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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"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."
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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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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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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
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