Telling It Like It Is

THE ENTERPRISE--TOO MANY MOVING PARTS--TOO LITTLE ACTION

THE ENTERPRISE--TOO MANY MOVING PARTS--TOO LITTLE ACTION

I CONTINUE TO BE PUZZLED BY HOW FEW PEOPLE WILL TAKE ACTION TO IMPROVE THEIR PROFITS BY DEALING WITH COMPLEXITY
Attached here is a brief paper that explains the nature and magnitude of the opportunity.  Please print it and spread it around.  It might just help us dig out of this recession a little bit faster.  I'd like to help anyone who wants to improve the profitability and focus of their company--and I mean the line about "saving as much as possible and charging as little as possible."

Download Complexity Optimization Pays Big Dividends

BULLETIN:  200,000 RAIL CARS SITTING EMPTY-30% OF THE FLEET

All kinds of transportation capacity is sitting idle.  If anyone wants to watch for an indication of an economic recovery, watch when the glut of transportation equipment starts to dissipate.  Watch how UPS is doing, and how busy it is.  It is a global behemoth, as is FedEx.  Both are excellent barometers, as are railroads, shipping lines and trucking companies.

ALL THOSE FINANCIAL READERS--PLEASE WEIGH IN--FEEDBACK PLEASE?
Instead of nationalizing the banks (since when has the Federal government ever operated anything it owned very well/)--how about suspending the Mark-to-Market requirement for a year.  This would allow an entirely different set of metrics to be used by financial institutions in assessing the quality of their assets.  It could singlehandedly turn around the picture of how banks are doing relative to one another.  Most people don't know how this works, but imagine this. 

Your next door neighbor has to sell his house--fast.  Clearly, he will have to take a much lower price for it.  Under mark to market all the houses comparable to it are now considered to be worth that much less--even though they are not in distress, have sound mortgages and payments are all up to date.  Thus everyone's asset valuation and credit worthiness is adversely impacted by being measured with a metric that  is developed by application to the worst of the bunch.

That's what Mark to Market is doing to banks.   Big Problem!  C'mon Treasury Secretary Geithner--if you're nearly as smart as you are reputed to be, quit messing with the "car czar" nonsense, where your expertise is zilch, and change the rules for banks.  Give the sound ones some relief while propping up the sick ones.

WHO WILL PAY FOR ALL THIS SPENDING?  THE SAME ONES WHO HAVE BEEN!

The move is afoot to cut the deficit by taxing the wealth creators even more than is already done.  Rich guys like Warren Buffett says that's OK--but then he has enough for all of us to live on for years.  People making $200-250k per year, with mortgages, kids in college, weddings, etc. are far from "rich" in today's economy.  Somehow, President Obama doesn't get that yet.  

Here's a better proposal:  Let's define "rich" as those who make MORE than the President of the US:  >$400,000. 
Isn't that rational way to define the "rich" who are going to be taxed more?  But even that won't do it.  Read on....

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THE BIG PROBLEM--NOBODY IS CONSIDERING THIS
Based on a Wall Street Journal study on 2006, IF THE GOVERNMENT RAISED THE TAX RATE ON EVERYONE EARNING OVER $500,000 TO 100%--THAT'S RIGHT--IF THE GOVERNMENT CONFISCATED EVERYTHING THEY EARNED--IT WOULD HAVE ONLY YIELDED $1.3 TRILLION, WHICH IS NOT ENOUGH TO COVER ALL THE NEW SPENDING AND THE RESULTANT DEFICIT.  Since earnings and capital gains will be lower in today's recession of 2009 than they were in the boom of 2006, there will be even less wealth to "grab."  Now what?

I know, the next step will be to raise taxes corporate profits, since there is more "taxable money" to grab there.  Two problems with that:  1) it will harm the competitive position of US businesses vs. global competition and 2) if profits are reduced by higher taxes, the only place to recover this is to charge more for goods or services, thus raising prices to all customers (which means lots of low and middle income consumers) thus taxing them indirectly.  Hmmm.  Somehow, living beyond your means has a lot of downsides.

PEGGY NOONAN HITS THE NAIL ON THE HEAD
Many of you know I am a fan of her column that appears in the weekend edition of the WSJ.  This week she is very insightful as she reflects on Barack Obama's presidency and the "recovery plan."  I'll just paste a couple of passages here.  If you want to read the entire column, it's on the WSJ web site:  http://online.wsj.com/article/SB123568516377286823.html
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"So with Mr. Obama, about four-fifths of the way through the speech. He was looking from the prompters to the congressmen and senators, and suddenly he was engaging on what seemed a deeper level. His voice took on inflection. He wasn't detached, as if he was wondering how he was doing. He seemed equal to the moment and then, in some new way, in command of it. It happened around here:

"The eyes of all people in all nations are once again upon us—watching to see what we do with this moment; waiting for us to lead. Those of us gathered here tonight have been called to govern in extraordinary times."

"Called to govern" is one of those phrases that lift you out of the grimy proceedings of government and into something loftier. Is that how he sees it? Such a call is "a tremendous burden, but also a great privilege," one entrusted to few. He quoted a letter from a 14-year-old girl named Ty'Sheoma Bethea of Dillon, S.C., whose beat-up school needs help. We've seen this sort of thing done before—the reading of the letter from the child, or the mother who needs health care—and more often than not, it is gratingly corny. But this wasn't. Miss Bethea wrote, "We are just students trying to become lawyers, doctors, congressmen like yourself and one day president, so we can make a change. . . . We are not quitters." She borrowed money for the stamp, and sent it to Washington.

"We are not quitters," Mr. Obama repeated. Then, to Congress, "I know that we haven't agreed on every issue thus far. . . . But I also know that every American who is sitting here tonight loves this country and wants it to succeed. That must be the starting point for every debate we have in the coming months, and where we return after those debates are done."

Anyway, it was in there somewhere that he became the president. And it wasn't just bearing or dignity, which he has by nature, it was more mysterious. He put on the cloak."

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She also uses a marvelously graphic metaphor for the policies he is pursuing on the path to recovery.  Other than the fact that I am of an Italian heritage, it is visually compelling and metaphorically a great description.
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"In terms of policy, the jury not only is out but will be for some time. Years ago I wrote of an Italian woman in my neighborhood who made spaghetti every day. When I asked how you tell it's done, she showed me: You take a strand and fling it against the wall. If it's done, it sticks. If it's not done, it falls off the wall down the side of the stove. You keep flinging till one sticks. At the end of the day that is Obama's recovery plan. Cash infusions for the banks, fling. Tax increases, thwack. Pork—excuse me, public investment—splat. When we look back years from now, we'll see what stuck.

And who got stuck. And how that helped or hurt.

But the larger point that Mr. Obama had to communicate, and it's something forgotten or overlooked by political sophisticates, is this: Someone's in the kitchen. Someone's cooking. In a time of crisis, someone's in charge. That's what he had to demonstrate Tuesday night. And he did. This will do him good."

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ARE YOU A HALF-FULL GLASS OR A HALF-EMPTY GLASS PERSON?
Times are tough.  Grim might be a better word. The New York-based Conference Board said its Consumer Confidence Index, which was down slightly in January, plummeted more than 12 points in February to 25, from the revised 37.4 last month. That was well below the 35.5 level that economists surveyed by Thomson Reuters expected.  That is an all time low.   Predictions are for the economy to be off as much as 2% this year for the whole year, and the final number for  2008 was far worse than that at a revised, revised, revised -6%?  But wait.  Isn't -2% the same as saying all of 2009 will be at 98% of 2008?  And isn't this awful 2008, if it comes in at -6%, it's equal to 94% of the prior year's level?  Somewhere, there is still a lot of business being done.

WE CAN LEARN FROM SPORTS:  WE NEED MORE "HIGH FIVES" AND "FIST BUMPS"...

Have You Celebrated Lately? by Matthew Kelly, author of The Dream Manager   
"Everywhere you turn people are dooming and glooming about how tough things are, and yet I still see and hear about a lot of great things happening. I had dinner Thursday night with a guy who just sold a business he had been building with a partner for 7 years... I know you have something to celebrate, too. But when did you last celebrate? I must confess, I am horrible at celebrating. I always say that I will, but when all is said and done and something worthy of celebrating has been accomplished... I just move on to the next thing. Drives my team crazy. And so it should. People need celebration - small and large. Teams need celebration. So this week, take some time to celebrate something or someone worth celebrating."

WHY ARE WE SURPRISED?
I've been writing and saying that the 1Q of 2009 will be awful for months now--and I'm not alone.  Of course it's awful.  Consumers, who account for about 2/3 of the spending in the US economy are saying "no mas."  They are worried, anxious, frightened or out of work, or all of the above.  and if they are not, they are looking at their "wealth"--investments, 401(k)'s and so forth hitting levels not seen in the past several years.  That's where I am, and I imagine that's where most of you reading this are too.  Few people are confident in much of anything right now.  Will the stimulus work?  Fast enough?  Enough?  Nobody knows, because nobody has been in this situation before.

UNEMPLOYMENT IS BAD, AT 8% HEADING FOR 10%, (MAYBE)
But that means 90% of the people are still working--right?  So at the depths of our concern; at the lowest confidence level ever measured, we are still employing 9 out of 10 people, and still consuming 94% as much as last year.  OK, that'd bad--but it is as dismal as it is being made out to be.  When a person goes on a binge and gets drunk or high on drugs or both, what follows is a hangover and maybe even withdrawal pains.  Bot are bad, and neither can be "hurried."  It takes time for the body to metabolize the alcohol into sugar and digest it, or to withdraw from a drug dependency--and while it is happening--the body is miserable.  That's our economy in a nutshell. 

AFTER A BINGE, COMES A HANGOVER
After several years of binges--fueled by runaway house prices, commodity prices like a roller coaster, unconscionable home equity loans, ridiculous sub-prime mortgages, irresponsible lenders and borrowers, and a government that failed to slow  these excesses down, what do you expect?  There is no quick fix, as much as politicians wish there were.  They'll throw money at it, but it will be like the joke I heard decades ago about "a military crash project: get nine women pregnant in hopes of having a baby in one month."  The result--you know it--is 9 babies after nine months.  Time delayed "inflation" due to an excess of stimulus.  I don't have to be a great forecaster to predict what will come when all the spending is fully in place.  Inflation.  Because we created new money that had no backing by anything of tangible value--and that is the very definition of inflation.

INTEREST RATES WILL STAY LOW FOR NOW
Because anything else will retard any economic recovery.  But once a recovery starts, so will inflation, and then the balancing act begins.  Slow inflation by raising interest rates, or fuel the economic recovery by leaving interest rates low.  it is a devil's choice--damned if you do; damned if you don't.  There's the planning scenario for businesses.  Also, the longer that people (consumers) and companies "hunker down" and restrict spending, the more likely that there will be some pent-up demand building--and  eventually it will bubble up--even if a short lived improvement in the economy. 

SURFERS FIGURED IT OUT
A strange metaphor:  Perhaps companies need to be like surfers, who float and paddle aimlessly on the ripples; the small ups and downs in the ocean, hanging around out just past where the big waves start building--and then, when the right wave comes--they paddle like crazy to ride that big wave to the shore.  Then they paddle slowly out to wait for the next wave.  Stay calm, stay in business, watch for the waves, ride the waves until they dwindle, and then go back to watching, waiting and conserving your "energy" (cash) again.

STIMULATE DEMAND WITH VALUE
The retailers that are doing OK are the "value" retailers--where you get a lot for your money.  The ones hurting are the high priced, and thus lower value retailers.  Companies will mirror these results.  Product mix will shift to "best value," which doesn't always mean "cheapest, " but usually does.  If capital spending is depressed (it will be) then industrial products companies will also suffer.  Used equipment will become increasingly attractive as a value option.  As companies fail, there is lots of liquidation of plants, equipment--and sadly--people too. 

SHOP HARD & SMART
It's a good time to go shopping for all of those--especially people.  For good people, there is always a need.  Find them; recruit them; hire them.  If you have to cut staffing, look at those who are underperforming.  They know it, and will ultimately need to find a job more in line with their skills and/or motivation.  That is the "law of the jungle" and of the business world.  It isn't cruel; it's just survival.  This is also a time where every seller is hungry for business.  Ask for a better deal.  If you get it, do it again--maybe you didn't get the "best deal."

HERE'S AN EXCELLENT EDITORIAL ON THE AFGHANISTAN PROBLEM AND SOLUTION
Nobody has every "won a war" in Afghanistan, so perhaps that is the wrong objective.  This editorial cites an "expert opinion" that makes a lot of sense.  The goal in Afghanistan should not be to "win a war militarily," rather it should be to "help the Afghanis to become a "self-governing, self-policing, and a responsible country."  (I'm not sure, given the US' performance lately that the USA is the best qualified to teach them how to do this--but it is still the best objective.)

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Hear the man who was key to calming Iraq
Thursday,  February 26, 2009 3:18 AM  By Trudy Rubin

When President Barack Obama announced that he will send an additional 17,000 troops to Afghanistan, I thought of David Kilcullen, a former Australian military officer who wrote his doctoral thesis on insurgencies in traditional societies.  I met him in June 2007 in Baghdad, where he was senior counterinsurgency adviser to Gen. David Petraeus and helped design the strategy that tamped down Iraq's violence.  Kilcullen laid out the sequence of that strategy for me, illustrating his points in a diagram. Every piece of that diagram panned out over time just as he had projected (the surge was only one element of the strategy).  So I thought this would be a good time to ask him about Afghanistan.

It quickly became clear that the Afghan mess makes Iraq look simple. But first, a little history is in order.  Obama inherited a scary mess from the Bush administration. Seven years after the U.S. invaded Afghanistan in the wake of 9/11 and successfully ousted the regime that had hosted Osama bin Laden, it's clear that our victory was squandered.

The Bush team focused on Iraq, and the Taliban made a comeback in Afghanistan and, along with al-Qaida, established a haven across the border inside Pakistan. Perhaps 70 percent of the country has become off limits to Afghan security forces; NATO troops are too few and too conflicted about their mission to stop the Taliban expansion.  So Obama is conducting a series of reviews aimed at producing a new approach to Afghanistan and Pakistan before a crucial NATO summit in early April. Kilcullen, now a fellow at the Center for a New American Security think tank, worked on one just-completed review under Petraeus.

His main points:
• We need to be in Afghanistan, even though Americans are rightly worried about the cost in lives and money. We can't afford to let Afghanistan become another Taliban-run sanctuary for al-Qaida, which could lead to another 9/11.

• The bigger problem is across the border in Pakistan's tribal areas, where al-Qaida leaders are based. "We've focused on Afghanistan," Kilcullen said, "because we have troops there. But the real problem is in Pakistan; the real threat is the collapse of a state with 173 million people, 100 nuclear weapons, an army larger than the U.S. Army, and bin Laden waiting in the wings" to get his hands on those nukes.

So any strategy must focus on the entire region. That includes diplomacy to try to strengthen Pakistan and turn its leaders' attention from India to the internal terrorist threat to its survival.  Meantime, something must be done to prevent more of Afghanistan from falling to the Taliban, which would increase its ability to threaten Pakistan next door.

• The additional U.S. troops are far from sufficient. So the use to which those new troops are put becomes even more crucial.

Despite the many differences from Iraq, there is a key similarity: We must focus on protecting the Afghan people from Taliban intimidation, while helping them develop their own security forces and improve their living standards.  Instead of doing that, said Kilcullen, "we've been chasing the Taliban main force out in the countryside, while the Taliban underground cells intimidate the population where they live."

To use troops effectively, he said, we need to change focus. "The key word for Afghanistan is triage," he explained. "We need to figure out where the bulk of the population lives and how to secure the major population centers, not just towns, but major villages."  U.S. forces should be out in the community, working with and training more Afghan army and police to support local officials and secure delivery of services. In areas where the Taliban threatens but we can't send U.S. forces, we should "put special forces in partnership with local neighborhood watch groups."

He said the Afghan tribal structure is far different and less hierarchical than in Iraq, and has been broken down through war, so we can't rely on tribes as militias. "We should use local forces," he said, "based on districts, not tribes, for village defense. Make the population self-defending in partnership with us and the government."  In other words, help Afghans help themselves. And, as in Iraq, protect "oil spots" of territory until the population feels secure. Then expand security outward from there.

• There is no purely military solution to Afghanistan. Afghans need institutions that provide them with basic necessities of living, but a corrupt central government can't seem to provide them. So U.S. efforts at reconstruction should be local. "We're focused on building national institutions in Kabul, while the Taliban focuses on establishing control at the local level," said Kilcullen.

To sum up, he said we should prevent (Taliban takeover), protect, build and ultimately hand off to the Afghans. Given his prescience on Iraq, his ideas on Afghanistan deserve attention.

Trudy Rubin writes for The Philadelphia Inquirer.
[email protected]

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That's plenty for this week.  Just remember, after every binge, there is a bust.  And after every bust, there is a rebound.  The question is when, how soon, how much, and will that "spaghetti stick to the wall?"

All the best, John

THE ENTERPRISE--COMMON SENSE ANYONE?

THE ENTERPRISE--COMMON SENSE ANYONE?

THE END OF BALANCED BUDGETS IN OUR ERA?
Is there anyone that can imagine such a rip-roaring recovery that the immense deficits being created now will ever be paid down?  I know some of the "bailouts" have warrants and equity positions that could, theoretically pay back handsomely.  However, this looks like we are in for a long haul of small recoveries followed by tough conditions.  Of course, no one really knows.  The current maelstrom was unprecedented and unpredicted, so the future is probably unpredictable too.  Worse yet, states are in as much deficit trouble as the Federal government.  I wonder how long before foreign countries start to question the solidity of the US and its dollar?

I HOPE SOMEONE IS KEEPING TRACK--BUT...
There are so many astronomical amounts of money being tossed around--no make that being handed out--that I hope someone is keeping accurate track of how much, went where and how we ever hope to get some of it back.  Theoretically that's the Treasury Dept. job, but when Geithner couldn't keep track of paying his own taxes, it worries me.  Maybe the NYTimes will keep track. Without Bush to kick around, it should have lots of spare time on its editorial desks.  It's already complaining that the stimulus package was too SMALL, and too SENSIBLE.

DOES THIS MAKE YOU FEEL ANY BETTER?
The value of the future deficit being run up by Medicare, entitlements and the irresponsible spending of the past is already $56 trillion--that's right--up from $53 trillion last year.  For those who have not reached for your calculator, that is "only" $483,000 for every man, woman and child alive in the US right now. So what the heck, what's another trillion here or there to fuel a recovery.  I'm not joking.   In this situation there are only two solutions:  try to tough it out and let the system repair itself and those who deserve the pain will get it.  Or, throw money at the problems and try to save even those who may not deserve it.  (More on that later)

Now, the question is--and NO ONE KNOWS THE ANSWER--will the money being spent and the actions being taken really "jump start" our economy.  OR, if left on its own, would it heal itself anyway?  And by the way, even if unemployment reaches 10%, that means that 90% of the people are still employed--which is pretty good IF you're not part of the 10%.  When the economy is down by 5 or 6% from the year ago figures, it means that it is still chugging along at 94-95% of what it was doing before. 

WHAT CAN PEOPLE DO?  WHAT CAN COMPANIES DO?  LOWER SPENDING!  (DUH?)
When income or revenue drops, the one sure action must be to lower spending.  Act responsibly.  Economize.  Cut unnecessary and frivolous spending (Like $65-140 per person for a live concert ticket to see Billy Joel and Elton John?). 
--After switching to Compact Fluorescent bulbs, start using mid-grade or regular gas instead of premium (all but high performance engines will run fine on regular). 
--Turn the thermostat down a few degrees in heating season, or up a few in A/C season and run the furnace fan all the time to reduce hot and cold spots--saves energy overall. 
--Renegotiate or revise plans for phone, cable, cell and internet packages. (digital answering machines built into many new phones saves the $8-9/mo. premium for voicemail from your phone company.
--Or get it in a bundle from the cable company.  Just remember that no cable, no electricity means no phone (use a cell, or keep one bare bones "wired" line).  There's always some new deal. 
--Eat at home more (it's good for conversation and saves on gas too). 
--Ask your doctor to prescribe pills that can be cut in half at twice the dosage and then just cut them in half--and the prescription will last twice as long. 
--Check the deductibles on all of your insurance and see if some are set too low.  Ask your agent for the premium differences to check this.
--Cancel some of those unread magazines you get and ask for a refund of the unused portion.
--Share cell phones (at $9.99) and pay each other the difference once a year.
--If you have XM/Sirius satellite radio plans, share in the family.  Example, the first XM subscriber pays $145/year, but adding others to your plan costs only $89/year.
--Buy house brands of items at the grocery store.  Wal-Mart's great value trash bags and zipper bags work just fine and a lower price.  Kroger's Private Selection and other house brands are guaranteed.  If you buy it and don't like it, you can take it back and they'll give you the brand name as a replacement.  So will OfficeMax on printer supplies.
--These are just the tip of the iceberg full of solutions.

This is just a "starter list."  Add your own and share them, and I'll add to the list in future editions.  Bottom line:  Return to an old set of principles:  "Live within your means."  Perhaps if enough people start paying attention to these principles, we might find some of them to elect to positions in Washington where they will act responsibly there.

iF YOU KNOW COMPANIES THAT ARE STRUGGLING TO FIND COST SAVINGS, REFER THEM TO ME.  BY USING VARIATIONS ON THE CONTENT OF THE COMPLEXITY CRISIS--I call it Complexity Optimization--WE WILL HELP THEM FIND MORE SAVINGS THAT THEY THOUGHT POSSIBLE, MOST OF THEM, RIGHT UNDER THEIR NOSES.   TRY IT AND SEE!  Here's the email: [email protected]

TYPICAL GM PLAN--TOO SLOW, TOO LITTLE, TOO LATE--UNACCEPTABLE
2012. That's 3 years from now.  By 2012 GM will have dumped the Hummer, Saab, Saturn and Pontiac brands that should have been gone 3-4 years ago.  Typical.  Just leave us alone and give us billions and we'll (finally) do what you suggested--sort of, maybe, eventually.  But the UAW gives little or nothing--UNACCEPTABLE.  We'll keep our 30 and out retirement package that puts workers on the street in their early 50's, with lifetime golden health care benefits, while others pay for COBRA or get by on Medicare.  Somebody needs to take a 2 x 4 to the heads of these delusional auto executives--or better yet--throw them out.

CHRYSLER--WELL, THEY DON'T REALLY HAVE A PLAN
I can suggest one.  A funeral.  Sell what pieces are salable, maybe Fiat will buy some of them.  Wind down the losing models and keep selling the Jeeps, the Minivans, the Dodge Ram trucks and the 300 as long as demand holds up.  Close down dealerships, combine the few that aren't combined but might be needed.  This legendary car company is in its last farewell.  Don't put any more good money--billions--after the bad.  Let Cerberus fund its way out of this one.  It couldn't happen to a nicer bunch of guys.

DO WE NEED A "CAR CZAR"  OR IS A COMMITTEE BETTER? (PEOPLE WITH NO CAR EXPERIENCE AND LOTS OF POLITICAL PULL?)
One person isn't smart enough--and unfortunately--a council, like a committee, is a place where everyone--and no one--is really responsible.  And since they'd have little relevant auto experience, they wouldn't be constrained in their decision making by experience.  That's just great.  Even then, the council needs a "Chairman" to act as if  s/he were a CZAR.  This sounds like a politically correct, but practically ineffective idea.

I hope the "Czar" doesn't mess up Ford, which is gaining share due to its image of being "more competent" --and more likely to survive--but also due to the fact that it has been making better vehicles.  As I said earlier, Chrysler is all but dead,  Salvage the remains and bury the rest.  GM can be saved--translation:  Chevy and Cadillac (and Corvette) can be saved.  Roll all the others into 1-2 remaining brands--I'm OK with two--Buick & GMC for trucks--then clean out all the others--and eliminate all the duplicated models—and excess dealers—and the UAW contractual crap, and tell GM to proceed with half the requested money and 1/2 the time—and cut down about 1/2 its current bureaucracy.  Do the "plan" 18 months, not 3 years.

NOW FOR THE REAL RANT!  JUST THIS ONE TIME.

LET ME GET THIS RIGHT?
As things are shaping up:
--First, There are a lot of people who bought houses they (knew they) never could afford, through either their own stupidity, naivete or fraud. 
--Second, They bought them, often, from speculators who were "flipping them" at prices far too high; more than there were really worth.
--Third, The irresponsible bank-backed lending institutions loaned them money with little or no regard for the credit-worthiness of the borrower,  often knowingly ignoring or falsifying qualifications of borrowers.
--Fourth, Fannie Mae and Freddie Mac endorsed and backed billions of dollars of these loans,
--Fifth, they were encouraged to do so by the Congressional Committee who had oversight, which was staffed by Barney Frank, Chris Dodd and a few other Democratic Senators, including (now President) Barack Obama.
--Sixth, The bankers bundled them into packets, and their accomplices, the ratings agencies, rated garbage as good investments so they could sell them over and over again.

Now those people are going to have their home loans "foreclosed," so they will need to be evicted, and have nowhere to live. The plan is to slow  the foreclosures, but, do the people live there indefinitely?  People in a house they never should have "owned," and forgive the irresponsibly granted, fraudulently acquired loans, leaving destitute people in houses they can't afford to own.  Many of them are unable to even pay the taxes  on these houses.  In his Wed. speech, Pres. Obama said that was NOT going to happen—he specifically commented on the points I noted above.  Do I believe him?  I'm not sure.  I hope he meant it.  But, who's going to decide where to draw the line on "responsible homeowners?"

AND WHO'S GOING PAY FOR ALL THIS LARGESS?
The responsible Americans who lived within their means, bought houses they could afford, and took mortgages for which they were qualified properly.  These responsible citizens will be taxed (now or later) to subsidize the irresponsibility and fraud of others.
Where are we?  COMMUNIST RUSSIA?  NO WAY SHOULD RESPONSIBLE AMERICANS PAY (as the country incurs trillions of dollars of debt) FOR THE IRRESPONSIBILITY OF FRAUDULENT  (or just stupid) LENDERS AND BORROWERS.

BUT THAT'S WHAT'S HAPPENING RIGHT NOW.  WATCH. This is a rerun of Hurricane Katrina where people and officials in New Orleans were too slow, too stubborn or too stupid to run from a Cat. 5 Hurricane bearing down on them.  But they then insisted on not just being rescued, but but once in a safer place, filled the screens of CNN with angry pleas about whey "they weren't being taken care of."

OK, BLEEDING HEARTS, COME ON DOWN...
All of the few liberal readers left will tell me that it is our responsibility to take care of our poor, our needy (and I guess, even our fraudulent and stupid) fellow Americans.  But do we also need to take care of the 700 Merrill Lynch people who got $1 million each in bonuses?  Do we need to take care of the CEOs who got $25 million packages when they were fired?  

IT'S TIME TO IMPOSE CRIMINAL PENALTIES FOR THESE CRIMES
Sarbanes-Oxley imposed CRIMINAL PENALTIES for misreporting earnings, etc.
--Take back the ill-gotten gains.  They'll still have their homes in the Hamptons and Condos on the Upper East Side of NYC.
--Put the "ringleaders" (look for them with titles like CEO, CFO, Sr. or Exec. VP, etc.) in prison.  Try and convict them of fraudulent activities under the RICO act.  It was "Organized Crime" to do what they, and Bernie Madoff did.  They deserve to spend time in a real prison, not in their luxury homes with an ankle bracelet.  That's the only penalty that will frighten them enough to stop this nonsense.

IS THIS TOO EXTREME?
I don't think so.  Nothing so far has sufficiently frightened or punished the primary perpetrators of this huge THEFT.  Companies care little about penalties.  They file bankruptcy, retire to their luxury homes for a while and resurface again to do it all over.  They need JAIL time--and not in a "country club" prison, either.

HOW MANY PEOPLE ARE WE TALKING ABOUT?  A FEW THOUSAND, MAYBE LESS?
What to do at the boundaries?  Suspended sentences; revoking all licenses, disbarring all lawyers involved.  Black balling them from any employment that has any government sponsorship, funding, contracts, etc.  If any of them are illegal immigrants, immediate deportation.

WILL THIS FIX THINGS?
NO.  Nothing can turn back the clock.  All it will do is set such a large and frightening precedent to make it less likely to happen this way again.  What I fear will happen is that the government will bail out far too many, with far too much and then tax responsible Americans to pay for it all.

HERE'S THE RUB IN ALL OF THIS
Large, important entities, like big corporations, and especially financial institutions need leadership and management that is competent and decisive--and honest.  Those kind of leaders might be reluctant to sign up for jobs where their compensation is limited and there are criminal penalties for wrong-doing.  However, the kind of leaders that we want don't participate in "wrongdoing" which is why Sarbanes-Oxley has actually put very few people in prison since its inception.  The honest ones didn't need it; the crooked ones were either scared-straight or exposed in other ways.  So there you are.  The penalties are tolerable; the cap on compensation needs some reworking.  For a big job, with big risks, there need to be big rewards IF successful.  President Obama--PLEASE RETHINK THAT WHOLE SALARY CAP DEAL AGAIN.

THE END--NOT QUITE
Well, that's it.  A few chunks of common sense, some hard facts and some harsh remedies.  These are tough times, but that is no excuse for giving up or just wringing your hands and saying "woe is me."  Get out there and "fight" for the remaining business.  Stop spending.  Pretend you don't have any money--or soon you won't.  Cast off all the frills and fat of the "good times" and hunker down.  Remember, "When the going gets tough, the tough get going."  We actually used to live without cable TV, touch screen cell phones, satellite radio, iPods, and navigation systems in our vehicles. And we did OK.

All the best, John

THE ENTERPRISE--INNOVATION, TECHNOLOGY, PAY ABUSES & A "FOCUSED" STIMULUS?

THE ENTERPRISE--INNOVATION, TECHNOLOGY, PAY ABUSES & A "FOCUSED" STIMULUS?

INNOVATION STILL SELLS; COMPLEXITY STILL WASTES MONEY
Those who want THE ENTERPRISE to focus more on business issues, here you go.  Have you forced a hard cut at complexity in the companies you run, work in, own or influence?  If not, why not?  Studies prove, over and over, that all the profit and shareholder value comes from the top 20-25% of customers and products, and that the bottom 20-25% is almost all losers, destroying value and consuming valuable resources. 

TAKE ACTION--NOW
So why not dump them.  Afraid of lost sales?  Afraid of lost customers.  Perhaps those are sales and customers that you are sending money along with the products or services they buy.  Did you think of that.  Lowering the sales of losers actually increases profitability.  The last I heard, profitability was the goal, not just sales for sale growth sake. 

The Booz study I cited a few weeks back proved it yet again:  Supermarkets in 1980: 15,000 items; in 2007: 40,000 items.  A typical consumer buys 650 of them in a year!   The top 25% make virtually all the money, the bottom 25% are virtually all losers. 

GET HELP, IF NECESSARY
There are usually a few  good prospects among the bottom customers (or products).  If you are worried about "throwing the baby out with the bath water" by dumping all of that bottom 25%, then contact my associates at Sixth Sense Partners who will help you sort them with much greater insight using their proprietary analytics.  http://www.sixthsensepartners.com

INNOVATION IS THE ONLY TRUE PATH TO PROFITABLE GROWTH
When an organization is drowning in complexity, there are few or no resources to allocate to innovation.  When complexity is removed, there are two opportunities--the first is to save money by cutting part of the resources being consumed by the products, customers, facilities, etc.  The second is to reallocate the resources to innovation--which includes not only new products, but new processes, and finding new ways to grow with the best customers.  Caution:  "creativity" is not the same as "innovation."  Innovation is a combination of creativity and commercialization of those creative ideas to yield profitable outcomes.  Now we're talking "good growth."

TECHNOLOGY IS BEING UNDER--UTILIZED
I have an iPhone.  While ATT's network still is not as good as Verizon's, the App Store and the iPhone's remarkable range of features is what holds me.  it's a level when I hang pictures.  It's a pedometer when I go for a walk.  Its a GPS system when I need directions.  It's a stock monitor when I want to watch those.  And by the way, it is also a phone, an appointment calendar, home to my 1300 contacts, a voice recorder, a camera, a photo album, etc. etc.  You get the idea.  Info-tech has made it a pocket sized device that replaces a computer (yes, it's also a web browser and email system too).

WHERE CAN TECHNOLOGY BE USED MORE, BETTER?
Everywhere.  What's the hold up?  People!  Stuck in the mud of old ideas and "why can't we" thoughts. 
--Why are we still using an antiquated Air Traffic Control System that increases congestion, delays flights and limits traffic handling.  The technology to replace it exists right now. 
--Highways could handle much more traffic if computers monitored the waves of congestion that build up and metered cars on and off, changed speed limits to   match weather conditions and traffic. 
--Cars can save fuel and reduce emissions if all of them used the cylinder shut-off technology (GM uses it) and similar, related fuel efficiency and  ULEV technology (most Hondas use these). 
--Our home heating systems could be equipped with telemetry devices to communicate with the energy provider and adapt to periods of low or high demand to relieve peak generating problems.
--All the medical health records people have will fit on one flash memory device.  Many of them are created digitally already and then printed to be viewed and filed. What a waste.  Yes, someone needs to mandate a uniform system architecture, and fast.  This could also reduce deaths and sickness from misread prescriptions and adverse drug interactions that computers would catch but a busy Doctor might not.  Perhaps Apple, Intel, Microsoft, AMD, HP and IBM might form a coalition to do that with the government as the mandate originator and paying the bills.
--Then there are smart ID cards.  We should welcome immigrants, but require that EVERY ONE OF THEM carry a secure, hard to alter or forge ID card, by which they must report their whereabouts once every so often until they complete citizenship requirements (a period of 2-3 years?)
--The same ID technology combined with biometrics would read us through airport security, relieving us of removing our shoes ( a stupid bottleneck) and putting only 3 ounce or smaller gels and liquids in a separate bag to go through security.  I've forgotten to re-store some of my toiletries and put them through mixed with other stuff, and NO ONE has ever noticed.
--The same ID card with additional "validations" will qualify us to vote, and match a photo ID--with NO exceptions--NO ID, NO VOTE.
--Oh, Yes, for my next colonoscopy, how about sending one of those pill-sized mini-cameras through, and only putting me under if it sees something bad that requires the "scope?"  Save time, save money, save inconvenience all at once.  Perhaps that's a fitting place to "end" this list.

THAT'S JUST A SHORT LIST
Imagine what would happen if we tasked a group of really smart people to expand that list.  We're planning on spending money on a Mag-Lev train from Los Angeles to Las Vegas--for what--"partying?"  How about the one from Boston to Washington with stops along the way?  Ten times the need, and one hundred times the importance.  I used to work on the Railroad, and then the Telephone company a long, long time ago.  One of the things I did was acquire right-of-way agreements from neighboring homeowners to install buried cables, etc.  A railroad roadbed takes 1/3 the space an interstate highway does.  In some cases it can be elevated and run down the median of Interstates for passenger trains.

WANT TO BE OUTRAGED?
Somebody MUST go after Merrill Lynch and the 700 employees who were "contractually entitled" to receive an average of $1 million each in compensation that was paid early to avoid getting caught in the buy-out by Bank of America (although B of A knew about the payments, it is alleged).  To reward people for a company's failure is just plain WRONG--and should be "UNDONE" by some kind of "clawback" mechanism.  The act of moving it up and doing it early smacks of criminal behavior. 

I CAN'T BELIEVE I'M EVEN WRITING THIS--BUT THERE IS A LIMIT--OR SHOULD BE
Understand, I hate it when the government meddles in private companies and their deals--but this one simply STINKS.  I bet those in office are too busy spending our tax money to take time to do this.  Of course they'd find time to investigate someone from the Bush administration or to stick their noses into steroid use in baseball.  I guess it is unreasonable to expect them to actually "represent" us--their constituents--and right this grievous wrong.

A POLITICAL POLYGLOT OF PATRONAGE, WISH LISTS -- AND STIMULUS TOO.
In response to a friend's comments about the "theft" language used by Sen. McCain, I said this.  I'd state it more simply:  "Irresponsibly throwing money at parts of the problem (there is some real stimulus in there--30-40% at least, but way less than it might have been, and making sure some (40%) of the money ends up allocated to their pet projects."  Stimulus is needed.  But this bill was written by irresponsible politicians--(wait, was that a redundant term?)

Worse yet, the other side of the aisle is firmly entrenched in "old-think" and can't come up with a workable compromise idea to save their souls (if they have any left).  Doing nothing is probably the soundest plan--but totally unacceptable for elected officials (Obama knows that).  Spending money they way this bill does is crazy.  But then, why is that surprising?  Look where it originated.  By the way (GOP members of Congress), tax credits are not much of a stimulus if you are losing money, paying no taxes anyway and running out of cash, which banks won't lend due to the risk factor--which is the plight of many businesses right now.  How about some new ideas from you too.

A FOCUSED STIMULUS?
After further thought, I realized that some fundamental principles could be applied as a test for the so-called Stimulus Bill.  I wish someone would get these thoughts to Obama and his staff.
1) What does this expenditure "stimulate?" (e.g., What is the economic benefit of it, and to whom does it accrue?)
2) How many new jobs does it create and in what time frame (by year)?
3) Is there a better way this money could be spent to stimulate the economy and create jobs?
Will someone please ask--and answer--these questions?  And then reconfigure the bill (of course not, it is a "runaway train" now).

CONGRESS PASSED SARBANES-OXLEY FAST--WHEN ENRON, ET. AL. MISBEHAVED
Perhaps it is time to take a more uniform look at what constitutes irresponsible behavior and what to do about it.  Obama's misguided cap of $500,000 on executive salaries is a cute PR play, but makes no sense.  If A-Rod is worth $200MM plus over  a multi-year contract, it might be appropriate to pay "market rates" to get quality executives.  It isn't the salary that raises alarms anyway.  It's the non-cash portions of the comp packages: stock options, SARs, bonuses, etc.  Why not leave the $1MM deductibility limit on CEO salaries but add a cap on everything over $1MM limited to a percentage of company earnings?  Thus, no earnings = no extra comp.  Period, end of story.  Now everyone is on the same incentive system--CEO, shareholders, etc.

PRODUCTIVITY IS UP--GOOD AND BAD NEWS
That means that companies are cutting jobs faster than they are cutting output.  That is good news except for those who lost their jobs.  It is what companies are supposed to do when faced with a downturn.  The "bleeding hearts" are right to feel bad for the jobless employees, but companies responsibilities are to their shareholders, and to those stakeholders (including the employees who remain) to stay as profitable and viable as possible.

If this scenario plays out as it might (absent government meddling--which will not be the case).  Consumers and companies cut spending due to fear of the recession's impacts on them.  Sales begin to drop; overall demand falls.  Companies cut back production and purchases, to keep them in line with lower demand, which requires layoffs.  Even so, the time lag between the decision and the action causes inventory to build.  In order to dispose of excess inventory, companies cut prices.  In the fight for business in the face of slumping demand, companies also cut prices.  Eventually, the price cuts reach levels that incite consumers to begin buying "at bargain prices" and the inventories begin to drop, coming in line with demand. 

As the inventories are worked off, there is a need to replenish some of them.  This causes production and procurement--albeit a lower levels--sustaining employment for the time being.  When enough of the excess inventories have been liquidated, and the competitive pressures lower prices enough, buyers will come back into the market--after months of having "saved up" by not buying.  At this point demand begins a slow recovery. If this recovery is sustained, some level of hiring begins again.  This makes consumers a bit less fearful, and they begin buying again.    Slowly, if not interrupted by external (read: government, meddling) this recovery cycle builds upon itself.   This is how business cycles work.  Why is this such an apparent mystery or surprise to so many?

That's enough for today.  I hope it got your brain going.  I have added two pieces at the end for those who are still looking for more info.  Both are thought provoking and by capable people.    I hope you enjoyed this one.

All the best, John

BONUS READING
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* OPINION---FEBRUARY 6, 2009  © The Wall Street Journal
. . . They Violate Good Sense and the Constitution
The government cannot condition benefits on the nonassertion of rights.
BY ANDREW P. NAPOLITANO
The executive compensation caps that President Barack Obama and Treasury Secretary Tim Geithner summarily announced this week violate both the Constitution and Economics 101.

I have argued on this page that the Troubled Asset Relief Program for the banks is itself inherently and profoundly unconstitutional for several reasons. It promotes only short-term private benefit, rather than the general welfare as the Constitution commands of all federal spending. It evades the constitutional requirement of equal protection by saving some businesses and letting others that are similarly situated simply expire. And it delegates to the secretary of the Treasury the power to spend taxpayer dollars as he sees fit, in violation of the express constitutional grant of the nondelegable spending power to the Congress.

Now the federal government wants to interfere with private employment contracts already entered into -- and regulate those not yet signed -- in order to satisfy the perceived populist instincts of the electorate. To do so, it demands salary caps as a condition to the receipt of public assistance.

Salary caps are unconstitutional because they violate the well-grounded doctrine against unconstitutional conditions. Simply stated, the government may not condition the acceptance of a governmental benefit on the non-assertion of a constitutional liberty. The government cannot say to individual welfare recipients that they may not criticize the Congress or their welfare checks will be cut off, because the right to criticize the government is a constitutionally protected liberty. It similarly may not condition corporate welfare on the prohibition of contracts with employees above an arbitrary salary amount, because freedom of contract is protected by the Constitution as well.

The salary caps also constitute a taking. High ranking executives are corporate assets with experience and knowledge unique to their employers' businesses. By arbitrarily reducing their salaries to serve the government's political needs, deflating their worth to their employers, incentivizing them to work less, or chasing them away, the government has stripped these individuals of their personal value and of their value to employers without just compensation. Such a taking is prohibited by the Fifth Amendment.

Moreover, government-mandated salary caps will impede economic progress. We can presume that the senior executives of the banks that have received TARP funds who are paid more than $500,000 annually are worth at least that much to their employers. Otherwise the employers would be violating their fiduciary duties to their shareholders by paying those salaries. These employers are banks which the government has "rewarded for failure," to use the president's phrase, by investing money from taxpayers who would not voluntarily invest their own money there.

So, not only are these banks in distress, not only do they seek federal dollars in order to stay afloat, but under these salary caps they cannot go out and get the best talent to run them. The government that is trying to save them, the government that has forced taxpayer dollars into them, has denied them the freedom of contract necessary to assure their salvation. Why would underpaid executives stay with a bailed out bank when their true worth will be compensated elsewhere?

The government can't run a business. Just look at the Post Office, which loses $6 billion a year and has salary caps. Is this what's coming to the banks? If the government can evade the Constitution and violate the basic laws of economics what will it do to free enterprise next?

Mr. Napolitano, who was on the bench of the Superior Court of New Jersey between 1987 and 1995, is the senior judicial analyst at the Fox News Channel. His latest book is "A Nation of Sheep" (Nelson, 2007).
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Ruin Your Health With the Obama Stimulus Plan
Commentary by Betsy McCaughey  Feb. 9 (Bloomberg) -- Republican Senators are questioning whether President Barack Obama’s stimulus bill contains the right mix of tax breaks and cash infusions to jump-start the economy.

Tragically, no one from either party is objecting to the health provisions slipped in without discussion. These provisions reflect the handiwork of Tom Daschle, until recently the nominee to head the Health and Human Services Department.  Senators should read these provisions and vote against them because they are dangerous to your health. (Page numbers refer to H.R. 1 EH, pdf version).  The bill’s health rules will affect “every individual in the United States” (445, 454, 479). Your medical treatments will be tracked electronically by a federal system. Having electronic medical records at your fingertips, easily transferred to a hospital, is beneficial. It will help avoid duplicate tests and errors.

But the bill goes further. One new bureaucracy, the National Coordinator of Health Information Technology, will monitor treatments to make sure your doctor is doing what the federal government deems appropriate and cost effective. The goal is to reduce costs and “guide” your doctor’s decisions (442, 446). These provisions in the stimulus bill are virtually identical to what Daschle prescribed in his 2008 book, “Critical: What We Can Do About the Health-Care Crisis.” According to Daschle, doctors have to give up autonomy and “learn to operate less like solo practitioners.”  Keeping doctors informed of the newest medical findings is important, but enforcing uniformity goes too far.

--New Penalties---Hospitals and doctors that are not “meaningful users” of the new system will face penalties.  “Meaningful user” isn’t defined in the bill. That will be left to the HHS secretary, who will be empowered to impose “more stringent measures of meaningful use over time” (511, 518, 540-541) What penalties will deter your doctor from going beyond the electronically delivered protocols when your condition is atypical or you need an experimental treatment? The vagueness is intentional. In his book, Daschle proposed an appointed body with vast powers to make the “tough” decisions elected politicians won’t make.

The stimulus bill does that, and calls it the Federal Coordinating Council for Comparative Effectiveness Research (190-192). The goal, Daschle’s book explained, is to slow the development and use of new medications and technologies because they are driving up costs. He praises Europeans for being more willing to accept “hopeless diagnoses” and “forgo experimental treatments,” and he chastises Americans for expecting too much from the health-care system.

--Elderly Hardest Hit---Daschle says health-care reform “will not be pain free.” Seniors should be more accepting of the conditions that come with age instead of treating them. That means the elderly will bear the brunt.  Medicare now pays for treatments deemed safe and effective. The stimulus bill would change that and apply a cost- effectiveness standard set by the Federal Council (464).  The Federal Council is modeled after a U.K. board discussed in Daschle’s book. This board approves or rejects treatments using a formula that divides the cost of the treatment by the number of years the patient is likely to benefit. Treatments for younger patients are more often approved than treatments for diseases that affect the elderly, such as osteoporosis. 

In 2006, a U.K. health board decreed that elderly patients with macular degeneration had to wait until they went blind in one eye before they could get a costly new drug to save the other eye. It took almost three years of public protests before the board reversed its decision. [Editor's Note:  I spoke to the National Health Service Annual Convention about 10 years ago in Birmingham, England--and it was their opinion then that the U.K. Health system was badly failing and needs a complete redesign!!  And this is what we choose to emulate?)

--Hidden Provisions---If the Obama administration’s economic stimulus bill passes the Senate in its current form, seniors in the U.S. will face similar rationing. Defenders of the system say that individuals benefit in younger years and sacrifice later.  The stimulus bill will affect every part of health care, from medical and nursing education, to how patients are treated and how much hospitals get paid. The bill allocates more funding for this bureaucracy than for the Army, Navy, Marines, and Air Force combined (90-92, 174-177, 181).  Hiding health legislation in a stimulus bill is intentional.

Daschle supported the Clinton administration’s health-care overhaul in 1994, and attributed its failure to debate and delay. A year ago, Daschle wrote that the next president should act quickly before critics mount an opposition. “If that means attaching a health-care plan to the federal budget, so be it,” he said. “The issue is too important to be stalled by Senate protocol.”

--More Scrutiny Needed---On Friday, President Obama called it “inexcusable and irresponsible” for senators to delay passing the stimulus bill. In truth, this bill needs more scrutiny.  The health-care industry is the largest employer in the U.S. It produces almost 17 percent of the nation’s gross domestic product. Yet the bill treats health care the way European governments do: as a cost problem instead of a growth industry. Imagine limiting growth and innovation in the electronics or auto industry during this downturn. This stimulus is dangerous to your health and the economy.

(Betsy McCaughey is former lieutenant governor of New York and is an adjunct senior fellow at the Hudson Institute. The opinions expressed are her own.)

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THE ENTERPRISE--CHOICES AND HEROES

THE ENTERPRISE--CHOICES AND HEROES

EARLY RISERS:  I taped a very brief "Your Business" segment this Thurs. AM for MSNBC, as part of a panel discussing how small companies go after the BIG order--and when they get it--discover that it causes a lot of problems, challenges, etc.  There's not a lot of time in that format to discuss what to do and how this happens, but we tried to hit the high points.  The show should air Sun. Feb. 8 at 7:30AM and again Sat. Feb. 14 at 5:30AM.  (Those who know me realize that I'll have my DVR set to record it since I nearly never get up real early.)

FIRST PRIORITY:  STOP THE EMPLOYEE FREE CHOICE ACT
This law, if passed, will alter the balance of labor management relations so dramatically, that American employers will be crippled competitively for decades to come.  In history, the Wagner Act did this in 1935 and it was not until the Taft-Hartley act was passed in 1947 that some semblance of  balance was restored.  PLEASE WRITE or CALL YOUR CONGRESSMAN AND BOTH SENATORS--regardless of their party affiliation or leanings.  They need to know that their constituents oppose this incredibly harmful piece of legislation.  Here's how to find them and their addresses:
http://www.visi.com/juan/congress/

To learn more about why and how this proposed legislation will be so damaging, and what employers can do in "self defense" read the attached white paper "You Have A Choice".  It is excellent--and scary.  Remember--no one is immune to this if you have qualified employees (non-managerial/supervisory employees).

GIVE FORD SOME CREDIT
One of my old UT  contacts has been telling me that Ford should be singled out--not lumped with GM & Chrysler--in some of my  barbs.  It appears he was right.  Ford has jumped to the top of the J. D. Power quality ratings.  Under CEO Alan Mulally, it has also moved faster to finance itself (borrowing against valuable assets like its brand name), to shed complexity caused bt too many car brands and models (Jaguar and Land Rover are gone and Volvo is for sale).  Best of all, Ford is making better and more attractive cars, and has turned down the government's bailout money (and hence will keep the government's paws out of its affairs).  There is still one more place to simplify.  The Mercury brand adds more complexity and confusion than it does value.  I expect Mulally will have seen that too.   Ford is still at risk as the government's largesse for GM could put Ford at a disadvantage economically--and the imminent demise of Chrysler (it's not IF--it's just WHEN) could mess up the vendor community that is shared my many car makers, including Ford.  Let's watch as this drama unfolds and pull for Ford to make it.  That would be a great tribute to founder Henry Ford's legacy.

EXCESS CAPACITY IS STILL A PROBLEM!
Globally, there are almost a hundred too many car factories.  Global capacity is at about 95 million cars, which is about 35 million too many.  China has the most--and it is consolidating due to sales dropping and companies dropping with them.  After that, US car companies have 10-12 (of their 50+) in North America that still need to be closed.  But nobody is immune--including Japanese brands.  Excess capacity is a problem in many places.  Retailers are dropping like flies.  Airlines are still overburdened with too many routes, aircraft, etc.  One of my contacts told me recently, "Kmart is history."  Another thinks "Sears Holdings is worth more in pieces than as a single company" (Eddie Lampert will exploit that if it's true).  Macy's is in deep doo-doo too.  Why?  It's hard to manage a chain of stores assembled from a bunch of other chains, and carrying (I read this somewhere) FOUR MILLION DIFFERENT ITEMS.  Is that stat believable?  Sure could be, when you think about sizes and colors of clothing, shoes, seasonal changes, domestics in patterns and colors, housewares, appliances, etc.  I don't know if my computer has enough capacity to calculate Macy's COMPLEXITY FACTOR, but I bet it's immense.  They just can't make the margins and turn rates needed to offer that many items.  Machete, anybody?

WHICH AIRLINES WILL DISAPPEAR IN 2009?
It's hard to believe that one or more won't.  There are fewer flights and based on my small travel sample, those remaining are only full at peak times.  That's not good as planes need to move about to get to the right places--and flying them 1/2 -2/3 empty is a losing proposition.  Best bet to fail:  US AIRWAYS (weak and still struggling with an integration of the America West acquisition from several years ago.   Worrisome:  Low fare lines that keep fares competitive: AirTran and Jet Blue (Darn, we just got AirTran here in Columbus, which added some good low fares and new direct flights.  Jet Blue was already here, but I only go through JFK under duress).  Plus, Alitalia is already in bankruptcy in Europe, and Air Canada is in trouble over here.  However, this is what recessions do--clean out the weaker competitors and excess capacity--which should lead to a more viable industry in the future.  "Should"--I didn't way "will."

WHAT'S GROWING AND GOING TO BE STRONGER?
Health care--even though government meddling will affect it--is the best bet of all.  As more and more people age, and want to sustain their quality of life, this field should continue to grow.  If I was advising any young person on a field to get into, this would be at the top of my list (and they don't all have to be Doctors).  Education is another good bet.  As the "echo-boomers" roll through, no one disputes that his is a field that we need to become better at.  Energy will be a big factor in the longer term.  Right now, the collapse in oil prices has cooled the fervor for all kinds of alternative energy development, but it will heat up again--right as the price of oil does.  Infrastructure could be the beneficiary of a lot of government spending.  The US infrastructure (and its defense systems) is aging and needs repair, upgrading and rejuvenation. 

HOW ABOUT SOME NEW IDEAS--NOT THE SAME OLD, SAME OLD
Sure we need to fix bridges and highways, schools and water treatment plants.  These kinds of investments would create lots of jobs and leave us with a better, stronger and more efficient country. But when will someone take off the blinders and realize that we have the technology to build smarter highways that can monitor and even control traffic jams, adverse weather conditions, and develop alternate routings (to send to the Navigation systems being sold with more and more cars?)  Our power grid is a limitation and needs some new networks and control systems (with better protection from outages and hackers).  And when will we build high speed rail connections for new state of the art road beds, using (mag-lev?) suspension & (magneto-hydrodynamic) propulsion trains.  I bet GE could lead the way and it would just take a few Billion from the Government to tip them into it. 

As I said previously, it makes no sense for one person to ride an hour in a car/cab from downtown to an airport on the outskirts of Chicago, New York, Washington, Dallas, Atlanta, etc. etc. when a train could connect Boston-New York-Philly-Baltimore-Washington, and another short line could connect Atlanta & Charlotte, yet another for Milwaukee-Chicago-Toledo-Detroit/Toronto-Cleveland-Buffalo.  While I'm wishing, how about a Cleveland-Columbus-Cincinnati line.  These could almost be situated on elevated rails running down the center of current Interstate Highways (I-95, I-71, etc.)

ONE MORE SLAP AT COMPLEXITY
Some interesting study results (Booz & Co.):  A typical supermarket circa 1980 had 15,000 items.  In 2007 that number is 45,000.  The typical consumer actually buys about 650 of them each year.  HUH?  And by the way, the top 25% make virtually all of the profit and the bottom 25% are all money losers.  The failure rate of new products is very high and the half-life of them is very low.  Can you spell COMPLEXITY CRISIS?  One exists everywhere--it's just myopic executives that are in denial and afraid to get rid of marginal products and loser customers because "sales will drop."  Ironically, if half the resources consumed by the losers were cut, and half were reallocated to the best customers and products, sales will go up and profits will go up faster.  IS ANYBODY OUT THERE LISTENING? 

THE SMART ONES ARE TAKING ACTION
Wal-Mart has mandated a "win-place-show" hierarchy in its merchandising and supplier selection (Anybody recall Sears old good-better-best method?)  General Mills figured out that if it eliminated half of the 50 versions of Hamburger Helper® (with 25 different pasta shapes!) and omitted the unnecessary spice and cheese packets, it could reduce the size of the box, still containing the serving size the same, and reduce the cost by 10%.  Simply eliminating multi-colored Yoplait® yogurt lids saved $2 million/year.  HP figured out how to balance innovation with proliferation--Dell didn't.  The result?  Dell struggles with poor service and HP gains share like crazy.  THIS STUFF WORKS--SO WHAT ARE YOU WAITING FOR?

THE BORDER FENCE IS STILL NOT DONE--AND IS IN QUESTION
It's still not done, and where it is, nobody is sure if it's working.  Why?  Nobody knows how to measure if its working or not.  Remember these famous lines: "What gets measured, gets done."  "If you can't measure it, you can't manage it" (The latter is old friend Will Kaydos line--remember to pick up his book THIN ICE--AND MELTING--to learn what is really happening to America.  Otherwise, our government will keep making misinformed decisions, and our fellow citizens will keep electing the wrong people to represent them in Washington and in State houses.

JUST ABOUT THE TIME I BECAME CONVINCED...
That social networking sites had good, viable purposes, they are in jeopardy.  Why?  Drops in advertising revenue mostly.  Most of them are FREE!  That's their appeal.  But somebody has to pay the bills somehow.  FREE is not a viable business model.  Didn't we learn that about 10 years ago in the dot-com fiasco?  (Got a Pets.com sock puppet anybody?)  Some will make it.  They are gaining critical mass or attaching themselves to someone with a profitable model to fund them (Facebook, MySpace, LinkedIn, Twitter, etc.)  Others will either merge or dissolve.  That's the way industries evolve.

DEFLATION IS COMING--AND THE STIMULUS BILL NEEDS TO HEAD IT OFF
The problem is that the "stimulus bill" that Obama and the Democratic Congress are trying to railroad into place is NOT A STIMULUS BILL!  IT'S A POLITICAL PATRONAGE BOONDOGGLE OF EPIC PROPORTIONS.  Some of the media are picking up on this--finally.  Spending a few hundred million here and there and a few billion here and there on pet projects does not make a stimulus.  A stimulus bill needs a few (let's say 5, 10 max) guiding project types that it can support.  Infrastructure, Housing, Energy, (not giveaways to failed banks/bankers or to crony buddies' pet projects).  As written it is A MEGA-EARMARK BILL.  Awful.  Terrible.  Gotta fix it. Obama is right about one thing.  It needs to be done FAST.  That means  "dictating" the terms and conditions to the House and Senate.  Here's where he will "earn his spurs" as a President--or not.  We'll see.

HOW ABOUT SOME HEROES
We have way too few heroes these days and our role models for younger people are all wrong. Celebrities who can act like someone, or sing/play great music or are talented athletes are NOT NECESSARILY HERO-MATERIAL.    A few might be.  Peyton Manning--a clean cut guy who's really good, funds hospitals for kids with some of his wealth.  He could be a hero.  LeBron James--and inner city kid who is smart, talented, and a leader--for his Cavalier team and more visibly, with Kobe Bryant, for the US Olympic team.  But I mean real heroes. 

Here are two I nominate: 
--Chesley "Sully" Sullenbarger who landed a crippled jet on a rough Hudson River allowing all the passengers to get off and didn't try to land it where many civilian lives might have also been at risk.
--General David Petraeus who withstood the barbs and arrows of a misguided Congress and used his knowledge of how to merge cultural relations and military might to "save" the Iraq "war."
--Our war-torn Iraq and Afghanistan Veterans who went over there and gave their time, their efforts and in many cases their life and limbs for our country's cause.  Those are real heroes.  Join me in thanking every one you meet.  Welcome them home with thanks, respect and jobs.  They deserve it.

PEOPLE ARE THE KEY TO EVERYTHING--LEADERS ENABLE PEOPLE TO SUCCEED
Get the best people.  Add a few strong leaders.  Choose a good business segment.  Devise something that creates value, such that you can consistently deliver on that promise.  There's a good start.  Oh, yes, Add a good CEO to run it all.  That leads me to a teaser.  I met a fellow, Nat Stoddard, whose path and mine almost crossed a few years ago (but didn't) and who has written a fascinating and useful book entitled: THE RIGHT LEADER—Selecting Executive Who Fit.  I met Nat, visited with him, listened to him speak about the book and read the first 1/4 of it.  IT'S GOOD STUFF.  I'll cover more about it as I get further through it, but IF you happen to be in the midst of that kind of challenge.  It's "hot off the presses," so you can only "preorder" it on amazon.com.  Stay tuned for more info.

HOW LONG WILL THE RECESSION LAST?
Nobody knows.  Through most of this year at least.  Maybe a slight uptick in 4Q for Christmas.  Slow growth coming up in 2010, with a few starts and stops.  But I want to remind everyone of something I learned over years in business.  When times are good, everyone is too optimistic.  When times are bad, everyone becomes too pessimistic.  There is still business out there to be had.  Do you want to spend your time working hard and smart trying to get it, or wringing your hands and worrying.  I know what I prefer.  "When the going gets tough, the tough get going."  Now get out there.

All the best, John

      

THE ENTERPRISE--EXTREMES & EXCEPTIONS

THE ENTERPRISE--EXTREMES & EXCEPTIONS

EXTREMES?
As I read all the incredibly pessimistic articles and forecasts, I am reminded of something I learned in my many years of business experience.  During good times, everyone is too optimistic, and during bad times everyone becomes too pessimistic.  However, these are times in which acts of incredible stupidity created unforeseeable problems.  In a recent issue of PORTFOLIO magazine Michael Lewis wrote a long article entitled THE END.  in it he cited many frightening actions leading to the financial meltdown.  The most amazing to me on a basic level was the Long Beach Financial subsidiary of Washington Mutual that was so hungry to make loans that it loaned money to  Mexican, non-English speaking strawberry picker making $14,000/year, with a bad credit rating.  How much and how?  It loaned a no money down, interest only--and deferred the interest payments as long as possible.  The loan (are you ready) was sufficient to completely pay for a $720,000 house.  Is every "American" really entitled to be a homeowner.  Not that way!

HOW BAD IS IT?
In a Conde' Nast PORTFOLIO survey, 90%  think this is the worst they have ever seen the economy, and 86% agree on the financial sector.  Similar numbers were the results of "high risk" transactions being approved and personal loan qualifications.  70% are working harder on the job and 79% feel more stress., yet 69% rate as Good or Excellent the job of their employers.  A big one:  71% expect lower pay for the near future, and 44% fear losing their job during 2009.  Ironically, the PORTFOLIO economics columnist John Cassidy, who has been one of the most negative, believes that there is a chance this downturn could end sooner than anyone things.  Unfortunately, the best estimates are for a very weak upturn in the 4Q of 2009 (Christmas spending, I guess).  FYI, Cassidy was the person who forecast in Sept. 2008 that oil prices would drop to $50/bbl  or below within 2-3 years.  His views were rewarded with a sooner-than-expected collapse in oil prices.  That's what happens when the price run-up is driven more by speculation than by core demand.

I WANT THE "GEITHNER EXCEPTION" 
Or will it be the Daschle-Geithner Exception?  That is where you attempt to evade taxes and only when caught, plead misunderstanding, honest error, apologize and pay the back taxes and penalty.  Of course Rep. Charlie Rangel (D, NY) is the past expert at this trick.  He owns several rent controlled apartments in NYC (where the limit is supposed to be one per resident), he pays his son about 5X what normal Web staffers make in Congressional offices, and he somehow just "forgot" to pay a bunch of taxes on income from renting his luxury condo down in the Caribbean.  Ho-Hum--it's just the political "good old boys club" at work again.    NOTE:  DO NOT TRY THESE TRICKS AT HOME OR YOU COULD SPEND SOME TIME IN A PUBLICLY FUNDED INSTITUTION (possibly with a very friendly roommate named "Big Bubba").

WHAT CAN BUSINESSES DO?
My friend Dan Perella of Ideastream Consumer Products sent me his list. It is a very good one.

#1) Innovate, Innovate, innovate – and do it at a value. No matter what, consumers will buy cool, new things
#2) Spend your company’s money like it’s your own
#3) Find other ways to add value to your customer’s business – beyond great products at value prices
#4) Become an extension of your customer’s business – Provide them insights in their business, they don’t see, even outside of things you can do for them.  Do things for them that have no immediate impact on your business.
#5) Make yourself irreplaceable – suppliers will be reduced across the board, don’t be one of them
#6) Become PRODUCT AGNOSTIC – it’s about customer service, innovation, and the methods by which you serve the market.  If you sell CD Wallets, like we do, you can also sell innovations in sporting goods, housewares, and stationery products.
#7) Have a wide open funnel – entertain any and all product ideas that come across your desk.
#8) Tell your customers the truth about their business, even if it hurts yours
#9) Play offense – Now is the time while everyone else is retrenching.
#10) Hang on long enough to get lucky

The second list comes from FORTUNE'S Geoff Colvin in a very good article recently published:

1. Reset priorities to face the new reality.
2. Keep investing in the core.
3. Communicate like crazy, balancing realism and optimism.
4. Your customers face new problems, so give them new solutions.
5. Don’t rush to cut prices.
6. Focus on capital—how you’re getting it and where you’re using it.
7. Reevaluate people—and steal some good ones.
8. Reexamine compensation—what is it offering incentives for?
9. Think twice about offshoring.
10. Be smart about mergers and acquisitions.

OBAMA'S TESTS ARE COMING
The economy is the big one right now, but just behind it is the specter of terrorism, rogue regimes and Afghanistan (where no one has ever "won--ever).  He also is hurting his reputation as an ethical and sensible, bipartisan guy right now.  Ethically, how can you support a tax evader to head the Treasury Dept. and another one to head his Health Care Reform?  Either you have ethics or you don't—Integrity is like virginity—non-negotiable.  The one glimmer of good news is the announcement that a prominent "moderate" plans to run against Ahmadinejad in Iran this June.

WANT TO WORRY ABOUT IF WE ARE SAFE?  OR ARE WE GUARDING AGAINST YESTERDAY'S ATTACK METHODS?
Many of you know that I read a lot of fiction, and have actually written a novel about cyberterrorism.   If the ending of the following piece sounds like it came out of THE SILENCE (my novel--still available on amazon.com), it did not--but then again, I guess some of it did.  I checked out the novel's premises with retired FBI and CIA professionals who confirmed its accuracy--and its likelihood.   The following message resonated so much with me that I am sharing it with you.  We are guarding our planes against "shoe bombers" and "liquid or gel attacks" which are the old, failed approaches to terrorism.  If you were a terrorist, would you try those again?  Hell, no.  The Israelis are among the best at anticipating and thwarting attacks.  Maybe our Homeland Security should be listening to them a bit more, and then I can leave my shoes on as I go through airport security.

AN IMPORTANT WARNING--A must read--(CAN SOMEONE PASS ON TO AUTHORITIES IN DC?)
               Juval Aviv was the Israeli Agent upon whom the movie ' Munich ' was based. He was Golda Meir's bodyguard -- she appointed him to track down and bring to justice the Palestinian terrorists who took the Israeli athletes hostage and killed them during the Munich Olympic Games.  In a lecture in New York City a few weeks ago, he shared information that EVERY American needs to know -- but that our government has not yet shared with us.
          
        He predicted the London subway bombing on the Bill O'Reilly show on Fox News stating publicly that it would happen within a week. At the time, O'Reilly laughed and mocked him saying that in a week he wanted him back on the show. But, unfortunately, within a week the terrorist attack had occurred.

Juval Aviv gave intelligence (via what he had gathered in Israel and the Middle East ) to the Bush Administration about 9/11 a month before it occurred. His report specifically said they would use planes as bombs and target high profile buildings and monuments.  Congress has since hired him as a security consultant.
      
Now for his future predictions. He predicts the next terrorist attack on the U.S. will occur within the next few months.  Forget hijacking airplanes, because he says terrorists
will NEVER try and hijack a plane again as they know the people onboard will never go down quietly again. Aviv believes our airport security is a joke -- that we have been reactionary rather than proactive in developing strategies that are truly effective.    

        For example:     
        1) Our airport technology is outdated. We look for metal, and the new explosives are made of plastic.
        2) He talked about how some idiot tried to light his shoe on fire. Because of that, now everyone has to take off their shoes. A group of idiots tried to bring aboard liquid explosives. Now we can't bring liquids on board. He says he's waiting for some suicidal maniac to pour liquid explosive on his underwear; at which point, security will
have us all traveling naked! Every strategy we have is 'reactionary.'
        3) We only focus on security when people are heading to the gates.
          
Aviv says that if a terrorist attack targets airports in the future, they will target busy times on the front end of the airport when/where people are checking in. It would be easy for someone to take two suitcases of explosives, walk up to a busy check-in line, ask a person next to them to watch their bags for a minute while they run to the restroom or get a drink, and then detonate the bags BEFORE security even gets involved. In Israel , security checks bags BEFORE people can even ENTER the airport.     

Aviv says the next terrorist attack here in America is imminent and will involve suicide bombers and non-suicide bombers in places where large groups of people congregate. (i. e., Disneyland , Las Vegas casinos, big cities ( New York , San Francisco , Chicago , etc.) and that it will also include shopping malls, subways in rush hour, train stations, etc., as well as rural America this time ( Wyoming , Montana , etc.).
          
The attack will be characterized by simultaneous detonations around the country (terrorists like big impact), involving at least 5-8 cities, including rural areas.      

Aviv says terrorists won't need to use suicide bombers in many of the larger cities, because at places like the MGM Grand in Las Vegas, they can simply valet park a car loaded with explosives and walk away.  Aviv says all of the above is well known in intelligence circles, but that our U. S. government does not want to 'alarm American citizens' with the facts.

The world is quickly going to become 'a different place', and issues like 'global warming' and political correctness will become totally irrelevant.
          
On an encouraging note, he says that Americans don't have to be concerned about being nuked. Aviv says the terrorists who want to destroy America will not use sophisticated weapons. They like to use suicide as a front-line approach. It's cheap, it's easy, it's effective; and they have an infinite abundance of young militants more than willing to 'meet their destiny'.        
          
He also says the next level of terrorists, over which America should be most concerned, will not be coming from abroad. But will be, instead, 'homegrown' -- having attended and been educated in our own schools and universities right here in the U. S. He says to look for 'students' who frequently travel back and forth to the Middle East .

These young terrorists will be most dangerous because they will know our language and will fully understand the habits of Americans; but that we Americans won't know/understand a thing about them.  
          
Aviv says that, as a people, Americans are unaware and uneducated about the terroristic threats we will, inevitably, face. America still has only have a handful of Arabic and Farsi speaking people in our intelligence networks, and Aviv says it is critical that we change that fact SOON.

So, what can America do to protect itself?

From an intelligence perspective, Aviv says the U.S. needs to stop relying on satellites and technology for intelligence. We need to, instead, follow Israel 's, Ireland 's and England 's hands-on examples of human intelligence, both from an infiltration perspective as well as to trust 'aware' citizens to help. We need to engage and educate ourselves as citizens; however, our U. S. government continues to treat us, its citizens, 'like babies'. Our government thinks we 'can't handle the truth' and are concerned that we'll panic if we understand the realities of terrorism. Aviv says this is a deadly mistake.
          
Aviv recently created/executed a security test for our Congress, by placing an empty briefcase in five well-traveled spots in five major cities. The results? Not one person called 911 or sought a policeman to check it out. In fact, in Chicago , someone tried to steal the briefcase!

In comparison, Aviv says that citizens of Israel are so well 'trained' that an unattended bag or package would be reported in seconds by citizen(s) who know to publicly shout, 'Unattended Bag!' The area would be quickly & calmly cleared by the citizens themselves. But, unfortunately, America hasn't been yet 'hurt enough' by terrorism for their government to fully understand the need to educate its citizens or for the government to understand that it's their citizens who are, inevitably, the best first-line of defense against terrorism.

Aviv also was concerned about the high number of children here in America who were in preschool and kindergarten after 9/11, who were 'lost' without parents being able to pick them up, and about ours schools that had no plan in place to best care for the students until parents could get there. (In New York City , this was days, in some cases!)   
        
He stresses the importance of having a plan, that's agreed upon within your family, to respond to in the event of a terroristic emergency. He urges parents to contact their children's schools and demand that the schools, too, develop plans of actions, as they do in Israel.  Does your family know what to do if you can't contact one another by phone? Where would you gather in an emergency? He says we should all have a plan that is easy enough for even our youngest children to remember and follow.
 
Aviv says that the U. S. government has in force a plan that, in the event of another terrorist attack, will immediately cut-off EVERYONE's ability to use cell phones, blackberries, etc., as this is the preferred communication source used by terrorists and is often the way that their bombs are detonated.   How will you communicate with your loved ones in the  event you cannot speak? You need to have a plan.

PLEASE PASS THIS ON.  If you don't consider this serious enough to be concerned, merely delete.

THAT'S ALL FOR TODAY--A LITTLE LATE DUE TO R & R...
The good news is that Florida was very nice.  Unfortunately the construction market down there is in the dumper--big time.  Down about 90%!  That presents a real challenge to those who want to survive this downturn.  Sooner or later, people will start building again.  Right now the prices of houses and condos are really low--and negotiable.  With the retail downturn, building in that area is slowing fast, as store closings create vacant, distressed real estate.

NEXT WEEK--CATCH UP TIME.
Until then, if you are in the North, stay warm and spend sparingly and wisely.  Sell hard.  Innovate.  Get your people around you and use all of their brains to come up with ideas.  Everyone has the ability to help.  Ask them, you'll see.

Best, JOHN