Rema notes

Taliban talks and Mullah Omar’s Eid message

Since reading Mullah Omar’s lengthy Eid message on his view of Afghanistan’s future, I have been trying to work out, without success, what it means for prospects of talks with the Taliban. It is a piece of evidence without context, available to anyone to bolster whatever argument they care to submit. Pakistani writer Ahmed Rashid described the message from the Afghan Taliban leader as “the longest and by far the most forward-looking political message he has ever sent”. “Mullah Omar does not rule out negotiations with the Americans or sharing power with the present Afghan government and he emphatically says that the Taliban have no interest in monopolizing power,” he wrote. “For the first time he admits that the Taliban have been negotiating with the Americans, but he insists these talks have been about the release of prisoners and are not a political dialogue.” Mark Sedwill, Britain’s special representative for Afghanistan and Pakistan, said on Twitter of the message: â€Interesting shift of tone. But need Taliban to match words with action and commit to peace process.” Mullah Omar’s message coincided with a lengthy AP story on talks between the United States and the Taliban which offered a half-full half-empty snapshot of where things stood -  these had evolved into substantive negotiations, it said, before Afghan officials scuttled them by leaking the name of the Taliban negotiator. We have known for a while that the Americans were holding direct talks with the Taliban, and according to Rashid, by acknowledging this, ”Mullah Omar is sending a clear message to his fighters that future political talks are a possibility, while signaling to the Americans that he may eventually be prepared to broaden the scope of the dialogue and those already participating in it.” Among the more conciliatory sections in Mullah Omar’s message is a call for “a real Islamic regime which is acceptable to all people of the country. All ethnicities will have participation in the regime … Since Afghanistan has vast arable land, rich mines and high potential of energy resources, therefore, we can make investments in these sectors in conditions of peace and stability … the policy of the Islamic Emirate is not aimed at monopolizing power. Since Afghanistan is the joint homeland of all Afghans, so all Afghans have right to perform their responsibility in the field of protection and running of the country. The future transformations and developments would not resemble the developments following the collapse of communism … strict measures will be taken to safeguard all national installations, government departments and the advancements that have been occurred in private sector. Professional cadres and national businessmen will be further encouraged, without any discrimination, to serve their religion and country.” It is fairly pragmatic stuff that you might have expected to come from a politician standing for election rather than an insurgent leader. So why I am left doubting that the Eid message represents any kind of step forward?  Well first there did not strike me as being anything terribly new in it -  it is hardly a surprise that the Taliban would be willing to talk, and that any negotiations – if they were to be successful – would need to involve some kind of compromise on power-sharing. Secondly, there is no evidence that Mullah Omar’s “shift of tone” comes in response to U.S.-led policies in Afghanistan – despite predictions made in early 2010 that an increase in U.S. troops in Afghanistan would make the Taliban more amenable to negotiations. On the contrary, as Spencer Ackerman wrote in Danger Room ”the Taliban have managed to sustain a high level of violence in Afghanistan despite the U.S. troop surge. Violence rose 51 percent from spring 2010 to spring 2011 — putting the Taliban in a position where it might credibly claim its military strategy successful in advance of diplomacy.”   So if the ”surge” was meant to make the Taliban more amenable to talks, is the opposite true as well, that the failure of the surge has made the United States more amenable to talks?  Or  do success and failure both make  substantive negotiations more likely? You’ll appreciate why I am confused. In fact you can make a somewhat counter-intuitive argument that the Taliban are more likely to talk seriously if they believe the United States and its allies are preparing to leave. This is not just for the obvious reasons that they want western troops out, but also because they might calculate they would have a better chance of securing a share of power at the negotiating table than by trying to fight their way to Kabul after an American withdrawal.  What we have now, however, is the worst of both worlds. On one  hand, the United States aims to secure an agreement with Kabul to keep semi-permanent bases in Afghanistan after 2014. On the other hand with its economy flagging, it is open to question whether future administrations in Washington will choose to sustain a heavy and costly commitment to Afghanistan.  It is difficult to see how the Taliban, or indeed any other party to the Afghan  conflict, can negotiate when the U.S. position is so hazy. Thirdly, I have not seen any evidence of progress in thinking about the terms of a political settlement in Afghanistan. As I noted in this post, talks with the Taliban are a necessary but not sufficient condition for peace in Afghanistan. They are a means to an end, but we have no idea as yet what that end would look like, how power would be distributed in an eventual  settlement, and indeed what that settlement would require in terms of what is probably an inevitable rewriting of the Afghan constitution. Or as Joshua Foust wrote at Registan.net  negotiations with the Taliban do not make much sense without a notion of where they are going. “A real negotiated framework for defusing an insurgency involves creating the structures and institutions of a government so that an insurgency is unnecessary—so that the Taliban, in this case, can pursue their goals of removing foreigners and making the central government more Islamic and less corrupt without resorting to violence to do so. Demanding they accept the current constitution as is (even though the Afghan government itself doesn’t seem to think it terribly functional), and that they give up violence as a means of achieving change … not only doesn’t make sense. It is yet more evidence that the U.S. government not only doesn’t get politics, but that it actively rejects political considerations.” In short, apart from the shift of tone in Mullah Omar’s Eid message, there is absolutely no more reason to think that conditions are any better in terms of reaching a negotiated settlement to the Afghan war than they were, say a year or so ago. In many ways a far better test of where things are going in Afghanistan is to reread this RAND Corporation report which attempts to predict how insurgencies are likely to end based on a study of 89 insurgencies worldwide. Published in 2010, it is far enough removed from today’s context to be free from either wishful thinking (this year we have really turned a corner) or defeatism (time to cut and run). None of the indicators identified in the report are promising for the United States and its allies in Afghanistan – insurgencies with more than two clear parties involved, as is the case in Afghanistan, tend to have longer, more violent, more complex endings; governments have less chance of winning when insurgents have sanctuary and support in another country; “anacrocies”, pseudo-democracies which do not enjoy the support of the people, are least likely to succeed; defeating insurgencies require governments to address the root causes of conflict etc etc. The report also includes useful reminders of how far tactical successes in Vietnam, particularly after the defeat of the Tet offensive in 1968, were undercut by the unpopularity of the war and strategic impatience at home – a situation not too dissimilar to the one now faced by U.S. military commanders in Afghanistan. All in all, reading it carefully you come away with the sense that the United States and its allies have quite a weak hand in whatever negotiations they hold with the Taliban. But at least you have a better sense of what that hand is than you would by reading Mullah Omar’s Eid message and trying to guess at its implications. And perhaps also don’t forget -the Taliban have quite a weak hand too – they don’t have the popularity of a national liberation movement, or the full authority over a very fragmented insurgency.

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The Groupon roadshow

Here’s something I haven’t seen before: an IPO roadshow appearing online for the world to see. (Click the link on the left; the link on the right basically just takes you to a copy of Groupon’s S-1.) In fact, I’ve never seen an IPO roadshow pitch before. They’re boring! And, they feature senior executives looking uncomfortable wearing ties in front of a dark-grey background, talking to slides! But, this roadshow is also very helpful indeed for people looking to understand Groupon’s business. And it includes cohort information which has never been made public before, and which is rather more bullish on Groupon’s prospects than the analysis we’ve had to make do with to date from Yipit. First, though, it’s worth taking a look at the price tag on this company. As Anthony Hughes reports, the price range indicated here values Groupon at no more than $11.4 billion, with Groupon itself getting a maximum of $540 million in cash. These are big numbers; the valuation is essentially double the amount that was reportedly offered by Google for the company in December, and is 2.3 times the $4.875 billion valuation at which Groupon raised money that month. (Interestingly, Groupon is actually raising less money in the IPO than it did in that round.) Still, the valuation’s nowhere near the $25 billion or even $30 billion numbers that were being whispered a few months ago. Andrew Ross Sorkin is very critical about all that $30 billion number, talking about known issues surrounding Groupon, and writing: How did so many Wall Street firms desperate to underwrite the Groupon I.P.O. miss these warning signs when pitching such a sky-high valuation? … A deep dive into the numbers should have raised alarm bells at the outset about even talking about the possibility of a $30 billion valuation… If it were to really slow its marketing spending, it is possible Groupon could turn a profit. Even so, it does not fully explain how Groupon’s underwriters, whose endorsement of the company is supposed to be considered the Good Housekeeping Seal of Approval, originally came up with Groupon’s questionable $30 billion valuation. Sorkin, here, is saying that Goldman Sachs and other banks, when pitching their IPO services, told Groupon that they could bring the company public at a $30 billion valuation — indeed, that they “originally came up with” that number. And, frankly, I don’t believe him. All conversations about these matters are off the record, of course, so it’s hard to be definitive. And Sorkin certainly talks to many more bankers than I do. But going public really isn’t about the IPO — it’s about being a publicly-listed company in perpetuity. And Groupon has very little incentive to launch at a bubblicious valuation which can only exacerbate volatility over time. I think that the $30 billion number was never something that bankers seriously pitched to Groupon as a launch-valuation possibility. Instead, it was a number thrown out by people looking at LinkedIn’s first-day pop, and was intended to reflect not the IPO price but rather the level at which Groupon shares might trade in the secondary market, if the market remained frothy. (And even today LinkedIn is worth more than $8 billion, which makes $11 billion for Groupon seem pretty reasonable in comparison.) As for Groupon’s business, I do still like the model — with the proviso that I have no idea how to place a present value on such a thing, so I take no position at all on what a sensible valuation for the company might be. And in the light of the numbers Groupon released today, it’s no stretch at all to say that “Groupon could turn a profit”: the company’s total loss in the third quarter was a tiny $239,000 — essentially, the company broke even. One thing which makes me look more favorably on Groupon now that I’ve seen the roadshow is the company’s cohort data. One of my biggest concerns about Groupon, up until now, has been the idea that its subscribers suffer from “deal fatigue”. You sign up in a fit of enthusiasm, you buy a few deals, and then the novelty wears off and you go back to your old life. That thesis was supported with charts like this one, generated from some of the relatively sparse information that Groupon provided in its S-1. This chart could show that subscribers spend less and less money over time. On the other hand, it doesn’t necessarily show that. There’s an alternative explanation: basically, that there are diminishing marginal returns to marketing spend. Groupon picks the most valuable low-hanging fruit first, and then as its subscriber base grows, the newer subscribers spend less money than the older ones, bringing the average down. Even if the older subscribers keep on spending just as much as they ever used to. And that’s what’s shown in two charts from the roadshow. They look at the numbers associated with the subscribers that Groupon acquired in the second quarter of 2010: As Groupon CEO Andrew Mason explains with regard to the first chart, This shows the repeat purchasing behavior of a typical cohort of customers; this one joined in Q2 of 2010. You can see that quarter after quarter after quarter, they continue to buy at the same pace. The first chart shows the quarterly revenue from the customers that Groupon acquired in the quarter; the second chart shows the quarterly profit from those same customers. In both cases, the numbers are remarkably consistent over time — they’re not falling off. My other big concern is about targeting — Groupon’s ability to differentiate between consumers based on much more than just what city they live in, and to show them deals they’re likely to love. Groupon product head Jeff Holden talks about this around slide 26. Groupon has something called Smart Deals, which tries to implement just that kind of targeting. One way it’s doing that is by getting its customers to click on categories called Deal Types, so that it knows what kind of deals that customer is interested in. And then of course given that customers keep on buying deals over time, it’s easy to see what kind of deals they’re buying, and what kind of deals they’re not. Holden also gives the best explanation of Groupon Now that I’ve seen — the way it offers yield management for merchants.The idea is that the Groupon app on my phone is a great way for me to save money: I fire it up, and immediately see a list of deals nearby. Merchants can offer or not offer those deals in real time: they can make them better when business is slow, and turn them off when business is already overwhelming. That’s great for both merchants and consumers, who hate turning up to a Groupon-featured merchant and finding it overwhelmed with bargain-hunters. There’s a rewards system, too. You know those punch-cards at coffee shops, where you get a free coffee after you’ve bought ten? That can now be built in to what the company is calling Groupon OS — all you need to do is allow Groupon to associate you with your credit-card number, and then every time you use that card to buy a certain item, it will automatically show up in the Groupon app. Eventually, you become eligible for a reward. It’s pretty effortless, for the consumer, and it brings an element of addictive gameplay into the shopping experience. There’s a couple more slides which are relevant too, and directly address my concern that Groupon has to develop a reputation for high-quality deals. It can’t just let its salespeople maximize revenue, as sales people are wont to do: it has to delight its customers, by pointing them to great merchants. And it turns out that Groupon does actually attempt to do just that. One slide talks explicitly about “curation”: And another (with the dreadful title “operational excellence”) shows the huge number of steps that need to be gone through before and after an offer appears on the site. I love the way that under “Editorial” there are separate steps for “Humor”, “Voice Edit”, and “Copy Edit”. So there are systems in place here. But the really crucial step is buried somewhere in that “Deal Quality Assurance” circle. Groupon does not have the best reputation for picking only fabulous merchants; it probably needs to work on that a bit. Overall, then, I think it’s pretty clear that people who think Groupon’s some kind of Ponzi scheme are wrong. There’s a real business here, with a real business model. The big question is whether Groupon can execute. Can it create a much-loved mass-market brand, which people and merchants trust and return to on a regular basis? We will always hear about bad experiences, of course — that’s a statistical inevitability, given the number of deals and employees going through the Groupon system. But will those significantly damage Groupon’s reputation? That’s a harder question to answer. (And it’s worth remembering, too, that for comparison reasons some small percentage of Groupon customers are going to have to continue to receive offers which are not targeted to them. If you’re one of those unlucky few, you might have a much worse experience of the company than everybody else.) If I had to make a forecast, I’d say that Groupon is going to be around for the foreseeable future, but that the error bars on its future size are enormous. It could just slow down and lose its competitive advantage over its competition; it could, on the other hand, genuinely revolutionize the infrastructure of commerce and even become that thing everybody wants to be these days, a platform. Like all fast-growing technology companies, Groupon is a risky bet from an investor’s point of view; it’s in no sense a widows-and-orphans stock. Like many consumer-facing companies, it’s probably better for most people to just take advantage of it as consumers. Individuals are much better at judging whether a money-off deal is a good one than they are at judging whether a particular stock is a good investment. But if Groupon’s sales continue to grow at anything like their recent pace, that’s an indication that a lot of individuals will continue to love what Groupon’s doing. And ultimately that’s going to show up on the bottom line.

UPDATE 2-Intel’s quarterly outlook beats Street

* Stock rises after hours (Adds earnings details)Oct 18 (Reuters) - Intel Corp forecast quarterly revenue above Wall Street’s expectations, defying concerns that the growing popularity of tablets and a shaky economy are eating into demand for personal computers.Intel said revenue in the current quarter would be $14.7 billion, plus or minus $500 million. Analysts on average had expected current-quarter revenue of $14.23 billion, according to Thomson Reuters I/B/E/S.Intel’s processors are used in 80 percent of the world’s PCs but the company has failed to gain traction in mobile gadgets like Apple Inc’s iPad and Google Inc’s Android smartphones. It also increasingly depends on China and other emerging markets to make up for weak sales in the United States and Europe.Non-GAAP net income in the third quarter was $3.5 billion, up 17 percent. Adjusted earnings per share were 65 cents.The world’s leading chipmaker said non-GAAP revenue in the third quarter was $14.3 billion, up 29 percent and higher than the $13.87 billion expected on average by analysts, according to Thomson Reuters I/B/E/S.Shares of Intel rose 2.6 percent in extended trade after closing up 0.52 percent at $23.40.

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Unicredit surprised by seizure of funds in fraud probe

Italy’s financial police seized funds worth 245 million euros ($335 million) at UniCredit on Tuesday in a tax fraud probe and the bank’s former chief executive Alessandro Profumo was placed under investigation, judicial sources said.

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UPDATE 4-Liberia ends peaceful vote, braces for results

* Johnson-Sirleaf faces challenge from Tubman-Weah ticketBy Richard Valdmanis and Alphonso TowehMONROVIA, Oct 11 (Reuters) - Liberians wrapped up a peaceful presidential election on Tuesday — the West African state’s second since a civil war — though worries remained that the results could spark street clashes.The vote pitted newly named Nobel peace laureate President Ellen Johnson-Sirleaf against former U.N. diplomat Winston Tubman and 14 others, and came as investors planned to sink billions of dollars into the country’s mining and oil sectors.”I vote today, I’m happy, I’m happy,” shouted Cecilia Weah, dancing outside a polling station in the capital Monrovia . “I want free movement. I want all that has ever been sweet Liberia!”Voters queued calmly, at times under pouring rain, to cast their ballots, and international election observers said they had received no reports of problems at the nation’s polling stations.Passions have run high in the contest that some forecast will go to a second-round run-off between Johnson-Sirleaf and Tubman. The results of the first-round vote are expected within 15 days according to Liberia’s electoral law.Many voters recall how a dispute over the outcome of the 2005 election led to days of rioting in Monrovia.”From what I see there is no worry,” said Speciosa Wandira Kazibwe, head of the African Union observer delegation. “If the leaders take the results there will be no chance for violence.”Eight years into peace, Liberia has seen growing investment in its iron and gold mines and has convinced donors to waive most of its debt, though many residents complain of a lack of basic services, high food prices, rampant crime and corruption.Unemployment remains high, war-wounded beg on the streets and average income stands at $300 a year — below the $1-a-day benchmark for extreme poverty.”Ellen done nothing, I seen nothing,” said Anthony, an 18-year-old resident of West Point, a Monrovia slum where raw sewage trickles between a crush of makeshift brick and tin dwellings, home to many of the civil war’s ex-child soldiers.Others in West Point credited her with paving their main road and building a school and said they had voted for her.Johnson-Sirleaf initially ruled out a second term, but has since said she needs one given the huge challenge. Her jocular campaign slogan — “Monkey Still Working, Baboon Wait Small” — urges Liberians to have a bit more patience.”DIFFICULT TO GOVERN”Campaigning for the election has been mostly calm, though scuffles erupted between rival supporters in Monrovia during final rallies at the weekend.The election will be Liberia’s first locally organised presidential poll since the end of the 1989-2003 conflict that killed nearly a quarter of a million people. Johnson-Sirleaf became Africa’s first freely elected female head of state in the 2005 election that was organized by the United Nations.Tubman, whose running mate is ex-soccer star George Weah, is expected to give Johnson-Sirleaf her toughest challenge.Analysts say Johnson-Sirleaf’s Nobel Peace Prize, awarded jointly with Liberian activist Leymah Gbowee and Yemeni rights activist Tawakul Karman last week, could give her the edge by galvanizing the female vote in her favour.A Harvard-educated former U.N. diplomat, Tubman told Reuters on Saturday he is certain he will win and issued a veiled warning that his supporters could make it “difficult to govern” for anyone else.Casting his vote on Monday, he said: “I will tell them (my supporters) to accept it if the election is free and fair … I expect it will be.”Johnson-Sirleaf, voting in her hometown of Fee Fee about two hours drive from the capital said she was also confident. “I am optimistic, I think the Liberian people will do the right thing.”The United Nations said the return of mercenaries from a four-month civil war in Ivory Coast this year could be a threat though there has been no evidence of plans to disrupt voting.Citing violent crime, instability in Ivory Coast and trafficking of drugs and arms across the region, the U.N. Security Council extended the mandate of the 9,200-strong peacekeeping mission UNMIL last month.”I hope everybody, as I have appealed and appealed, will proceed peacefully and accept the results according to the rules,” Special Representative to the U.N. Secretary General Ellen Margreth Loj told Reuters as she visited a peacekeeper headquarters in the center of Monrovia.A peaceful, free and fair election could bolster growing investor confidence in the country, which is rich in iron ore deposits and has promising agriculture and energy sectors.Miners ArcelorMittal and BHP Billiton and oil companies Anadarko , Tullow and Chevron are already active in the country.The head of Liberia’s National Oil Company, Christopher Neyor, predicted an offshore oil find is likely “pretty soon” and said majors Exxon Mobil , France’s Total , and Brazil’s Petrobras had made inquiries about acreage.