APOLOGIES TO REGULAR READERS
This has been a strange year, and I have not been taking the time to write THE ENTERPRISE with my usual vigor and regularity. Family matters have come first. Our FL Jan.-Mar. time was marred by my wife, Maureen falling and shattering her right wrist (yes,she's right handed), cracking a tooth, both requiring surgery, implants, and thus we spent far too much time in medical facilities, and drug stores. Throw in a couple of bouts of serious bronchitis and the warm sunny weather was about all that went right--expect for time spent with family down there. Daughter Lisa had (we hope) her last surgery, this on her shoulder, after her tangle with a car last June (hit and then run over). Now both Maureen and Lisa both have plates with 6 screws in their right arms.
Finally, the flood of wannabe GOP presidential hopefuls has made me more than a little crazy. I could rant on and on, but won't. I already made my early choice (Marco Rubio) and until he does something to turn me off, he's head and shoulders best. (Read more later…see if you can be convinced.)
BUT FIRST ON DEFLATE-GATE
What a crock of BS that whole issue is. The solution is so simple that it's incredible that no one has implemented it: All teams must play with the same balls. Nobody gets to bring/use their own footballs. That way, everyone is treated equally.
ON THE 2016 PRESIDENTIAL RACE
Of course Hillary is hiding from the press. There is no upside at all for her to expose herself to interviewers and probing questions…and won't be until she has to come out of hiding. When that happens, the American people will see what a lying, cheating person she is. And still about half of them will vote for her either because she's' a woman or because her party is the one that provides all their welfare freebies. Sadly, this is the situation. The big, populous "blue states" like NY & CA up and down the East and West Coasts, provide a huge electoral head start for any liberal Democratic candidate--however flawed she or he might be.
Jeb Bush is proving he is a Bush at heart--can't answer a simple question without stumbling about. The rest are good people (well, most of them), but really? Not Rick Perry and Rick Santorum AGAIN? Rand Paul, Ted Cruz, Mike Huckabee…all too far right to be electable. Chris Christie is damaged--less than 40% approval in his home state! Scott Walker is a good Gov. who's won several wars in WI. Maybe he's a possibility, but he's very weak on foreign policy knowledge. Bobby Jindal is not even strong in his home state. Carly Fiorina will find that even a dysfunctional HP (and its board) was much easier to run than the USA. Dr. Ben Carson: great guy, smart guy, but talk about lack of experience in the necessary areas? John Kasich:smart, tough, but nobody every used the words charming or inspiring to describe him. Like Walker, Kasich has done well as a Gov., but…
America needs an inspiring new face to lead it out of the Obama-mess--and to beat Hillary (HDTV doesn't do her any favors, does it?)
Sure, it's way to early to obsess on who's going to run, and how that person might win. BUT…when you find a winner early, this provides plenty of time to look closely at him.
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NEXT PRESIDENT?…I OFFER THIS ON MARCO RUBIO (MY CHOICE)…HE'S THE GOP UPGRADED VERSION OF JFK.
ARE YOU WILLING TO DEVOTE ONE HOUR TO WATCH THIS VIDEO? THE CHOICE OF A CANDIDATE AND A PRESIDENT IN 2016 WILL DRAMATICALLY INFLUENCE THE REST OF YOUR LIFE--AND YOUR CHILDREN'S??
Foreign affairs and the growing threat of radical Islam will be the #1 issue in the 2016 presidential election. And since Marco Rubio is running for the presidency, a fair question is, “What does Marco Rubio know about foreign policy?”
Rubio answered this question, unambiguously, on May 14th when he addressed the Council on Foreign Relations in New York. He clearly understands the complexities of foreign affairs and the global threats we face with remarkable depth and clarity.
Judge for yourself his knowledge and competency in foreign policy, from his presentation and the Q&A session which followed. The Q&A session is simply spectacular, where Rubio is at his very best. (Charlie Rose did his best to trip up Rubio, but failed miserably.)
NO other candidate could have spoken with the depth, candor and clarity about what they'd do in such a wide range of foreign policy topics…nor answer so many varied questions, extemporaneously, and directly. Nobody who's running can do it! That includes Hillary! Invest one hour to listen all the way through…and help you make one of the most important decisions of your life, coming up in less than 18 mo.
NOTE: Whether you like Rubio's positions or not, he's the only one who will tell you what they are…and who has the guts to revise them if he learns something better to do!
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WATCH FOR CONGLOMERATES BREAKING APART TO REALIZE VALUE--MERGING HAS BEEN VERY HARD TO DO
When Alcatel and Lucent merged several years ago I predicted that it would be a tough one to make work. Big American company, big French company, American CEO (then) and French headquarters. Guess what? It hasn't worked out well. Now Nokia is buying the problems. That won't work so well either.
Verizon buying AOL is another desperate attempt to play catch up via acquisition. That one won't work very well either. Verizon is too far behind and AOL is a shadow of what it once was. (I was writing for the combined on Fortune Small Business, part of theTimeWarner/AOL/Netscape merger back around year 2000. About every month the editor I was working with had a new boss, a new mission and vision statement, new marching orders and a new direction. None of them worked. Typical of mixing DNAs together. The offspring usually dies.
Comcast plus TimeWarner is not going to happen. That's fine. Add two large minus numbers together and you get an even larger minus number. Both companies had big market share and a lot of the very same problems. I know as a customer: TimeWarner in OH and Comcast in FL. Same problems, very similar customer service issues, only minor differences in features, value, etc. Good that these two are not going to merge. (But now Charter is sniffing around them.)
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CHEAP GAS CAN'T FIUEL CONSUMER SPENDING
Consumers are still being cautious, and the expected uptick in consumer spending from lower gas prices is fizzling away. Why? Consumers are pretty smart, and have seen about half of the lower gas price benefit go away. They are not going to make many commitments based on assumptions of what will remain for the longer term. Instead, consumers are saving more. The sequence is 1) find a better job, 2) make more money, 3) then spend more money and 4) that creates more jobs. Nothing else works for very long.
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THE BOTTOM LINE (PROFIT) CAN'T STAY STRONG IF THE TOP LINE (REVENUE) KEEPS SLIPPING
Companies have shored up earnings with cost savings, productivity improvements and other managerial actions. That works…for a while…then it doesn't any more. Top lines--revenues--have gone flat and that will eventually hit the bottom line (profits) which is what stock prices are based upon. When the iconic companies (IBM, WalMart, Coke, P & G, McDonalds, et. al.) are stuck at flat sales for many quarters in a row, their earnings go flat soon enough. Oddly enough, the US economy continues to grow at the unimpressive rate of 2%, but that is far better than almost every country in the developed world. That means the US is still the premier country, except for its screwed up governmental leadership. (Go back and watch the Rubio video!)
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READ ALL THE WAY THROUGH, CAREFULLY, BEFORE FORMING AN OPINION
US & China: Do you believe things that “ain’t so?”
“It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so."
This statement has been variously attributed to Mark Twain and Charles Kettering, but it originated in the 1800’s from American humorist Josh Billings. As is often the case, humor carries a great deal of truth in it. Here is a fine example. US—China: Do you believe things that “ain’t so?”
McKinsey is a highly respected global consultancy, whose outlook on 2015 made many important points. Here are excerpts:
- "Improving productivity and efficiency will remain the key to maintaining profitability for many companies, given lower economic growth … ."
- "The impact of technology as it eliminates jobs in services and manufacturing will become even greater … ."
- "As a result, the government will keep a sharper focus on net job creation and the quality of those new positions."
- "Companies will hire even more information technologists to keep up in the race to exploit technology better than their competitors."
- "The push to lower pollution, and now carbon emissions, will lead to even greater investment in domestic solar and wind farms… ."
The McKinsey commentary that followed expanded on business and economic conditions.
“…experiencing lower growth, greater competition, and more volatility, it won’t only be multinational companies having these conversations. Similar questions will be asked by senior executives…”
“…it will be a debate about … consumers and how they will behave in a slowing economy and, ultimately, the extent to which they will be the driver of economic growth over the next few years. …”
Jobs and employment was a major area discussed. Things are changing rapidly, but some things seem inevitable.
“…workers are pricing themselves out of the market… The cost of technology that substitutes for labor in factories has plummeted, displacing more and more workers. …”
“…Service industries will also be affected. … Telecommunications, financial services, and retail are all being challenged by “people lite” Internet-based business models from new competitors, which have already led them to substantially reduce hiring."
“…Overall, the momentum of their wealth generation will slow dramatically after a decade of remarkable acceleration. And if they have children graduating from college in 2015, they will likely see them struggle to get a good job. … [Emphasis added]
What happens with jobs determines what happens with income, which in turn leads consumers to curtail spending, which further slows growth in the economy. Up to this point, readers are imagining the McKinsey outlook is talking about the USA, its economy, job market/workers, and consumers.
WRONG! These remarks were about China! These remarks came from the McKinsey paper entitled “What could happen in China in 2015.”
Surprising? Perhaps, perhaps not. China is moving rapidly from an LDC (Less Developed Country) into a global economic power. With that development comes the downsides/problems of a “Developing Country,” and a change in China’s competitive position.
Over the past few decades, American companies that have become dependent on China as the low cost source for manufactured goods are in for a rude awakening (if these McKinsey projections come true—and every indication is that they are). The best American companies will once again be able to compete. Here is the final shocker: “…The best Chinese private companies are as capital intensive as an equivalent factory in the United States."
The “rule-of-thumb” has been that Chinese products must cost 15% less than American goods to be a better value. Maybe that "ain’t so" any more. US West Coast port congestion (labor disputes) has worsened what was already a long, slow supply chain. US Retailers were hurt in 4Q of 2014 by port congestion; some goods didn’t arrive for the peak sales period. Many retailers/suppliers used alternatives—East Coast ports and the Panama Canal. This route is both slower and more costly, making Chinese suppliers less economically competitive.
China has other problems too. Its growth, which hides a “multitude of sins,” is slowing. Its debt is climbing, due to government spending to prop up China's falling growth rate; 7% this year is a stretch, and don't be surprised when it drops to 6.5% or less next year.
LAND: China may be a huge country, but only 25% of its land mass is arable. Of that arable land, 20% of it is polluted by heavy metals and other toxic compounds, and not usable for growing anything for human consumption—for decades, maybe longer.
WATER: Decades of irresponsible pollution has also tainted China’s water. It is so polluted that even in the most modern cities (Shanghai, Beijing, Guangzhou, etc.) the water cannot be used for human consumption without boiling it first.
AIR: The air quality is so bad, and levels of particulate matter so high in China’s air (orders of magnitude higher than what is safe to breathe) that simply breathing the air is dangerous, (and possibly carcinogenic). Visibility is terrible; good days are murky; bad days are so smoggy that auto and air traffic slowed—or stopped. The sun is seldom visible.
LABOR: Despite billions of Chinese people, skilled labor is in short supply and labor costs are skyrocketing. Bottom line: as China becomes a global powerhouse in technology, military might, cyber-theft, and satellite technology, it is facing a deterioration in its traditional base of power: manufacturing.
Perhaps the old saying,saying, “What goes around, comes around” applies, and US manufacturing will once again be competitive. In the 1970s & 1980s the US feared Japanese competition, which was fierce; but the US survived it. Since then China has been the big, fearsome threat. Perhaps China is not so invincible after all. However, as a developed country (technologically) China presents a different kind of threat to the USA.
Only if American leadership “sees the light,” and the American people use their ingenuity and rediscover their will to work, will this next decade once again be an American decade.
Now reconsider the question. US—China: Do you believe things that “ain’t so?” The answer must be a resounding "yes!"
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I COULD GO ON, BUT I'LL SAVE THE NEXT PENT UP WAVE FOR A WEEK OR TWO FROM NOW.
HAVE A GREAT START OF THE SUMMER.
JOHN
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