On Wednesday, I’ve agreed to speak at, and moderate, part of a larger event.  For the last seven years, the Australian government has sponsored Australia Week in the United States, which showcases the country’s culture, business, food and fashion — in addition to showing off some of its brightest celebrities.

As part of that celebration, the Aussies took it a step further in 2007, when they started inviting the country’s most promising new technology startups to compete in California for venture cash to break into the U.S. market.  It’s called the Innovation Shootout. Select companies will appear at the Microsoft HQ in Mountain View and do a business model competition before a jury (I am the MC, a judge and speaker), who will vote for the winning company.

The panel of judges includes: Deborah Magid, of IBM Venture Capital Group; Allison Leopold Tilley, of Pillsbury; and Chris Shipley, of Guidewire. Microsoft’s Dan’l Lewin will be there as host, and one would guess many others.

This year, we will be taking a look at companies providing physical surveillance and IT security systems; solar-energy tech; emissions assessment and reduction systems; and labor management software.

Australia is increasingly seen as one of the most pro-innovation environments, where government and industry work closely in tandem to position themselves globally – as in the passage, and implementation of, the National Broadband Network – a project that seems to have inspired the Obama administration.  Perhaps the US will finally get its own broadband policy and initiative, thanks to our friends from Down Under.

KPLU’s technology commentator, Mark Anderson [of Strategic News Service], has just returned from Down Under, where he took part in the Australian American Leadership Dialogue, and met with Prime Minister Kevin Rudd. Mark tells KPLU’s Dave Meyer that Australia’s economy is healthy, and the country is about to pull ahead of the US on the Internet.

Listen Now!

Before I get going, let me say Thank you to Michael Pfeffer and Lacey, for a terrific French dinner at the Chef Mavro on Oahu; what a delight!  As the end to a day driving around the island in a convertible, it was close to perfect.

Now, on to less happy subjects.

The Chinese arrested Stern Hu a long time ago now, the top manager for global mining corp Rio Tinto, out of Australia. I won’t go into lots of detail at the moment, but much has been written in the last few days about which tea leaves to read to ascertain what will happen next.

The Chinese need to release him immediately (and perhaps his three staff members).  This is not because I say so, but because I see what they are doing, and so, now, will the rest of the world.

Stern Hu’s arrest has, I think, nothing to do with the fake charges of bribery, corruption or spying.  I don’t know Hu, and have no private data about his case.  But I have been watching China quite carefully.  I believe Hu was arrested in retribution for Australia deciding to cancel the deal between China and Rio Tinto for equity in the latter.  Without going into lots of details, China was getting a preferential price on iron (why?) vs. all other foreign companies, and wanted to buy a piece of the company.  It played hardball, the deadline for negotiations passed, and they lost both their chance to invest, and their globally-preferential price for iron.

For the others who buy RT ore, life just went on.  For China, this was not only a problem, but an opportunity.

And this is where, I worry, both Australia, and the rest of the world, misses the point in Chinese bully tactics.

Most of the news and op ed writers here seem worried whether their citizen / manager Hu really did something wrong, and if so, how far did he go?

They don’t seem to be viewing his and their perspective in the larger frame: not just of the failed investement in Rio by the Chinese goverment, but of the real larger frame: that of China doing deals all over the world for resources, usually at good prices.

And then Oz showed up.

In my opinion, this whole affair is about China becoming belligerent on foreign resource negotiations, and using Oz as a case study of what they will do to those who dare resist their approach for special pricing or purchase.

As of this morning, China was lining up their next big investtment in Australia.  What if Oz says no?  Do the Chinese arrest more managers inside China?

What do they do next, shoot them?

The foreigners really don’t see what the Chinese are up to here.

This is not about an Australian citizen spying on China; it is about China buying Australia.

A day earlier, a US investment expert (in London at the moment) exhorted the US audience at MSNBC to reinstate the “uptick rule”, one of the many regulations cleared away in the last few years, which prevented shorts from just piling on without an interim uptick.  Citibank asked for the same assist today.

Finally, John Bogle (Vanguard co-founder) has now come out strongly against what I’ve been calling Vampire Investors; he figures they take about $600B a year out of the US financial system, without adding value.  He actually says they subtract value.

One of these classes of Vampires are a certain category of shorts.

One view of shorts is that they are the other half of a natural balance: long vs. short.  Simple, eh?

Another is that they form a necessary part of any arbitrage play, and so provide natural risk aversion and stabilization to — to what?   To individuals, hedge funds, or the market?

I would suggest that the natural balance of things is represented not by long vs. short, but by buy vs. sell.

Shorts operate in various ways, but the most insidious, I think, is the Jackal Trade, where you see a whole bunch of jackals pick a target (in the last few weeks, we’ve seen a long list of examples in the financial sector), and then attack it in concert, driving the price down even as they make money on the decline.

Does this add value?  No.  Does this stabilize the market?  Just the opposite: it is perhaps the primary danger equities markets face today.  Can we count on the self-interest of shorts to stop doing it when it endangers otherwise-healthy companies, or even whole market segments?  Obviously not; they won’t stop as long as there is money to be made – and why should they?

Australia outlawed shorts in September.

I think it is time for serious consideration to be given not just to stopping shorts in the financial sector, but in the markets.  Perhaps there is some alternative way to provide some hedging range of offlaying risk, without allowing shorts to drive global banking stocks down 40% in a day.  If so, fine.

But the SEC and friends have to bring this carnage to a stop.  It has nothing to do with capitalism, everything to do with market manipulation, and it is wreaking incredible damage at a time when we need serious repairs.

1. The whole experience was well run and rewarding.  I was particularly pleased to have a chance to meet the Australian delegation, and look forward to seeing them again during a return visit next summer.

2. Our group was addressed by a rather striking list of US and Australian leaders, including (and not limited to):

Dick Cheney

Barry Jackson (Rove’s replacement)

Susan Schwab (US trade representative)

James Connaughton (Council on Environmental Quality)

The undersecretary of the treasury

Commerce Secy Gutierrez

Deputy Prime Minister Julia Gillard

Larry Smarr

World Bank President Robert Zoellick

Past BHP CEO Hugh Morgan

many others

3. I made a few public points, including:

The US should conduct its foreign policy according to its own national interest, and not Israel’s

Energy policy should include an immediate, and limited, shift to nuclear energy, buying time for the ultimate conversion to solar, wind and other (which I was able to discuss directly with the Australian Minister for Resources)

The economic crisis is a global liquidity crisis, and should be dealt with from that perspective

All in all, the time spent at the White House, State Dept, and elsewhere seemed worthwhile, with a sincere exchange of views, and a strong delegation.  I look forward to continuing my relationship with the Australian members of this group.

The agenda includes future Optiputer plans, foreign relations, global economics, and a host of related discussions, at the White House, State Department, World Bank and the Ambassador’s residence. 

Something tells me I’ll be more comfortable with new PM Kevin Rudd’s view of the universe than with the current administration’s, but one hopes that seeds will be planted that the next administration can water and bring to fruition.

Perhaps I’m the fertilizer.