That qualifier, “right now,” is what has me worried that our well-intentioned public servants will find it difficult to ignore the inevitable cries for mercy and help from their hedge fund brethren. Paulson is leaving himself the option of opening the program up to hedgies sometime in the future, when the most leveraged hedge funds with an intricate web of derivatives trades come calling for help are “too big to fail.” The average American taxpayer, while deemed unsophisticated enough to make direct investments in hedge funds will finally be able to own some of these exotic bad boys through our government proxies.

In the 1990s, a hedge fund called Long Term Capital Management promised to generate excess returns with minimal risk through the use of sophisticated financial models and formulae devised by a team full of PhDs and Nobel Prize laureates. Sounds seductive doesn’t it? It certainly was seductive enough that investors put in over $1 billion before the fund started trading in 1994, a huge starting coffer even by today’s standards. The short story of LTCM is that it made extremely leveraged trades with an intricate web of trading partners that, while highly profitable in the beginning, turned out horribly wrong. The fund suffered tremendous losses and teetered on the edge of outright failure. The Federal Reserve orchestrated a bailout in 1998 of over $3.5 billion. LTCM’s highly leveraged derivatives trades were made with so many counter-parties in the financial world that a Darwinian approach would have had much wider repercussions. The risk of a more widespread collapse of the financial markets loomed as a distinct possibility. LTCM was simply too big to ignore and not bail out.

So the precedent was set exactly 10 years ago. Today, the scary prospect of hedge fund failures acting as catalyst for another leg of decline in the markets is very real. We are collectively hyper-focused on the credit crunch, falling real estate prices, and Main Street’s inability to pay the mortgage. Few can see around the corner when imminent hedge fund failures will send shock waves through the system and drive us deeper into this bear market. There are now at least a dozen LTCMs out there, all crossing their fingers that their limited partners won’t request withdrawals. If the LPs bail en masse, Mr. Paulson as the taxpayer’s agent will bail out his hedge fund buddies.

Interestingly, Warren Buffett’s Berkshire Hathaway (BRK-A) teamed with Goldman Sachs (GS) to offer an alternative plan to the principals of LTCM. Ultimately, LTCM went with the government sponsored rescue. I wish it went down differently. If we’re going to spend taxpayer money to bail out hedge funds, and I’m betting we will, we should find private partners who can share the risk with the public taxpayer. We could give incentives for large private players like Buffett, who have the talent and financial heft to collaborate on a bailout, to help us carry the load. So what if a few fat cats get a little wealthier, I’d like to see the public taxpayer not have to foot the entire bill.

This post is not really about politics. Sure the presidential campaign continues marching towards an exciting conclusion. Sure a sudden bevy of vocal, cynical, and amateurish political observers and bloggers are loudly decrying the two presidential candidates as basically undifferentiated “clowns.” There are major differences between the two parties and the two candidates – would we really be so divided as a nation and would our political debates be as heated if they are essentially the same? Please people, let’s be respectful of our diverse differences and acknowledge that there are a mosaic of opinions on how best to govern this country. Often, these opinions diverge widely.

The Left vs. Right Phenomenon
This post is actually about the dichotomy of “right-brained” people who think intuitively and creatively vs. “left-brained” people who think analytically and logically. There are proponents on both sides who contend that their side is better (not unlike our political pundits). Books such as A Whole New Mind: Why Right-Brainers Will Rule the Future and The Rise of the Creative Class make a forceful case for the right-brainers. Other books such as Building Left-Brain Power and Being Logical make an equally convincing case for the left-brainers.

We are Divided
In my work at Design Engine Lab, I interact with designers who believe that creativity and art reign supreme. They dismiss “soulless” businesspeople and “middle-managers” who think logically. When I interact with businesspeople in the venture capital or private equity worlds, they pay little attention to “frivolous” artists who speak in soft language and cannot deliver against measurable hard metrics and milestones. Both sides contain some truth but they are more wrong than right.

Connecting the Dots
The fervent advocacy of the different hemispheres of thinking by their respective fanatics threatens to create a shortage of generalists or whole-brainers. In this increasingly competitive world, we need generalists who can traverse both sides of the fence with aplomb and deft agility. The ability to communicate and “connect the dots” or weave multi-disciplinary fields of knowledge will emerge as the premium skills of this century. Effective communication has always been a desired skill but we will increasingly need leaders who can communicate with engineers and financial analysts on the left side along with artists and storytellers on the right side. Leaders will need to tell compelling stories and extract critical analytic insight from a swamp of data with equal mastery.

Mental Agility
This video makes a quick and fun exercise to explore whether you are right-brained or left-brained. How does the figure rotate? Do you see it rotating clockwise or counter-clockwise? I can make it spin either way in my vision.

I’ve tried all my life to expose myself to a myriad of wide-ranging experiences. If you look at my diverse background of life and career experiences, you’ll find it very difficult to typecast me in any single role. My goal is to be able to add value and lead whether I’m in a crowd of industrial designers or a crowd of database programmers.

The ability to synthesize disparate fields of knowledge leads to innovative thinking and innovative breakthroughs. Innovation arises strongest as a result of the combination of logical and intuitive thinking models. Thus, engineers can think innovatively, think creatively, and make beautiful things. Artists can use logic to create works of art that are beautiful and structured at the same time. The ultimate goal is innovation, not the singular domination of left or right brain modes of thinking.

To conclude, enjoy this painting by Georges Seurat. A Sunday Afternoon on the Island of La Grande Jatte was painted entirely in dots, what is known as pointillism or divisionism. This was a drastic departure from the tradition of painting in strokes. Today, the pixels in our computer screens follow Seurat’s original insight.

Georges Seurat – A Sunday Afternoon on the Island of La Grande Jatte

These recent events highlight the lucrative nature of infrastructure investments and the persistent and controversial trend of foreign companies and sovereign wealth funds acquiring huge infrastructure assets in the United States. The political environment grows increasingly hostile as national and local politicians, including the presidential candidates, look to explain Americans’ economic struggles with a cornucopia of reasons including free trade agreements like NAFTA, a “corrupt sitting president,” and globalization generally.

This issue of foreign investment in public infrastructure has been on my radar since late 2006. Below is an essay I wrote for an investment newsletter published in January 2007 distributed to high net worth clients.

Public Infrastructure Sales: Samurais, Jihadists, and Masters of the Universe

“The Japanese are coming!” Remember when modern-day Paul Reveres shouted this refrain in the 1980s? Honda (HMC), and Toyota (TM) earnestly began their conquest of the American driver and, resultantly, Detroit’s mammoth metal benders. Would-be samurais from a nation of diminutive conformists threatened our towering sense of American exceptionalism by snatching up national treasures from our private sector like Pebble Beach, Columbia Pictures, Universal Studios, and Rockefeller Center. Although the apocalyptic visions of Japanese dominance and American indentureship have faded, the “buying of America” continues today.

Only now, the purchasers hail from different shores and their acquisition targets are of a more public flavor. In January 2006, a plan to privatize the Indiana Toll Road came to fruition when the State of Indiana entered into an agreement with Cintra (a Spanish construction firm) and Macquarie Bank (an Australian bank). The Spanish-Australian partnership paid the Indiana State Government $3.85 billion for a 75-year lease to operate and maintain the toll road. The same consortium recently entered into a $1.83 billion lease to operate the Chicago Skyway Toll Bridge. As these foreign entities begin to exact payments from beleaguered commuters, resistance to foreign ownership of public infrastructure grows.

Free trade and free markets be damned. Early this year, public sentiment derailed the proposed Dubai Ports World acquisition of U.S. ports facilities in New York, New Jersey, Philadelphia, Baltimore, New Orleans, and Miami. In a cacophonic display of bipartisan zealousness, Republican and Democratic members of Congress questioned the wisdom of selling strategic infrastructure assets to not only a foreign country, but one which two members of the 9/11 hijackers called home. The overall tone could be summed up by the mordant one-sentence letter Representative Sue Myrick (R-NC) sent to President Bush that read, “Dear Mr. President: In regards to selling American ports to the United Arab Emirates, not just NO – but HELL NO!”

Being neither knee-jerk nationalists nor adherents to Ricardian economic orthodoxy, the editors of this publication acknowledge the merits of both the free market argument and the argument for excluding strategic infrastructure from the free market. One of the tenets of free trade asserts that private industry is more efficient at delivering services than government, and experience has confirmed that theory. But, when does that precious efficiency bump up against national sovereignty and security? Pragmatic protectionists should point out that ports and roads are different species in the genus of public infrastructure; that roads are strategic but ports are more strategic.

Do we as a nation make distinctions between domestic private players and foreign entities? How do we respond to foreign companies that are not entirely private, being controlled by foreign governments? In the case of Dubai Ports World, the United Arab Emirates government owns a stake in the port operator. How do our reactions at home affect the ability of our own private companies to venture abroad and invest in and own foreign assets?

Through all this brouhaha, the editors of this publication see an opportunity for the many domestic leveraged buyout firms within our own borders. With over $175 billion raised in 2006 alone, the industry is flush with liquidity. At the risk of sounding cliché, we echo the industry’s mantra that there is “too much capital chasing too few deals.” With all the largest funds finding themselves in highly contested auction environments for companies suitable for buyouts, even the most sanguine investors admit that future returns will lag past performance. Public infrastructure as an asset class represents a potential opportunity to deploy some of that excess liquidity and to diversify LBO or private equity portfolios.Some questions beg consideration. This asset class will no doubt offer lower returns than traditional private equity investments; does the stability of returns compensate for that shortfall? What are the reasonable exit opportunities? What consequences might arise from shifting concepts of private and public property? How can the public be safeguarded from the specter of crony capitalism?

Questions notwithstanding, infrastructure investments with their super-stable revenue and profit streams offer the possibility of smoothing out the volatility of returns in portfolios otherwise dependent on the ever shifting environment for initial public offerings, mergers, and acquisitions. The promise of stable returns is causing some financial masters-of-the-universe to contemplate establishing investment pools to capture this opportunity. Goldman Sachs (GS), the Carlyle Group and other top institutions are all rumored to be pitching this idea to limited investors. We’re quite sure that hedge funds will want to get into this game too.We suspect there might even be an inefficiency here for domestic buyout firms to exploit. Public sentiment against encroachment by foreign firms might allow for lowball bids by domestic buyout firms. This compromise between public and private could placate the citizenry. The Golden Gate Bridge anyone?

Florida, one of the hottest real estate markets during the insanity of the housing bubble, is suffering from a barrage of wildfires that look suspiciously like the work of arsonists. When the credit crisis struck and housing values began to fade, I wondered about the potential for unethical and desperate homeowners willing to experiment with creative ways to escape their financial obligations. With many homeowners over-leveraged and paying for homes worth less than their mortgages, otherwise known as “underwater” mortgages, I thought that some homeowners would happily walk out of their homes and mortgages. I also thought that we might see some homeowners attempting to collect on their home/fire insurance policies by lighting things up.

The arsonists are covering their tracks by starting more than one fire. It is much harder to pinpoint who would be motivated to escape from their rapidly deflating home equity values by taking a torch to things. Whatever happened to rule of law and respect for property?

On a related note, Jordy Gunderson cites an interesting piece from presidential candidate Ron Paul regarding the mistakes big government made in managing the economy.

A couple weeks ago, I wrote about my pessimism regarding the technology sector. The market had seemed to interpret the surprisingly good results reported by Big Blue (IBM), Google (GOOG), and even Yahoo! (YHOO) as reasons for unleashing optimism and a bargain hunting shopping spree for stocks of publicly traded technology companies. Maybe the recessionary environment and the woes faced by banks and the American consumer would not negatively impact corporate budgets for technology. My skepticism rests on the ability of secondary technology companies to weather the economic slowdown. In other words, I think there is going to be a bifurcation of the technology sector, with blue chips performing in line with expectations and second tier players getting hit hard by purchasing slowdowns.

How has my skepticism aligned with reality? As usual, I’m wrong more often than I’m right. Over the past week, Apple (AAPL), Amazon.com (AMZN), and Microsoft (MSFT) all reported earnings greater than expectations. These blue chips however warned of weaker results in the foreseeable future. For the week, Apple stock rose 5%, Amazon ticked up 1%, Microsoft ticked down 1%, and Yahoo! fell a whopping 6%. Yahoo’s weak showing had a lot to do with Microsoft reiterating its reluctance to increase its bid for Jerry Yang & Company. These mixed results mask a surprisingly strong showing by the Nasdaq Composite Index which rose 0.8% for the week. This implies that a lot of the secondary technology issues performed better than other sectors of the economy. Industrials in the Dow Jones Industrial Average rose only 0.3% and the blue chips in the S&P 500 did slightly better with a 0.5% rise. We’ll get an even better reading on the technology sector as bellwethers like Blackberry maker Research In Motion (RIMM), Cisco Systems (CSCO), Hewlett-Packard (HPQ), and Dell (DELL) report their earnings in the upcoming weeks. In the meantime, I’ll be looking for a lot of smaller technology companies to run into a brick wall.

Macro

The media just started latching onto the rising cost of food story. All throughout Ben Bernanke’s easing of credit and interest rates, which in the short run looks like a success, I worried about his staying power because of inflation. The Federal Reserve is stuck between a rock and a hard place because of the conflicting forces of inflation and the slowing economy. Everyone knew about oil’s incessant march to record prices, but few worried about food prices. Recently, The Economist ran a cover story on the food crisis. Much of the blame rests with increased planting of corn for biofuels instead of wheat for food. The unintended consequences of government initiatives and regulations bolstering or subsidizing the use of ethanol are now materializing in record food prices. The head of the United Nations warned that the dearness of food could cause political and social instability. Asian countries are in a mini-panic because of the skyrocketing price of rice, the staple input of Asia. Riots have erupted in Egypt and even the prime minister of Haiti was forced to resign over food shortages. Crises bring opportunities, so rumors of American food conglomerates craving foreign food companies abound as executives weigh their next move in response to the food crisis. Will we want to drive more or eat more? That is a very basic question.

Micro

Interactive Intelligence to Announce First Quarter Operating Results – Interactive Intelligence (ININ) provides software applications used by contact centers or call centers. ININ has some award-winning products. One of the most interesting to me is their Interaction EasyScripter, which is software that allows for management of “scripts” for call center agents. Companies that rely on call center agents to sell products or perform customer service should find EasyScripter very useful. I’m considering using EasyScripter or something similar in the sales efforts of the startup I’m involved in. The company reports earnings after market close on Monday and analysts expect 8 cents of earnings per share for Q1 this year. ININ is one of the second tier technology companies that will test my thesis, that blue chip technology companies will do fine through the economic downturn while the smaller technology companies suffer from budget cuts. Full Disclosure: I currently have a long or short position in ININ in one or more of my private investment partnerships.

Decker surges on higher outlook – We can’t always focus just on technology and food. Let’s take a look at fashion for a bit, albeit low fashion. Decker Outdoor Corporation (DECK), the maker of those annoying UGG boots took short sellers on a 21.55% ride after reporting earnings growth of 18% for Q1 2008. DECK has other product lines, but the primary driver of growth is the UGG boots line. Always be skeptical about fashion fads. Take a look at the stock charts of CROCS (CROX) and Heelys (HLYS) for an illustrative warning.

Focused Strategy Helps Chipmaker Rise Above Sector’s Slump – Back to technology, I just had the power brick on my Hewlett-Packard Pavilion laptop fail on me. Replacement power bricks are unbelievably expensive. Why can’t laptop manufacturers standardize on power bricks and power cords so we can all buy a one-model-fits-all commoditized power unit? The Universal Serial Bus (USB) port has worked so well for consumers. Power Integrations (POWI) makes a tidy business supplying the chips that control power bricks.

Citi upgrades Sohu.com – I pay great attention to the China tech sector and, recently, the Chinese passed the United States for the most Internet users. Sohu.com (SOHU) is China’s version of Yahoo!, an Internet portal company. Sohu.com, unlike Yahoo!, is growing by leaps and bounds. Also unlike Yahoo!, Sohu.com has figured out online gaming. Going forward, its online game, TianLong Babu, will be a strong contributor to the bottom line. If you think World of Warcraft and online gaming has had a big impact on the American gamer, just keep your eye on what massive multiplayer online games (MMOGs) will do in China and the rest of Asia.

Netgear shares tumble after profit drops on US, UK woes – I love Netgear (NTGR) products. Netgear powers my home network. However, it seems that Cisco System’s Linksys division is taking market share by sparking an industry-wide price war. Wireless networking, once the next big thing, has become a commodity. Aside from a few gifted companies like Apple and Cisco, hardware makers often fall prey to the commoditization trap. It happens sooner rather than later. Netgear reported Q1 earnings dropped 20% and promptly saw its stock take a 16.74% dive.

Shares of Synaptics drop after fiscal 3Q profit slides – Synaptics (SYNA) specializes in touchscreen technology. It used to do a lot of business with Apple supplying technology for iPod user interfaces. The long term growth of electronic equipment with touch interfaces like the iPod, iPhone, and the flood of iPhone competitors soon to come bodes well for this company. Cell phones and smart phones will have increasingly intelligent touch interfaces. Even automobile dashboards will become flattened digital touch interfaces rather than today’s analog dials and switches.