from my travels, especially through the Middle East. The following is a travel log, rather than a financial thesis on Nerbrand Z or Black Scholes.

The Arabian Gulf
As we swept across the wind sculptured deserts of Qatar, I became enraptured by the intoxicating scent of a thousand civilizations. Etched in the ever-changing sands of timeless simplicity were the footprints of Byzantine complexity, Carthaginian structure, Anglican rigidity, and Abbasid suzerainty. Flowing deep beneath the still waters of the Arabian Sea were Samanid poetry, Persian art, Ottoman ferocity, and sunken trunks of Chinese spices. Our eyes were captivated by the striking red pearl beds of the stoic shore eternally bloodied by Berber herds, Mamluk soldiers, the swords of Saladin's warriors, and the carcasses of Mongol horses. Our ears sensed the spiritual sound of "Allahu Akbar" from the modern mosques, never muted by Fatimid revolutionaries, Portuguese war ships, and the clashing of vanished daggers of the battling Bani Utbah tribe. The Mashrabiyas lattices of rolling sand dunes recalled a terrifying peek at the atrocities of endless Roman legions.

As the wings of our modern aircraft caravan bent and bowed towards the greatest urban experiment in Arab rejuvenation, I was captivated by the faint and humbling melody of ancient Arabian Adani music. Onboard, Jack Johnson's calming soft music was dampened by the distant chants of an ancestral cultural warfare between Ottoman's Islam and Persian Zoroastrian expansion repeated in relentless cadence. Outside, the chants seemed to fade into a hopeful song sprung from the soft strings of the Ud as a new tune breezed across the Arabian Gulf. The strengthening and calming voice of tiny Qatar, growing louder as it grows in power, merchant prowess, and diplomatic relevance throughout the world.

The Arabian Gulf history is rich and complex and, contrary to popular belief, exhibits a historical tolerance and understanding of foreigners. Trade, in one form or another, is a foundation stone of the culture. Regime change however, has also been a consistent element. Tribes argue with other tribes, sons argue with fathers, and brothers with brothers. In the early 1800s the British exercised their power in the Persian Gulf as a result of their continuing commercial and economic interests in India. East India Company ships, carrying cargo between the British colony of India to Great Britain and beyond, were continually raided by pirates from tiny gulf tribes. Eventually, the British imposed a Trucial peace upon the neighboring sheiks of the region. The Gulf Arabs learned that power was in the control of waterways while their nomadic brethren inland concentrated on grazing and agriculture.

The Gulf region was one of the highest quality pearl producing areas in the world. Throughout time, pearls have always been treasured by the wealthy. In fact, although dangerous and often life threatening to harvest, pearls were the trade of choice in that region. Portuguese, Indians, and Iranians have been commercing in Gulf pearls for over 2,000 years. The Pearl trade faded out in the 50s and was replaced with oil and gas.

During the 20th century the Gulf flags were primarily dictated by the powerful hands of the West, as spoils were divided from the First and Second World Wars. The United Arab Emirates, Oman, Qatar, Bahrain, Saudi Arabia, Kuwait, Jordan, Syria and Iraq had all been individual fiefdoms governed by individual tribes, which primarily existed on agriculture, grazing, piracy and trade. There was no political or social union, only religions bonding based on Sunni, Shia or Wahhabi Islamic beliefs. The Portuguese, Turks, British, French and Americans divided up the region for various commercial purposes supporting the regime of the then friendly tribe. The West simply adopted a play out of the playbooks of the Persians, Portuguese, and Ottomans who had dominated previously.

The Western powers would provide protection, administration and support the independence of the tribe, provided they received the proper compliance with their political dictate. If a local chief became too disruptive they would arrange for another family member to replace him. Around 1949, most of the oil in the free world started flowing through the 3-mile Straight of Hormuz. The West's interest in keeping the free flow of plentiful oil was foremost, just as the British interests had been in the preceding century in keeping the waterways clear of pirates. For an in depth discussion of the amazing intervention and the eventual division of these geographic fiefdoms Paris 1919 by Margaret MacMillan is a must read.

Qatar
I had the pleasure of travelling to Qatar recently with the Miramax team in support of their participation in the Doha Film Festival. The Festival was superb and magical – and revolutionary as its stewardship is in the hands of a woman, the amazingly capable and progressive Sheikha Mayassa, daughter of the Emir.

Qatar, Abu Dhabi and Dubai are perhaps the most vibrant examples of a new breed of Arabian open leadership. They have managed to navigate the complex matrix of blending the damnation of riches with the elegance of a valued ancient culture of simplicity. Dubai has differentiated itself as the Singapore of the Gulf through flawless planning and unparalleled urban execution. Abu Dhabi made its mark through early diplomacy and oil exploration as well as instituting the oldest and one of the finest sovereign wealth funds in the region. Now Qatar is setting itself apart in a very modern way. Qatar's courage shines in every country in which its TV station, Al Jazeera, broadcasts its progressive and uncensored views. Additionally, Qatar is not only a leader in oil – having the world's largest per capita production and proven reserves of both oil and natural gas – it has become the best of class in diplomacy, business investment, and international sport (hosting the World Cup of Soccer in 2022.)

Qatar plays a unique diplomatic role in the Middle East as peace broker and regional conflict resolution moderator by balancing an appeal to Arab populist causes while extending a hand to Israel. Using its UN Security Council seat (2005-07) to play an expanded role in the region and world, Qatari actions never followed traditional alliance structures. Instead, as a new entrant but skilled diplomat, it mediated and intervened in regional affairs (e.g., Lebanon, Sudan, and Libya) where state interests were blurred and success unclear. Its niche diplomatic success rests primarily on the fact that the Emir and Prime Minister have placed Qatar in a unique position by cultivating close ties to many diverse states that are often at odds with one another. For instance, Qatar hosts an American military base and maintains a close friendship with the US, while keeping neighborly relations with Iran. Qatar convenes meetings with Hamas officials, while pushing for the Middle East to develop co-operative economic ties with Israel and maintain open Israeli lines of diplomacy. Qatar has prevailed in its diplomatic initiatives as mediator because it is globally perceived as honest, trustworthy, and financially agnostic. As a result, Qatar has become much more than just another oil-rich emirate in the Arabian Peninsula.

The historical intersection of cultures and civilizations is in every aspect of Qatari life, from the traditional sipping of tea transported in dhows from the Indian shore, to the incessant drinking of coffee carried on camels from Kaffa in Ethiopia. It is a country of contrasts. On one hand there is the whir of the Ferrari engines speeding down freshly minted highways, lined with the most modern skyscrapers that house the global business elite. On the other hand, just slightly out of Doha, one can hear the hoof beats of the domesticated camel laden with African gold, Chinese spices, and Indian tea, as their nomadic handlers reside in tents in the harsh open desert.

Today's modern routes used for transporting oil were paved by the ancient spice roads used for transporting nutmeg, sandalwood, frankincense, and myrrh. Having long ago perfected the art of caravanning high-value, lightweight items along routes that connected the East to the West, the mastery of foreign cultures and quenching the insatiable thirst for precious items has been the basic fabric in the Gulf Arab quilt. And there is no one better at this than the Qataris. Their reputation as "Merchant Princes of the Gulf" continues under the current leadership of their visionary and beloved Emir along with his financially brilliant and diplomatic cousin the Prime Minister and their unparalleled investment teams at the Qatar Investment Authority and Qatar Holdings. Qatar has not only achieved international prowess in the production of natural resources but through its Sovereign Wealth Fund has been recognized as the best of class at redeploying the riches gained from the extraction of oil and gas for the benefit of its people for centuries to come.

Islam was based on a foundation of equality without the concept of classes or hierarchy. All men are created equal. As modernization took place across many parts of the Arabian kingdom the division between the "haves" and "have-nots" widened in many countries. Tribes and flags became split over geological and religious lines. Wealth was maintained and distributed according to familial hierarchies. As modern communication dawned – ushering in cinema, television, and the internet to the region, the "have-nots" became very aware of the differences between themselves and the "haves." The traditions that had normally been unquestioned in the Arab world became the issue of the day. Travelling a little further ahead in a similar social experiment – we in the West are currently experiencing "Occupy Wall Street" – which addresses our own issues of the day.

In many regions, these challenges were worsened by the economic and administrative mismanagement of dictatorial regimes. Qatar has navigated these issues admirably. Today, the issues the Arab world is confronting are universally experienced. We in the West have had the same struggles in organizing our society for over 500 years and continue to struggle with – the role of women in society; religion vs. secularism; liberty vs. order; modernity vs. tradition; wealth in the hands of a few vs. betterment for all; more governmental control vs. less. We have fought our own bloody battles, a revolutionary war as well as a brutal civil war. Our similarities far outweigh our differences.

Qatar is not a new entrant to international diplomacy having already mastered lessons learned from both East and West. In 1820 Qatar was a dependency of Bahrain. In 1867, Mohammed bin Thani led an important peace settlement between the Bahrainis, British, and Qataris. This was the beginning of true Qatari independence and their influence and support of democratic regimes has never waned.

Knowledge through formal education is a recent phenomenon in the Arabic culture and Qataris have attacked it with energy and commitment. Qatar's future lies with its young professionals – in every aspect of investment; oil, gas, airlines, entertainment, science, sport, banking, industry, and politics. They are extremely well educated and have rightly taken their place in the front row of international acclaim. This education, however, is not their most precious commodity. It is their "instinct" and their ability to "read people" that has set them apart. The region's brilliance in dealing with people is of ancient descent. A Qatari can look into your eyes and see the nature of your soul.

The West sees the youth across the Middle East demonstrating in the streets and cheering for a scent of democracy. In Qatar, the youth are the architects, engineers, and constructors of that bouquet, heralding in the new Arabian era. They are intoxicated by their ability to transform and embolden their small and enlightened society. They are doing…not simply cheering. It is on the streets of Doha that one can see and smell the vibrant sirocco of change governed by the calming and nurturing hand of enlightened wisdom. Qatar has always been known as "The Pearl of The Gulf" and now is, in conjunction with the other bright shining jewels in the Gulf such as Abu Dhabi, Dubai, Kuwait, and Bahrain, becoming a "necklace" of hope and progress in a new world order.

"The sailing dhows and chants of the pearl divers have disappeared on the horizon. But what remains in the spirit of the people of Qatar, of Bahrain, Kuwait and the UAE, is the memory of this arduous and painful past, but also the magnificence of the acts of courage of the ancestors, for which going to work was an act of faith, and often ultimate sacrifice, even as they would come back to the light with the pearls." – Sheikha Mayassa

It is that same courage that instills the people of the Gulf to leap forward into the future.


Harness your Amygdala
September 28, 2011
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We all love the thrill of the roaring Ferrari engine of our emotions far more than the dull purr of the Prius of our reason. In relationships, business life, family affairs, sports competitions, reason is boring, slow, cognitive and controlled, while emotions are bold, energizing, and impulsively in the moment. Emotions are triggered by the amygdala in the brain. We especially succumb to the power and velocity of our emotions when our survival is at risk. When the amygdala senses that the body may be threatened by elements in the outside environment it responds by firing an instinctive response of emotion. The amygdala is like our internal Navy Seal team dedicated to our self-preservation.

The brain is the ultimate adapter. As more information is absorbed from varied sources, such as sight, sound, touch, and scent, it redirects the body's functions to adapt to the new environment. Fear is one of the strongest emotions. It actually elicits a chemical change in our body. As we are flooded with adrenalin, our heart rate rises, our oxygen is redistributed and our defensive line takes the field. Properly gauging when to go with your emotions and be fearful and when to check fear at the gate and rely on your reason is the never-ending quest for an investor.

Do you listen to the noise or do you listen to your gut? One of the biggest issues today is that the "noise" has become global, instantaneous and all encompassing. We now have 24/7 information overload and our micro decisions have been infiltrated by macro issues and mind boggling complexity. We believe a butterfly flapping its wings in a rain forest in Brazil can be the cause of a tsunami in Thailand.

Information, and others' interpretation of it, is prolific and instantaneous in cyber space. Twitter, Facebook, and Google have rendered information a commodity. When someone cries fire in a theatre in Culver City, the fire engines are dispatched by the Vigili del Fuoco in Milano. Information, and the fear generated by it, reaches us in our homes, businesses, and fishing holes in massive amounts – and in real time. Much of our time is spent agonizing over many things over which we have no control. This affords us less time to focus and attend to those things that we can control. To make matters worse, information is homogeneous, instantaneous and digestible. To weed out what is important from what is not is an impossibility. The radius of people, places, and things has become exponentially greater than it was 50 years ago or even a decade ago. Our rational experiential process has nothing to draw upon and we adopt the fear in the air. Fear shared by a group becomes self-validating and the flight or fight debate is usually won by flight.

We are all trying to run a race on a very muddy track:

  • The Arab Spring may turn into Winter
  • European Banks are threatened and appear at the brink
  • The European Union itself may be at issue
  • China is wrestling its own gigantic panda
  • The USA is on its "rocky road" to a double dip
  • Flags and Tribes and Wars seem to be prolific
  • Housing, Unemployment, HealthCare, Education, Infrastructure, Social Security, Defense, Taxes, Budget Deficits, Money Printing are all looming issues in the USA
  • The average man all over the world is becoming disgusted with politicians, whether democratic of dictatorial
  • Growth in developed countries seem to be stalled
  • Emerging markets are looking more coupled than decoupled
  • There is more distance between "haves" and "have-nots" in most regions of the world
  • The only answer for everyone seems to be "kick the can further down the road"

To me, the key to survival is to train our brain to fire emotions for the near future on only those events that are life threatening to us in our backyards. The bottom line is that we are all spending an inordinate amount of time worrying about those things that we cannot control, giving us less time to concentrate on those things that we can control.

What is causing the turmoil?

Macro: (A decade of unbridled exuberance and excess.) The world gorged itself on a debt-fueled asset boom, aided by a vendor-financed consumption binge, with seller financing provided by emerging countries with low cost labor who then inflated their economies as a result of our consumption and then used their surpluses to buy our debt, allowing us to buy more of their products.

Real Estate Commercial Bank Debt: The repeal of the Garn-St. Germain Act allowed banks and investment banks to conduct the same activity. Banks found that the most profitable business was to "originate and syndicate" loans. They no longer had to maintain the liability on their own balance sheet and could obtain incredible leverage and corresponding extraordinary profits on their own equity by selling these loans in pools to third parties. Thus the proliferation of securitization bred a new stable of global debt buyers who had a voracious appetite for "rated paper" wrapped in CDOs, CLOs, CMOs, CMBS, etc. As the debt buyers became more acquisitive the banks' underwriting standards dropped, assumptions and pro formas became more bold and values soared. When the music stopped there was little or no growth to support increased income levels and so the only debt relief came in the form of Zero interest rates and relaxed mark to market provisions for the banks. This coupled with the Feds' prolific printing of money fueled asset price increases and evaded many commercial loan defaults on bank loans by artificiality supporting values. As credit spreads tighten and bank regulators increase capital requirements, asset prices may fall and defaults will accelerate which will further exacerbate the deleveraging process. (The residential real estate market experienced a similar set of circumstances.) This will afford those buyers with cash and expertise to avail themselves of a repricing opportunity on a re-equitized basis.

For sure "preservation" is the goal in these tumultuous markets. However, there is a winner even on a muddy track and we need to take one stride at a time. It is difficult because there is little clarity and even less leadership or consistency. So let's return to reason and rationale of what we have experienced in the past. We have been to this rodeo before in many places in the world over the past 30 years and the following are the lessons that we have learned from our "cognitive" experiential bank:

  • Operating businesses need to maintain cash heavy balance sheets and continue to delever. Organic Growth of the top line will be challenging in an era of reduced consumption and slow growth. Consolidations and mergers will be the growth tool of choice.
  • Investors who exercise the most difficult and complex investing technique: "WAIT" will be rewarded. This is a moment to create liquidity and prepare silos of investible capital and await the inevitable "Tap Out" in an asset class in which you have expertise. If there is not a "Tap Out" you will not likely have missed a sustained run up.
  • Drive forward with your base business and concentrate on fundamentals. Do not listen to the noise outside of your field and spend 110 percent of your worry and concern on those things that you can control. Do not fret about things that you cannot control.
  • Risk is part of life – managing it is an art form. "Preservation and Survival" is the prerequisite to future bold action. Today the premium is on survival. When in doubt, wait for the next pitch.

What does this mean for Colony?

  • Distressed Debt in both the USA and Europe will continue as the base business. Banks on both continents will accelerate the sale of assets as they respond to increased regulatory pressure and increased capital requirements.
  • Value-added real estate will become more investable as institutions divest assets and banks start to face the music as credit spreads tighten.
  • There will continue to be mispricings in Media, Banking and Entertainment and we will take advantage of the confusion in those markets.
  • Our global network provides an amplitude of arbitrage to our hedge fund joint venture of O'Connor-Colony and we will continue to harvest the real estate public markets.
We need to quell fear, focus on only what we can control, not listen to the noise, and replace fear with cheers. The markets are delevering and redefining themselves and within that volatility will be a plethora of opportunities for those that stay conditioned and ready to respond. We will listen to our amygdala and adapt quickly, while harnessing those chemically induced emotions with the reason and rationale we have developed over three decades

Europe's Banks Ramp Up Teams For Real Estate Work Outs
September 23, 2011

A positive outlook – Banks have been expanding and restructuring their property management teams to work more closely and flexibly with property companies....[link]




Roubini: Greece Should Default, Leave The Euro And Reinstate The Drachma
September 20, 2011

Another great article on the state of Greece – A Greek default looks increasingly likely. That seems to be the theme of the day as markets and commentators insist that the debt situation over in Europe is unsustainable ....[link]




I'll Take Rocky Road
September 13, 2011
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The debate over a double dip is the wrong issue...we are in one. The debate over whether Greece will default is wrong as well, they most likely will. The correct issue is what defensive and offensive actions should we, as investors, be preparing in anticipation of a potential Lehman II (Deux, Duas, Due, Ouo, Dos).

Deleveraging will be the mantra of the foreseeable future. It will be chanted from the bell towers of both private banking and sovereigns. Many lenders and debt participants are relinquishing the hope of growth as a panacea to asset value erosion and are tapping out to the acceptance of debt restructurings and equity conversions in both the public and private sectors. Debt and deficits cannot be a can kicked further down the road without real restructurings and more capital. For sure, a decrease in debt servicing requirements for sovereigns, as well as corporate and individual investors, is a prerequisite to servicing loans of all types. We have already used our silver bullets in the USA banking sector, in the form of zero interest rates, TARP, TALF, and relaxation of mark-to-market capital requirements, and have little ammunition remaining other than value annotation. With little or no growth, the V component of LTV can best be addressed by conversion to equity, more capital, asset sales below loan terminal value, or all of the above.

The bigger question is what tools will the European Union have available to them (similar to our TARP) to address their banking crisis and when will they step from denial to reality?

The bottom line is that we are likely to see asset price correction in equity and credit supported assets, which will be driven by deep debt restructuring requirements. If not, defaults across all sectors will give rise to an even more dramatic free fall in the credit markets. Either should be a painful global experience, and at the same time, a unique opportunity to invest at the moment of an "unforeseen intervening event." The fallout and corresponding opportunities may be experienced far beyond the European borders.


Chaos Makes A Swift Comeback
September 12, 2011

Interesting article in Seeking Alpha – Europe getting ready for Lehman Part Deux – Could be next great investable opportunity as banks clear...[link]




IMUA
September 08, 2011
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TO: All my kids
RE: The President's Speech Tonight

The President needs only to resort to his Hawaiian roots and chant the mantra of ancient paddlers of voyaging canoes, "Imua"... "Imua" is a Hawaiian terms that means, "We go," and they may not have known exactly where they were going or when they would arrive but the individual paddlers had blind faith in their captain. The ancient Polynesian double-hulled canoes had crews of astrologers, herbalists, naturalists, paddlers and warriors. Each individual's expertise contributed to building and launching the vessel. And when danger arose and found them trapped in a storm in one of the most dangerous bays in the world, right in the center of the impact zone in the middle of 35-foot waves, there is only one way to get to shore. They listened to the focused chant of "Imua" from their captain. The crew's job, regardless of who they were, was to paddle, in sequence, and with seamless symmetry. It was not to question the navigational tactics of the captain. "He will get us there if we do the job."

We need a captain to say paddle and paddle hard... don't look back ...don't pick your head up... don't argue about who is stronger, who will be the boss when we get to shore. Paddle hard and we will slug it out later. We will get to shore one paddle at a time. Victory will be in the hands of the crew who hurts the most for the longest.

What the American public needs now is Obama's natural gifts, charisma and leadership, and a plan. He needs to do what he can do the best... communicate. We need the straight scoop, not partisan quips from anyone. We are in trouble but we are still the best country in the world. We will get through it. We all need to work harder and sacrifice more and we need to do it as a team until we get out of the impact zone. Once safely to shore then we can pound each other politically. Obama needs to look us in the eye and say that we are all going to have to lower our standard of living for a while and make up for our excesses. There is no magic elixir. Use this moment as motivation to reignite the "American Dream" coupled with "American Effort."

FDR's fireside chats on the radio explained to the American people in simple words very complicated issues. It brought them closer to the President and gave a feeling of confidence. That is the difference. The world is far too complicated for any of us to understand. Our political leaders are much better informed than we are. Instead of debating, they need to climb into one canoe and paddle together while listening to one voice chanting "Imua."

The President cannot even fire the White House chef without consultation. Everyone is playing party politics rather than figuring out how to get to shore safely. The recent debate between Congress and the President over raising the debt ceiling was an international embarrassment. The issue, which rocked the world, was not the lowering of America's credit rating, it was the despicable manner in which the most respected politicians in the world conducted themselves. The whole world is in search of itself and America needs to retain its elegant position and stature above idiotic party politics. America needs a plan and it needs the truth. What can the average guy do in a shared plan to get us out of this stagnation and lost decade?

All things are relative and the world is in flux; the Arab world is deposing dictators and searching for new models. The Eurozone is harshly realizing that a common currency and monetary union with individual fiscal policy doesn't work. Huge entitlement populations borrowing to support a "less producing" population exploded. China has been booming with undervalued currencies, savings used to buy foreign debt rather than local consumption. Freedom and transparency will start to rear their head.

America is not doing as badly as people think. It is the most transparent, reliable nation in the world. Our standard and quality of life is still the best. Corporation's balance sheets have been recapitalized and personal households are starting to save. We had become addicted to "housing" profits and the rehab back to learning to live on what we make, not what we borrow, will take some time. Nonetheless the individual, given a level playing field, can work harder and live more frugally. We just need to join together. No partisan politics. Put Americans to work and let them figure out the rest. We are best in times of crisis, we bond; we listen for the "Imua" chant.

Of course this means higher taxes and lower entitlements and yes it will mean continuing to print money. So what!!!!! Let the entrepreneurial spirit lead the way to reemployment. Real tax incentives and relaxed regulatory environment to hire our own.

So far, Obama's jobs initiatives have relied on stimulus spending of public funds – money that is largely borrowed. The debt ceiling debate and S&P downgrade shocked the nation into facing the fact that we must reduce the trajectory of borrowing and spending. The virtue of private-sector job creation is that it is largely self-funding and that it provides a return on investment, which in turn generates new tax revenue. The administration is in the best position to create incentives for corporations to repatriate off shore capital at lower tax rates, tax investment credits for start-ups, and deregulate burdensome bureaucratic stoppage to other entrepreneurial initiatives.

My greatest fear is that we are creating social silos of "haves" and "have-nots." We are losing our national pride and have become divisive, angry and confused. Luxury goods and discount stores claim success and everything in the middle dies. The average guy loses his credit while fighting for a home and culprits of the 2007 demise seem to be doing better than ever. Health care has turned into a race to the emergency room and our public standard of education is dismal and getting worse. Social discord as the baby boomers retire to chaos appears on the horizon. We need heroes. Who are our heroes today in business, politics, education, science and what is the American dream? These are the issues that the President can best present for us in his own voice and with bold and unwavering candor. Where is the shore and how do we get there? Until then, my advice to all of us is paddle like crazy, and don't worry about the direction. "IMUA."


It's All About Cycles
June 08, 2011
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The most important aspect of real estate investing is knowing where you are in the cycle –


The Road

  • Case - Shiller housing price index shows National Index fell 4.2% in the first quarter alone, and is down 5.1% compared to its year ago level. GET READY FOR FURTHER DECLINES
    • Housing prices have now fallen by more than they did during the Great Depression
    • Until housing gets better, nothing will really get better
    • America's consumer confidence rests in its belief in home equity value and appreciation
    • Negative home equity equals negative sentiments in general
  • New jobs are the key to a recovery and they are not on the horizon
  • Treasury yields fell to 2011 lows
  • Middle East politics, economics and attitudes in chaos
  • Eurozone in economic chaos and banking and state balance sheets under severe pressure
  • China sitting on a bubble and over steering
  • Japan digging out and will be slow to go
  • Commodities groping with new margin requirements to control speculation
  • May – consumer confidence fell once again
  • No inflation except everything you and I buy, such as fuel, food and commodities, is twice as expensive
  • Congress is worrying the world as “Weinergate” trumps the budget deficit
  • Bernanke and the Fed saying “we are out” QE2 is over at the end of June and will not be extended  – In reality, they are in and will continue to print although we may go directly to QE4
  • We worry about inequality in the Middle East but at home “class warfare” is on the horizon
  • GSEs are perpetrators of the DEBT addiction
  • Bank NPLs and REOs still at an all time high – the “dumping” will start this summer
  • Interest rates at zero
  • Deficit soaring – we are the largest debtor nation in history
  • Normal working people all struggling and defaults and delinquencies in housing are increasing
  • Too much money chasing too few goods and assets
  • Costs up, UNEMPLOYMENT HIGH, and productivity down (STAGFLATION)
  • Iran and Saudi Arabia squaring off over OPEC (OIL PRICES ALREADY CRIPPLING THE DEVELOPED WORLD)
  • Germany tired of kicking the “Euro can” further down the road
  • It feels as though we are in a race to the bottom again
    • Growth factors significantly lower than expected
    • Higher gas prices are certainly weighing on discretionary spending
    • Confidence took a hit and HOUSING and auto sales slowed
    • Construction looks very much weaker in Q3

Where Is Colony Now and What We Are Seeing

  • We are cautious and risk averse waiting for the next unforeseen intervening event
  • Risk premiums on most real estate equity investments are too low and complexity too high
  • Debt is still a better risk adjusted return in the sector – Debt is the new equity
  • Banks will begin to dispose of still historic levels of NPLs and REOs this summer – there is not enough capital to digest and recycle it all so prices will normalize
  • There is a rush of smart sellers to sell assets into an overly euphoric market place overly concerned with current yield and hopeful pro formas
  • We survived the crisis and in fact are thriving
  • Invested $3.5 billion of equity in the last twelve months
  • 39% appreciation during 2010 despite only 9 months average time since acquisition
  • Projected IRR >20%, and equity multiple 2.1x, largely on an unleveraged basis
  • Debt investments feature a >10% interest yield on a blended basis while indicating substantial additional gain through capital appreciation
  • Most equity gains by funds in real estate since March 2009 have been accomplished through debt and balance sheet trimming and restructurings.
  • Fundamentals across most asset classes in most geographic regions are “iffy”
  • We have lost many of our competitors
  • This is a moment to cautiously invest in real assets that can be bought attractively, mostly through distressed debt acquisitions and re-engineering of real estate operating company balance sheets
  • This market may yet have another bump in the road in front of it
  • Interest rates are at a historic low which has created an addiction to any “yield”
  • Risk premiums have once again vanished and are back to a 2007 level
  • Popular belief is we have bottomed in the real estate cycle in US and Europe – or have we?
  • There has been little or no construction for the last 5 years
  • Real estate downside is better on a risk-adjusted basis than other asset classes
  • We have learned the lessons of 2007 and 2008 – or have we?
  • There will be yet another shakeout and we will be liquid and ready to move at the next unforeseen intervening event

The Past, Present and Future of Real Estate as an Asset Class:

  • Today investors want safety, quality and liquidity in real estate
  • 2008-2010: a repositioning period – capital scarce
  • 2011: capital as a commodity and proprietary deals are a scarcity – auctions are back
  • Institutional entry requests to get into open-end core real estate funds have sky rocketed – from 1.8 billion at the end of 1Q09 to 10 billion at the end of 1Q11 – it is a rush to perceived safety and quality with some liquidity
  • The squeeze will cause tremendous consolidation
  • Capital now moving up the risk curve
  • Core, Core plus, Value-Added, Opportunistic, Distressed Debt, Mezzanine Debt, and Hedge Funds will all consolidate – Scale matters!
  • Real Estate will return to “ordinary” returns with competitive advantages to the “lowest cost of capital” and scale and expertise will matter
  • Majority of real return will be demanded in yield
  • REITs have out performed the S&P by double for the past two years and will now likely normalize
  • Sector specific vs. “theme drift” will become an issue
  • Real Estate has been the drunk driver in every decade on the Economic Highway, leverage is the “tequila,” the market is falling off the wagon once again
    • Zero interest rate, non recourse, tax deductible interest, debt is a very cheap speculative option
    • There are few, if any, barriers to entry in the USA real estate business
  • Extraordinary real estate returns have historically been derived through “trading," not holding
  • Europe will be a fertile field of opportunity for 2011 and 2012 as Bank Capital Regulations become more severe and cross-border lending dissipates due to overregulation
  • Debt Recycling will begin although legal systems more challenging than the USA for a "debt buyer"
  • Europe is more of a “capital preservation” model
    • Lower highs and higher lows with less leverage and far less competitive building and expansion
  • What drives real estate is truly supply and demand (of capital)
  • Extraordinary real estate returns are driven by buying or selling at points of volatility along the cycle – sell into excitement and buy from disappointment
    • This requires the discipline to wait for “an unforeseen intervening event”
  • Ordinary returns and yield are driven by obtaining positive spreads through asset management...this is a “feet on the street” business
  • Don't expect to make more money for taking risk, just know you have to take risk to make more money
  • Availability of debt through new originations and securitizations is significant
    • Underwriting standards weakening
    • Non-recourse
    • Securitization is back
    • Covenant lite is back
    • Upward only adjustment of rents and downward adjustment of costs is back

Comparison of Total Returns


NCREIF / NAREIT Total Return Breakdown


Conclusion
It feels to us like a different strain of the “Stagflation” of the 1970s. Stagflation is an economic situation where the growth rate slows down, unemployment levels remain steadily high and inflation also stays high. We should all take a look back at the OPEC oil embargo of 1973, government spending of the 1970s, and the effect of a fall of consumer confidence that ensued. Maybe, we will not incur a “double dip” but caution should be foremost and complexity and risk should be correctly priced and calibrated.



Must read piece by George Friedman directly on topic
March 23, 2011

Libya, the West and the Narrative of Democracy

By George Friedman
Stratfor Global Intelligence

Forces from the United States and some European countries have intervened in Libya. Under U.N. authorization, they have imposed a no-fly zone in Libya, meaning they will shoot down any Libyan aircraft that attempts to fly within Libya. In addition, they have conducted attacks against aircraft on the ground, airfields, air defenses and the command, control and communication systems of the Libyan government, and French and U.S. aircraft have struck against Libyan armor and ground forces. There also are reports of European and Egyptian special operations forces deploying in eastern Libya, where the opposition to the government is centered, particularly around the city of Benghazi. In effect, the intervention of this alliance has been against the government of Moammar Gadhafi, and by extension, in favor of his opponents in the east.
 
The alliance’s full intention is not clear, nor is it clear that the allies are of one mind. The U.N. Security Council resolution clearly authorizes the imposition of a no-fly zone. By extension, this logically authorizes strikes against airfields and related targets. Very broadly, it also defines the mission of the intervention as protecting civilian lives. As such, it does not specifically prohibit the presence of ground forces, though it does clearly state that no “foreign occupation force” shall be permitted on Libyan soil. It can be assumed they intended that forces could intervene in Libya but could not remain in Libya after the intervention. What this means in practice is less than clear.
 
There is no question that the intervention is designed to protect Gadhafi’s enemies from his forces. Gadhafi had threatened to attack “without mercy” and had mounted a sustained eastward assault that the rebels proved incapable of slowing. Before the intervention, the vanguard of his forces was on the doorstep of Benghazi. The protection of the eastern rebels from Gadhafi’s vengeance coupled with attacks on facilities under Gadhafi’s control logically leads to the conclusion that the alliance wants regime change, that it wants to replace the Gadhafi government with one led by the rebels.
 
But that would be too much like the invasion of Iraq against Saddam Hussein, and the United Nations and the alliance haven’t gone that far in their rhetoric, regardless of the logic of their actions. Rather, the goal of the intervention is explicitly to stop Gadhafi’s threat to slaughter his enemies, support his enemies but leave the responsibility for the outcome in the hands of the eastern coalition. In other words — and this requires a lot of words to explain — they want to intervene to protect Gadhafi’s enemies, they are prepared to support those enemies (though it is not clear how far they are willing to go in providing that support), but they will not be responsible for the outcome of the civil war.
 
The Regional Context
 
To understand this logic, it is essential to begin by considering recent events in North Africa and the Arab world and the manner in which Western governments interpreted them. Beginning with Tunisia, spreading to Egypt and then to the Arabian Peninsula, the last two months have seen widespread unrest in the Arab world. Three assumptions have been made about this unrest. The first was that it represented broad-based popular opposition to existing governments, rather than representing the discontent of fragmented minorities — in other words, that they were popular revolutions. Second, it assumed that these revolutions had as a common goal the creation of a democratic society. Third, it assumed that the kind of democratic society they wanted was similar to European-American democracy, in other words, a constitutional system supporting Western democratic values.
 
Each of the countries experiencing unrest was very different. For example, in Egypt, while the cameras focused on demonstrators, they spent little time filming the vast majority of the country that did not rise up. Unlike 1979 in Iran, the shopkeepers and workers did not protest en masse. Whether they supported the demonstrators in Tahrir Square is a matter of conjecture. They might have, but the demonstrators were a tiny fraction of Egyptian society, and while they clearly wanted a democracy, it is less than clear that they wanted a liberal democracy. Recall that the Iranian Revolution created an Islamic Republic more democratic than its critics would like to admit, but radically illiberal and oppressive. In Egypt, it is clear that Mubarak was generally loathed but not clear that the regime in general was being rejected. It is not clear from the outcome what will happen now. Egypt may stay as it is, it may become an illiberal democracy or it may become a liberal democracy.
 
Consider also Bahrain. Clearly, the majority of the population is Shiite, and resentment toward the Sunni government is apparent. It should be assumed that the protesters want to dramatically increase Shiite power, and elections should do the trick. Whether they want to create a liberal democracy fully aligned with the U.N. doctrines on human rights is somewhat more problematic.
 
Egypt is a complicated country, and any simple statement about what is going on is going to be wrong. Bahrain is somewhat less complex, but the same holds there. The idea that opposition to the government means support for liberal democracy is a tremendous stretch in all cases — and the idea that what the demonstrators say they want on camera is what they actually want is problematic. Even more problematic in many cases is the idea that the demonstrators in the streets simply represent a universal popular will.
 
Nevertheless, a narrative on what has happened in the Arab world has emerged and has become the framework for thinking about the region. The narrative says that the region is being swept by democratic revolutions (in the Western sense) rising up against oppressive regimes. The West must support these uprisings gently. That means that they must not sponsor them but at the same time act to prevent the repressive regimes from crushing them.
 
This is a complex maneuver. The West supporting the rebels will turn it into another phase of Western imperialism, under this theory. But the failure to support the rising will be a betrayal of fundamental moral principles. Leaving aside whether the narrative is accurate, reconciling these two principles is not easy — but it particularly appeals to Europeans with their ideological preference for “soft power.”
 
The West has been walking a tightrope of these contradictory principles; Libya became the place where they fell off. According to the narrative, what happened in Libya was another in a series of democratic uprisings, but in this case suppressed with a brutality outside the bounds of what could be tolerated. Bahrain apparently was inside the bounds, and Egypt was a success, but Libya was a case in which the world could not stand aside while Gadhafi destroyed a democratic uprising. Now, the fact that the world had stood aside for more than 40 years while Gadhafi brutalized his own and other people was not the issue. In the narrative being told, Libya was no longer an isolated tyranny but part of a widespread rising — and the one in which the West’s moral integrity was being tested in the extreme. Now was different from before.
 
Of course, as with other countries, there was a massive divergence between the narrative and what actually happened. Certainly, that there was unrest in Tunisia and Egypt caused opponents of Gadhafi to think about opportunities, and the apparent ease of the Tunisian and Egyptian uprisings gave them some degree of confidence. But it would be an enormous mistake to see what has happened in Libya as a mass, liberal democratic uprising. The narrative has to be strained to work in most countries, but in Libya, it breaks down completely.
 
The Libyan Uprising
 
As we have pointed out, the Libyan uprising consisted of a cluster of tribes and personalities, some within the Libyan government, some within the army and many others longtime opponents of the regime, all of whom saw an opportunity at this particular moment. Though many in western portions of Libya, notably in the cities of Zawiya and Misurata, identify themselves with the opposition, they do not represent the heart of the historic opposition to Tripoli found in the east. It is this region, known in the pre-independence era as Cyrenaica, that is the core of the opposition movement. United perhaps only by their opposition to Gadhafi, these people hold no common ideology and certainly do not all advocate Western-style democracy. Rather, they saw an opportunity to take greater power, and they tried to seize it.
 
According to the narrative, Gadhafi should quickly have been overwhelmed — but he wasn’t. He actually had substantial support among some tribes and within the army. All of these supporters had a great deal to lose if he was overthrown. Therefore, they proved far stronger collectively than the opposition, even if they were taken aback by the initial opposition successes. To everyone’s surprise, Gadhafi not only didn’t flee, he counterattacked and repulsed his enemies.
 
This should not have surprised the world as much as it did. Gadhafi did not run Libya for the past 42 years because he was a fool, nor because he didn’t have support. He was very careful to reward his friends and hurt and weaken his enemies, and his supporters were substantial and motivated. One of the parts of the narrative is that the tyrant is surviving only by force and that the democratic rising readily routs him. The fact is that the tyrant had a lot of support in this case, the opposition wasn’t particularly democratic, much less organized or cohesive, and it was Gadhafi who routed them.
 
As Gadhafi closed in on Benghazi, the narrative shifted from the triumph of the democratic masses to the need to protect them from Gadhafi — hence the urgent calls for airstrikes. But this was tempered by reluctance to act decisively by landing troops, engaging the Libyan army and handing power to the rebels: Imperialism had to be avoided by doing the least possible to protect the rebels while arming them to defeat Gadhafi. Armed and trained by the West, provided with command of the air by the foreign air forces — this was the arbitrary line over which the new government keeps from being a Western puppet. It still seems a bit over the line, but that’s how the story goes.
 
In fact, the West is now supporting a very diverse and sometimes mutually hostile group of tribes and individuals, bound together by hostility to Gadhafi and not much else. It is possible that over time they could coalesce into a fighting force, but it is far more difficult imagining them defeating Gadhafi’s forces anytime soon, much less governing Libya together. There are simply too many issues among them. It is, in part, these divisions that allowed Gadhafi to stay in power as long as he did. The West’s ability to impose order on them without governing them, particularly in a short amount of time, is difficult to imagine. They remind me of Hamid Karzai in Afghanistan, anointed by the Americans, distrusted by much of the country and supported by a fractious coalition.
 
Other Factors
 
There are other factors involved, of course. Italy has an interest in Libyan oil, and the United Kingdom was looking for access to the same. But just as Gadhafi was happy to sell the oil, so would any successor regime be; this war was not necessary to guarantee access to oil. NATO politics also played a role. The Germans refused to go with this operation, and that drove the French closer to the Americans and British. There is the Arab League, which supported a no-fly zone (though it did an about-face when it found out that a no-fly zone included bombing things) and offered the opportunity to work with the Arab world.
 
But it would be a mistake to assume that these passing interests took precedence over the ideological narrative, the genuine belief that it was possible to thread the needle between humanitarianism and imperialism — that it was possible to intervene in Libya on humanitarian grounds without thereby interfering in the internal affairs of the country. The belief that one can take recourse to war to save the lives of the innocent without, in the course of that war, taking even more lives of innocents, also was in play.
 
The comparison to Iraq is obvious. Both countries had a monstrous dictator. Both were subjected to no-fly zones. The no-fly zones don’t deter the dictator. In due course, this evolves into a massive intervention in which the government is overthrown and the opposition goes into an internal civil war while simultaneously attacking the invaders. Of course, alternatively, this might play out like the Kosovo war, where a few months of bombing saw the government surrender the province. But in that case, only a province was in play. In this case, although focused ostensibly on the east, Gadhafi in effect is being asked to give up everything, and the same with his supporters — a harder business.
 
In my view, waging war to pursue the national interest is on rare occasion necessary. Waging war for ideological reasons requires a clear understanding of the ideology and an even clearer understanding of the reality on the ground. In this intervention, the ideology is not crystal clear, torn as it is between the concept of self-determination and the obligation to intervene to protect the favored faction. The reality on the ground is even less clear. The reality of democratic uprisings in the Arab world is much more complicated than the narrative makes it out to be, and the application of the narrative to Libya simply breaks down. There is unrest, but unrest comes in many sizes, democratic being only one.
 
Whenever you intervene in a country, whatever your intentions, you are intervening on someone’s side. In this case, the United States, France and Britain are intervening in favor of a poorly defined group of mutually hostile and suspicious tribes and factions that have failed to coalesce, at least so far, into a meaningful military force. The intervention may well succeed. The question is whether the outcome will create a morally superior nation. It is said that there can’t be anything worse than Gadhafi. But Gadhafi did not rule for 42 years because he was simply a dictator using force against innocents, but rather because he speaks to a real and powerful dimension of Libya.


Lessons Learned
March 22, 2011

As we prepare for our Spring Investors Conference, I am harvesting my own thoughts of “Lessons Learned” through the challenge of an ever-changing business global landscape over thirty years of investing.  As I gulp a third Tylenol to relieve my brain pain from the anguish and thrills of my own intellectual adventure, I cannot help but also focus on “Lessons Learned” from our country’s past interventions or failure to intervene in the Middle East and Africa.  Each country is distinct and the region is a mélange of varying political systems from Democracy to Dictatorship as represented in the Arab League and the African Union themselves.  As a consequence, our foreign policy as well as our business strategies and missions are aimed with a laser rather than a shotgun.  In an effort to better understand our foreign policy and it’s affect upon trade and commerce it is helpful to look at history… Lebanon, Iran, Iraq, Palestine, Israel, Syria, Jordan, Turkey, Afghanistan, Egypt, Tunisia, Yemen, Bahrain, Rwanda, Sudan and Congo.  Regime change in many of these countries may or may not be a desired global objective but equally important is: “What replaces it?”; “What happens in a vacuum of leadership?”; “How do local populations relate to a slow or no change to their lives?”; “What entities in a transition are responsible for logistics of food, water, hospital, petrol and infrastructure needs of an anxious local population?”; “Who is the leader of the replacement?”.  


There is an old Arab traders’ proverb that reflects on this: “Mittel ma henah mittel ma jeenah... bala shee” which means: “The way we went is the same way we came back... with nothing”.  Consequently, I am reminded that the mission, the opponents, the choice of opposition replacements, the leadership, the affect on neighbors, the cost, the commitment and the EXIT are all threshold entry issues for a businessman seeking an eventual exit.  Don’t panic... I am not about to render a critical political comment but rather find confusion an interesting commercial opportunity and a challenging social dilemma.  


I have concluded that Lesson #1 of Lessons Learned is: “Always reflect on Lessons Learned”!



"The Caravan"
- Ludwig Hans Fischer 1846

Please find below for your amusement some interesting articles...

Stratfor | Libya's Opposition Leadership Comes into Focus

Libya has descended to a situation tantamount to civil war, with forces loyal to Libyan leader Moammar Gadhafi in the west pitted against rebels from the east. One of the biggest problems faced by Western governments has been identifying exactly who the rebels are. Many of them, including former Libyan Justice Minister Mustafa Abdel-Jalil and former Interior Minister Gen. Abdel Fattah Younis, defected early on from the Gadhafi regime and represent part of the leadership of the National Transitional Council, which lobbied Western governments for support soon after its formation. Challenges posed by geography and lack of military capabilities remain, however, meaning that even with the aid of foreign airstrikes against Gadhafi’s forces, the rebel council will struggle to achieve its stated goal of militarily toppling Gadhafi and unifying the country under its leadership.

Analysis
Identifying the Opposition

One of the biggest problems Western governments have faced throughout the Libyan crisis has been identifying who exactly the “eastern rebels” are. Until the uprising began in February, there was thought to be no legitimate opposition to speak of in the country, and thus no contacts between the United States, the United Kingdom, France or others. Many of those who now speak for the rebel movement are headquartered in Benghazi. There have been several defections, however, from the regime of Libyan leader Moammar Gadhafi to the eastern rebel leadership, and it is men like these with whom the West is now trying to engage as the possible next generation of leadership in Libya, should its unstated goal of regime change.

The structure through which the Libyan opposition is represented is the National Transitional Council. The first man to announce its creation was former Libyan Justice Minister Mustafa Abdel-Jalil, who defected from the government Feb. 21 and declared the establishment of a “transitional government” Feb. 26. At the time, Abdel-Jalil claimed that it would give way to national elections within three months, though this was clearly never a realistic goal.

One day after Abdel-Jalil’s announcement, a Benghazi-based lawyer named Abdel-Hafidh Ghoga held a news conference to refute his claims. Ghoga pronounced himself to be the spokesman of the new council and denied that it resembled a transitional government, adding that even if it did, Abdel-Jalil would not be in charge. Ghoga derided the former justice minister as being more influential in the eastern Libyan city of Al Bayda than in Benghazi, which is the heart of the rebel movement.

The personality clash between Abdel-Jalil and Ghoga continued on for most of the next week, as each man portended to be running a council that spoke for the eastern rebel movement in its entirety. It was significant only insofar as it provided just a glimpse of the sort of internal rivalries that exist in eastern Libya, known historically as Cyrenaica. Though Cyrenaica has a distinct identity from the western Libyan region historically referred to as Tripolitania, that does not mean that it is completely unified. This will be a problem moving ahead for the coalition carrying out the bombing campaign of Libya, as tribal and personal rivalries in the east will compound with a simple lack of familiarity with who the rebels really are.

The National Transitional Council officially came into being March 6, and — for the moment, at least — has settled the personal and regional rivalry between Abdel-Jalil and Ghoga, with the former named the council’s head and the latter its spokesman. Despite the drama that preceded the formal establishment of the council, all members of the opposition have always been unified on a series of goals: They want to mount an armed offensive against the government-controlled areas in the west; they want to overthrow Gadhafi; they seek to unify the country with Tripoli as its capital; and they do not want foreign boots on Libyan soil. The unity of the rebels, in short, is based upon a common desire to oust the longtime Libyan leader.

The transitional council asserts that it derives its legitimacy from the series of city councils that have been running the affairs of the east since the February uprising that turned all of eastern Libya into rebel-held territory. This council is, in essence, a conglomeration of localized units of makeshift self-governance. And while it may be centered in the east, the rebel council has also gone out of its way to assert that all Libyans who are opposed to Gadhafi’s rule are a part of the movement. This is not a secessionist struggle. A military stalemate with Gadhafi that would lead to the establishment of two Libyas would not represent an outright success for the rebels, even though it would be preferential to outright defeat. Though it has only released the names of nine of its reported 31 members for security reasons, the National Transitional Council has claimed that it has members in several cities that lie beyond the rebel-held territory in the east (including Misurata, Zentan, Zawiya, Zouara, Nalut, Jabal Gharbi, Ghat and Kufra), it has promised membership to all Libyans who want to join, and it asserted that the council is the sole representative of the whole of Libya.

The council’s foremost priorities for the past several weeks have been garnering foreign support for airstrikes on Gadhafi’s forces and the establishment of a no-fly zone. Absent that, the rebels have long argued, none of their other military objectives stood a chance of being realized.

It was the lobbying for Western support in the establishment of a no-fly zone that led the transitional council’s “executive team,” also known as the crisis committee, to go on a tour of European capitals in mid-March designed to shore up support from various governments and international institutions. Mahmoud Jebril, an ally of Abdel-Jalil, and de facto Foreign Minister Ali al-Essawi, the former Libyan ambassador to India who quit in February when the uprising began, comprise the executive team. The result of this trip was the first recognition of the transitional council as the legitimate representative of the Libyan people, which was provided by France on March 10. France, as we were to see in the following days, was to become the most vociferous advocate of the international community coming to the aid of the rebel council through the use of airstrikes.

Challenges

Before the decision was made to implement a no-fly zone, the Libyan opposition forces collapsed in the face of Gadhafi’s onslaught, and they have shown little sign of coalescing into a meaningful military force. While the loyalist eastward thrust was against a disorganized rebel force, Gadhafi’s forces have demonstrated that they retain considerable strength and loyalty to the regime. That means that even with coalition airstrikes taking out armor and artillery, there will still be forces loyal to Gadhafi inside any urban center the rebels might encounter in a westward advance, meaning that the rebels would be forced to fight a dedicated force dug into built up areas while operating on extended lines, a difficult tactical and operational challenge for even a coherent and proficient military force. So even though the coalition airstrikes have since shifted the military balance, the fundamental challenges for the rebels to organize and orchestrate a coherent military offensive remain unchanged.

It is important to note that little of the territory that fell into rebel control in the early days of the insurrection was actually occupied through conquest. Many military and security forces in the east either deserted or defected to the opposition, which brought not only men and arms, but also the territory those troops ostensibly controlled. Most fighting that occurred once the situation transitioned into what is effectively a civil war, particularly in the main population centers along the coastal stretch between Benghazi and Sirte, consisted of relatively small, lightly armed formations conducting raids, rather than either side decisively defeating a major formation and pacifying a town.

Just as the executive team represents the National Transitional Council’s foreign affairs unit, the council also has a military division. This was originally headed by Omar El-Hariri, but the overall command of the Libyan rebels has since reportedly been passed to former Interior Minister Gen. Abdel Fattah Younis. Younis’ name arose early on as the man with whom the British government was engaging as it tried to get a grip on the situation unfolding in rebel-held territory. He was not included in the original transitional council membership, however, despite several indications that he did in fact retain widespread support among eastern rebels. This, like the clash between Abdel-Jalil and Ghoga, was another indication of the rivalries that exist in eastern Libya, which paint a picture of disunity among the rebels.

Younis, however, now appears to have been officially incorporated into the command structure and is presiding over a National Transitional Council “army” that, like the council itself, is the sum of its parts. Every population center in eastern Libya has since the uprising began created respective militias, all of which are now, theoretically, to report to Benghazi. Indeed, the most notable of these local militias, created Feb. 28, has been known at times as the Benghazi Military Council, which is linked to the Benghazi city council, the members of which form much of the political core of the new national council. There are other known militias in eastern Libya, however, operating training camps in places like Ajdabiya, Al Bayda and Tobruk, and undoubtedly several other locations as well.

Younis has perhaps the most challenging job of all in eastern Libya: organizing a coherent fighting force that can mount an invasion of the west — something that will be difficult even after an extensive foreign bombing campaign. More defections by the military and security forces in the west, like the earlier defections in Zawiya and Misurata, would perhaps benefit the transitional council even more than the bombing campaign under way. There is no sign of imminent defections from the west, however, which will only reinforce the military and geographic challenges with which the rebel council is faced.

Libyan society is by definition tribal and therefore prone to fractiousness. The Gadhafi era has done nothing to counter this historical legacy, as the Jamahiriya political system promoted local governance more than a truly national system of administration. Ironically, it was this legacy of Gadhafi’s regime that helped the individual eastern cities to rapidly establish local committees that took over administration of their respective areas, but it will create difficulties should they try to truly come together. Rhetoric is far different from tangible displays of unity.

Geography will also continue to be a challenge for the National Transitional Council. The Libyan opposition still does not have the basic military proficiencies or know-how to project and sustain an armored assault on Tripoli; if it tried, it would run a serious risk of being neutralized on arrival by prepared defenses. Even Gadhafi’s hometown of Sirte — almost certainly a necessary intermediate position to control on any drive to Tripoli — looks to be a logistical stretch for the opposition. An inflow of weapons may help but would not be the complete solution. Just as the primary factor in eastern Libya’s breaking free of the government’s control lies in a series of military defections, the occurrence of the same scenario in significant numbers in the west is what would give the National Transitional Council its best chance of overthrowing Gadhafi.

Stratfor | Russia Finds Opportunity in the Libyan Crisis

Summary

Russian Prime Minister Vladimir Putin said March 21 that the U.N. Security Council resolution allowing foreign military intervention in Libya is “defective and flawed” and criticized the West, particularly the United States, for being overly aggressive. The military intervention in Libya has given Russia an opportunity to return to a confrontational stance against the United States as Moscow and Washington discuss missile defense and other contentious issues.

Analysis

Russian Prime Minister Vladimir Putin on March 21 criticized the U.N. Security Council resolution on Libya for allowing foreign military intervention in a sovereign state. Putin called the resolution “defective and flawed,” adding that “it allows everything and is reminiscent of a medieval call for a crusade.” Putin noted that Russia, which abstained on the U.N. resolution vote and is not involved in the operation, wanted to avoid direct intervention and admonished the West, especially the United States, for acting too aggressively.

Putin’s comments indicate the strength of Russia’s geopolitical position in the midst of several ongoing crises. The Western-led intervention in Libya is an opportunity for Putin to return to a familiar confrontational position on the United States in order to advance Russia’s interests even further at a difficult time for Washington.

As several crises continue unfolding across the world — the nuclear accident in Japanhttp://www.stratfor.com/theme/japanese-disaster-full-coverage, growing unrest in the Persian Gulf http://www.stratfor.com/theme/middle-east-unrest-full-coverage  and now the military invention in Libya http://www.stratfor.com/theme/protests-libya-full-coverage  

— no country has benefited geopolitically from these developments more than Russia http://www.stratfor.com/geopolitical_diary/20110315-russia-rises-amid-geopolitical-events . Growing instability has caused oil prices to rise, boosting Russia’s income. Japan’s dependence on nuclear power for energy has caused Tokyo to turn to Russia for more natural gas supplies, and concerns over the safety of nuclear power have led the Europeans, Russia’s primary energy market http://www.stratfor.com/analysis/20110316-nuclear-power-europe-after-fukushima-special-report , to reconsider many future (and existing) nuclear plants. The chaos in Libya, even before the Western-led military intervention began, took much of Libya’s oil and natural gas exports offline http://www.stratfor.com/graphic_of_the_day/20110317-foreign-interests-intervention-libya , and Russia has been more than happy to make up the difference to Italy and other European countries. Perhaps most important, it appears that the window of opportunity that led to Russia’s geopolitical re-emergence in the first place — U.S. distraction in the Middle East — will be growing for the foreseeable future.

The conflict in Libya has not only opened up a third theater for U.S. military involvement, it has also given Putin the chance to characterize the United States as overly aggressive and willing to invade anywhere, while Russia prefers a more cautious approach. Russia’s position is strong enough that it feels it can easily switch between cooperation with and opposition to the United States. Russia has been more cooperative under the “reset” in ties between Washington and Moscow, but Putin is reverting to the tactics he used when Russia was geopolitically weaker, from the mid-2000s through early 2009, when he constantly and publicly railed against the United States.

Besides using the opportunity to criticize the United States, Putin has two other reasons for his confrontational push. First, U.S. Defense Secretary Robert Gates is in St. Petersburg meeting with Russian President Dmitri Medvedev and Russian Defense Minister Anatoly Serdyukov. Missile defense http://www.stratfor.com/analysis/20110207-influence-us-domestic-politics-bmd-negotiations  is the key topic, and Washington is offering a small concession on this controversial issue in setting up an exchange center for sharing data. However, this is not enough for the Russians, who want actual participation in missile defense. Putin’s speech criticizing the U.S. involvement in Libya symbolically was made at a ballistic missile factory on the same day Gates was in the country. Putin noted that the Libyan intervention “once again confirms the rightness of those measures which we undertake to strengthen Russia’s defense capacity” and that Russia would increase its ballistic missile capabilities.

The second issue is that Putin personally is not happy with the United States after U.S. Vice President Joe Biden's recent visit to Russia http://www.stratfor.com/analysis/20110309-us-russian-relations-biden-visits-moscow . When Biden was in Moscow, he met with Russian opposition leaders — something that displeased the Kremlin, particularly since Biden mocked a famous quote from former U.S. President George W. Bush about Putin during these opposition meetings, saying he “looked into Putin’s eyes and saw no soul.”

Given that U.S. commitments are increasing while Russia’s ability to maneuver is growing, Moscow is using the current opportunity to make its displeasure with Washington known.

Stratfor | The Libyan War of 2011

The Libyan war has now begun. It pits a coalition of European powers plus the United States, a handful of Arab states and rebels in Libya against the Libyan government. The long-term goal, unspoken but well understood, is regime change — displacing the government of Libyan leader Moammar Gadhafi and replacing it with a new regime built around the rebels.

The mission is clearer than the strategy, and that strategy can’t be figured out from the first moves. The strategy might be the imposition of a no-fly zone, the imposition of a no-fly zone and attacks against Libya’s command-and-control centers, or these two plus direct ground attacks on Gadhafi’s forces. These could also be combined with an invasion and occupation of Libya.

The question, therefore, is not the mission but the strategy to be pursued. How far is the coalition, or at least some of its members, prepared to go to effect regime change and manage the consequences following regime change? How many resources are they prepared to provide and how long are they prepared to fight? It should be remembered that in Iraq and Afghanistan the occupation became the heart of the war, and regime change was merely the opening act. It is possible that the coalition partners haven’t decided on the strategy yet, or may not be in agreement. Let’s therefore consider the first phases of the war, regardless of how far they are prepared to go in pursuit of the mission.

Like previous wars since 1991, this war began with a very public buildup in which the coalition partners negotiated the basic framework, sought international support and authorization from multinational organizations, and mobilized forces. This was done quite publicly because the cost of secrecy (time and possible failure) was not worth what was to be gained: surprise. Surprise matters when the enemy can mobilize resistance. Gadhafi was trapped and has limited military capabilities, so secrecy was unnecessary.

While all this was going on and before final decisions were made, special operations forces were inserted in Libya on two missions. First, to make contact with insurgent forces to prepare them for coming events, create channels of communications and logistics, and create a post-war political framework. The second purpose was to identify targets for attack and conduct reconnaissance of those targets that provided as up-to-date information as possible. This, combined with air and space reconnaissance, served as the foundations of the war. We know British Special Air Service operators were in Libya and suspect other countries’ special operations forces and intelligence services were also operating there.

War commences with two sets of attacks. The first attacks are decapitation attacks designed to destroy or isolate the national command structure. These may also include strikes designed to kill leaders such as Gadhafi and his sons or other senior leaders. These attacks depend on specific intelligence on facilities, including communications, planning and so on along with detailed information on the location of the leadership. Attacks on buildings are carried out from the air but not particularly with cruise missiles because they are especially accurate if the targets are slow, and buildings aren’t going anywhere. At the same time, aircraft are orbiting out of range of air defenses awaiting information on more mobile targets and if such is forthcoming, they come into range and fire appropriate munitions at the target. The type of aircraft used depends on the robustness of the air defenses, the time available prior to attack and the munitions needed. They can range from conventional fighters or stealth strategic aircraft like the U.S. B-2 bomber (if the United States authorized its use). Special operations forces might be on the ground painting the target for laser-guided munitions, which are highly accurate but require illumination.

At the same time these attacks are under way, attacks on airfields, fuel storage depots and the like are being targeted to ground the Libyan air force. Air or cruise missile attacks are also being carried out on radars of large and immobile surface-to-air (SAM) missile sites. Simultaneously, “wild weasel” aircraft — aircraft configured for the suppression of enemy air defenses — will be on patrol for more mobile SAM systems to locate and destroy. This becomes a critical part of the conflict. Being mobile, detecting these weapons systems on the ground is complex. They engage when they want to, depending on visual perception of opportunities. Therefore the total elimination of anti-missile systems is in part up to the Libyans. Between mobile systems and man-portable air-defense missiles, the threat to allied aircraft can persist for quite a while even if Gadhafi’s forces might have difficulty shooting anything down.

This is the part that the United States in particular and the West in general is extremely good at. But it is the beginning of the war. Gadhafi’s primary capabilities are conventional armor and particularly artillery. Destroying his air force and isolating his forces will not by itself win the war. The war is on the ground. The question is the motivation of his troops: If they perceive that surrender is unacceptable or personally catastrophic, they may continue to fight. At that point the coalition must decide if it intends to engage and destroy Gadhafi’s ground forces from the air. This can be done, but it is never a foregone conclusion that it will work. Moreover, this is the phase at which civilian casualties begin to mount. It is a paradox of warfare instigated to end human suffering that the means of achieving this can sometimes impose substantial human suffering themselves. This is not merely a theoretical statement. It is at this point that supporters of the war who want to end suffering may turn on the political leaders for not ending suffering without cost. It should be remembered that Saddam Hussein was loathed universally, but those who loathed him were frequently not willing to impose the price of overthrowing him. The Europeans in particular are sensitive to this issue.

The question then becomes the extent to which this remains an air operation, as Kosovo was, or becomes a ground operation. Kosovo is the ideal, but Gadhafi is not Slobodan Milosevic and he may not feel he has anywhere to go if he surrenders. For him the fight may be existential, whereas for Milosevic it was not. He and his followers may resist. This is the great unknown. The choice here is to maintain air operations for an extended period of time without clear results, or invade. This raises the question of whose troops would invade. Egypt appears ready but there is long animosity between the two countries, and its actions might not be viewed as liberation. The Europeans could do so. It is difficult to imagine Obama adopting a third war in the Muslim world as his own. This is where the coalition is really tested.

If there is an invasion, it is likely to succeed. The question then becomes whether Gadhafi’s forces move into opposition and insurgency. This again depends on morale but also on behavior. The Americans forced an insurgency in Iraq by putting the Baathists into an untenable position. In Afghanistan the Taliban gave up formal power without having been decisively defeated. They regrouped, reformed and returned. It is not known to us what Gadhafi can do or not do. It is clear that it is the major unknown.

The problem in Iraq was not the special operations forces. It was not in the decapitation strikes or suppression of enemy air defenses. It was not in the defeat of the Iraqi army on the ground. It was in the occupation, when the enemy reformed and imposed an insurgency on the United States that it found extraordinarily difficult to deal with.

Therefore the successes of the coming day will tell us nothing. Even if Gadhafi surrenders or is killed, even if no invasion is necessary save a small occupation force to aid the insurgents, the possibility of an insurgency is there. We will not know if there will be an insurgency until after it begins. Therefore, the only thing that would be surprising about this phase of the operation is if it failed.

The decision has been made that the mission is regime change in Libya. The strategic sequence is the routine buildup to war since 1991, this time with a heavier European component. The early days will go extremely well but will not define whether or not the war is successful. The test will come if a war designed to stop human suffering begins to inflict human suffering. That is when the difficult political decisions have to be made and when we will find out whether the strategy, the mission and the political will fully match up.

http://www.economist.com/blogs/newsbook/2011/03/no-fly_zone_libya

http://www.economist.com/blogs/newsbook/2011/03/archive  (from the archive of 1986)


The Spice Road Continues
March 21, 2011

Just as the Spice Road was the first real conduit of globalization, as it connected vast lands into a trade network that spread goods, beliefs, and technologies far from their areas of origin, so today are some bright young Arab leaders leaving their imprint on the sands of time.

H.H. Hamad bin Khalid Al Thani, The Emir of Qatar
H.E. Hamad bin Jassim Bin Jabr Al Thani, The Prime Minister of Qatar.

Qatar has managed to find an important and necessary diplomatic niche between the West and the Arab nationalist mainstream, which it backs up with its considerable financial resources generated from a brilliantly structured liquefied natural gas production/distribution industry.  It is benefited from first class diplomatic and business leadership. Additionally, Qatar has become one of the smartest, most reliable, and most transparent Sovereign Wealth Fund investors in the world.

Qatar’s leadership and courage in the current Libyan crisis is unique and inspirational. You will find reference articles below.

World Tribune
http://www.worldtribune.com/worldtribune/WTARC/2011/me_gulf0314_03_21.asp

Examiner
http://www.examiner.com/foreign-policy-in-national/how-qatar-was-able-to-join-the-libyan-coalition-against-qaddafi

http://www.examiner.com/political-buzz-in-wilmington

About.com
http://middleeast.about.com/od/qatar/a/Qatar-world-cup-2022.htm

H.R.H Prince Al-Waleed bin Talal bin Abdul Aziz al-Saud, a member of the Saudi Arabian Royal Family.

H.R.H. Prince Al-Waleed bin Talal bin Abdul Aziz al-Saud recently eloquently voiced the soft winds of change across the ancient Arabian deserts in the below New York Times Editorial. No one could do it more artfully or sensitively than one of the most prominent global investors in the world, who also happens to be a member of the Saudi Arabian Royal Family.  It is not critical that one agree or disagree with his point of view, what is important is to acknowledge the courage and wisdom from a prince of entitlement who is leading an intellectual caravan as a prince of enlightenment.

New York Times
http://www.nytimes.com/2011/02/25/opinion/25alsaud.html?_r=1&ref=middleeast

The Spice Road Gets Spicier
March 21, 2011

I have received a deluge of requests to provide my insights on recent events in the Middle East. As we are all beginning to understand, there is no Middle East, but rather a patchwork quilt of individual countries sharing geographic borders (that are primarily the architecture of the West after past conflicts), a rich but crisis-ridden history, religious enthusiasm (interpreted by a multitude of sects in transition) and the damnation and blessings of the oil and gas “haves “ and “have nots”.  A culture that has transitioned over thousands of years from frantic port cities of the Phoenicians and Carthaginians to the wealthy and enlightened modern oases of Doha, Abu Dhabi, Jeddah and Dubai, who’s growing influence can now be felt throughout the remainder of the business and political world.  Through the 3-mile Straights of Hormoz in the Arab Gulf flow more than half of the world’s oil and gas resources and it remains as an umbilical cord of unbound proportion to the ever more consuming world.  As an immigrant son of the Levant and a fortunate and blessed beneficiary of the American dream, my point of view is driven by a disciplined cadence of emotions in support of the care and prosperity of a beautiful and ancient civilization in the fertile crescent and Maghreb, and the growth and prosperity of its young and capable leaders in symmetry, if not similarity, with western civilizations.  Since 200BC The Silk Road has been paved with chaos, crisis, confused expectations, religious conflict, and untold benefits for those who can become the mortar to those loosely laid stones and lay the long-line relationships that are necessary for its care and feeding.

As a global citizen my opinions are much broader than my knowledge.  As a result, I will not render my own personal point of view but rather would like to share with you various viewpoints from foremost journalistic sourcesthat may supply some context to the confusing content.

Wall Street Journal:
http://online.wsj.com/article_email/SB10001424052748704433904576212631120959252-lMyQjAxMTAxMDIwMTEyNDEyWj.html

Time Magazine:
http://www.time.com/time/world/article/0,8599,2060551,00.html

Stratfor Global Intelligence:
http://www.stratfor.com/analysis/20110319-libyan-war-2011

http://app.response.stratfor.com/e/es.aspx?s=1483&e=248358&elq=cbcf4c46eaaa4 a719de84a466619236d

The Economist:
http://www.economist.com/blogs/newsbook/2011/03/no-fly_zone_libya

NPR:
http://www.npr.org/2011/03/21/134730661/foreign-policy-libya-is-too-big-to-fail

Financial Times:
http://www.ft.com/cms/s/0/0c3ad8aa-5329-11e0-86e6-00144feab49a.html#axzz1HFYnyJTY

http://www.ft.com/cms/s/0/202f4b50-5312-11e0-86e6-00144feab49a.html#axzz1HG5 witZ0

Roubini Global Economics:
http://www.roubini.com/roubinimonitor/260650/the_economic_consequences_of_the_arab_revolt

France24:
http://www.france24.com/en/20110318-libya-response-france-takes-high-stakes-step-spotlight-sarkozy-gaddafi-un

Seeking Alpha:
http://seekingalpha.com/article/259298-shaken-10-economic-disasters-threatening-global-financial-markets

The Raw Story:
http://www.rawstory.com/rs/2011/03/20/george-will-warns-of-mission-creep-in-libya/


Happy New Year!!
December 30, 2010

I find the following poem by Nadine Stair (at age 85) summarizes a worthy New Year's resolution for us all!! All the best for 2011 and thank you for your friendship and support in 2010.


If I Had My Life to Live Over


I'd dare to make more mistakes next time.
   I'd relax. I would limber up.
I would be sillier than I have been this trip.
   I would take fewer things seriously.
      I would take more chances.

I would climb more mountains and swim more rivers.
    I would eat more ice cream and less beans.
    I would perhaps have more actual troubles
        but I'd have fewer imaginary ones.

You see, I'm one of those people who live
    sensibly and sanely hour after hour,
        day after day.

Oh, I've had my moments,
    and if I had it to do over again,
        I'd have more of them.
    In fact, I'd try to have nothing else.
        Just moments, one after another,
    instead of living so many years ahead of each day.

I've been one of those people who never go anywhere
    without a thermometer, a hot water bottle, a raincoat
        and a parachute.
If I had to do it again, I would travel lighter than I have.

If I had my life to live over,  
    I would start barefoot earlier in the spring
        and stay that way later in the fall.
    I would go to more dances.
    I would ride more merry-go-rounds.
    I would pick more daisies.


Happy Thanksgiving
November 23, 2010


Let's Renew the Reality
September 3, 2010
by Tom Barrack

On this Labor Day, at the end of a summer of market doldrums and economic chaos, let us all band together to recapture the spirit that made America great.  Let’s create new heroes, let’s leave everyone in our path better than when we found them, and let’s rely less on government and more on our own efforts and results.  The word entitlement needs to be permanently removed from our vocabulary.

The economy will rock and roll and we will all maneuver through it. Real estate will be worse or better. Currencies will be volatile and out of parity but it will still be a zero sum game. Some businesses will do better and others will do worse. Some of us will be re-employed and some of us will be unemployed.  The cycle of life will not change – only the manner in which we handle and adapt to the cycle will change.

Through it all we must be diligent, or we will lose something more valuable than a piece of property or a good job. We will lose the foundation and heart of the American Dream – the ability for people of all colors and races to spend themselves in productive labor to better the conditions of life for themselves and their families. America is an oasis in which reality can actually EXCEED dreams.  The basic requirement from all of us is to dream hard and work even harder.

I wish you all a fantastic last weekend of summer and hope that the Autumn Equinox brings a harvest of untold benefit.  As you BBQ, hike, horseback ride, eat, play tennis and chat at beaches, houses, ranches, and parks please don't despair – let's start the repair.  One man's vision will remain a nice dream... a group's vision becomes reality.  Let's renew the reality!


Chairman's Corner