The comeback kids

If you have been reading this blog for several years, you know that competitive swimming has been my favorite activity after investing.  Actually, it helped me keep my balance during the stress filled period from 2007 to 2009.  When you swim, your mind is focused on your strokes, your times, how you “feel the water” and nothing else.  By the time practice is over, any stress you may have brought to the pool has disappeared and you are ready for another day.

Lately, my attention has been drawn to the efforts of past champions, from the business and swimming worlds, to make a come-back.  Both fields are very competitive, staying on top is difficult as trailblazers, by breaking records, make the seemingly impossible possible and keep moving the goal posts.   Staying on top is as difficult for leading companies as it is for elite swimmers, and once they slip, coming back is terribly hard.  For all, aging is the ultimate debaser of idols.

Four champions are battling gamely, and given their track record, their efforts are worth watching closely.

Grant Hackett is the greatest long distance swimmer of all times, having won silver or gold medals in the 200m, 400m, 800m and 1500m free at world and Olympic venues.  At age 34, after taking a six year break from competition and with the benefit of only six months of intensive practice, he qualified for the Australian 4x200m relay at this summer World Championships and finished third in the 400m free at the Australian Nationals.  And he did so in world class times.

It is one thing to come back in the 50m or even the 100m free past age 30 (Anthony Irvin, at 33, is a rare example of success), but it is altogether different in the 200m and even more so the 400m.  It simply never happened before.  When Vladimir Salnikov of the USSR capped his great comeback in Seoul by winning gold in the 1500m he was 28 years old, he had not dropped swimming for 6 years and he certainly had practiced for more than 6 months prior.

In a way, Hackett is so atypical as to have little predictive value for others.  He continues to enjoy an exceptional fitness level and a huge physiological advantage thanks to a lung capacity in excess of 13 liters[1].  Finally, those six years away from elite swimming seem to have rekindled his love for the sport.

The case of Michael Phelps is more complex.  The greatest all around swimmer ever, Phelps shares with Hackett the mental fortitude required for top level performance.  While Hackett has exceptional fitness, Phelps has great feel for the water.  Both swimmers worked very hard on their conditioning, with Hackett enjoying  a natural edge there; as a result, Phelps has to train harder to regain his top form, a cruel challenge when you are pushing 30.  Finally, Phelps never took more than 1-1.5 full years off and I think that it shows in the mental freshness area.

So far this year, his times have been unimpressive, and while his coach puts that on a heavy work load, one would assume that his competitors are in the same situation, yet performed better.  Phelps must now get back to the grind to catch up with his peers (Lochte, Clary, Cseh) and push back younger, fresher, upcoming rivals (le Clos, Hagino, Seliskar).

I wouldn’t bet against Phelps, particularly if he focuses on one or two races (100 fly, 200 IM), but he will need great mental strength to repeat as #1.  Success is possible but will only be achieved the (very) hard way.

In the business world, two companies are also fighting to get back on top.  Petrobras is one.

Its new management team is finding much fat to cut.  For example, it discovered that its PR department employed 1,146 people; this compares with 45 at Vale[2][3].  More generally, Petrobras has over 446,000 employees vs. 94,000 at Shell, yet Shell had revenues of US$421 billion in 2014 vs. US$144 billion at Petrobras[4]. 

I have long sustained that Petrobras is like Ali Baba’s cave, full of treasures or at least a bric à brac of valuable assets.  The new management team has announced a divestiture program of at least US$13.7 billion.  That should not be too difficult to achieve.  Indeed, it probably should be expanded in order to make the company more manageable and efficient.

But a successful turnaround will depend on factors beyond the company control.  To wit:

-1Q2015 showed a marked improvement in earnings before interest and taxes, largely as a result of the lifting of the government mandated freeze on diesel and gasoline prices.  Hopefully, this hands off policy on the part of the government will continue even if unemployment rises and the economy contracts;

-Company gross debt expressed in Brazilian reales rose 14% q-o-q to a whopping R$400 billion as a result of currency depreciation. So far in 2Q15, the real has appreciated, but a swing back the other way is always possible;

-Despite a large downward revision, 2015 capex are expected to exceed operating cash flows (US$29 billion vs. US$25 billion) for the eighth year in a row.  The company should unveil its new medium-term plan next month.  We will see how much leeway the government, as controlling shareholder, will allow the company.

-After Congress made some positive noise about revising the onerous local content rules and the requirement that Petrobras be the lead operator in new pre-salt projects with a 30% equity stake, President Dilma Rousseff publicly came down against those sensible proposals;

-Finally, Petrobras operates in a country which is struggling with well known problems, the solutions to which are socially unpopular and politically difficult;

In sum, everybody knows what it will take for Petrobras to regain its former health, and some welcome remedies (most importantly the freedom to price oil derivatives) are already in place.  But the crux of the problem is political in nature, and unfortunately the President is no free-market believer and even if she were, she would have a hard time leading the way after losing control of her own party.

Imagine Michael Phelps being limited to five morning swim and two dry land practices per week, at venues to be decided on a weekly basis by the Baltimore municipal council[5].  He could still make the C and perhaps the B finals on the Arena Grand Prix circuit, but he wouldn’t stand a chance to make it to Rio in 2016. 

Petrobras won’t be another PDVSA but it won’t stand a chance to emulate Total.  Where, in between, will it settle is still in doubt.

A world leader in iron ore mining,Vale shares some of the same pains with Petrobras.  A national champion, Vale was greatly pressured by then President Lula to use its bountiful cash flows to invest in new projects, whether or not those fell within its area of expertise.  Unlike Petrobras, Vale was a privately controlled entity, yet the conflict with the government got so severe that its CEO had to resign and a new one, more politically attuned, was appointed.

But the damage was done, with investments in fertilizers, non-ferrous and precious metals, coal and lower grade iron ore.  To be fair, the commodity boom of the last decade made capacity expansions very tempting particularly since the alternative - share buybacks and big dividend increases – was anathema to the government.

As Chinese demand for iron ore fell and prices swooned 60% from their highs, miners scrambled to slash operating costs, renegotiate capex-related contracts and divest from non-core assets.  By their nature, mining projects are long-term and very expensive, so that cancelling them midway makes little sense.  As in the oil sector, being the lowest cost producer is the name of the game.  A global production cutback would raise ore prices and operating costs, and it would give some breathing space to high cost producers.  So far, the most efficient miners have chosen to raise production to lower costs and flush out their weaker competitors (Chinese and some Australian).  Besides, it is unclear the extent to which China would salvage its iron ore industry.  So are the short/medium terms prospects of the Chinese economy. 

Unlike Petrobras, Vale is reasonably lean and well managed.  It has divested assets and continues doing so.  It is cutting costs.  Its survival is thus not in question.  But for the reasons mentioned above, it will be some years before it returns to a high degree of profitability. 

Both Petrobras and Vale are suffering from unfavorable commodity dynamics, weakening export markets as well as political and economic crises at home.  French readers who see similarities between present day Brazil and France in the Hollande-Ayrault years will be correct, except that the situation in Brazil is much worse.

I think that Hackett will do great this summer at World, flirting with 1’ 46” flat on the 200m free and making Australia the favorite to win gold in the 4x200m relay.  Phelps won’t be there; he may have it in him to win gold in Rio, in either the 100 m fly or the 200 IM, but for the first time, I think that his challenge may be more mental than physical.

Petrobras has rebounded from a scary bottom and will “make it”, but I must say that I have lowered my expectations; B finals at best. As for Vale, A finals but no medals.  Both should do better in 2020 in Tokyo.

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[1]   As per Hackett, it didn’t decrease in the six years since his retirement. Sydney Herald Tribune April 2, 2015.

[2]   Folha de Sao Paulo May 17, 2015.

[3]   Also, this number includes PR employees of the holding only, and  none at subsidiaries like BR  Distribuidora.

[4]   In case you think that the recent devaluation of the Brazilian real distorted the comparison, the numbers were US$467 billion vs. US$145billion in 2012.

[5]   I know, he and Bob Bowman are moving to Arizona, but this is to make a point!

Swimming interlude: Perfidious Albion

As far as I can remember, we the French have had a trust issue with the Brits.  Perhaps centuries of national conflicts, armed or diplomatic, explain that.  This gap extends to the sports arena.  I remember in particular a famous Irish rugby referee in the 60s who was renowned for applying the advantage rule so as to improve the flow of the game, except that to us French it seemed to flow only one way, against us.  But now, as an American citizen, I have the feeling that perfid Albion may reach over the Atlantic Ocean.

I am talking about the debate as to whether Michael Phelps is the greatest Olympian ever.  Please note that the term of reference is Olympian, not athlete.  It is very difficult to compare athletic achievements across the ages and across disciplines.  But it seems to me that Phelps may well be the One, and if he is not, is as likely to be as anyone else.

I was therefore surprised by the reaction of two famous British athletes who perhaps thought they should be considered as candidates for the title.  Sebastian Coe, one of the great middle distance runners of the 1980s with two Olympic gold medals in the 1500m and two silver in the 800m, declared that, in his view, Phelps probably was not the greatest.  He mentioned sprinter Jesse Owens, rower Steve Redgrave, decathlete Daley Thompson and gymnast Nadia Comaneci as candidates for such title, and, tongue in cheek (?) stopped short of perhaps nominating himself.  Lord Coe is the Chairman of the London Olympics Organizing Committee.  There is no question that each one his nominees had extraordinary Olympic achievements, but why they should be considered and Phelps shouldn’t is a mystery to me.

Steve Redgrave realized the "massive" feat of winning a gold medal in rowing in five consecutive Olympics.  This has to rank right up there among the greatest Olympic achievements.  As one who did varsity crew in college and rowed for the Bataillon de Joinville, I have particular respect for the fact that three of these gold medals were won in coxless pair, the most technically challenging boat of all. But when Sir Steve muses, with typical British slyness (Frenchly speaking) that Phelps’ feat would have been more impressive if he achieved it over six or seven Games, one is not sure how to react.  Yes, rowing is brutal.  Having done both sports, there is no doubt in my mind that a 2000m rowing race is more draining than even a 400m medley or a 1500m free swim.  You can’t therefore row multiple events. 

But training to swim middle distances, not to mention different strokes, is far harder mentally, and perhaps physically, than training in crew.  While Olympic level rowers can take some time off and remain competitive, swimmers can’t, witness Phelps’ difficulties in 2010 and 2012.  This is why no swimmer can remain at the top over a twenty year period.  Physiologically, it is also impossible for a 40 year old middle distance swimmer to beat 20 year olds, unlike in rowing.  Witness Janet Evans’ attempt to qualify in the 400m and 800m free this year.  Dara Torres’ swimming career did span 24 years and at 41 she came within 1/100 of a second of winning gold, an extraordinary feat.  But that was in the 50m free.  Dawn Fraser, the all-time great Australian sprinter, could have won gold in four consecutive Olympics had the Australian Swimming Union not banned her for 10 years for pulling  a prank at the 1964 Games.  Even then, I doubt she could done it again in ’72.

As Lord Coe noted, who is the greatest will be debated in pubs for a long time.  As this argument is starting, it is striking, although perhaps not so surprising, that great athletes, such as Sebastian Coe and Steve Redgrave, have big egos; after all, you have to believe in yourself to succeed.  I think that Michael Phelps has a very good chance to be the best Olympian (so far), as he combines durability with domination, eclectism with the sheer number of medals won (mostly gold).  But he also has a quality which is necessary in order to be considered an all time great Olympian, and that is class.

Swimming interlude

As you may have realized from several past notes, swimming is my second passion.  As you may also imagine, my loyalties were somewhat divided yesterday night when the time came for the 4x100 freestyle men final.

Because of the d*** time delay which NBC and its advertisers impose on TV viewers, I tried to follow the race online, but even there, the sites that provided “live timing” were also experiencing delays and other quirks.  So when my iPad’s screen finally showed the results, I was both stunned and elated.

Once again, life shows that forecasts and predictions are just that, extrapolations of the past which are as likely to pan out as to fail.  As in economics, sport experts find it very difficult to model human factors, either at the individual or group level.

Australia was the overwhelming favorite, the US was expected to be a worthy second with no hope of winning, and the French didn’t register on anybody’s radar (I believe the British bookmakers put the odds of a French victory at 7:1).  Contrarians anywhere?

After having styled themselves as the Weapons of Mass Destruction who would not just beat but annihilate the rest of the field, the Australians felt the overwhelming pressure to deliver and they faltered.  Indeed, faltered is perhaps too tame a word; they collapsed, finishing fourth behind Russia.

The US team had a very good race; indeed, it performed better than most expected.  Nathan Adrian touched first with a very fast and personal best of 47.89.  Michael Phelps kept the lead with a 47.15 split, probably a personal best and unexpected after his disappointing 400 IM performance.  Cullen Jones retained the lead in a solid 47.70.  Ryan Lochte fought very hard in 47.74, a good time for him.  This was the best line-up the US could offer.  Matt Greevers is intrinsically faster than Lochte but he had just finished swimming his 100 backstroke semi-final; under the circumstances, he might have matched Lochte’s time, but that would not have been enough to win.

The French, no longer under the microscope, swam very well too, and as the US in 2008, won thanks to an exceptional anchor who simply defeated models and extrapolations.  Amaury Leveaux, the team’s “mental stabilizer”, was a close third in 48.13 in the first leg.  Fabien Gilot, another survivor from the 2008 relay, advanced his team to second place in a strong 47.67.  Perhaps the first surprise performance was Clement Lefert, a 200 free specialist, who clocked a 47.39, surely a personal best when adjusted for the relay start.  Despite swimming the heats and semi-finals of the 200 free earlier in the day, Yannick Agnel blew the field with a blistering 46.74, exactly one second faster than Lochte.

Paraphrasing Yogi Berra, 95% of swimming is half mental.  The 4x100 relay, once again, proved it.  For France, after losing a “sure” gold medal in 2008, winning the gold at the world short course in Dubai and the silver at the European long course championships in Budapest, this London victory was sweet.

What about the losers?  Before we write off the Australian Missile, James Magnusson, let us not forget that Alain Bernard, after losing the anchor fight to Jason Lezak in 2008, came back to win the 100 free gold medal.  The mental pressures of a relay are different from those of an individual race.  Not all individual swimmers are good at relays and vice versa.

For the Americans, I think that it may be a good time to reflect on two issues.  First, it is generally accepted that relays give a good picture of an overall program.  In this regard, it is uncomfortable to think that Ryan Lochte, an extraordinary swimmer but not a sprinter, was the best available choice to complete the US relay.  It is also worth studying why France, not a traditional swimming world power, has come to be competitive with the US in sprint.  It started its ascent when a number of French swimmers came to study and swim at Auburn, but it has accelerated since then with less input from the top US swimming meccas.

Second, there is excessive pressure on the top US swimmers to sign up for as many events as they can.  As the rest of the world catches up and 200m events now incorporate semifinals, this can trigger adverse chain reactions: excessive physical stress, insufficient recovery intervals, disappointing results, self doubt, etc.  This hasn’t happened yet in these London Games, but it did in the past and could again in coming days.