THE ENTERPRISE
THE ECONOMY IS BUMBLING
But it's not all that bad. Fed policy has raised a lot of concern, but doesn't seem that far off base. There is a drop in productivity, but that is typical of the late stages of a recovery, so it is not a big problem per se. There will be continued moderate inflation--until the surges in commodities of the past 18 months get passed on to consumers--or not. Profit growth will slow, but not stop, although the slowdown in housing is troubling.
CONSUMER CONFIDENCE IS TUMBLING
Consumer spending still higher than the growth in income. How? The consumer debt load is still growing albeit more slowly. e.g., The tab owed on credit cards for 25-34 year olds averages $5200, that's one example of how. For all US households it averages over $8000, so if you are paying yours every month, several other households have really big unpaid balances. The billions in home-equity loans taken over the past few years is another. Gas prices are down, but don't expect to see $2 gas. That's just too low to be realistic--and it will not bode well for the economy if you do see that low a gas price.
HOUSING IS STUMBLING
Growth in the sales of new houses and existing houses has stopped and reversed. House inventory is way up--over 6 mo. supply and climbing. Mortgage interest rates are up, but still not all that high. What has really stopped is all the new home purchase/sale by speculators "flipping" houses. This was making up more than a quarter of all home sales last year--clearly an unsustainable situation. The larger concern about the housing slowdown is that it will ripple through employment and sales of all the durable items that go into houses. That will be a big ripple and hit lots of companies and market segments hard.
DELL IS FUMBLING
The once revered computer maker seems to be making all the wrong moves. Forget the stock option debacle and laptop battery recall. Dell failed to pay attention to a shift in what consumers wanted to buy, where and how. One possible reason is that it became too internally focused. If companies don't shift to match the changing value choices of consumers/customers, they get into these kind of predicaments. HP/Compaq is now gaining share selling computers at retail, like the electronic consumer products they have become--at $300-900 retails. Apple is on a roll, growing profitably by market leading innovations (outside-in thinking) and outstanding customer service--to (guess who)--its consumers! DUH?
COMPARISONS ARE MIND-NUMBING
Two decades ago, we used to set one of our Huffy bicycles next to Nike shoes and Oakley sunglasses and ask which seemed like it should be the most/least expensive. Answer: the Oakleys (a few ounces of stylish plastic) were priced highest; the NIkes (a couple of pounds of trendy leather and rubber sewn together) were next; and the Huffy Bike (30 pounds of steel structure, drive/breaking mechanisms, rubber, vinyl, padding and nearly 300 parts) cost the least. Hmmm. Now let's do it in terms of today's products--a Dell Personal Desktop Computer, a Treo or Blackberry Phone/PDA or an Apple iPod. The answer: all 3 cost about the same at $299+/-. Logical? No. Reasonable? Maybe. Innovation pays--big time. Selling products by the pound may be OK for meat cutters, but not for product companies.
PRESIDENT BUSH IS HUMBLING
Finally, more than ever, perhaps too late...he is still "staying the course" but with a new found tendency to be a bit humbler and willing to admit past errors. Who got to him? Perhaps a year of 30% approval ratings, and nearly every Republican running for office this fall all got to him--finally. As far as the "War on Terror" goes, you might want to read the attached email, to see how one American felt.
AND I AM MUMBLING (& RAMBLING)
I am concerned about the nuclear aspirations of Iran and Korea because their ideology is so far from ours and their leaders are fanatics of two different types. What makes me pause, however, is wondering how we would have reacted if older, stronger European countries had tried to tell us what we could and couldn't develop in the way of weapons systems. I doubt we'd have accepted that kind of pressure well, either, So why are we surprised that leaders in iran and Korea feel that way--whether we think they are rational or not.
As to the Middle East and Hezbollah, Hamas, Palestine, Israel, Iraq, etc., these religious sects have hated each other for centuries. They clearly think it is fine to commit murder by suicide bombing, hiding weapons in mosques and homes to make any attack into a huge public relations issue, and so forth. We neither understand them (deeply) nor agree with them. We also cannot change them--or even manage them. We must think clearly about what outcome are in our best interest and strive to attain those, whether they are "Politically Correct" or not. I just wish our politicians would realize some of these point, that our press would try to help rather than subverting our efforts, and that our lack of strong, unified leadership in the Federal government would get fixed. It is the scariest of all these issues.
Finally, last night, as I emailed the manuscript for my book "The Complexity Factor" to the publisher, I realized how overloaded we all are with complexity--in business, in global politics and in our personal lives--and how confused we are on what to do about it all. I guess the first step is to realize, admit and accept that these problems exist. Only then can we get down to the hard work of fixing them.
That's my Labor Day weekend rambling. I hope you had a wonderful weekend.
Best, John
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