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Dear Hunter,

It was wonderful seeing you last evening at the Corcoran and having
the opportunity to meet Kathleen.

The talk you're preparing for the upcoming leadership conference
sounds spot-on. I've been banging Michael for months on the IO
campaigns coming out of the Financial Times concerning the China
economic and security juggernaut. Yes, yes, they have trillions in
the bank. Yes, yes they make iPhones and every other running shoe on
the planet. Yes, yes they wish to buy any and all high tech defense
firms in the US. But when China's real disposable income per cap is
figured in, it's a different picture: think Mexico at best. The FT
seems to have a dog in this fight and their statistical analysis is
flat-out slanted and pro-Chinese regardless of the facts.

On the security side, the US has forgotten more than the PRC ever
knew. One example: China has yet to build an aircraft carrier and
isn't likely to have one before 2014 ( I don't count the rusty old
jalopy they bought from Ukraine). The US had eight carriers before WW2
and built or converted another thirty-five during the war. Since
then... The "man centuries" of experience in naval warfare alone,
both surface and submarine, counting both victories and defeats, put
the human organizational advantage all on the US side -- none on
China's. China seems to be able to build one-of-a-kind of many things,
eventually, but building hundreds seems to be harder. There's a
paradox in this: usually the prototype is the hard part and the copies
are much easier IF an organizational capability is deep and in place.
This organizational skill which the US has and China lacks is the key
factor explaining the overwhelming difference between the two. The US
is being asked to confuse mass produced consumer good (made in China)
with overwhelming national capacity (GDP/P). End of rant.

Am working up the contours of "political risk" tied to elite dynamics,
to produce composite measure from our databases. Some components will
measure "stress" and "cohesion" in the entire system of elites at the
country level, for instance while other measures of stress and
cohesion and volatility will be able to monitor specific, targeted
companies and their relevant elite coalitions -- subnational,
national, and transnational. Elite signals of upcoming events as well
as calibrations of the effects of events on normal political patterns
of elite interactions and networks will also be important. The punch
line, of course, is getting both the dynamics of the elites right and
getting a coherent story (theory) that interprets the data clearly and
concisely. The narrative is as important as the data. The note will
also discuss what other companies and academic groups are doing on
political risk.

Attached are several IPS notes. The "Memo" is being read by by seniors
in Tampa and in Mullen's office. Would be very interested in your take
on this. The Shudder memo detects a disruption in the normal pattern
of elite dynamics. We isolated this before both presidential and
parliamentary elections across the Middle East. It appears to be an
indicator of elite attention prior to formal action or the
mobilization of mass voting publics. We suspect that this indicator
can be generalized to non-electoral events such as emergency meetings
of the G20. In NYC I passed to Chris a chart showing a comparable
shudder w/n the global banking system, but that's still being checked-
out. The Consensus Islam piece was written by Kitty Holland and just
plain smart.

Will have the Aloca blurb first part of the week. Will send along the
working draft on political risk as soon as it's in English.

Best wishes to you and Kathleen.

Thad