Case Blog

In early May David Cameron realized that the Conservative Party had not won enough seats to form a majority government. Rather than trying to form a minority government, he surprised many by forming a coalition government with the Liberal Democrats and their leader Nick Clegg, who had acquitted himself well in the U.S.-style debates against Cameron and Gordon Brown. With this eleventh hour Hail Mary pass, the new team formed a government and Cameron became Prime Minister, with Clegg serving as his deputy. In politics, business, and life in general, one cannot choose when they take center stage, but given the opportunity, this coalition led by Cameron and Clegg seems to be making the most of the opportunity to set the United Kingdom on a new course in these early days. They have been able to withstand grousing within their own parties and hold the center — for now.

In spite of being very forthright about the need for a real austerity program, containing spending, and raising taxes, Prime Minister Cameron has risen in the polls since taking office on May 11. “He has played a blinder,” says one senior figure from the opposition Labour Party. “The way he presents himself is extraordinary and we saw that to full effect when he was in Washington — he looks every bit the prime minister.” In the Guardian, Martin Kettle, an associate editor of the left-leaning daily, wrote an encomium to Cameron titled: “A man of grace - Cameron has been good for Britain.” Officials contrast the 43-year-old prime minister’s “decisive, inclusive, calm” style with the more chaotic regime of Gordon Brown, his predecessor. (Financial Times: July 26, 2010)

With decisive measures at home, high marks from his early visits to the United States and India, and an improving European economy as a backdrop, the new team’s coalition has a solid foundation as they move forward. The improved economy in Europe is certainly helping to restore confidence and we have seen both the Euro and the Pound Sterling rise markedly from their lows during the last 60 days. The president of the European Central Bank, Jean-Claude Trichet, offered a somewhat more optimistic assessment of the Eurozone economy on Thursday, saying that the bank stress tests in July were “an important step forward in restoring market confidence.” Mr. Trichet made the comments after the European Central Bank, like the Bank of England earlier in the day, left its benchmark interest rate at a record low. He said that he was not signaling plans by the European Central Bank to raise rates, and cautioned that growth was occurring in “an environment of uncertainty.” In previous months Mr. Trichet had used the phrase “high uncertainty.” The subtle shift comes after recent data, particularly from Germany, showed the European economy performing better than expected. (NY Times: August 5, 2010)

The recovery from the Great Recession remains fragile on both sides of the Atlantic, and political and business leaders will be judged on how well they move the economy onto a more sustainable growth trajectory. It is much too early to know if this coalition will achieve its goal of governing 5 years prior to calling for new elections, but for now the early reviews are solid.

This past week we heard from Fed Chairman Ben Bernanke that the U.S. recovery would continue to be slow and uneven and that the unemployment rate would remain stubbornly high into 2012. “Of course, even as the Federal Reserve continues prudent planning for the ultimate withdrawal of extraordinary monetary policy accommodation, we also recognize that the economic outlook remains unusually uncertain,” Bernanke stated. (NY Times 7/21/10)  In his second day of testimony before Congress, Bernanke clarified his statements from the day before and assured them that he would take action if necessary and the Fed could extend very low rates of interest out into the future to insure that we do not fall back into recession and a perilous deflationary spiral.  The term “unusually uncertain” had clearly roiled the markets during his first day of testimony.

The Federal Reserve, together with the Obama administration and both houses of Congress, needs to understand the necessity of restoring both business and investor confidence to get the economy growing at an acceptable pace once again. Raising taxes during this low point in the recovery, combined with consistent criticism of business, particularly our financial institutions, is not going to give anyone the reassurance needed to start adding jobs. A focus on tax incentives to create new jobs would go a long way to restoring both business and shareholder confidence and to get the economy growing at more than 3%-4% again.

Both parties need to “Cool the Populist Rhetoric.” I called for this in January and it remains true now. Restoring our economic engine remains a bipartisan task and voters, particularly those that are unemployed or underemployed, will remember those who focused on job creation and those who did not when they go to their polling places this November.

On a much more positive note, Mary Claire and I spent several vacation days this past week in Healdsburg, California (Sonoma County) with our good friends Elise and George Riggs. We did not have to drive too far from home (less than 2 hours) to be reminded of simpler times and the true beauty of the Golden State.

We spent our first afternoon over a leisurely lunch at Copain with Wells Guthrie, the proprietor. (Copain’s tasting room sits on Eastside Road in Healdsburg, with gorgeous views.) Guthrie’s focus on quality and the need to pair wines and food is consistently on target.  Back in the winter of ’09, Eric Asimov, who writes The Pour, wrote in the New York Times (3/11/09): “As the rain slanted down onto the vineyard around Copain Wine Cellars, just outside this town in northern Sonoma County, Wells Guthrie, the proprietor, poured a glass of one of his 2006 pinot noirs. The wine was fresh and light with aromas of flowers and red fruit. Even in the gray dimness of his tasting room I could see my fingers on the other side of the glass through the pale ruby wine. It was vibrant and refreshing, nothing like the dark, plush, opulent wines that have made California pinot noir so popular. Mr. Guthrie used to make wines more along those heavier lines, but not anymore. After the vinous equivalent of a conversion experience, with his 2006 vintage he renounced the fruit-bomb style in favor of wines that emphasize freshness and delicacy.”

The next night we went for dinner to Cyrus, in downtown Healdsburg, and we paired a 2007 Copain Wentzel Pinot Noir with an extraordinary dining experience.  Cyrus lives up to its two-star Michelin billing.

Finally, we took the time to make the trip up Spring Mountain to Pride Mountain Vineyards, in St. Helena, California. This spectacular vineyard straddles the border between Napa and Sonoma counties. This mountain winery makes outstanding Cabernet Sauvignon. We also enjoyed a delightful picnic lunch, paired with their ’09 Viognier.

On Sunday evening we welcome back Mad Men and the enigmatic Don Draper!

After months of turmoil in the Eurozone and the continuing environmental disaster in the Gulf of Mexico, the world was ready for some Summer Competition. Last weekend all the world turned to South Africa for the start of football’s World Cup. The host South Africa played Mexico on Friday to a 1-1 tie to kick off the “beautiful game’s” global tournament. At the outset we were introduced to the vuvuzela. I trust many of you, as I did, tried to no avail to remove the annoying buzzing from your sound by adjusting the volume. Last Saturday we saw the United Kingdom and the United States, both Group C teams, put their special relationship to a test as they played to a surprising 1-1 tie on goalie Robert Green’s poor attempt to stop Clint Dempsey’s soft shot. Whether it was the design of this year’s ball or a lack of concentration on Green’s part, the result had many proclaiming U.S. football (soccer in the U.S., Canada and a handful of other countries) had come of age. Friday’s 2-2 comeback tie against tiny Slovenia’s tough squad kept expectations in line for the U.S. team. England played Algeria to a 0-0 draw in its second match. We will have to wait until Wednesday to see which teams emerge from Group C for the next round.

Basketball is the only sport that rivals football for worldwide interest, and it does not get any better than the Boston Celtics and Los Angeles Lakers playing for the NBA Championship. Between them, the Celtics and Lakers have played in more than half of all the league’s finals, with Boston going into this year’s series holding a slight edge. On Sunday evening with the series back in Boston and tied 2-2 in the best-of-seven finals, Paul Pierce put on a shooting display while the Lakers seemed to forget that they needed to play defense to allow Kobe Bryant to dominate. The Lakers left Boston down 3-2 with a 6th and possible 7th game back home at the Staples Center in Los Angeles.  On Tuesday evening the Lakers finally played four quarters of team basketball and got a strong showing from Pau Gasol, who had been tied up in the previous games by Boston’s tenacious defense. Up until the 7th game, Celtics coach Doc Rivers had the edge over Phil Jackson, who with 10 championship rings between Chicago and Los Angeles had coached more championship teams than any other NBA coach in the long history of the league.  Everyone knew that Thursday evening’s 7th game in Los Angeles would not disappoint. The stars were out in force, led by the ever-present Jack Nicholson. The “will to win” was on display on the Staples stage. By midway through the 3rd quarter, the Celtics appeared to have a commanding lead, but the Zen Master coach, Phil Jackson, remained calm and the world’s greatest basketball player, Kobe Bryant, with strong support from Derek Fisher, Gasol and Ron Artest, came roaring back to hold on to a 83-79 victory for the Lakers’ 16th championship. This was Kobe’s 5th championship as a player and Phil Jackson’s 11th as a coach. Artest has been toxic since the brawl at the Palace, but he played the best game of his career as the Lakers’ supporting cast delivered in the 7th and final game.

Mary Claire and I are visiting our children in Boston on this Father’s Day weekend.  As I write this on Saturday our attention will shift to that golf mecca, Pebble Beach, for the final two rounds of the U.S. Open.  Tiger Woods ran away from the field at Pebble Beach in 2000 to win the Open, but despite making the cut this year he remains 7 strokes back of the leader and is clearly not the Tiger of old. Phil Mickelson, who has finished number 2 too many times at the U.S. Open, has moved into contention in the #2 position after a flawless 66 on Friday. I have been reminded this week that I need to schedule another trip in August or September to Pebble Beach to have the unique golf experience that only Pebble Beach and a handful of other great courses around the world can provide.

For two summer wine recommendations, I turn to the oft-slighted Rose, which this summer seems to have come back in vogue in New York restaurants:

Copain Wines
Tous Ensemble Rose at $15 provides great value and with a slight chill is perfect for a warm summer day. www.copainwines.com

Landmark Vineyards
They produce a Rose for their mailing list customers and it also provides great value at $20.
www.landmarkwine.com

Enjoy the summer!

Two weeks ago in my posting, $1 Trillion Dollar Rescue Plan & a Changing of the Guard, I closed with: “This was clearly a historic week on the continent and in the United Kingdom. There is a new determination to deal with the structural issues that have left most of the countries with debt loads that the global bond markets can not support in the long run, and there is a new a resolve by these countries to put themselves on a course that will support sustainable long-term growth. The Obama administration will need to start addressing deficit reduction as well as we approach the November mid-term elections. Those of us in the private equity business will be closely watching the impact of government actions on recovering credit markets.”

Since I wrote that, Treasury Secretary Geithner visited England and Germany on his way back from China and advised them to take action to put the $1 trillion dollar rescue plan into effect. “After two years in which an historic financial crisis seemed to deprive the U.S. of its self-confident global economic leadership, Mr. Geithner signaled a newfound willingness to reassert American authority on the future of the world economy… ‘What Europe should do is implement the program they laid out,’ Mr. Geithner said Wednesday. The basic lesson of financial crises is that you have to come in and act quickly and with force.” (WSJ: May 26, 2010) Then on the 27th China denied it was reviewing its holding of Eurozone debt. “The denial—which followed a Financial Times report Wednesday about the State Administration of Foreign Exchange, an agency that rarely answers questions from the media—highlights China’s awareness of how volatile financial markets have become increasingly sensitive to even hints about how Beijing deploys its enormous foreign reserves.” (WSJ: May 27, 2010)

In spite of all of these efforts, the global equity markets were pummeled in May. “Between the ‘Flash Crash’ and angst over the worsening crisis in Europe, stocks suffered a dismal May, posting their worst decline for the month since Franklin Roosevelt was in the White House.” (WSJ: May 29, 2010) To further contribute to the slide, Fitch announced that they were downgrading Spain’s credit rating. (FT: May 28, 2010) What does this new religion about reducing deficits as a percentage of GDP mean going forward? I turned to Bill Gross’ June Investment Outlook letter, “Three Will Get You Two (or) Two Will Get You Three.” (Pimco) “So the developing predicament is becoming more obvious to Shakespeare’s ‘lenders and borrowers be,’ ” Gross writes. “Fiscal tightening and budget conservatism may have come too late for Greece and its global lookalikes. Continued deficit spending may be an exorbitant privilege extended to only a few. Caught in the middle are many developed countries that likely face New Normal growth rates and a continued bumpy journey toward that destination. Investors must respect this rather tortuous journey in the months and years ahead for what it is: A deleveraging process based upon too much debt and too little growth to service it. No longer will ‘two get you three’ in the investment world. Not 1,000%, but 4-6% annualized returns for a diversified portfolio of stocks and bonds is the likely outcome. And be careful — sometimes ‘three gets you two.’ ”

On a more positive industry note, the conference and exhibition business is showing signs of life after a very difficult ‘09. Informa, which derives almost 50% of its global revenues from events and training business, is a candidate “for promotion in next month’s Footsie index reshuffle.” (FT: May 25, 2010)

We are also enjoying a strong recovery in our events business at Asset International. On May 20th and 21st, ai5000 Editor-in-Chief Kip McDaniel produced our first Chief Investment Officer Summit (CIOS) in New York City. The event received high marks from all the attendees and sponsors. Our featured dinner speaker was Nassim Nicholas Taleb, best-selling author of The Black Swan, which has just been released in a second edition with a new section, “On Robustness and Fragility.” I highly recommend that this book gets added to your summer reading list.

We will hold our second CIOS event of the year in London on October 7th and 8th and once again Nassim Taleb will be the featured speaker and will explain how Black Swan events result in the market volatility we are experiencing.

As we headed to JFK early on Monday morning for our BA flight to London, we learned that over the weekend the Eurozone leaders had fashioned a rescue plan that went well beyond Greece and assured the world that Spain and Portugal would not be the next dominoes to fall. Shortly thereafter both countries announced new austerity moves to further assure the world debt markets that they were serious about bringing down their debt levels as a percentage of GDP. The I.M.F. and the U.S. Federal Reserve contributed in their own way to further assure the world markets. By the time we landed in London on Monday evening the world’s stock markets had rallied for their biggest one-day gain in over a year.  As the European leaders went home, the Euro remained under pressure and by the weekend had fallen to an 18-month low — below $1.25 to the EU €1. The world markets remained concerned that the new austerity measures imposed on the PIIGS (Portugal, Ireland, Italy, Greece & Spain) could lead to another recession in Europe while the world slowly recovers from the Great Recession. (NY Times: May 14, 2010)

Against this backdrop, when we retired on Monday evening Prime Minister Gordon Brown was still clinging to the hope that he could derail the discussions between the Liberal Democrats and the Conservatives by entering into discussions with the Liberal Democrats on forming a Labour-led coalition.  While Mary Claire and I were out to dinner with friends late on Tuesday evening, it became clear that Labour’s 13-year run had come to an end. The next day Gordon Brown tendered his resignation to the Queen and a swift transition began with David Cameron meeting with the Queen and then quickly moving into 10 Downing Street as the new prime minister. The Conservatives and their new allies, the Liberal Democrats led by Nick Clegg, quickly announced to the country that they had formed the first coalition government since Winston Churchill’s coalition government during the darkest hours of World War II.  Labour will have a new leader, but Gordon Brown will retain a seat in Parliament. Nick Clegg has become David Cameron’s deputy and at their first cabinet meeting announced their own set of austerity measures to deal with the large deficit that grew out of the Great Recession. The Pound Sterling strengthened versus the Euro as the week unfolded.

This was clearly a historic week on the continent and in the United Kingdom. There is a new determination to deal with the structural issues that have left most of the countries with debt loads that the global bond markets can not support in the long run, and there is a new a resolve by these countries to put themselves on a course that will support sustainable long-term growth. The Obama administration will need to start addressing deficit reduction as well as we approach the November mid-term elections. Those of us in the private equity business will be closely watching the impact of government actions on recovering credit markets.

Mary Claire and I have flown to Dublin for the weekend and will return to New York on Monday evening.

Last week Michigan Senator Carl Levin, Chairman of the Senate Subcommittee on Permanent Investigations, brought Goldman Sachs’ (GS) Chairman and CEO Lloyd Blankfein and a number of his colleagues to Washington, D.C. to hold a hearing on the fabled Abacus derivative deal. The cast from the Goldman side included Fabrice Tourre — Tourre is also known as “Fabulous Fab” in the press — who structured the transaction with input from John Paulson. (Paulson is no relation to Hank Paulson, the former Treasury Secretary in the Bush administration and Blankfein’s predecessor at Goldman Sachs. John Paulson is the founder of the hedge fund Paulson & Co.) The 11 hours of hearings provided countless news clips on broadcast newscasts and across numerous websites, along with cute headlines for the tabloid press. In the end it amounted to political theatre, with the Goldman Sachs team, led by Blankfein, vigorously defending their transactions. While many of us may prefer the old image of the sage investment banker providing advice and counsel to their clients, it is clear that the current leadership team at Goldman Sachs is led by former traders that view deals that have counter-parties as the normal course of business.

In the end I find myself joining with former President Bill Clinton and the Sage of Omaha, Warren Buffett, chairman and CEO of Berkshire Hathaway (BRKA). Speaking at a conference on April 28th, Bill Clinton raised the question: did the Abacus transaction  break any law? Clinton did this in the context of the current civil suit against Goldman Sachs and the possibility that had been raised of criminal charges. (CNN: April 28, 2010) Buffett came to the staunch defense of both Goldman Sachs and Lloyd Blankfein at Berkshire Hathaway’s annual shareholders event in Omaha, Nebraska over the weekend. While the press and hearings have provided political theatre, it has not gotten us any closer to a solution on how to avoid another subprime mortgage debacle in the future.

The primary focus of this blog has always been to offer my perspective on specific deals and the overall deal climate in the B2B space. However, the events of the past year required most of my commentary to focus on the terrible economic climate we found ourselves in, with very few significant deals taking place. Yesterday, before the market opened, Pearson (PSON.LN) announced that they were selling their stake in Interactive Data Corporation (IDC) to two private equity firms. Pearson had stated in mid-January that they were exploring strategic options for IDC, a financial market data provider in which they hold a controlling interest of 61 percent.  Silver Lake & Warburg Pincus will be paying $33.86 per share, which represents a 33% premium over IDC’s January 14 share price, which is the day before they announced their strategic review. (WSJ: May 4, 2010)  When a financial services firm is once again in demand, it’s clear that the deal climate has improved dramatically.

Another such deal is Salesforce.com’s (CRM) announcement on April 21st of a definitive agreement to acquire Jigsaw Data, the cloud-based data services company in Silicon Valley. Jigsaw was backed by El Dorado Ventures, Norwest Ventures and Austin Ventures. I am pleased to note that I had the privilege of serving on the Jigsaw Board over the past 3 years and working closely with the other board members and Jim Fowler, the founder of Jigsaw. Together with Jigsaw senior vice president and COO Kevin Akeroyd, Jim built a compelling crowd-sourced data company that grew significantly right through the Great Recession and exceeded every growth metric the board established. I cannot think of a better outcome than Jigsaw joining Salesforce.com. This acquisition was exceptional for all involved and I applaud the entrepreneurship displayed by the Jigsaw team.

Mary Claire and I are off to London next week and I trust that I will have some special insights to share with you on tomorrow’s U.K. election upon my return.

We learned last week that air travel could be disrupted by volcanoes, as the Eyjafjallajökull volcano erupted in Iceland and brought European air traffic to a halt. Thousands were stranded on both sides of the Atlantic. As we gradually work our way back to a normal schedule, we are learning that one of Iceland’s other volcanoes, Katla, is overdue for an eruption. “Every time Eyjafjallajökull has erupted in the past 1,000 years, Katla has followed soon after.” (Financial Times: April 23, 2010)

While Europe was grounded, we also learned that the Eurozone PIIGS (Portugal, Ireland, Italy, Greece and Spain) were running out of runway. Greece finally came to the conclusion that it could not sell bonds on its own and Prime Minister Papandreou turned to the European monetary union and the IMF for the bailout that was agreed to two weeks ago in Brussels.  This will remove short-term pressures on Greece and the Euro, but it remains to be seen if in the long term there will need to be a rescheduling of the debt. (New York Times: April 24, 2010) Pressure will remain on the other members of this august group to take control of their deficits. While Iceland is not a member of the European Union, it certainly qualifies as a third “I” in PIIGS based on its 2008 banking crisis, which left the economy in ruins and the country insolvent.  This small island nation of 320,000 residents has had a major impact on our lives over the past two years.

For the next two weeks the world’s attention will turn to the upcoming parliamentary elections in the United Kingdom on May 6th.  Will either the Labour Party or the Tories be able to form a government without an alliance with the smaller Liberal Democrats, lead by Nick Clegg? With American-style TV debates being used for the first time, Clegg clearly improved his party’s standing with his performance in the first debate. In the second debate, both Clegg and David Cameron performed well, according to polls taken immediately following the debate, with Gordon Brown trailing both of them. The final debate will take place on Thursday and will focus on the economy, and could make the difference in this hotly contested race. If the Tories hope to return to power they must get a solid lead and avoid a hung parliament that could result in a deal between Labour and the Liberal Democrats to keep the Tories out of power. (Financial Times: April 22, 2010)

Is anyone covering this election writing the British equivalent of  Game Change by Heilemann & Haperin?

As we close out the first quarter of the new calendar and fiscal year, almost all businesses are finding that their year-over-year performance has improved significantly. The first quarter of ‘09 represented the depth of the Great Recession, when the world as we knew it unraveled before our eyes. When earnings are released for the first quarter of ‘10 we will see, without exception, improvements in all sectors of the business media, including those newspapers that survived the downturn. This will provide momentum for continued improvement as we head into spring and leave behind a difficult winter on the east coast.

Mary Claire and I returned last week to Blackhawk for the first time since early January. The Bay Area’s spring is in full bloom. Spring shipments from Napa and Sonoma are arriving, most from the ‘07 vintage. As many wine critics have reported, ‘07 represents the best vintage for most varietals in Northern California wine country since ‘97. It is time to restock the wine cellar, with many wineries actually lowering their prices to reflect the reset that has taken place in the consumer economy!

While we continue to see the U.S. and U.K. economies recover and grow, albeit at slower paces than we saw in the fourth quarter of ‘09, the eurozone remains challenged by its PIIGS.  ”Greece, along with Portugal, Ireland, Italy and Spain, are Europe’s PIIGS - euro-zone members with fragile economies and large debt loads. Fitch Ratings poured fuel on the euro fire last week by downgrading Portugal’s long-term foreign- and local-currency debt to a notch, to double A-minus, with a negative outlook, meaning another downgrade is more likely than not. The euro promptly fell to 10-month lows against the dollar before rebounding Friday.” (“Helping Hand for Greece Also Helps Hedge Funds,” Barrons, March 29, 2010)  Those of us who have business interests in the eurozone will continue to monitor the German-French brokered deal to keep Greece from defaulting. I was surprised to see Chancellor Merkel prevail on the side of fiscal discipline and the IMF being invited to join the bailout of Greece in order to preserve the Euro.

I wrote back in September of ‘07 in Global Brands, “In our global economy, even proud islands like the UK need to acknowledge that we all operate in a very interconnected world. Will the pound some day give way to the Euro?” I stand corrected; the Pound Sterling will survive and will continue to show strength versus the Euro. I was much closer to the mark in my last post, The Pound Sterling. We will continue to watch with great interest the upcoming spring election battle of Labour vs. the Tories. Closer to home and after our long health care debate, I recommend you read “Game Change: Obama and the Clintons, McCain and Palin, and the Race of a Lifetime,” by John Heilemann and Mark Halperin.

With the concerns about the fiscal integrity of Greece and several other Eurozone members, the Euro has been under the most significant pressure since it was introduced as a common currency more than 8 years ago. There has been much speculation that it could fall to parity with the US dollar. Few recall that when it was introduced in 2002 and replaced national currencies, for example the German Mark, the Euro fell by approximately 15% vs. the US dollar in the first half of the year. It reached its peak of $1.599 vs. the US dollar in July of 2008. but since the global financial crisis began it has been under pressure. The Euro is the second largest reserve currency after the US dollar and the UK’s sterling is the third largest reserve currency. (Wikipedia: Euro)

In February, the world’s best-known bond trader, Bill Gross of Pimco, wrote in his monthly report: “…the UK is a must to avoid. Its Gilts are resting on a bed of nitroglycerin. High debt with the potential to devalue its currency present high risks for bond investors. In addition, its interest rates are already artificially influenced by accounting standards that at one point last year produced long-term real interest rates of 1/2% and lower.” For the developed countries, Gross favors fixed-income investments in Canada — its conservative banks did not participate in the housing crisis — followed by Germany. (Pimco: Investment Outlook, Ring of Fire: Red Zone Countries, February 2010) While Pimco runs the world’s largest fund, Total Return Fund, and I hold Bill Gross in high regard, I do not believe that the United Kingdom is the next Greece or that we will repeat 1992. (The Wall Street Journal reported that the “bets against the pound are the highest since 1992″ and credited Camilla Sutton, currency strategist at Scotia in Toronto. [WSJ 3/6/2010])

The Bank of England, founded in 1694, and its Governor, Mervyn King, along with Chancellor of the Exchequer Alistair Darling, understand what the sterling represents on the world stage and how important it is to defend. During the dark days of the global finance crisis they introduced quantitative easing as one tool to support their banks. I have been reading Hank Paulson’s book, On the Brink: Inside the Race to Stop the Collapse of the Global Financial System”. In it he relates a call he received from Darling during the search for an acquirer for Lehman Brothers, before its collapse into bankruptcy:

“I understand one of your possible buyers is a British bank,” I remember him saying. “I want you to know that we have some concern, because our banks are already under a lot of stress. We don’t want them to become overextended and further weakened.”

“Afterward I commented to Jim Wilkinson that Alistair seemed to be telling me that the British didn’t want their banks to catch the American disease. But because he couched this as a general concern, I didn’t see his words as the red flag that in retrospect they appear to have been.”

Barclays management team could not get the approval they needed to acquire Lehman Brothers, but did end up buying Lehman’s best assets after the bankruptcy filing. I find this supportive of my view that the Bank of England will not let the pound weaken further. (It did bounce back towards the end of this week from below $1.50 to close the week on an uptick at $1.5145.)

There is concern that the spring election between Labour & the Tories, which once seemed like a sure bet for the Tories, now appears too close to call. The Tories have squandered a 20+ point lead in the polls over the past year. They are going to have to become proactive & let the British electorate know where they stand on the issues of the day. In the final analysis, I believe that the British pound will withstand this storm better than the Euro and will reinforce the sentiment in the U.K. that they made the right decision not to join in the Eurozone common currency, which allowed them to avoid the budget restrictions imposed upon Eurozone members. I sense that both the U.S. and the U.K., with an assist by their respective deficit stimulus plans, will recover faster from the Great Recession than their Eurozone counterparts.

The amount of populist rhetoric coming from both sides of the political aisle in the U.S. has been escalating over the past several weeks. Sarah Palin has been out on the talk show circuit promoting her book, Going Rogue, and has certainly continued her approach of appealing to her base’s populist sentiment. Meanwhile, President Obama has once again renewed his attack on our banks and bankers in reaction to Senator-elect Scott Brown’s surprising victory in Massachusetts.

This populist approach to challenging problems reminds me of earlier times in our country’s history. A perennial Democratic presidential candidate, William Jennings Bryan, who ran for president in 1896, 1900 and 1908, was also a strong orator and a “critic of banks and railroads.” (Wikipedia: William Jennings Bryan) Bryan never became president, but he did serve for a time as President Wilson’s Secretary of State. If you look back on this time from around the turn of the century and study the impact the populist rhetoric had leading up to the Great Depression, I believe you would agree with me that it is time for both parties to allow Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner, together with Congress, to move forward with the necessary reforms and safeguards that need to be put in place, without all of the noise that distracts us from constructive solutions.

In a step in the right direction, President Obama reached out across the aisle on Friday when he accepted an invitation from House Republicans and traveled to a Baltimore hotel to engage in a give and take on the issues. At one point he remarked that he was not an “ideologue” and that his health care plan was not a “Bolshevik plot.” (NY Times 1/30/2010) He was introduced by Congressman John Boehner, the minority leader, who handed him a publication titled “Better Solutions.” The reporters for the New York Times article remarked that the event seemed much closer to the British tradition of the opposition party questioning the prime minister. I must admit that several times I have sat in a London hotel room during the Blair years and enjoyed watching this live example of parliamentary democracy.

As we move toward the midterm elections both parties would be better served by focusing on innovative programs to create jobs. All of the recent polls show this to be the #1 concern of the American people facing an unemployment rate that remains stubbornly above 10%. We know that in the recovery cycles from all the past recessions since World War II that small businesses are the first to hire as they move to meet renewed demand. The President’s proposal of tax credits for small businesses that create new jobs is one that should be supported by Congress.

In closing, I have been reading The Prince of Silicon Valley: Frank Quattrone and the Dot-Com Bubble, by Randall Smith, a Wall Street Journal reporter. As I read it, I come away with the distinct feeling that the author and I have a very different view of Silicon Valley and the tech industry, where Frank Quattrone remains highly regarded and his new firm, Qatalyst Partners, is actively advising many of the Valley’s top firms.