The Chaos of the Presidential Election Officially Begins: Expect Market And Economic Chaos Too

February 2nd, 2016

As a resident of a swing state and living not too far from the site of the Republican National Convention in a few months, I’ve been subject to the insanity of the coming election for what seems like an eternity.  With the Iowa caucuses last night, the fun officially begins.  It’s scary.

I love hearing that the stock market gyrations are caused by the Federal Reserve tightening, China’s economy slowing down, oil crashing, and conflict in the Middle East.  All are certainly unsettling issues that cause concern to those who make a living investing.  There’s a big elephant in the room that is having a bigger impact on the stock market and on the real economy as well: the presidential election.  We’ve had candidates threaten 40% tariffs on Chinese goods.  We’ve had candidates use a private email server and receive classified email information.  We’ve had candidates propose a 90% marginal tax rate.  There’s a chance the US elects an avowed socialist.  Are you kidding me?  I wonder everyday how this is the best we have to offer as a country.

I know it’s primary season and candidates have to “mobilize their base” and all those other fun buzzwords.  Candidates tend to take extreme positions in primaries.  We still have a constitution that provides checks and balances (in theory).  But it’s very likely one of these knuckleheads will be president.  One of my best friends keeps telling me, “I don’t know a lot, but I’m pretty confident the president will not be Donald Trump, Hillary Clinton, or Bernie Sanders.”  I hope he’s right but there really aren’t any candidates that excite me currently in the race (although I like a few of them better than any of those 3).

Markets don’t like chaos.  Investors don’t like chaos.  The uncertainty of this election and the candidates involved is chaotic to put it mildly.  Trade wars aren’t good.  A leader that’s a compulsive liar isn’t good.  The US hasn’t been successful because of socialism.  Until there’s more clarity in this election, expect chaos to reign.  Markets will gyrate up and down.  Economic statistics will be all over the place.  It’s going to be a wild ride!  (I do have confidence that the good ol’ US of A will pull through in the end.  Stay optimistic!)

Are You Playing to Win or Playing Not to Lose?

January 26th, 2016

 

Sometimes things happen in my life that make me think Someone is trying to send me a message.  Be patient as I weave two stories together.

As I’ve written in the past, I’m coaching my son’s 4th grade basketball team.  We had a tough start to the year and hadn’t won a game.  I was talking to a friend that coaches an older grade of kids.  He told me, “You’re going to win a game.  And you’ll probably have a big lead.  Make sure they don’t get too excited.  It happened to us – we were winning by 12 going into the fourth quarter and lost because the kids lost focus.”  (For those of you that haven’t watched a grade school basketball game lately, there are games in which 12 points aren’t scored by both teams combined.)

I spent last week doing an executive education class with other business owners and CEOs.  We spent an entire day discussing and learning about companies that had “won” but started to play “not to lose.”  Think General Motors when they had almost 70% market share and they laughed about their Japanese competitors.  Think about Blockbuster ignoring Netflix.  The professor challenged us to think about our businesses (and our lives).  Are we still out there to win?  Or are we afraid to lose something we’ve worked hard to get?

Fast forward to this past Saturday.  Grade school basketball.  We were winning 16-2 at halftime.  The kids were giddy (so were the coaches).  I had to prepare my “win for the Gipper” speech.  Time was of the essence.  I quickly came up with what I thought was the most profound motivational words ever bestowed upon a 4th grade basketball team.  This speech was going to be engraved in stone and placed in their school for generations to reflect upon. Remember, their attention spans are even shorter than ours.  Short and sweet and to the point.

“All right guys, you played a great first half.  But it doesn’t matter right now.  Right now, the score is 0-0.”  I was about to deliver the big finish to my remarkable words of wisdom when my son (yes, my son), said, “Dad, can’t you see the scoreboard?  We’re killing them!”  Instantly, the kids started hooted and hollering.   After delivering a sarcastic thank you and a look only a father can give a son, the team quieted down.  I continued, “Listen, the first half is over.  We need to win every possession and continue to fight for the ball.  And after we win, we’re going to act like we’ve done it before.  No celebrating – we’ll celebrate after.”

We won the game, 24 – 5.  As I drove home, I thought about my week.  If I didn’t get the message through business, I got it Saturday.  Stay engaged.  Stay focused.  Don’t rest on your laurels.  They’re all great catch phrases for a reason.  I’ll give you mine: If you’re not playing to win, get out of the game.  Otherwise, you’re going to lose.

GE Moving Its Headquarters to Boston: Crony Capitalism at its Worst

January 19th, 2016

Last week, General Electric announced it was moving its corporate headquarters from Fairfield, Connecticut to Boston, Massachusetts.  GE had flirted with several locations who all promised tax breaks and infrastructure improvements to get the 800 jobs.  According to the announcement, Boston and Massachusetts are contributing $25 million in property tax relief and $120 million in grants and other programs.  (Some GE employees will receive assistance in buying homes in the Boston area.  Isn’t that special?)  I did a little math: $145 million dollars for 800 jobs.  The taxpayers of Boston and Massachusetts are subsidizing GE to the tune of $181,250 per job.

GE is expected to report net income of $12.7 BILLION for 2015.  And yet, cities and states offered GE tons of money to relocate their headquarters.  What I find really ironic is Massachusetts, perhaps the bluest of the blue states, is crowing about giving GE money and the opportunities that will be created because of GE’s headquarters being in Boston.  Isn’t that “trickle down/voodoo” economics?  (Supply side is the technical term.)  If Massachusetts politicians suddenly started to believe in supply side economics, why don’t they cut taxes and offer incentives to all businesses?  If giving money to GE to move jobs there will create other jobs, won’t other companies have the same impact on the economy?   Instead, we get crony capitalism – the big companies get big advantages.  I’d gladly take $181,250 per job I “create” or move from one location to another.  I get it that I.D. Images doesn’t have the same panache at GE, but clearly a job we create should be worth more than zero, right?

GE played a political symphony that rivals anything Bach or Beethoven ever wrote.  They talked with many cities and states about relocating there.  I don’t blame them; that’s the system we have.  I do blame the system.  Give us a level playing field.  Both political parties practice crony capitalism and give favors (money or regulatory concessions) to those that know how to play the system.  That’s not how capitalism should work.

The Consumer is Dead.  Long Live the Consumer!

January 12th, 2016

 

The recent market gyrations have the talking heads in a tizzy.  Commodities are down.  Stocks are down.  Major retailers are laying people off.  China is a disaster.  All this negativity is enough to drive you crazy.  Fear not; the US consumer, as he always does, is here to save the day.  We’ll continue to buy more stuff, eat more food, and drive more miles.  That will keep us out of a recession, regardless of what is going on overseas.

I fully admit to being confused by the economy and markets lately.  There’s a lot of noise.  Let me start with rule #1: The stock market is not the economy.  Let’s repeat that.  The stock market is not the economy.  Gyrations in market prices can make people euphoric or cause them to jump off bridges but they don’t reflect the day to day goings on in the economy.  So, let’s focus on what is going on in the economy.  The oil industry, a key driver of US economic growth over the last few years is in shambles.  Since 2000, we’ve had an internet bubble, a housing bubble, and now what looks like an oil bubble.  Remember rule #1: the market is not the economy.  Oil had a nice run up and people made investment decisions based on oil being a much higher price than it is today.  Oops.  It’s no different than deciding to buy an internet stock in 2000 or a house in 2006.  Oops.  It happens.  It’s happened before and it will happen again.  I feel bad for people who have lost their jobs.  I feel bad for people who lost their investments.  Oil will come back.  I have no idea when (and my recent investments reflect that reality!) but we still need oil.  Other commodities are needed as well.  As digital as the world gets, we still need places to live and infrastructure to support our lifestyles.

Macy’s announced it is closing several stores and laying a lot of people off.  Sad.  But it’s an example of creative destruction in the economy.  Retail sales were just fine in Q4.  People shifted where they bought stuff from.  Bad for Macy’s.  Good for Amazon.  Good for (some) athletic apparel companies.  Money is being spent in different ways and on different things.  That’s happened before and will happen again.  Companies need to adapt.

China’s growth has slowed.  I wish the pundits and central planners would take this as a lesson that central planning/socialism do not work.   That’s asking too much.  China powered through the recession by expanding credit (sound familiar, Federal Reserve and Congress?).  Eventually, debt has to be repaid.  Remember our housing (real estate) bubble/crisis?  Banks and investors gave developers cheap access to capital.  What did developers do? They built stuff!  That’s what they do.  What did Chinese developers do?  They built stuff!  They didn’t calculate that there wasn’t demand for their buildings.  Oops.  This too shall pass, just like it did in the US.  China faces some other battles (especially moving to a “market” economy) that will make the next few years interesting but China’s not going away.

Despite all the negativity, the US consumer is strong.  Wages are starting to go up.  People are spending.  People are driving more.  People need stuff.  Don’t forget – a lot of economic growth is demographic driven.  The really large millennial generation is going to start forming households soon.  That will have a major impact on consumer spending.

I had an interesting conversation with a gentleman that lived all over the world running large businesses.  He told me, “I know one undisputable fact:  It doesn’t matter where or what culture people are from.  People want to win.  Look at the World Cup in soccer.  Every nation wants to win.  That’s because people want to win.”  People who want to win figure out ways to do that.

Don’t bet against the human spirit.  It wins every time.  The US consumer personifies the human spirit.

 

 

Do You  Practice Your Craft? 

January 5th, 2016

I coach my son’s fourth grade basketball team.  We practice twice a week for an hour each time and play 1 or 2 games a week.   That’s not a whole lot of time playing basketball, especially for kids with pretty limited experience playing the sport.  We’re nearing the halfway point of our season.  It’s becoming clear some of the kids have really worked at basketball on their own.  Their dribbling is better, their shooting is better, and their defense is better.  It’s fun to see how much they’ve improved.  I’d like to chalk it up to the ol’ ball coach having an impact.  Maybe I have, but it has nothing to do with basketball (never a strong sport for me) and everything to do with telling them if they want to get better, they have to practice more than the time we’re together.  The kids that have put in more time have gotten a lot better.  Actions create results.

The same principle applies to our careers.  We have a tendency to want “more” in our lives – more income, more stuff, more trips, more whatever.  But are you willing to work for it?  Do you invest time in your career?  Gasp, do you invest money in your career?  Or do you expect your employer to do it all?  If you’re happy riding the wave, that’s fine.  But don’t expect your employer to give you more if you’re not contributing more.  If you’re not happy riding the wave, the new year is the perfect opportunity to act.  Invest in yourself, even if it’s just picking up a book.  Instead of spending two hours a week on fantasy football, cut it to one and spend an hour on your career.  Learn a new skill or hone an old one.  It will pay dividends.

Think back to your childhood.  It was often frustrating to learn a new skill.  Yet, you persevered, practiced, and figured it out.  Learn a lesson from your fourth grade self: if you want to get better at something, you’ve got to do more than just show up.  I guarantee that if you put in a little extra time and effort, you’ll be like the fourth grade basketball players.  You’ll get better.

My New Year’s Wishes

December 29th, 2015

We’re about to turn the calendar over to a new year.  Every year, I realize how true it is that time goes faster as you get a little older.  Here are 3 wishes for 2016:

  1. None of the current candidates for president is elected. Every day, I cringe in dismay that these candidates are the best we have to offer as a country.  I wish someone emerges that’s not in the race right now.  He/she can be from either party.  No candidate excites me right now.
  2. One of my beloved Cleveland teams finally wins a championship. 1964 was the last major sports championship in Cleveland.    I have confidence in LeBron and his crew but Golden State and San Antonio sure are tough.
  3. The US federal government finally admits we can’t deficit spend forever. The public understands that borrowing for today’s consumption must be paid back by future generations.  AARP actually runs a commercial explaining this to everyone.

Remember, I titled this “My New Year’s Wishes.”  Earlier this year, a friend told me, “You can wish, want, and hope all day long.  It’s what you do that makes things happen and causes change.”  May you do what you need to do to accomplish your goals in 2016!  Happy New Year!

Have Yourself a Merry Little Christmas

December 21st, 2015

This is becoming my annual Christmas week blog – everyone needs a tradition!  We attended the concert again this year but, now for 2 consecutive years,  “Have Yourself A Merry Little Christmas” wasn’t on the playlist.  I think about this song quite a bit this time of year.  Merry Christmas, Happy Hanukah.

The last few years, Kelly and I have kicked off the holiday season by attending a Christmas concert by the Cleveland Orchestra with good friends. Regardless of your beliefs, put attending a holiday concert by an orchestra on the bucket list if you haven’t already done so. Hearing classical arrangements of carols both old and new puts things in a different light, at least for me.

The conductor did a wonderful job providing context to the songs. One in particular hit home to me. I’ve seen the movie “Meet Me in St. Louis” with Judy Garland. In that wartime movie (1944), she sings “Have Yourself a Merry Little Christmas” (video link https://www.youtube.com/watch?v=yudgy30Dd68 Warning: it will bring a tear to your eye.) The conductor explained how this became a wartime anthem in those still dark days of World War II, both home and abroad. It brought a smile to my face and a tear to my eye. My grandfather was one of those patriots that enlisted in the Army after Pearl Harbor. He was not even 17 when the war broke out. He had just started dating my grandmother. He, of course, made it home and they got married.

I remember my grandparents singing “Have Yourself A Merry Little Christmas” to each other over the years and the looks on their faces as they sang to one another. I never understood the significance of that song until I heard the conductor’s explanation. Music was a big part of their lives and a big part of our family holidays – we sang together before we could open presents. For some reason, their musical abilities were not passed down to any succeeding generation thus far. We’re well into gen 3 and the caroling sounds worse every year.

Grandpapa and Gram, as you look down upon us, know that your love and spirits live on. Merry Christmas.

Stay The Course

December 15th, 2015

Last week, I wrote about having a plan.  Since I wrote that, two incidents have made me really think about what I wrote and how it can be challenging to stay with your plan.

Several months ago, I received an Apple watch as a gift.  I’ve become obsessed with hitting my calorie burn goal for the day. (Today will be my 86th consecutive day of reaching my goal.  No, I haven’t lowered the standard.)  Last week, I visited our Cincinnati plant.  I was heading to dinner at a restaurant less than ½ mile from my hotel.  Recognizing I need to burn a few more calories and rejoicing because it was 65 degrees in Ohio in December, I decided to walk to the restaurant.  A carload of what appeared to be teenagers found humor in seeing someone walking.  I smiled and waved as they yelled, “Get a $*&#)@&* job!” and other criticisms.  Shortly after that carload passed, another car put its windows down and yelled similar comments as the first car at me.  For a second, I thought I was crazy for walking.  I had doubts about my decision, created by people I’d never met and will never see again.  Fortunately, those doubts didn’t last long.  I’m glad I walked.

Last night, another occurrence made me think about having a plan.  I was running an errand and decided to pick up something to drink at McDonald’s.  (In keeping with my somewhat healthy kick it took all of my will power not to get a burger.)  As I got to the drive thru window, I could smell the unique odor of McDonald’s.  I made a comment to the cashier, “Ah, the smells of Mickey D’s.  I remember them fondly from when I worked at a McDonald’s.”  She looked at me and her eyes bugged out.  For a second, I thought she was going to say, “You mean McDonald’s was around when you were young?”  Thankfully, she had some tact.  She said, “Really?  This is my first job.  I’m saving up to pay for college and I should have enough to start college classes next year.”  I complimented her for her hard work and told her one of my first jobs was at a McDonald’s.  She said, “Thank you.  My friends make fun of me for working here but I know I’m learning how to work and I’m making money.  I’ve got a plan to do something with my life.”  Her determination and vision for her future made my day.

It’s not easy when society questions what you’re doing.  Instead of encouragement, we often offer up criticism to one another.  Don’t be intimidated; do what you know is right for you, despite what others might say.  Don’t be the faceless person in the car ridiculing a passerby.  Don’t be a “friend” that mocks hard work.  Be the positive influence.  It’s a lot healthier!

Do You Know Where You’re Going?

December 8th, 2015

At church this past weekend, our priest talked about his first experiences with GPS in his car.  I hadn’t heard “When possible, please make a legal u-turn,” in a while.  It’s amazing how advanced GPS technology has gotten over the last few years.  When we walked out, my son asked me, “Dad, did they really make cars without GPS ten years ago?  Could you only use your phone to get directions?”  My answer – that some cars made today don’t have GPS – stunned him.  When I explained to him that phones didn’t have GPS either not that long ago, he was shocked.  “Well, how did you know where you were going?”  I had to explain maps and road atlases to him.  He looked at me with disbelief.  GPS has certainly become a huge help in our daily lives.  Think about how much time it took to organize a sales trip prior to all the technology we now have at our disposal.  (The impact all this technology has on our ability to think is a separate subject.  I am going to make sure my son knows how to read a map.)

Where are you headed in 2016?  Hopefully, you’ve got some goals and objectives in place for the next year.  I hope you have a GPS-esque tool to use for your goals.  If you don’t, find one.  Just as it’s gotten easier to know where you are heading in your car, technology has made it easier to plan your business and career goals.  From using your calendar for daily reminders to strategic planning templates, a lot of tools are available for your use.  Pick one that works for you.  Once you pick one, stick to it.  Just as a GPS allows you to put in waypoints, make sure you are adjusting your plan as necessary.

No matter what your role is – purchasing, sales, customer service, etc. – you should have a plan for next year.  Don’t wait for your boss to come up with it for you.  The only person responsible for your career is you.  Use technology to your advantage.  Remember as the late, great Yogi Berra told us, “If you don’t know where you’re going, you’ll end up somewhere else.”

There Really are 2 Economies in the United States

December 2nd, 2015

In case you haven’t figured it out, I’m somewhat of a nerd when it comes to economics.  I find discussions about the economy fascinating.  I was listening to the radio as I drove to work and all indications are Janet Yellen, the President of Federal Reserve, is going to foreshadow an interest rate increase that will come in December.  As I have written before, I don’t think a 25 basis point (0.25% for you non-bank types) increase in the Fed’s target rate is going to have any impact on the economy I participate in, which I will call the production economy.  The financial economy, the other economy, frets over every word someone like Janet Yellen says.  For a functioning society, we need both parts of the economy to be strong.  For true economic growth, we need policies that encourage investment in the production economy.  Unfortunately, we continue to let the tail wag the dog – the financial economy drives the boat in the US.  That’s what contributed to the housing crisis (ok, caused the housing crisis with help from misguided government policies shaped by power brokers in the financial economy).  We will continue to have lethargic economic growth until policies that support the production economy are enacted.

As I listened to the “expert” on the radio tell me there’s no inflation, I wondered if he’d actually ever run a business.  Did he ever worry about making payroll?  Did he every worry about getting an order out when a machine went down?  I looked him up and, of course, he has spent his life in the financial economy.  Why don’t we get someone from the other economy to talk?  Here’s what I would say if I ever got asked:

Q: Is inflation low?

A: While we haven’t had an increase in our raw material costs, our operating costs are much higher.  Health insurance is a disaster.  If Obamacare has helped with costs, we haven’t seen it, nor have our employees.  I’m sure someone benefited (or I sure hope so, given what’s happened to our costs) but it isn’t us.  We face more regulation especially in terms of compliance with labor laws and environment laws.  We don’t have pricing power (see below) so the increase in costs has to be covered somewhere.  We’ve done our best to cover it through higher productivity but it isn’t easy.  Inflation is much higher than the government tells us.

Q: Is the labor market tight?

A: Yes.  It continues to be tough to find people that want to or are capable of working.  We do pre-employment drug screening.  I don’t care what people do on their own time but I really don’t want someone operating equipment that is stoned.  He’s a danger to himself and others.  We require people to have basic math skills which we test as well.  A  sample question from our test (we provide a calculator): There are 4 rolls of labels in a box.  Each roll has 1,000 labels.  How many labels are in a box? Many applicants cannot pass the test.  I’m willing to train people, but I have to draw the line somewhere and I think basic math is a pretty low bar to cross.  I encourage any of the financial economy people to drive around an industrial park.  You will see a lot of help wanted signs.

Q: Will raising rates hurt your business?
A:  NO.  We will continue to invest where we see opportunities, whether rates are zero or 2%.  I think low rates are actually keeping excess capacity in the economy, hurting pricing power.  I think there are a lot of “zombie” companies out there that survive because the cost of capital is low, not because they are earning an economic profit.

I could say all that in a nice 30 second sound byte.  I’m all for the financial economy but we all can’t sell insurance to each other or be each other’s banker.  Those jobs are offshoots of the production economy.  Somehow, we’ve forgotten that in the US.  It’s pretty sad.