April 15, 2013
Today another terrorist tried ruin a good day in Boston. Patriot’s Day is a Massachusetts Holiday. People were vacationing, running, and watching their family and friends finish.
We need to pray for the victims and their family. We need to grieve. Then we need to live our lives like this never happened. Be aware when things don’t look right. But go ahead and live your life anyway.
I do understand. I was there in Olympic Park about 45 minutes before the bomb went off in 1996. Probably walked within 100 feet of the explosion site, or closer. The park was closed for a day while the police investigated. When it was safe, the authorities reopened the park. My friends and I made sure to go back the first day it opened. No bomber is going to ruin a great event like the Olympics.
Terrorist want people to panic. To destroy the government by ruining your trust. They think we want anarchy.
No we want civilization and people to care for each other. We do not think violence is the answer.
How many anarchists do your family know? None. We don’t pay attention to violent characters. Mother Theresa and Mahatma Gandhi are worth remembering.
Few attacks succeed. Many more attacks have been tried. Hard work by good people, law enforcement, and a little luck as prevented most of them. But many more people die from car accidents. The odds of you being a victim are very small.
So grieve today. Then honor the victims by living the life you want. Change the world by doing good.
Frankly go back to Back Bay. Run in a race. Watch family and friends at events. Live more good days for the rest of your life.
Lyrics from the Beatles Revolution
“We all want to change the world
But when you talk about destruction
Don't you know that you can count me out
Don't you know it's gonna be all right”
March 17, 2013
Our generation grew up with lots of competition due to the baby boom, and also is the first to depend on 401Ks instead of pensions, so we may have to work longer. (My 101K will not support me anytime soon)
Everyone (Boomers, Gen X and Millennials) may have major jump in better health and active lifespan due to the stem cell research / bio technology coming to market soon or next decade." What would you do if you knew you would live to 120?" is not a theoretical question these days.
Millennials were raised as the most teamwork focused group you would ever meet. In many ways they remind me of the Silent Generation who saved the world. (Look at the warriors in Iraq and Afghanistan) I suspect they will overcome the slow economy and global competition. They will have many more opportunities in their long careers as the Boomers retire.
Intend to join them for the ride as long as I am productive.
September 6, 2010
If the owner has any cash, he is waiting for the next crazy idea to come from DC. Taxes will go up next year 4%. Cap and Trade (Tax) will export more manufacturing jobs overseas. Who knows how much health care will cost in a few years.
Look at states that have better economies. Texas, Oklahoma and North Dakota have lower unemployment and generated two thirds of all new jobs created over the last three years. Why? Business friendly regulations, stable taxes, governments within budget, limits on litigation awards, and respect for taxpayers.
Canada is doing well in this global recession. Why? Business friendly regulations, lower taxes, limited government spending, limits on litigation, and lots of legal immigrants. Same thing that built the USA. Canada also avoided the real estate bubble by not allowing very low down payments nor subprime lending. Smart regulations unlike Fannie and Freddie offerings.
If DC wants to improve the economy, the government has to be fans of business owners. Not vilify them. What business needs is stability. Cut government spending and borrowing, don’t add more regulations, and limit tax increases. Then businesses will start investing, expanding and hiring. Until then we are starting down the path of the Japanese lost decades.
May 3, 2010
In addition British Petroleum is getting ripped in the press as everything from incompetent to evil money makers. BP is responding announcing they are doing everything they can to clean up the problem, and will pay for all the damages. Properly so, I may add.
The real question is what will happen long term? Is this going to be like Three Mile Island accident, where the nuclear industry fell behind the rest of world in developing nuclear energy? Think about it. One accident caused a whole industry to stop in its tracks over 30 years ago. Almost no new plants have been built for three decades.
What is the result? Most of the technology has moved to other countries. Canada and France develop much more nuclear electricity than we do. The other scary side effect is these plants were designed to be replaced after 25 to 30 years and then replaced by modern plants. We have
Will one oil spill stop more drilling and exploration? Will the US be more dependent on imports to provide the gasoline and diesel for our cars and trucks. Most of us drive cars, and all of us buy groceries and goods delivered by trucks. Are we going to stop producing energy we need to complete in a global economy?
There are over 30,000 drilling platforms in the Gulf of Mexico. There are plenty of opportunities for more accidents and oil spills. Are we going to stop driving and eating? No. We can not stop taking reasonable risks.
Our military is trained in taking risks. They professionally get in harms way and fight enemies who would love to kill them. We don't see them hiding in a military base in the US. We see our men and women all over the world in the worst conditions performing admirably. They do it by preparing for the risks and using training to overcome.
The US has to keep drilling for oil as well as developing alternatives. This will take decades to resolve. In the meantime talented men and women will come up with solutions to these problems and improve processes to make them safe. We must continue to develop energy and take risks to succeed.
Meantime our prayers are with the families of the lost and the injured from the accident.
March 27, 2010
The CFO Rising conference yesterday morning was right up my alley with sessions on Creating Alignment in the C-Suite, A New Dynamic in the Boardroom, and ... particularly ... Finance Skills for a New Decade. My next few blog posts will talk about what I heard, but I’ll start with some interesting stats that opened the morning.
The CFOs in attendance were polled around critical issues they are facing, and here are some of the results ...
--89% felt the worst was over but do not anticipate a turn around anytime soon
--Only 4% felt growth was likely to happen in the next several months
--70% were concerned and VERY concerned (35%) around the cost effectiveness of proposed government regulations
--When asked about the proposed health care legislation, 69% were very concerned about the tax impacts and 62% were very concerned about the quality of care
Conversely, the attendees felt there was some good that came out of the economic downturn ... it has forced finance to go back to basics.
--32% said they now had a core business focus
--25% were focused on increasing productivity
--3 out of 4 indicated they would be preserving cash as a hedge against economic uncertainty
--77% indicated their focus would be on organic growth ... which means ...
--Only 10% indicated M&A was a core business focus
http://www.cfo-coach.com/ to subscribe to Cindy Kraft's postings.
March 23, 2010
March 14, 2010
Now their name is smeared with runaway cars, stuck gas petals and floor mats. Have talked about companies not believing complaints by customers, and over confidence in their product. Complaints are second chances given to you by customers to save the sale. You can look at the Big 3 in the USA ignoring reports by the car rental companies that the Japanese cars were performing better with less maintenance, and they ignored statistics proving them. It was hubris by domestic manufacturers.
Toyota is in a difficult situation. Too many lawsuits by too many opportunistic attorneys looking to make money, and government prosecutors looking to improve their political name by suing Toyota. If you read the previous article I sympathize with Toyota finding intermittent problems with multiple causes. They are difficult to see and harder to analyze than production problems, and a nightmare to resolve.
The San Diego case is strange, very strange. A 61 year old car runs away with him. 94 miles per hour. Police chase him and help slow him down. Makes the national news. Next day we find out he driving a car NOT recalled. It has a brake override system that if he was holding down the brake should have turned off the accelerator. Worse, the “victim” is $700,000 in debt and was about to lose the car along with the other three repossessed. He could be motivated to fake the runaway to make money.
First of all, am not going to assume this was faked. Am going to analyze the situation and ways to investigate this. I am not convinced by investigators who can not make the car do it again. How can you know how to trigger it unless you know all the possible causes and combine them all? Right now that has not been settled.
Would love to see the video if I were investigating. Per Toyota if he is stepping on the brake the acceleration should stop. The police cruiser video should show solid brake lights if he is pushing like he claimed. Were there any highway cameras or news copter pictures of the incident? Did they as for witnesses?
If he was faking, he had to overcome the brake override system that should have turned off the accelerator. There would be evidence of that unless he was a top flight programmer. Most people do not know how to reprogram a car.
First impressions by the police are good evidence. Did they smell the brakes catching up to him? Yes. Did the brake lights stay on the whole time? Maybe not, he was reportedly pumping the brakes until the police had him apply the parking brake and stay on the brakes. That may have finally activated the brake override system. How did the victim act when they stopped? The brakes should have been too hot to touch. The wheels hot too conducting heat away (unless they were aluminum or magnesium. They might conduct heat away too fast, but the hub would be hot.
Physical evidence needs to be checked. They would have had to fade. That may glaze the face of the pads or show other damage on the pads and discs. Experts can tell. The reports are the brakes were worn out.
If the evidence is he let go of the brakes to accelerate, would suspect fraud. If not, Toyota would be well served to assume this is a possible real problem and keep looking for combinations of problems. How likely is a 61 year old to panic when his car acts irrationally. Know a lot of teens through fifty year olds who would panic. My gut feel is this is a real runaway.
Okay, what possible problems are there? Physical, Hardware, Firmware or Software. Physical has been exhausted with petal recall and changing the floor mats. Hardware is what it is. Firmware and Software are really the biggest culprits left. My partner believes it is software. Too much probability with the diversity of runaway cars over so many models and years. Also he is a systems expert unlike any inside the auto industry with too many years of experience to fall for the first good probable answer and would dig deeper.
Toyota would be wise to hire an expert like him, but suspect it would not happen. Mainly for litigation reasons. Toyota is better off with non English speaking help who would be tough to be interviewed on a witness stand. (Especially if the company help was hard to find?). Disclosure rules in the US would eventually flesh this out, but still makes the attorneys’ jobs harder with all the difficulty of translating exactly technical jargon to English. Can’t blame Toyota here, is any country more litigious than the US?
Don’t think Toyota’s problems are over. Cruise control runaways are happening too. Would expect more recalls and finding more causes. Some people are saying a brake override software solution and reprogramming the on/off button to shut off under repeated pushing is all that is needed. I have doubts that covers everything unfortunately. Technology is too complicated and simple solutions often miss part of the problem like the sticking petal and floor mats.
Toyota will recover like Ford did from the Pinto fiasco, and will focus like Ford on making great cars again. May take a few years, but Toyota’s great reputation will return.
Till then I would know how to shift my Toyota into neutral, or hold the start button down for 3 seconds. Yes I would still buy a Toyota before this is resolved, because the odds of it happening are under 0.1% and going down with every improvement.
February 3, 2010
Am an engineer that understands technology. Toyoda builds high consistency and quality products, and I would buy one in the future.
Have sympathy with trying to find intermittent problems with runaway acceleration. It can take several examples of problem assemblies or complete vehicles to analyze. You need people who can look outside their specialty for other possible causes, and then follow each one to prove they are not the cause. It is also difficult when the rate of failure like this one is under 0.1 percent. Then it is only when multiple causes happen together. It is really tough to find these type problem sources. But this has been reported in various models for over 4 years, enough time to find causes and solutions unless your head is in the sand.
In the acceleration case there are three causes: Floor mats, mechanical sticking of accelerator pedal, and software/hardware programming problems with the drive by wire system. Steve Wozniak reports his Toyoda runs away intermittently on cruise control. I would take his report seriously since he tries to replicate the problem and analyze it. So far Toyota has not taken care of the hardware software problem beyond solving the accelerator pedal problem.
Each source gets blamed and says it can't be us. Then blames the other sources. In a large corporation you have to be determined and persistent looking for true causes in spite of pressure to settle the problem quietly. This is where ego about "we can't be wrong" gets in the way. Finding these causes is dangerous to your career if you are on the wrong side.
Sometimes you need outside consultants to take the heat and you need a willingness to admit problems. Toyota has lost the willingness to admit problems. It may be cultural as taking the blame in Japan is a cause for great shame leading to resigning or even committing suicide. If Toyota is smart they will honor the group that resolves these problems within the company. You have to want to always improve.
Thought Toyoda would have jumped on possible brake flaws with the Prius which are also in the news. Brakes not working are a major liability and would kill sales. This is a major flaw with the Prius have been hearing about for a couple years. Toyota will take another big hit if this is not resolved.
Mechanics tell me they think Toyota brakes calipers and pads are smaller than the competitors. They question stopping power because of this. You need extra stopping power when conditions are less than ideal due to weather, dirt, etc.
Toyota will take a hit on sales, and resale’s for about 2 years. Hear used Toyota's are now $3,000 cheaper wholesale than they were a few weeks ago. Think runaway acceleration will extend to more vehicles.
Remember if your company is involved in repetitive complaints, take the customer’s seriously if you want to keep them buying again.
January 20, 2010
• In 2009 I predicted the recession would continue, but not be a worldwide disaster.
[Partially Correct, not a worldwide disaster, but now is expanding worldwide]
• Jobs would be very hard to find, and would start recovering near the end of 2009.
[Correct, but the jobs recovery is barely starting]
• The stock market would bottom and start back up within 6 months.
[Correct bottoming in March]
• Housing predicted no bottom and prices would fall another 5% – 15%.
• Oil prices, thought we may have a correction where prices hit the $30’s per barrel, the stabilize around the $40’s to $60’s range.
[Partially Correct, did drop into the thirties, and spend most of the year in range. Then the dollar devaluation and worldwide usage pushed oil into the $70’s - $80’s range.]
Yes, I had good years predicting in 2008 and 2009, but there are no crystal ball that work all the time. This is based on experience, observation, and reading other peoples predictions. With all predictions, your results are affected by location, driving habits, weather and your mileage will vary…
Recession: We are seeing worldwide signs of recovery. Is it enough? There are other signs that are weaker. The US is not going to lead the recovery. The world has to pull the recovery. My major expectation is for slow growth of about 1% - 2%. There is also a significant chance for a double recession like the Great Depression. I put this at about 20% - 25%. If this happens it will be a tough year.
Interest Rates: Expect bond and borrowing rates to be raised. Creditors are going to demand more money to lend the Federal Government for spending. This is going to slow the economy toward the end of the year.
Stock Market: I suspect we are getting closer to a market top in the first quarter or mid year. We gain significantly since March 2009, and are possibly bubbly. The Fed may try to engineer a break in the rising market to keep interest rates low. Have my stop losses set and am monitoring.
Dollar: The slow down trend of the dollar has ended. There are so many concerns about the Euro and other currencies, believe the dollar will do well early in the year. Later in the year we may see Gold and Silver rising again despite the improvement of the dollar.
China: I expect the China boom to end late this year. They have a real estate bubble forming, and their leadership wants to slow down lending. They are trying to stimulate internal markets and keep their people employed.
Jobs: If you have a job, hang on to it until you find another. Unemployment is not improving, and may have bottomed. But the recovery for the job market will be slow.
Housing: Suspect the bottom to the real estate market to be closer, in 2011 or 2012. The over supply of home still has to be worked off the market. I expect prices to fall another 5% - 10% in 2010. Commercial real estate is falling and I don’t see the bottom yet.
Oil prices: There are a lot of possible scenarios for trouble this year, including a good possibly of needing to stop Iran from building nuclear bombs. If that happens or Iran grabs Iraqi oil fields, expect a short term spike. My major expectation is prices to stay in the $70’s - $80’s early in the year, and then increase into the $80 - $100 range by the end of the year.
Remember, we have lived through recessions before, and will survive. My prediction may be no more accurate than yours. But if these predictions happen, how will it affect your business?
January 18, 2010
Steve Jobs: How to live before you die | Video on TED.com
January 1, 2010
We need to admit to passengers there are risks, and to get their help spotting unusual behavior. It does not make us comfortable, but makes us alert and safer.
Explosives are the biggest threat now we have locked the door to the pilots. Between the Christmas Eve Detroit flight and the shoe bomber we have seen the possibility one terrorist makes.
The best method currently available is interviewing people before they board like
Long term we must invest in putting bomb sniffers on computer chips. Some false alerts will cause passengers to change colognes or perfumes. When I had to pass a bomb sniffer in the early 80’s, everyone working there knew not to wear ‘Hi Karate’ cologne since it could cause false alerts. In fact I gave up wearing colognes then. Not sure I recommend that as I did not get married until my forties, but you get the idea I adjusted my behavior to avoid problems.
The advantage of putting sniffers on chips is we can put these bomb sniffing chips almost everywhere due to the low cost of operation. Every pinch point like entrances, check in lines, tunnels, parking garages, and baggage conveyors could have a network. In fact exhaust systems could be an ideal pre-alert warning. These would be networked to alert humans to investigate and intervene. These are area where the dogs would still be necessary.
Baggage and people scanners need artificial intelligence build in to spot potential weapons. Humans are too imperfect to spot them reliably. Research needs to be focused here. There are inspection technologies that are close to ready. The added benefit is this technology would speed up scanning.
Can we make it a priority to recruit National Guard members or retired military for the TSA? We need people with experience and who know what the risks are. Field soldiers are already experience looking for terrorist and bombs. Ideal people to recruit and hire.
In addition we need to profile young men in their 20’s to 50’s. It is not politically correct, but over 90 percent of terrorist are young Muslim men in their 20’s to 40’s. Being safe is more important than politically correct.
December 30, 2009
Seriously recommend you check out all there add-ins. Prices look reasonable too.
December 15, 2009
Jim McIngvale is the founder of Gallery Furniture store in Houston, Texas. Many years ago, he called on W. Edwards Deming to help him improve his business. McIngvale often tells the story about Deming telling him to change his salespeople from commission-based pay to salary. After failing to convince Deming that it wouldn't work in the retail industry, he gave in and changed his pay practices and put his salespeople on salary. In The New Economics, Deming wrote about the results of the change. " . . . steady increase in sales. Older salesmen now help beginners. Salesmen no longer try to steal business from other salesmen. they now help each other . . . sales go up month by month. Moreover, profit per square foot of floor space advances even faster." McIngvale agrees.
Like so many elements in business, it goes back to effective leadership and hiring practices.
My question is What motivations are you offering your people by your rewards? Too many companies do not reward initative or superior success. Do you?
Brian S. Wesbury is chief economist and Robert Stein senior economist at First Trust Advisors
December 11, 2009
December 7, 2009
November 24, 2009
Turnaround TacticsReally good article for anyone managing, developing strategy or entrepreneurs.
October 27, 2009
The leaders who can see a way to expand their businesses will be rewarded when the recession ends. How can you affordability grow your business market share now? Your customers will thank you.
October 21, 2009
In the back of everyone mind should be the situation in Iraq. The nuts running Iraq want to dominate the middle east, and really believe they can bring their mullah back from the 13th century by destroying infidels (Israel) and spreading their religion throughout the world. Russia is not supporting sanctions against Iraq, and may force Israel to attack. If that happens Iraq will mine the waterways and trap 25% of oil tankers from reaching the West. Needless to say prices should spike if this happens.
Add to that US government spending tripling our debt without any job creation. The value of the dollar is falling by design which also drives up prices of commodities. They believe it will make us able to export more, but they have not eased regulations on small businesses. Add to that small businesses are afraid what will happen with the health care bill. No wonder the economy is slow. This does not even include banks and businesses deleveraging, nor consumers reducing spending over job fears and increasing savings.
No wonder oil went from $65 to $80 in the last eight weeks. Gold has crossed $1,000 per ounce and is still rising. The dollar is still easing. Do not see anything stopping these trends in the next six months, or until the Iraq situation and health care is resolved. I bought ETF's in Gold at $950 and Oil at $65 because I expected the dollar to fall.
PS - see current MarketWatch article below about oil prices.
September 13, 2009
- Barnes and Nobel are offering free electronic readers for use to download. You can read electronic books on PC’s, Mac’s, iPhones, iPod touches, and Blackberries. They even give you a few classic books to get you started.
- College textbooks are offered up to a 30% discount and with free shipping. Really important in September and January.
- B&N offer free Wi-Fi in their stores, especially the ones with a Starbucks. There is no decrease in books on the shelves, and the stores in Socal are all orderly.
- The membership program is still active with healthy discounts on books.
September 11, 2009
Actually went to dig up the original article, and think the LA Times article was more focused (i.e. better). Here it is
Rebecca Solnit, 9/11's Living Monuments
Sorry the links are not working. Copy and paste into your browser. You may have to search www.latimes.com to find the title article.
Know we are meant to be better than the self center children we started out to be. Amazing how much better we can be.
September 7, 2009
You may have to go to PCworld.com and search for the article title Tough Tech
After you peruse the high priced I really don't need its, go to the Essential (and Cool) Laptop Gear article to see laptop gadgets like the PLANon DocuPen Color Scanner RC805 and other elite tech gear you probably don't need... :)
Have a great Labor day! I have to get back to working on finding more work.
September 6, 2009
Copy and paste or just search "A peek into the future"
I love predictions. It is amazing how wrong we get them. Yet is it shows how we are trying to solve problems all the time.
Wireless electricity seems like a side effect failure, but there are great places to use it. Especially how difficult it is to run some wires. RUF seems too costly. There is a better chance for cars to use other software technologies which do not require the infrastructure.
N + 3 Aviation and Nanotechnology do seem like the future. There is a tremendous need for both of these technologies.
Just my guess about these technologies. What is yours?
August 15, 2009
We also have unemployed who can not afford the Cobra coverage provided by the company, and companies who can not afford the cost to keep all employees with high insurance prices.
I am not assured that changing the debate to health insurance care is correct. Most insurance companies work hard to keep prices affordable and I have never had any trouble beyond filling out the form.
I also see No cost containment, nor limiting litigation liabilities in the House bill. Frankly there is no sense the government is going to not expand spending tremendously beyond the initial plans.
What I would like is portability of my plan, and preexisting conditions covered. As far as what is politically possible, I really enjoyed reading intelligent commentary. I recommend:
A Public Option Isn’t a Curse, or a Cure
By RICHARD THALER
August 15, 2009
Copy and paste the link in your browser,
August 7, 2009
However signs of a bottom are occurring. The average workweek in the sector rose from 39.4 hours to 39.8 hours from June to July. This has been falling for about a year. In addition, only 52,000 more people joined me in job hunting for manufacturing jobs. Needless to say, if it is you it feels worse.
The cash for cars program may actually get some manufacturing to increase next month. However, that should be only a short shot, and the cars that would be sold later are just coming sooner.
Read the article from the link below, and you will see the mixed message. But the trend is getting better.
PS - Forbes is known for changing links, so you may have to search for "Manufacturing Recovery?" or Joshua Zumbrun
July 24, 2009
I much preferred the ads with the kids and adults showcasing their talents on a PC. “I am a PC” was that slogan. It at least showed why you want a PC.
Not sure the advertising was working. Apple makes superior hardware with software that is convenient to use. Look at how easy it is to integrate your iPhone and iPod with your Mac. All these affordable apps make owning and synchronizing multiple machines easy so your time is productively spent.
Now Microsoft is no slouch in software. Apple is now able to make us of multi-core chips. Microsoft developed this capability with multi-core chips three years ago (more or less). Second the biggest U.S. gains in productivity came when businesses starting using Microsoft Windows machines with Office. How many businesses have not used this combination? Microsoft is still superior for large corporations. Their server and pc software is productive to manage for IT. They improve and service their customers well. Updates are ready regularly to keep your computer safe and sound.
Microsoft is not the greatest innovator for software. Others often came up with ideas how to use computors. Microsoft is the integrator of software supreme. Buy what you need, and Microsoft will take care of you. Really when you look at their marketing for many years they were leaps ahead of any competitors. Who else would a business work with?
When Microsoft focuses on business benefits and advantages for small pc owners and business they market successfully. What advantages? How about more programs for any purpose available. Why does Apple offer programs to mimic Windows? Because you can’t get everything for a Mac. My business card scanner is one application that won’t transfer to a Mac. In fact even though Apple offers compatible programs to Office, most small business owners will buy Office for the Mac just to make sure.
Let’s get back to your business. How are you Marketing and Advertising Your Business? Are you showcasing your advantages and benefits for your customers? Let’s focus on benefits. It is not you offer a product or service, it is how the customer benefits from buying your product or using your service. This is what you have to do for your marketing to succeed.
Also check out John Dvorak’s good article. Very good read.
Apple vs. marketing on 'best price'
July 15, 2009
July 14, 2009
How many permanent jobs will the bill create anyway? Aren’t GAO estimates we are spending $600,000 per job created? You could give away money cheaper. Let’s not forget what this is going to cost us. Consumers eventually pay all taxes.
To create jobs we need to focus on manufacturing domestically. Businesses grow from creating real value. Services and finance grow from these bases.
Stop the Cap and Trade nonsense. It will export more jobs than create jobs. Climate change occurs naturally. Temperatures have not gone up in the last ten years. That disproves the theory that CO2 will increase temperature. Remember, temperature was much higher millions of years ago. Wasn't that the natural temperature we should go back to?
How about limiting litigation costs by capping awards? That would lower medical costs. Even better lower the costs of government regulations. Make filling out forms and information simpler for reporting. How about simplifying tax regulations so we can concentrate on serving customers?
For more jobs we need nuclear power and domestic oil production to lower our energy costs. I am okay with alternatives, but these are the lowest cost energy for transportation and electricity. What regulations have to change to allow investment?
Government building infrastructure is a worthwhile investment, but central governments do not respond quickly to needs. Government needs to be neutral to the market, or we export more jobs which slows the economy.
Let’s stop government from ruining our economy and stimulate real growth.
July 9, 2009
July 1, 2009
It also reports every market using plastic injection is down except medical products. It is an interesting read on the economy by Lisa M. Pellegrino
June 26, 2009
June 23, 2009
My conclusion, there will be more demand for domestic and international drilling starting in 2012. This may hurt President Obama's reelection campaign since the energy policy has been discouraging more drilling.
June 19, 2009
Listen. Change. Two actions for us to take today.
Read the article here on Yahoo Finance:
June 13, 2009
First of all, oil went too high when it zoomed past $100 to $147 per barrel. There was no economic justification for oil going up so high. Speculators drove the market too high has everyone had to buy oil to make some money. When everyone is buying the same thing, you are nearing the peak price.
Oil usage dropped rapidly as gas cost over $4 per gallon. Mileage driven went down as people drove less, bought better mileage cars or took the public transit. This is a permanent change in behavior, and lowered usage more. Of course oil supplies rose. Then the price per barrel over-corrected into the 30’s. This happened despite cuts in production by OPEC. Demand fell faster due to a global recession.
But there are multiple situations affecting price. Developing countries like China and India are buying more cars. Oil stocks have fallen to normal levels. Bio-fuels have risen to be roughly 6% of consumption. Politically the Obama administration is not supporting drilling more oil domestically. Lower prices let that slide by without much political pressure, but I expect that to be a mistake as usage will increase worldwide. The energy alternatives for the green energy do not replace oil however. They generate electricity.
OPEC desires stability. They realize now too high of prices can stall the global economy reducing demand which ruins their economies. They recently increased production about 0.5% to stabilize demand.
So what is driving the price increases? The amount of money the government is borrowing and the policies of the treasury to fight the recession. The dollar is under pressure due to the debt levels and the value of the dollar will fall as the economy recovers. The Chinese and OPEC are looking to protect themselves by diversifying away from the dollar.
So what is my prediction? Oil will stay in the $50 - $80 range this year. Expect this bubble to deflate a bit by August. $3 per gallon gas is too big of a drag on the US economy to help the global economy recover. Second this should be a slow economic recovery. Oil usage is starting at a lower consumption rate for 2009 and 2010.
Long term the falling value of the dollar will be inflationary. US energy policies with global warming taxes will hurt energy independence for the next ten years. It will be cheaper to import oil than produce it domestically. Unless an energy break through occurs, expect oil prices to rise in the years 2011 - 2013.
May 28, 2009
A wonderful question is conventional marketing hurting sales. What if the best thing is to market emotionally to your customers. After all, what are you offering them?
The truth is often simpler. People want what works, looks good, and give pleasure by doing what it is suppose to. How can product development be easier.
May 23, 2009
Watch “Secrets of Success,” hosted by Uma Pemmaraju on Sunday at 2 p.m. and 2 a.m. EDT.
Search the title if the link does not work
Here is part of the article:
"Here is a list of some of the common threads they share: lessons they picked up on their own personal journeys towards what they describe as happy and fulfilled lives.
1. How You Think Is Everything. — Learn to visualize success and not failure. The phrase "You are what you think" is a powerful idea. Don’t listen to the voices that are pulling you down -- you can’t spend all your time trying to win over your critics. Run your own race.
2. It's Not About the Money — Material things are the results of success, but are not success itself. It’s great having a nice home, a six-figure salary or luxury vacations, but success isn’t measured by the dollars. It’s measured by how satisfied you feel.
3. Goals, Goal, Goals — Remember that goals must be meaningful and personal; otherwise, you won’t be inspired to achieve them.
4. Great Expectations — For something desirable to happen, you must want the event to happen, firmly believing it will occur and expecting it to take place.
5. To Fail Is to Succeed — Failure pushes you to levels you never dreamed of, and can open doors you never thought possible. See failure as a life lesson for what works and what doesn’t.
6. Dream Big — Never be afraid to follow the dreams of your heart. It’s the fuel for success. Your dreams give you the energy and inspiration to aim for an authentic life.
7. Take Responsibility — Stop expecting things to just happen without action. You need to take action to reach your goals, without blaming others for bumps or setbacks you may find along the way. Own the choices you make: Be a victor, not a victim.
8. Positive, Not Negative — If you are passionate about your dreams and goals, you’re likely to attract people who will want to support and help you. Call on them when you need encouragement or guidance.
9. Never Stop Learning — Read books, take classes, take the time to learn all you can about things that excite, motivate or inspire you. Never lose that sense of wonder or curiosity when it comes to seeking more knowledge.
10. Belief in a Higher Power — Regardless of your religion, develop a strong sense of faith in God and have a daily attitude of gratitude for what you have in this life. Believe that there is a divine purpose to your life and know that there is power in prayer."
May 20, 2009
If link does not work, search Foxnews for “Pocket-Sized Robot”
How can you change your market today?
May 16, 2009
"All of these were sins of commission, not omission, by Washington, and some at least were not unrelated to the very considerable political contributions and lobbying expenditures of the financial sector. Taxpayers, therefore, should beware."
Really enjoy reading about economics, the market and will include links in the future.
March 18, 2009
There are also good webinars available on http://www.industryweek.com/
February 27, 2009
Even worse is the drumbeat of bad news shouted from the TV, and on front pages of magazines and newspapers. They are trying to scare you to look or listen for better ratings. Hello, this is about the size of the 1982 or 1975 recession. Not the Great Depression 2 or even the end of the world.
Today is not about the fear. Business is about the relationships, especially with the customers. Business is about being better than the competition. Business is about finding our niches, and serving the customer. Business is about making a profit through service.
So what can you do differently to improve profits?
What about when the recession ends? What products or services would you like to develop now to be ready for the next couple years? Who do you need or want on your team? What skills do you need to train your staff to have? Don’t you think this is the best time to prepare?
We have to be careful, but business will go on during and after the recession. Will you be ready?
About the Market
Personally I am not ready to declare the bottom of the market, and it may be further off than we would like. However there are reasons to think we are closer to the end than at the beginning. Housing has already corrected about 40% from the peak of the bubble. The Dow has dropped from the $14,000’s to the low $7,000’s. For other hints see Irwin Keller’s article below.
Signs of life
Commentary: The economy's worst may be past
By Irwin Kellner, MarketWatch
Feb. 24, 2009
Note Marketwatch Links are soon broken. If the link does not work, go to
Search for Irwin Kellner
January 21, 2009
We all need to think like this,
January 1, 2009
However my predictions for 2009 are not as pessimistic as most of what you read in the media. Most of the worst effects of the recession already occurred in 2008. No one knows what will really happen, but I will make a few economic predictions like I did last year with oil prices. Warning your mileage may vary as I am limited in experience and make lots of mistakes. But it is good to present views for you to think about and analyze.
Recession: We are still going forward with the recession, and businesses are hanging on to money carefully since borrowing is so difficult. I do not expect the recession to grow into a worldwide depression. The news reports comparing us to a depression are vastly exaggerated. Most people have not experienced a serious recession since the early 1980's. We have lived through recessions before, and will survive.
Jobs: If you personally have a good job you may not feel the recession. People who are job hunting or looking for a better position will have to take more time to find a great job, and may have to take a step backward right now. It is just a delay for the good times to come. My prediction is job loses will peak early in 2009, and by the end of the year jobs will start recovering. So if you are job hunting keep persisting.
Stock Market: I suspect we are getting closer to the market bottom. I suspect we are within six months of the bottom. It may take a year, but I am looking for evidence it is time to fully invest again.
Housing: I see no bottom to the real estate market until around 2010. The over supply of home will have to be worked off the market. I expect prices to fall another 5% - 15% in 2009.
Oil prices: This was my best prediction of 2008. On January 17, 2008 I predicted oil prices would peak and fall during 2008. I thought the bubble prices were way out of line at $105 per barrel, and thought oil would fall into the $60 - $80 per barrel by the end of the year and to $40 - $60 per barrel early in 2009. My prediction was based on the long term cost of alternatives to oil were in the $40 to $60 per barrel range. In spite of the gyrations of politics, wars and speculation, I expect prices to stay in the $40 to $60 per barrel range. We might see another over correction with prices falling into the $30's per barrel with the slow economy. There is an oversupply which will be corrected over the long term.
The best advice summary: The best thing you could do is maintain a very positive attitude. This one action will help no matter the crisis's you face, and will help you reach your goals. Heck you may even succeed with your resolutions. Spend some time every morning meditating on what is good in your life, and thank God for everything. Even the challenges and problems you face.
Have a great 2009! I will no matter what.
October 4, 2008
Business has to adapt to the changing conditions and change your plans. Business conditions right now are transitioning into a more severe recession than expected. The shutdown and forced sales of US financial companies and banks. This is the reason for the bailout which really should be called a credit stabilization bill.
Inflation was the story at the beginning of 2008. Currently inflation is being reduced by the improving value of the US Dollar. It is not how much the US economy has improved, but the global economy has gotten worse faster than expected in Europe and Asia. Only the oil producer’s economies are doing well. The rest of the world is slowing down quicker than the US economy is.
Helping with inflation is the bursting of the bubble in commodity prices. Oil rose to a high of $145 per barrel, and now has returned to around $95 per barrel. This happened in only a few months. Oil price will be volatile depending on political and weather related interruptions, but is gradually dropping towards the $60 – 80 range in 2009. Demand for all commodities except food has dropped.
The real problem now is the credit crunch. Banks are trying to raise capital to survive, and are not giving loans they gave last year. Credit card companies are tightening their limits because of losses. This not only affects consumers, but lots of small companies use credit cards instead of a line of credit. Lines of credit are harder to get for larger businesses. Taking a second mortgage on your house is more difficult due to lower values and tightened lender requirement. These all will accelerate the credit crunch.
Keep your perspective. No recession lasts forever. There are a few steps to take right now to prepare.
Hang on to all your cash
1. Sell down inventory as low as you can. Sell excess and obsolete products by reducing prices.
2. Cancel all unnecessary expenses, subscriptions, software, and leases.
3. Sell and scrap unnecessary equipment.
4. Lease out or sell unused space. A sublet tenant can improve profits.
5. Pay credit on time and make sure your bank knows you are profitable. You need a good relationship for future credit needs.
Review your products and prices
1. Do you know which products create profit for you? What do they actually cost without overhead?
2. Increase prices or discontinue unprofitable products. Do you need all the finishes or colors? Increase prices on money losers to reduce demand, or…
3. Replace dated and noncompetitive products with new designs to improve margins. Design simpler products or combine two products to reduce cost and improve margins.
Improve your business
1. Advertise more. Stay in contact with existing customers more. Find new customers.
2. Expand by adding more products to sell existing customers. Partner with other suppliers to your customers.
3. Keep your key people and performers. It is too expensive to replace your best talent.
4. Hire better talent. Lose your weakest performers who slow down or move them to positions where they have ability. This is the best time to find the people you need to grow and be ready for the recovery.
5. Plan to grow more profitable over five years. Find new products, services, or profitable niches. Others are cutting costs only. The great companies grow more competitive.
Recessions are opportunities. Take full advantage of them for your benefit.
September 17, 2008
It has been too long since I have written, so expect some new postings soon. Basically would like to comment on the economy.
July 4, 2008
No government has successfully managed an economy like a business. We have been successful letting the market determine winners. The government can sponsor research, but business has to invest. Its simple – higher taxes equal no profits and no oil.
What should we do is promote every energy source. Drill offshore, coal, natural gas, solar, hydrogen, conservation, and nuclear. Government should not pick the winners, but goal has to be energy independence.
When will oil prices fall? When the US has the will to build nuclear power plants.
May 10, 2008
Our dollar is falling in value for because of oil imports. Oil imports were 4.9 billion barrels in 2007. Estimate $75 per barrel is $367.5 billion, or 50% of the $711.6 billion US trade deficit. We need to expand drilling off all coasts and domestic refining.
Corn based ethanol is not efficient and is causing food shortages. We need to develop cellulous (grass) base ethanol.
France generates 90% of their electricity with nuclear power. Our nuclear plants are decades old and need to be replaced for safety. Solar power will contribute in the next decade, but we need electricity at night for non polluting electric cars.
We need to balance fiscal, political and environmental responsibility in our energy policies. The US can not surrender our children’s future to imports. We need to meet our own needs domestically.
April 22, 2008
We will not have a great depression. This is just a normal business cycle, unless political protectionism makes the situation worse. This cycle is predictable and expected by mature investors. There are challenges coming, but nothing to panic over.
Consumers will not be able to use their homes to use like an ATM to keep spending. Increased energy and food costs further will reduce consumer spending power. Consumers will change their spending towards different priorities for the next few years until incomes increase again. Job outsourcing globally will keep salaries low.
Consumer spending is the driver of two thirds of spending. Fortunately the world is now more successful everywhere, and increased demand is now coming from Eastern Europe, Asia, India and the Middle East. So consumer spending will recover internationally first.
So how will the economy recover? Productivity and innovation has always driven economic growth.
Invest in businesses, products or services that increase productivity. Can you lower shipping costs, use energy more efficiently, use less material in products, service clients quicker at less cost, or reduce overheads? These are the drivers of productivity. And the companies that do this are the ones to own.
Innovation and market changers are the companies that will thrive in the future. Look at Apple’s success in changing the music market. There are kids who have never bought a CDs nor albums. They buy music through iTunes. Television and movies are the next to be changed. Low cost hardware and better software has made an explosion of producing content available. With so many choices for customers, how can major studios or networks hold on to viewers? Look for distribution over the web to grow.
Computer grow exponentially more powerful, and programs now do the leg work of thousands of technicians or clerks. CAD changed how we design products, test ideas, and do research. Better quality and lower prices have come with these innovations. In fact, as the price gets lower more people have access to the power of software. Look at the success of new medical products that are improving medical care. CAD has speed up development tremendously. Furthermore the web will be replaced by cloud computing which will increase the amount of data available faster.
Invest in energy businesses that increase productivity of creating energy or conserving energy. One caveat, they must be profitable at a much lower oil prices. Energy will be the next bubble to break. $100 to 120 per barrel is not sustainable.
Oil was stuck in the $15 to $20 per barrel range for two decades. A price of $30 dollars per barrel would be reasonable today with normal inflation. The value of the dollar fell about 30% over the last two years, so $20 to $30 per barrel is now $30 to $45 per barrel. Demand will fall at the current high prices, and alternative production methods are cost effective above $30 per barrel. Both will reduce future demand for oil and lower prices. Invest only in energy processes that are cost effective at $30 - $45 per barrel. I expect oil to fall to $60 – $70 per barrel in 2009.
In summary, the future economic growth will be from productivity and innovation. Productivity and Innovation will overcome a few years of low growth or recession. This is where we need to invest for future profits.
March 28, 2008
In college success was still passing your courses, but more important was figuring out your major. Most of us had no experience whether we would like our career afterwards, but we choose them anyway.
After college success was getting your first job and an apartment. Friends and good times may be a priority. The adventurous take breaks and travel, while most of us tried to figure out what we are doing at work.
Next success was finding love and marriage. Success is finding a partner to love and who will love us.
Family comes after marriage. Success was buying a house or condo. As the family grows, success was getting a bigger house.
Getting promoted, or getting a better job was our next definition of success. Some will choose to be self employed instead.
At some point, the economy or business cycle changed and success was keeping our job as other were laid off.
Maybe your next success will be retiring, or maybe it was a recent success. Perhaps you will consider it a success to find part time work to keep you busy, or success is more games of golf.
While these are all fine goals, I think most are not a good definition of success with the exceptions of love and family. Let’s propose a better definition of success.
Success is when we take care of customers. Success is earning a living. Raising good children is a success. Success is when we make the world a better place.
Success is when we do for others selflessly. Success is not about us, not what we own, but about serving others. We succeed when we help. Help any way we can by either our time or money. Volunteer at charities or church. Volunteer in you schools or neighborhood. Just take action for others.
Isn’t that a better definition of success for you to live by? Change your definition of success and you can leave a better world. Then you are succeeding!
February 13, 2008
Hugo Chavez in Venezuela has threatened to cut off oil to the US? Vladimir Putin and Russia has the power for using natural gas and oil over Europe. Iranian President Mahmoud Ahmadinejad is using oil wealth to threaten destroying Israel and potentially starting a world war against the West?
Think about the war in Iraq? The fight between the Shiites, Sunnis and Kurds is over religion, power and oil wealth. Iran, Syria and the terrorists are all interested in Iraq’s power and wealth.
How about a potential overthrow of the pro US government in Saudi Arabia? Al Qaeda was spawned under the House of Saud, and a large number of their citizens hate their government. What happens if they lose power?
Why should we continue to give money, political power, and an economic weapon to people who hate us? The current risk of supply problems is significant, and would damage our economy.
How much of our trade deficit is based on oil? The 12 months through November 2007 the US imported 3,647,889 barrels. Assuming the average price over 2007 was approximately $75 (Current prices are in the low $90’s), oil imported was approximately $273.5 billion in 2007. Our trade deficit in 2007 was $711.6 billion, making oil imports about 38% of the deficit.
To solve the oil problem, we need plans for the long term as well as the short term. This is a series of solvable projects that needs a long term vision to happen.
Short term actions:
Drill more domestic oil off all the coasts and in Alaska to cover the next decade. Everyone points to the potential for pollution. Oil drilling and transportation processes have improved dramatically over the last 50 years. The rare accidents are cleaned up quickly. Oil will always be needed for premium energy, plastics and products. The US needs to increase production.
Locate more natural gas reserves and develop pipelines to heat buildings and homes. Our infrastructure is reaching its limits, and needs expansion.
Find better ways to clean pollution from coal emissions, and require the whole world to use the technology (including China, India, Russia and developing countries) for a level playing field. China and India are causing three to ten times the pollution than the US. Why should we be held to higher unfair standards like the Kyoto protocol than the rest of the world?
About global warming:
Human caused global warming is not scientifically proved beyond a doubt. Global warming is a natural cycle with a little human contribution since the industrial revolution.
Why is a 1 degree Fahrenheit (0.5 degree Celsius) increase over 100 years traumatic? History shows a normal range of variation around 3 degrees Fahrenheit (1.7 degrees Celsius) in the last 2,000 years. Go back millions of years and the natural temperature variation is larger. The biggest factor related to global warming is the natural variation in the output from the Sun.
The fanatics are talking CO2 will destroy the world. People and animal exhale CO2. Are we talking about people and animals breathing CO2 being the main cause of a pending future natural disaster? I don’t think the world is that fragile.
If human kind is contributing less than 1% to 5% maximum of global warming, why are some panicking? Most of the research is based on computer models that are simpler than reality. These models do not work well when compared with current data. Look at the hurricane predictions from 2006 & 2007. The results missed reality going the wrong way from the faulty models. Most global warming models are based on faulty logic. The lack of good science is why I do not take global warming seriously as a panic.
Long term actions:
Generate more electricity using solar and nuclear. Solar electrical generation is finally becoming efficient enough to be cost effective. It could generate 10% of future needs as well as being pollution free. Tax incentives and private industries should be the source of solar products.
Nuclear energy is the choice of many countries including Canada, Britain, Spain and France. France generates 90% of their electricity from nuclear power. The plants in the US are aging, and need to be replaced with new, safer designs that are also more energy efficient soon. The older nuclear plants need to be retired for safety. Legal battles with environmental extremist have prevented new nuclear energy plants. We need to make nuclear power politically possible and economically feasible.
Convert hybrid cars to plug in hybrids to use less oil. This requires more electric generation from solar, coal and nuclear. Hybrids work because of the expanded range for practical transportation. Pure electric cars are too limited in distance for average commuting, and public transportation takes too much time for busy Americans to use. Most of us do not live near transportation that goes near our offices without doubling our commuting time. Time is our most valuable resource. This is why less than 3% ride public transit to work.
Create fuel cells to replace the gas engine generating electricity for hybrids. Fuel cells are getting close to being more economical for gasoline and alternative fuels like ethanol, natural gas and hydrogen.
Grow and develop grass based ethanol since corn based ethanol is too energy inefficient. Grass based ethanol generates much more energy than corn at a lower cost. We also need a pipeline system that carries ethanol. Transporting ethanol in trucks is too expensive and unreliable for extensive use.
The Results of Energy Independence Program:
A ten year program for energy independence will bring world oil back to $30 - $50 per barrel when the US stops importing oil. Dictators will have loss their income and a threat to use against the West. The possibility of war would be reduced. The American economy would improve with less trade imbalance.
The technology is there for everything proposed here. It takes a leader, political commitment, private and governmental investment, and the will to get it done. We are ready for the leadership to step up.
January 26, 2008
First let’s focus on what sells during recessions. These areas do well in slow economies. So how can your business cater to the desires of your customers or consumers?
Exports sell – The recession generally lowers the dollar (already happened!) so this is the time to find products to export. The growing economies of China, India, Asia, Russia, Dubai and other petroleum wealthy countries are ideal for expanding business while you have a currency advantage. Use the value of America to sell. McDonalds and Coca Cola are great examples of exporting.
Comfort sells – people are worried about their homes, their jobs, and their family. For most people they pull in spending on big luxuries and vacations. However they replace them with familiar pleasures and little treats to make staying home more pleasant. Traditional foods, decorations, home entertainment, and health products are examples that will do well.
Value sells – money is tight, so people will hold it unless it is a good emotional or financial investment. Return on Investment and quick payback work for businesses, investors and consumers. Have features that are usable, use less energy than competitors, are green, save money, and do more for the price. Wal-Mart, Costco and Sam’s Clubs do well when people are watching their dollars. But you don’t have to be the cheapest to be a value buy. Offer guarantees and let them know they are buying a product or service that does what it says it does and performs well. Remember decisions are emotional first, then buyers justify their decision logically.
Quality sells – Ford advertised “Quality is Job 1” and it really is. People will pay for better quality. Toyota and Honda have made the best quality cars over the last twenty years, and look how their sales are worldwide. Toyota is about to be the bigger than GM.
Simplicity sells – Easy to use products and services always do better than competitors. Lower priced products and services with fewer features do well when people are being frugal. Design new versions to make a basic and simple product or service as possible. Your higher end customers will still want the old features and pay more, but get new customers into your base now and upgrade them later. Existing customers you can offer sensible upgrades and extras for more.
Luxury sells – the very wealthy are immune to slow economies unless the stock market drops precipitously. They want to impress friends and enjoy what they get. However they are less likely to buy the ostentatious instead of more subtle beauty. They don’t want to offend as much as impress. Green mansions still have cache since you look responsible, green, and have something unique compared to the merely rich in their regular McMansions. The wealthy will still travel but may justify it to themselves being combined with another purpose – “since we were in Greece on business, we visited Athens”. There are less people feeling wealthy, so you have to target and appeal to the really well off. This market is wiser about value and will negotiate more, but purchases are still emotional decisions.
Design sells – often the real decision maker between competitors is design. Better performance, distinctive appearance, new colors, fashion, different fragrances, and artistic design do sell strongly. Does the product fit the hand, easy to use, and the curves look appealing? Cadillac has recovered it name with better design products. How do the competitors look? People will pay a little more for a Target styled product than a cheaper Kmart or Wal-Mart product. They want what will impress them and their friends.
Love Sells – seriously there is no greater need for people than to love and be loved. This is where advertising has always succeeded. The original Mustang “makes it happen”, “every kiss begins with Kay” Jewelers, beer ads making you look attractive, Victoria’s Secret, and Match.com are example of how you can make it easier for romance and family. Family is often a stronger bond to support. How can you make it easier or appeal to singles and families?
Humor sells – Seriously we buy from people we like. Look at the successful Miller Lite’s ads which were making people laugh at celebrities. Some of the most famous ads were from two football players making fun of the perception football player are dumb. Playing dumb sold a lot of beer and got these guys into the movies as actors. Make sure your clients know they will have a good time with your product and service. Southwest Airlines built a great business making passengers enjoy the trip.
Novelty sells – something cute, cheap, funny and easy to talk about always sell well. A good video on YouTube.com can create insane demand. Pet Rocks with those silly directions on ‘How to Care for Your Pet Rock”, Superballs (where did mine go?), the Wallcrawlers which were funny looking octopuses that flopped down the walls, the Slinky which still fascinate kids, and the hula hoop all still sell.
Security sells – people still have desires, but with less opportunity to earn it a small percentage will take what doesn’t belong to them. Incidences of crime, especially locally, can be used that so people want to protect what they have. The tendency is already there for consumers, just get them to look at a risk they ignore to get them motivated. If you sell security advertise to your market using fear.
Advertising sells – Most businesses cut advertising first when times are tight. This is when you want to expand your advertising and take market share from competitors. Make sure to track results, and watch your budget. Negotiate better deals from your media while they are losing other business. Successful companies often expand advertising in slow economies. Save by expand internet marketing and focusing your print, radio and television advertising. Consider switching to cable television in focused markets versus broadcast ads. Send postcards instead of sale letters to save postage. Have the postcards get customers to go websites with shopping carts. Call old customers regularly. Stay in the selling mode no matter what the market is.
Follow these ideas and you may not have a recession in your business. These ideas generally work in most economies, but will work better during slow times. What can you sell now?
January 17, 2008
Housing will drop big due to credit crunch. If you can’t get financing very easily, how do you buy from someone? Since it is harder to get loans, fewer buyers are available with good credit and money down to buy houses and condo. Investors buy at the value of the net income they can rent a property for, and look for bargains. Neither the lack of buyers and investors caution is good for supporting prices in housing.
Disclosure here: I have done residential and commercial real estate appraisal in California and assisted in Nevada, so actually have real estate analysis expertise. The rise in residential values ran 9 years in southern California from 1997 to 2006, and went years too far. Values could really drop back hard. Las Vegas and Arizona have already dropped prices around 30% and could go lower with so many new homes. The Inland Empire and San Diego values have dropped over 20% in 2007, so Los Angeles and Orange County are behind the curve and may fall 20% in 2008. I have predicted prices to fall off the peak 20% to 30%, and up to 50% if the economy really fell. So I tend to be regarded as pessimistic since I think the boom went far too long. Recovery should start around mid 2009 to 2010, but it is very hard to pick the bottom. If your housing prices have been falling since 2005 you are closer to the bottom than we are here in southern California.
Your area housing values will vary based on local conditions, but I expect a national average to fall by 10% without crazy loans, easy money and speculators to inflate home values. Best analysis I have read is from JP Morgan predicting land values will return to 2002 – 2003 levels, and near the east and west coasts the land may be up to 80% of home values. Location, location and location still rule when it comes to evaluating properties. Look for investment opportunities this year and in 2009.
Commercial property values will go down since it is harder to get credit here as well. It is early in this correction, locations, and property use varies so much will not predict how much values will fall. Commercial prices did not go up as crazily as they did in housing, but value depends on income and cost to borrow. A ten to twenty percent retreat would not surprise me this year in some areas.
Economy will recession early, and start the recovery before end of 2008. The credit crunch will hurt borrowing for businesses, but the hallmark of the American economy is how quickly capitalists adapt to change. China’s currency is increasing in value to the dollar, which will increase inflation as well. Consumers will cut back slightly, but most spending will continue to be stable. Styles will move away from excess to value, so imports may be hurt with higher prices of the now lower dollar. However booming economies internationally especially in India and China will improve American exports. In all, the diverse and adaptable economy will be recovering this year.
Employment will only drop mildly in the US. Finance, automobile and housing industries will be significantly hurt in 2008, but the rest of the economy should grow needing good employees. Your local conditions will vary. I will be looking for a new position in 2008, so understand personal concerns depend on your situation and industry. I expect to be with a business unit growing quickly or turning around by mid year.
Oil will fall from $90 – $100 per barrel to $60 – $70 per barrel in 2009. Politics in unstable countries can have a tremendous affect on supply making timetables hard to guess. So this is the riskiest prediction I am making. Have no special information here, but let’s look at history. Recently it took many years to go from $20 to $30 per barrel. Prices were stuck in the $15 to $20 range for over a decade. The sudden jump in oil prices from $30 to $90 per barrel happened way too quickly from a historical perspective. The cause was speculators and fears driving gains with increase international demand. The value of the dollar fell about 30% over the last few years, so $20 to $30 per barrel is now $30 to $45 per barrel. Demand will fall with current prices, and alternative sources are cost effective above $30 per barrel further reducing demand. Politics will have an effect with a president elect promising a program to reduce oil imports could speed the price reduction. Overall I expect a gradual reductions happening with jumps and falls starting in 2008.
Stock market will fall early and start recovery about mid 2008. The recovery will be mild and I like John Mauldin’s description of the “muddle through” economy. The stock market often acts as a predictor of the market and it has had a lot of growth. The question is how far we are going to correct recess or depress the market? More importantly which business sections are going to fall the most. My record here is poor historically, so do your own research. Falling should be finance companies, housing, and consumer related businesses. Everything else depends on design, innovation and value to grow businesses.
The election in November is too close to call right now. The Democrats are likely to have either Hilary or Obama, and they would be wise to have a joint ticket. Republicans have five good candidates, and possibly no one will come with a majority to the convention. Voters usually look at experience, positions, leadership and pandering. Could be another close election based on the experience of the Republican candidate versus the changes proposed by the Democrats. There is a lot of potential changes based on the economy, world events, Terrorists, Iraq and Afghanistan. In the final election the most moderate candidates between the Democrats and Republicans usually win, so that is my prediction.
Okay, this is enough predictions for me to reasonably make in 2008. Lets see how wrong I am since my record has never been perfect. Black swans events make predictions more of an art than a science. Use your own judgment about the validity of these guesses and how they may affect you.
Recommend Forbes, marketwatch.com, John Mauldin, Doug Fabian and Mark Skousen for research and information.
January 1, 2008
Are you familiar with derivatives, CDO’s, credit swaps or the subprime mortgage market? They have been the latest way banks, hedge funds, insurance companies and other investors tried to increase yields by bundling loans together. The problem is they have not properly accounted for the risk, and not enough reserves are in place for when these investments fall in value.
So people who lend money do not have enough money to lend more. Credit will increase in cost, and less will be available for business to borrow. This will slow the economy, and consumers are not able to borrow to finance more purchases.
What do we do now?
First of all keep perspective, no recession lasts forever. They are normal parts of the business cycle, and there are several steps you can do. It may be mild or a full depression, but the actions you will take are similar. You just may be forced to take more actions in the event of a depression.
Hang on to cash
If credit is hard to get, you are going have to fund expansions internally. The Stock market may not fund you, and lenders are nervous. Be prepared by watching spending and cutting overheads.
Know what makes you profit
Most people know volume of sales, but few allocate expenses fairly to each product line. It is easy to spread personnel, advertising, and overheads over all sales. It makes more sense to know which products or services cost more and what they make. Allocate almost all personnel to product lines, allocate inspectors and freight to materials, and then spread the remaining unallocated personnel and expenses over all labor and material expenses. This will show where you actually spend your resources, and how much each product or service costs. Then figure out your profit margin.
Re-price products to make a profit
Sales have to make money. Even advertising loss leaders have to increase sales to be worth doing. So evaluate which products or services create value, compare to competitors, and don’t just be the low cost provider. Less sales may make more sense for some products and services. Especially if you are losing money per sale. Price accordingly.
Kill weak products or product lines
Redesign or rationalize product lines. Let good products eat weaker products. You want products to go after competitor sales (or increase your profits), but not just because we always sold that. Can you buy someone else’s cheaper?
Design better products
Design is often the deciding factor in sales. Good design has value in attractiveness and functionality. Don’t blame the sales team for a poor product or service. Create better, faster and new services. Make products have more value. Create new looks and new markets. Growth is finding opportunities. Make sure you design to win.
Sell more to existing customers
Offer additional services and products to your existing customers. Your customers are valuable. Don’t lose them to competitors, but make yourself their partner by adding value to them a discounter can not match. Sit down and find out where their pain is. Look where you can grow servicing your best customers. Bring ideas and contacts that will grow their business. They will remember.
Find new customers
Don’t quit marketing or advertising. Find competitors to your existing customers. Especially find the young growing business that may become prime customers.
The US dollar is falling in value, so find new customers in other countries. China, India, Dubai and Asia are growing in wealth so are great markets to open. Europe is now cheaper to sell to. Take advantage of your value by finding representative in these markets.
Make advertising show results
Get their attention. State your benefits clearly and believably. Get feedback. Motivate your customers to do something. Make sure your advertising is in line with your strategy.
Hire people who will contribute to bottom line
Keep your winners and make them partners. Always look for designers, engineers, sales, and leaders to make your business grow. The advantage of a recession is less competition hiring the best people.
Review your strategy
Does your current strategic plan match the changing economy? Be realistic, be opportunistic, and believe you can succeed. Others will just try to shrink their business and may hurt themselves. You can actually grow market share by being aggressive in going after business by creating value.
A recession is really just normal business. Just be focused on what needs to be done like normal, and do the hard work that gets missed when you are growing fast. Your people will overcome a recession if lead to face the problem. It is up to you to lead.