WORLD CUP 2010 SOUTH AFRICA PREVIEW

STATICITY.NET WORLD CUP PREVIEW
Every Team Covered!

Lebrocalypse Now

The Cleveland Cavaliers were eliminated from the NBA Playoffs in second round by the Boston Celtics, in what will probably be Lebron James’ last game for the Cavs. A combination of factors led to the Cavaliers’ failure to win a championship: general manager Danny Ferry failed to put another top flight player along side Lebron, head coach Mike Brown did little to develop a half court offense, and was incapable of adjusting his rotation and strategy from game to game, while Lebron himself deserves some blame because his leadership on and off the court became increasingly questionable. Cleveland has little to no flexibility to change a roster that was unable to even reach the conference finals. Mike Brown has already been fired, although it appears that Danny Ferry will remain the Cavs general manager, but it seems unlikely that anything owner Dan Gilbert does will be enough to keep Lebron in Cleveland.

Dan Gilbert bought the Cleveland Cavaliers in 2005 for $375 million, and the franchise’s value has increased over $100 since then, mostly because of Lebron’s incredible marketability. When Lebron leaves most of that added value will contract, and with all small market franchises being highly overvalued, the team could end up being worth less than what Gilbert bought it for. Gilbert, a sports fanatic, has done everything he can to build a championship squad for Lebron, spending over the salary cap for several seasons, this past year, after luxury tax, the Cavs spent almost $100 million on player salaries. Because of this excessive spending the Cavs are actually losing money, and Gilbert has been looking to sell a minority stake in the franchise to a group of Chinese investors, however, no one will be interested in investing any money into a Lebron-less Cavaliers. Even with Lebron’s and Shaq’s huge salaries coming off the books, Cleveland will have very little cap room to bring in any new talent even if someone wanted to play in Cleveland without Lebron. Lebron’s departure will have a long-term impact on the viability of the franchise, which will certainly slump to the level of the other Cleveland sports teams.

The looming lockout in the summer of 2011 will have a huge effect on the current free agent pool. NBA teams will be reluctant to sign anyone to anything more than a one year contract, knowing that the next collective bargaining agreement (CBA) will be much more favorable for the owners. This will have no effect on Lebron James or Dwayne Wade, but it will for all the other free agents, although Lebron and everyone else will be trying to negotiate the longest contract possible. If there wasn’t a new CBA in the offing, the most logical thing for Lebron to do would be to re-sign with Cleveland for three years, after which he would be eligible for the biggest contract under the current CBA, which is only eligible to players with ten years of service. Cleveland can offer the longest contract with the most money (a sixth year at about $26 million), but the difference in the final year of a contract in Cleveland and the first year of a new contract somewhere else would only be a couple million dollars, not enough to sway Lebron to stay.

Lebron, Wade, Chris Bosh and Joe Johnson are in communication with each about the possible moves that they could make in concert with each other, not a good sign for Cleveland since they are unable to sign anyone other than Lebron. Dirk Nowitzki is going to opt out of the final year of his contract, as is A’mare Stoudamire, creating an incredible group of available talent, not even including a strong group of restricted free agents. Where these players end up, as well as possible shake ups in coaching situations in several of Lebron’s possible destinations will dictate where he finally ends up.

The coach is an essential piece of the puzzle, but it will be hard for any team to get a big name coach without already having signed Lebron, and vice-versa, Lebron is going to want to know who the coach is going to be before he is willing to sign anywhere. Phil Jackson and John Calipari are using the media to play footsie with NBA teams in order to improve their contract situations with their current employers. If Mike Krzyzewski was going to leave for the NBA he would have done so before, and much of his archaic system would not work very well in the NBA anyway, which is why so many Duke players struggle at the next level. Larry Brown will be seventy years old by the start of next season, although it is not impossible to see him being lured away from the Charlotte Bobcats. Tom Izzo is the best college coach, and maybe someday he will coach in the NBA, but by all indications it’s not going to happen anytime soon. Jeff Van Gundy is best coach not currently employed by a team, but he seems content to stick to his successful broadcasting career. Most unemployed coaches like Byron Scott and Avery Johnson are unemployed for a reason, just as most assistants are assistants for a reason. Mark Jackson is the best available coaching candidate if he can be pried away from ESPN, but the opportunity to coach Lebron would probably be enough to make that happen, but Lebron would have to be satisfied with a completely unproven coach. The shot Miami has at landing Lebron, is that Pat Riley could offer to take the over as Coach again, and he has the rings to get Lebron’s respect.

New Jersey has a brand new billionaire owner, and could provide Lebron an opportunity to build a franchise in his own image. There is already talent on the Nets, former All-Star Devin Harris and future All-Star Brook Lopez, and they would have cap space to add several other pieces to make New Jersey a contender. However, the proposed move to Brooklyn is way behind schedule, and may never happen, so regardless of how close he may be to minority owner Jay-Z, it’s doubtful he be wearing a Nets jersey next year. The Chicago Bulls made the playoffs last season, and have an emerging young star in Derrick Rose, but their next best player is Joakim Noah, a good young post player, but not exactly All-Star material. If they could somehow trick Toronto or Miami into a sign and trade for the inflated contracts of Luol Deng and Kirk Hinrich in exchange for Bosh or Wade, then maybe Lebron would be interested. However, Michael Jordan’s shadow looms large in Chicago, and equalling Jordan’s six championships would be tough regardless of what combination of talent they surround Lebron with, and while Chicago’s market is much larger than Cleveland’s, it’s no New York.

The New York Knicks are the most likely destination for Lebron, they have the cap room to sign two max contract players, giving Lebron a legitimate running mate for the first time in his career. Playing in Madison Square Garden is a huge draw for Lebron, and while winning a title for Cleveland would have made him a legend there, winning one at MSG, and becoming a New York legend is far more appealing for him and for Nike. New York could be an instant contender, if the Knicks can land a combination of Lebron and either Nowitzki or Bosh, and they would still have the mid-level exception, along with about $5 million in cap space, as well as Eddie Curry’s expiring contract. The Boston Celtics made this one year transition from doormat to Champion when they acquired Kevein Garnett and Ray Allen after they failed to win the NBA Draft lottery, so it’s not outside the realm of possibility that Lebron can bring the Larry O’Brien Trophy back to New York next season, and he certainly would do at least as well as he did with the Cavs this season. New York has endless marketing opportunities, and corporations will be lining up to have his face and name adorning their products and services. With the impeding lockout on the horizon, New York will give Lebron a chance to expand his presence in the entertainment world very easily. The only caveat is that Mike D’Antoni is one of the worst head coaches in the NBA, and there is no way that Lebron would want to play for him, but there is no doubt that the Knicks would be willing to eat the remainder of his four year $24 million contract, and bring in a coach that Lebron approves of, no matter the cost. Lebron will be in New York next season, it’s to good of an opportunity to turn down, and by every indication it’s where he really wants to be.

The Center of A Centerless Universe

The Globalization of the world economy dates back to the sixteenth century, essentially back to the point of the discovery of the Americas. From that point hegemony over world trade has dictated hierarchy of power across the globe, in the sixteenth century Spain, in the seventeenth Netherlands, in the eighteen century Great Britain and France, in the nineteenth century Great Britain, and in the twentieth century the United States. Now, in the twenty-first century the US hegemony over the world is waning, it’s military strength remains unparalleled, but it’s financial stability is wavering, especially the strength of the worlds most important currency, the US dollar.

In 1944 at the Bretton-Woods Conference world currency exchange rates were all pegged to the fixed value of the US dollar, which was still based on the gold standard. The US dollar came off of the gold standard in 1971, in what was called the Nixon shock, and the dollar became a floating currency with a variable exchange rate. However, dollar hegemony remained, and the world’s economies were still subject to the dominance of the dollar. The world’s dependence on a strong dollar for economic stability has been one of the biggest factors that caused the 2008 economic crisis, and a driving force in the current financial situation.

In 1997 the Thai government unpegged the Thai baht from the US dollar after stubbornly refusing to devalue the baht. The result was an almost complete collapse of the Thai economy, at a time when Thailand had a large burden of foreign debt. The resulting fear spread across Asia, with the Thai, Indonesian and South Korean economies being hit the hardest. The International Monetary Fund (IMF), another creation of Bretton-Woods, stepped in with loans for the afflicted economies, but a big change in US policy shifted it’s relationship with Asian economies. Alan Greenspan began a long term policy of low interest rates to drive working and middle class Americans to prop up global demand for Asian products. After a decade of low interest public debt more than doubled, and continues to climb.

The end of dollar-gold convertibility was the beginning of a new financial era with a great deal of monetary volatility. The floating value of the dollar was subject to speculation, it’s future value became more important than it’s current value. The US economy became increasingly dependent on interest paying transactions to not only mitigate risk, but more importantly to take advantage of that risk. These practices eventually led to the formation of hedge funds, and the development of risk hedging financial devices like derivatives. The overpopulation of risk takers in the US economy, and some financial institutions across the world is what caused the economic meltdown in 2008. The US government was very slow to acknowledge this problem, for years under Alan Greenspan encouraged it, and in fact there are many that still disagree that more government oversight of these financial practices is necessary.

In 1998 Long Term Capital Management (LTCM) received a government bailout very similar to the bailouts used to curb the recent economic crisis, and LTCM collapse essentially a mirror of what happened to wall street a decade later. LTCM aggressively short selling of bonds based on computer models the company made on small amounts of money on each bond, so the company had to invest in great quantity to make a significant profit, eventually being leveraged to the point of a 25 to 1 debt to equity ratio. LTCM also had off-balance sheet derivative positions with a notional value of approximately $1.25 trillion. After several years of remarkable success the Russian government defaulted on it bonds in August of 1998, and the result was a massive sell off of European and Japanese bonds, as investors fled to the perceived safety of US Bonds. The highly leveraged LTCM was bankrupted instantly, necessitating a $3.625 billion bailout from the Federal Reserve and several corporations. This epic collapse caused a stir on Capitol Hill, but the push back from financial institutions was too great for any new regulations or oversight to be established.

It is very important for the US to maintain a robust economy and a strong dollar, mostly to keep faith in US treasury bonds. The US uses bonds to finance the massive budget deficits the government has been running, and to pay back previously issued bonds as they mature. Without the faith that the US Treasury will be able to buys back matured bonds with a solvent currency the government would come to a standstill. The perceived safety of the investment in US Treasury bonds is essential to the stability of the country.

In todays world the dollar’s overwhelming importance is waning, however, competing currencies are struggling to exert any dominance over the dollar. The US dollar is still the world’s most common reserve currency, and despite doubts about the US economy it is still perceived to be a relatively safe currency to hold. The euro is the second most widely held currency, but the european debt crisis recently had the euro on the brink of collapse, and of all the Eurozone economies, only France and Germany maintain the strength of the euro. Meanwhile, the British pound has stumbled from it’s position of strength. China maintains capital controls on the conversion of the yuan, so it can’t be used as a reserve currency. China, Russia and the Gulf States have called for a new reserve currency to replace the dollar.

The United Nations Conference On Trade and Development proposed a new currency based on the IMF’s Special Drawing Rights (SDR). The SDR is used by the IMF for international payments, and is computed from a combination of dollars, pounds, euros and yen. The combination is reevaluated and adjusted every five years, and it’s value is computed daily, although it’s computation ends up in the form of a dollar valuation. Some variation of the SDR as a universal reserve currency would help stabilize global markets, even though it would not end speculation entirely, it would mitigate the influence of speculators. A universal reserve currency would also reduce the global panics caused by fluctuations of the major reserve currencies.

The interconnection of the global economy is not a new phenomenon, the connections are simply moving increasingly from a macro to micro scale. Individual institutions can bankrupt a nation across the world, and in an environment where the level of systemic risk is so high, governments need an equally high level of oversight and cooperation. Expansion of the G8 to the G20 is a great step forward, but with an absence of any formal structure to the organization it doesn’t achieve very much, other than being a lightning rod for massive protests. Recent economic crises should be a revelation to any doubters that a new global economic system needs to be developed, with strict rules on not only debt and budget deficits, but also guidelines for banking and other financial sectors. The IMF and World Bank need a more balanced leadership, instead of being dominated by American and European interests. The world needs a new Bretton-Woods System that reflects the new realities of a decentralized global economy, and an acceptance that markets are incapable of regulating themselves in any stable way.

Winning The John Wall Lottery

Later today the 2010 NBA Draft will be held to determine the order in which NBA teams will be able to select players from college or from Europe. The fourteen teams that did not make the playoffs are all entered into a weighted lottery with the worst team (New Jersey Nets) having the greatest chance of winning the first pick, however, it is certainly no guarantee that the worst team will win the lottery. No matter which team wins the NBA Draft Lottery, the first player selected will almost certainly be John Wall, he is a unique talent and has unparalleled physical gifts. The pool of players to select from is deep, and there are many players that project to be successful in the NBA, some of which may even be more successful than John Wall, but Wall has something that none of the other available players have. John Wall is by far the most marketable player in the entire draft.

NBA teams, especially small market teams, rely heavily on sponsorship dollars, and marque players increase opportunities for corporate sponsorships. Without even dribbling a basketball in the NBA John Wall will create numerous possibilities for sponsorships. For the past year Wall has been the face of collegiate basketball, and along with his Kentucky teammates, has generated a great deal of publicity and income for his university. However, his amateur status limited the amount the he and the University of Kentucky could profiteer off of his incredible marketability, but once he reaches the NBA corporations from Nike to Gatorade will be lining up to have him and by proxy his team represent their products.

In some years there aren’t any players available that have Wall’s marketability, and rarely there are several players that share this attribute. A player like Wall can change the fate of a franchise, like LeBron James has for the Cleveland Cavaliers. The Cavaliers were a struggling small market franchise, and like most small markets Cleveland has few Fortune 500 corporations in town to infuse the franchise with sponsorship dollars. At the time the before Lebron, the team’s best player was Zydrunas Iguaskas, a soft spoken seven foot center from Lithuania, which isn’t exactly the most marketable combination in the United States. In 2003 the Cavaliers won the NBA Draft Lottery, naturally selected local high school star LeBron James, and instantaneously corporate sponsors from across the country were lining up to associated with the Cavs. Eventually, LeBron’s marketability would become worldwide, today the Cavs are minority owned by a group of Chinese investors, and the value of the franchise has increased about $200 million since LeBron’s arrival. If Wall can deliver just a portion of what LeBron has done for cleveland it would be a financial windfall for whichever team drafts him.

With no other player like him available in draft, every team is going to be anxious this evening, probably praying to whichever deity they subscribe to, hoping they will be delivered the first pick. Most of the teams in the NBA are struggling financially, the lottery teams are desperate for someone like John Wall. The New Jersey Nets have the greatest chance of winning, but an upcoming move to Brooklyn and a billionaire owner insure that the debt ridden franchise is not going to fold. However, Minnesota and Sacramento the next two most likely teams to win the lottery desperately need the infusion that John Wall could bring, both are small market teams that have had little success on court or with the balance sheets. Of all the teams with a legitmate shot at the top pick, the Philadelphia 76ers need a new face to their franchise as well as a top flight lead guard. The 76ers are in a good market, but have been struggling for several seasons to sell tickets, so the NBA would be thrilled if Wall landed in Philadelphia.

The fallout from the lottery will impact teams that are not even part of the lottery process because many of the teams that have best chance of winning the first pick already have a point guard on their roster, the position that John Wall plays. Several teams will be rooting for the Nets to win the lottery because it would almost certainly make Nets starting point guard Devin Harris available on the trade market. If Minnesota wins the lottery, it would open the door for general manager David Kahn to trade the draft rights of European star Ricky Rubio, assuming he doesn’t do something crazy and draft someone other than Wall, which is entirely plausible in his case.

There are several other blue chip prospects, and many more players that project to be successful NBA starters, DeMarcus Cousins is the best prospect in the draft, and he might not go in the first few picks. Losing the lottery may actually make it easier to make a team better on the court, but with the economy crippling franchises that couldn’t turn a profit when the economy was soaring, the off the court benefits of players like John Wall are essential. Winning the John Wall lottery will change the fortunes of one franchise Tuesday evening, which will make this one of the most important NBA Draft Lotteries rivaling 2003 (Lebron), 1997 (Tim Duncan) and 1985 (Patrick Ewing).

Odds of winning the 2010 NBA Draft Lottery

The draft lottery drawing only determines the top 3 positions, the remaining 4-14 picks are the inverse order of the final standing for the non-playoff teams.

1. New Jersey Nets – 25.0%
2. Minnesota Timberwolves – 19.9%
3. Sacramento Kings – 15.6%
4. Golden State Warriors – 11.9%
5. Washington Wizards – 7.6%
6. Philadelphia 76ers – 7.5%
7. Detroit Pistons – 4.3%
8. Los Angeles Clippers – 2.8%
9. Utah Jazz (from NY Knicks) – 1.7%
10. Indiana Pacers – 1.1%
11. New Orleans Hornets – 0.8%
12. Memphis Grizzlies – 0.7%
13. Toronto Raptors – 0.6%
14. Houston Rockets 0.5%

Not Just A Greek Problem

With the Euro hitting a 14 month low, and with pressure from both Washington and Tokyo, the European Union (EU) finally acted in support of the Greek economy, as well as pledging aid to other Eurozone economies facing massive debt burdens. The 16 members of the single currency bloc will have access to 440bn euros of loan guarantees, and 60bn euros of emergency European Commission funding, along with another 250bn euros from the International Monetary Fund (IMF). The level of interconnection of economies not only in the Eurozone, but also around the world led to fears that the Greek debt crisis could have caused a world wide tumble as economies across the globe are starting to recover from the previous economic melt down. The stability package has eased fears of a collapse of the euro, and stock markets have reacted favorably to the news. However, there will be long term ramifications across Europe, and there is no guarantee that this package alone will ensure long term stability.

The Greek Government racked up an impressive amount of sovereign debt, by 2009 it was more than 13% of its gross domestic product (GDP), to the point that their credit rating was downgraded to junk last month. The large budget deficits were caused by excessive spending on social programs, defense and on the government itself. By some estimates the government was spending more than 50mn euro per year on pensions for civil servants that were eligible to retire in their 40s, and even their defense spending was mostly on staff and administrative costs. Furthermore, the inflated government bureaucracy has been infected with widespread corruption. For years Greek economy has been stymied because the best job to get is a government job, which generates no economic activity, and just drains the government coffers, while cheap credit and a strong euro did nothing to curb the excessive spending.

The 143bn loan from the EU and IMF is enough to stem the immediate crisis in Greece, and stabilize the euro for the rest of the EU, however, that money alone can’t fix the Greek economy. The government has already instituted an austerity package which has been incredibly unpopular even though most Greeks agree that something has to be done. Reductions in civil servants bonuses, social security payments and military expenditures have all been proposed, as well as increase in the value added tax, and taxes on fuel, cigarettes and alcohol will all be increased. The public reaction has been visceral, and in country where political and economic stability has been in short supply, it may be to much for the government to handle, there has been a bombings and protestors have been killed in violent protests. The IMF will monitor the governments headway, and try to enforce benchmarks for progress, but a protracted economic downturn unlikely. However, the Greece was not the only EU country living beyond it’s means, the crisis hit Greece earlier because it’s economy is one of the weakest of the single currency bloc.

Ireland, Spain and Portugal all could be as threatening to the euro, in some cases more so than Greece. Spain is in trouble because it’s economy for the last decade has been riding a housing boom that fueled the construction sector. That boom has collapsed, and unemployment has soared to over 20%, meanwhile the 2009 budget deficit spiked to 11.2% of GDP. Spain is one of the largest owners of Greek bonds, which led them to be the strongest supporters of the stability package. Prime Minister Jose Luis Rodriguez Zapatero has presented an economic savings and reform plan, containing similar measures to the Greek austerity package, which has not been received well. Meanwhile, there hasn’t been any progress on restructuring the economy, which will be hard to do under a strict savings plan. Portugal is suffering from an ineffective minority government that has been unable to implement any austerity measures, and has in fact passed spending measures that will increase the national debt, which was already at 9.3% of GDP in 2009. With no movement by the government, and a rapidly increasing debt to GDP ratio, Portugal looks to be as much of a problem as Greece. Ireland’s 2009 budget deficit was 12.9%, but Ireland has already implemented the type of austerity measures that these other countries are only beginning to address, although Ireland’s banking sector has struggled to recover.

The political ramifications of the stability package are already being felt in Germany, the country that will shoulder the greatest burden of any of the EU countries. German chancellor Angela Merkel‘s Christian Democrats lost an election in North Rhine-Westphalia, which no longer gives the party a majority in parliament’s upper house, leaving the government in limbo until a ruling coalition can be formed. The most contentious issue was the Greek bailout, which happened only days before the election, polls indicated 21% of voters would change their vote because of the bailout. Many Germans believe the 28bn euros German contributed should be used to ease the financial tightening at home. While the bailout has made the internal politics of EU nations tumultuous, it has also created tensions between the EU nations that are driving the economic recovery and those that are dragging the EU down.

The EU average for debt to GDP ratio is over 70%, and many of the EU member states are running budget deficits well over the 3% limit set the by the Stability and Growth Pact. Italy is not in immediate danger of economic collapse, but it’s debt to GDP ratio is 115%, has a budget deficit of over 5% and has a projected to hover around 1% GDP growth for the foreseeable future. If it wasn’t for a relatively strict banking oversight system, Italy would be in real trouble, and even so, the future doesn’t look very bright. After a disastrous 2009 and an tumultuous start to 2010, future growth is going to be slow at best, with France, Germany and the United Kingdom being the only strong economies, and even they have economic problems. Across Europe there is going to have to be a sea change in domestic policies to reduce spending to at least lower budget deficits under the 3% threshold, before every Eurozone country is carrying a burden of debt like Italy’s. Those changes are going to be incredibly unpopular, and while the public reaction might not be as violent as it is in Greece, but strikes and protests will certainly be common place as governments curb benefits and raise taxes. Nevertheless, fiscal responsibility is the only sensible way governing, but with many countries suffering from incompetent or corrupt governments the EU may be afflicted by a series of economic crises.