Will Some Good Come out of Coronavirus?

July 13th, 2020

Ever the optimist, I have been thinking about long-term positive changes that might come about from the challenges coronavirus has brought us.  Focusing on practicality, I will disregard the opportunities it gave people to think about work-life balance and other potential benefits that are hard to measure.  Here are a few comments/predictions/wishes of things that I hope change due to coronavirus.

  1. Our healthcare system.  It should be known as our “sick care system.”  Do you remember when we were told the shutdowns were going to cause untold numbers of deaths because people stopped going to their doctors and stopped “elective” procedures?  That has yet to happen and I certainly hope it doesn’t happen.  Maybe it will but I am skeptical. We spend way too much money on sick care.  Let’s change the system.  Let’s stop building the palaces we call hospitals.  Let’s focus on keeping people healthy rather than treating ailments.
  2. State and local governments realize there is not an endless pot of money.  They have been largely immune from the competitive forces the private sector faces.  I don’t like it when anyone takes a pay cut or loses a job, but it has been happening in the private sector for years.  A company must adapt or die.  It is about time that our government entities start to feel revenue pressure and cannot respond by increasing taxes or fees.  While the data below represents federal government workers vs. private sector workers, the trend is similar for state and municipal workers.  Private sector wages have stagnated while government workers have enjoyed significant increases in overall compensation.  That is not sustainable. 


3. The dignity of “real work” returns.  Our society looks down upon people who work with their hands.  Without those people processing food, stocking shelves, and delivering food (also making labels!), where would we be?  Let’s start treating them with the respect they deserve.

Out of every crisis comes opportunities for change.  I hope we take advantage. 

The Delivery Economy: Delivery isn’t Free

July 6th, 2020

Last week, Federal Express reported earnings that handily beat Wall Street expectations.  Revenue was also significantly above analysts’ forecasts.  Admittedly, expectations had come down because of shutdowns but it was still a solid quarter and a sign of things to come.

Traditionally in package delivery, business to business deliveries were more profitable than business to consumer deliveries.  Route density lowered costs and the importance of being on time for business deliveries allowed Fed Ex and UPS to earn higher margins on business deliveries versus consumer deliveries.  As e-commerce exploded and Amazon started its own delivery fleet, analysts were concerned about Fed Ex and UPS’ future profitability.  Then came the covid shutdowns.

Fed Ex and UPS both implemented “temporary” surcharges on deliveries.  Being part of what is essentially a duopoly has its privileges.  Below is a quotation from Brie Carere, Fed Ex’s EVP, Chief Marketing and Chief Communications Officer, from last week’s earnings’ call:

We see a very rational market and we really see a great partnership with our largest customers. So, we are working with them absolutely to find a win-win solution, but part of that is that we will, as I mentioned, implement peak surcharges. This is part of the new normal. It will not be just for this fiscal year, but I anticipate customers to pay more for pricing in November and December moving forward. And I do think that, that will be a structural shift in the market.  (emphasis added)

We all got spoiled by subsidized home delivery of merchandise.  In addition to b to b shipments essentially subsidizing home deliveries, many retailers subsidized home delivery by using their physical locations and their employees there for fulfillment.  With retail stores closing, that subsidy goes away.  It was a good ride while it lasted but it is over.  When the government tells us there is no inflation, I encourage you to look at the prices you pay to have items delivered to your house.  Do not forget how much your Amazon Prime subscription increases every year in your calculation. 

We’re Halfway There and Truly Livin’ on a Prayer!

June 29th, 2020

We are halfway through 2020.  Isn’t that hard to believe?  Hasn’t everyday seemed the same since mid-March?  It’s not just me, is it?

As I’ve told our team numerous times, I believe the next few months will be even more challenging than the first few months of coronavirus.  And that was before the additional challenges the protests have brought.  With 20 million people unemployed and coronavirus hotspots occurring, there will be no “V” shaped recovery.  The economy is going to continue to putter along with good data one day and bad data the next. 

And then there’s the political arena.  When I think about our choices for president, I don’t know if I should laugh, cry, or close my eyes and pretend this is all a bad dream.  But we have to live in reality.  My hope for our economy is we have a divided government.  My hope for our country is someone stops Tweeting.  My hope for all of you is you are singing the #1 song of the 1980s as voted on by VH1 viewers in 2006.  If you need a reminder, I copied part of the lyrics below.  If you want to procrastinate, read the Wikipedia entry.  Jon Bon Jovi didn’t like the song.  Sure.  And Homer Simpson didn’t like beer.  Keep your head up, think positive thoughts and a little prayer every now and then to whatever Being you believe in won’t hurt.  (PS – PO I fulfilled my promise.  I worked in Bon Jovi.)

Have a safe and wonderful 4th of July.  God Bless America.

We’ve got to hold on to what we’ve got
It doesn’t make a difference if we make it or not
We’ve got each other and that’s a lot for love
We’ll give it a shot

Woah, we’re half way there
Woah, livin’ on a prayer
Take my hand, we’ll make it I swear
Woah, livin’ on a prayer
Livin’ on a prayer

Oh, we’ve got to hold on, ready or not
You live for the fight when it’s all that you’ve got
Woah, we’re half way there
Woah, livin’ on a prayer
Take my hand, we’ll make it I swear
Woah, livin’ on a prayer



Travel will Come Back. Slowly.

June 22nd, 2020

Last week, I got on an airplane for the first time since March 1.  Looking back, the over 3 months since I last traveled is the longest time period I have gone without traveling in my career.  In no particular order, a few random thoughts from my journey:

  1. My friends that have traveled recently told me this and it’s true: “Airports are empty, but the planes are full.”  Airlines are managing capacity quite well.  Be warned:  there is very little flexibility to change your flight times on many routes, even to major cities. 
  2.  Every airline employee I encountered (and I flew an airline not known for service) was beyond nice.  It was almost scary.  Either they have furloughed the ornery employees or, gasp, the airline employees finally understand without passengers, their jobs go away.
  3. The badges of honor road warriors, including boarding the plane first, used to proudly wear are now worthless.  Boarding is done by row, not status.  To add insult to injury, the airlines board from the back of the plane!  It is a much more efficient process than letting the 19 elite groups and credit card holders board first. 
  4.  If you are hungry, eat before you get to the airport.  Most airport eateries are closed.  You can, however, get an individually wrapped donut in the airports I traveled through.  It warmed my heart to see two labels on each donut wrapper.  I think the government needs to mandate all food be individually labeled with a minimum of two labels per serving.  Public health is important.  Labels are important to public health!
  5. I found it (funny, hypocritical, stupid, insert your word of choice) that I was told, verbally and through signs, that I needed to stay at least six feet away from the person in front of me while I boarded the aircraft.  Then, I got on the plane and at least 8 of those individuals sat closer than six feet to me on said plane!  Am I missing something?
  6. The hotel I stayed at was at 10% occupancy.  The staff was excited because the next night, they expected 20% occupancy!  I don’t know how long hotels can last with occupancy rates that low.     
  7. I had a connection in Chicago.  It was quite strange to see no traffic on Chicago highways.  It was also quite strange to see empty flight boards in O’Hare.
  8. The credit card I use for travel was compromised and someone is using it.  Some things never change.
  9. There is nothing that takes the place of meeting in person.  Will we have less in person meetings for the foreseeable future?  Of course.  But eventually, the need for personal connections will win out.  Business travel is down but it isn’t out. 

The Words of a Great Leader

June 15th, 2020

In this turbulent time of protests and riots, I am comforted to know I discovered a new leader to help me think these challenges through.  He is Craig Arnold, the CEO of Eaton Corporation, a large manufacturer (that happens to be based in Cleveland).  I do not know Mr. Arnold, but he is now high on the list of people I’d love to have dinner with. 

Arnold penned a letter to Eaton’s employees that is linked below.  I encourage you to read it in its entirety.  I have read it several times and it makes me think deeper each time I read it.  In particular, one paragraph continues to challenge me.  I have shared this paragraph with all of our employees and I continue to reflect upon it. 

It would be easy for the events over the last few days to suggest that we are dealing with an insurmountable problem — certainly a problem that is too big for any one individual to confront. I disagree. Just imagine for a moment that you were one of the police officers on the scene the day that George Floyd died. And when he said, ‘I can’t breathe,’ you did what should have been done. You intervened and put a stop it. Where would we be today? Maybe still dealing with protests in the streets of major cities, maybe not. At a minimum, we would have one less senseless loss of life. One person can make a difference — you can make a difference. (emphasis added)

Thank you, Mr. Arnold, for your inspiring message. 

I am committed to making a positive difference in the world.  I hope you are as well.


What’s up with the Stock Market?

June 8th, 2020

As I write this, the stock market is up significantly yet again despite record unemployment and riots throughout the United States.  In a prior life, I was an equity analyst.  Following the markets is a hobby. (Yes, I’m a nerd.) so that makes me just as qualified as any other yahoo to opine on the stock market.  Without further ado, a few observations. 

  1. The stock market is not the economy.  The stock market is not the economy.  Repeat that over and over.
  2. Over the long run, a company’s market value should reflect the present value of the future earnings of the company.  Present value is determined by discounting the future earnings stream by a discount rate, typically defined as the risk-free rate (US treasury rates are often used.) plus an equity risk premium.  Interest rates are extremely low, making these models spit out crazy results.    
  3. Recent events favor large companies, especially large technology companies.  Guess whose stocks are going up?  As of June 1, 14 stocks represented 33% of the gains in the S&P 500 since its March 23 low.  Microsoft alone added 5% of the total increase in the S&P 500 from March 23 to June 1.  I hope you owned it.  (I do not directly own MSFT.  Darn.)

4. The Federal Reserve and US Treasury have thrown gobs of money into the markets.  Liquidity is not an issue.  That money has to go somewhere.

 5. Would you rather loan, for example, Germany money at a negative interest rate (they will pay you back less than you gave them) or own US stocks? See point number 4.   

I think the US economy is in for a tough few quarters ahead.  I have no idea what the stock market will do in the next few quarters.  I am confident, however, that many stocks will go up over the next ten years.  The ride will be bumpy (it always is) but the trend will be up.  Only invest in stocks if you have a long-time horizon and the ability to not panic when investments go down. 

If You Work From Home, Facebook Might Pay You Less

June 1st, 2020

I have to give Mark Zuckerberg credit.  Instead of saying Facebook promotes working from home for employee health and safety reasons, he is brutally honest.  Working from home will save Facebook money.  How refreshing it is to have a corporate titan drop the platitudes regarding concern about employees’ well being and safety and admit the amenities he is willing to offer are all about improving the bottom line!

From the Marketwatch article:

“That means if you live in a location where the cost of living is dramatically lower, or the cost of labor is lower, then salaries do tend to be somewhat lower in those places,” Zuckerberg said.

Facebook already pays based on location, but Zuckerberg said employees working remotely must notify Facebook if they move to a new area before Jan. 1, 2021.

“We’ll adjust salary to your location at that point,” he said, noting it will be necessary to take taxes into account. “There’ll be severe ramifications for people who are not honest about this.”

I love the severe ramifications threat.  I wonder if Trump used Zuckerbergisms for his tweets about social media censorship or Trump got it from the Zuck. 

Zuckerberg is justifiably lauded as a visionary.  I don’t think he gets enough credit for his business common sense.  The coronavirus crisis is allowing companies to cut costs.  Office space is costly.  Travel is costly.  Yes, wages are generally cheaper in flyover country versus the coasts.  Earnings growth comes from revenue growth and/or cost cutting.  Expect more cost cutting announcements.  Remember, every man’s (company’s) costs are another man’s (company’s) revenue.  Cutting spending might make Facebook and other companies more money at the expense of overall economic growth.  Don’t expect a V shaped recovery. 


We All Crave A Sense of Normalcy

May 26th, 2020

For the last several years, a sign that spring was coming was a return of a duck couple to our backyard.  Mr. and Mrs. Duck, as we creatively named them, have been regular visitors to the Gale backyard for years.  My wife waxes poetically at how chivalrous Mr. Duck is, always looking out for Mrs. Duck.  We look forward to them returning every year.  They arrived a little late but came back again this year.

The ducks apparently forgot my wife loves all animals.  When my mother passed away two and a half years ago, my wife decided we should take her two golden retrievers.  Our dog and I probably should be in counseling but that’s a subject for another day. 

For those of you unfamiliar with golden retrievers, a few facts:

  1. They shed a lot.  I mean A LOT.  Vacuums (plural) run nonstop in our house and still can’t keep up. 
  2. They are bird dogs. 

For the last two years, the goldens (and to some extent, our dog, a lab/beagle mix) have been fascinated by the ducks.  We regularly scanned the yard to make sure the ducks (and other animals) were not around before letting the dogs out.  The dogs are all around ten years old (I say we run a dog geriatric center but again, topic for another day.) and don’t move like they used to.  One of the goldens, Tucker, is still in great shape and has bursts of energy.

Two weeks ago, the ducks were frolicking in our yard.  The dogs had to go out.  My wife and I both checked and it looked like the ducks flew away.  I let the dogs out.  (Yes, this incident is completely my fault.)  Within seconds, I heard my wife screaming.  Tucker got the male duck.  I ran out there and got Tuck away from the duck.  He just laid there.  I bent down to get a closer look and the duck hissed at me, a good sign.  After a few minutes, he got up, noticeably limping, but he was able to move.  He hobbled over to a bush for cover.  My wife held a vigil looking outside all night to make sure another animal did not attack Mr. Duck.

The next morning, he hobbled away.  Mrs. Duck returned, but no Mr. Duck.  We feared for the worst.  Three days later, they both appeared.  Mr. Duck still hobbles, but he can fly.  Normalcy has returned, except for maybe Tucker.  He doesn’t understand why he got yelled at for getting a duck.

Imagine the fun a juvenile father and a fourteen-year-old boy can have with, “The Tuck got a duck.”  Even my wife now laughs at our song, though she tries to hide it.  Until Mr. Duck returned, she didn’t find us very funny. 

We’ve been hearing about a “new normal” since the financial crisis and even more now.  Yes, there’s a new normal.  But anything you can do to give your family, colleagues, employees, and customers a sense of their old normal will be appreciated.  We all crave connectivity.  We all crave normalcy.  I hope the ducks return to your life. 

When Does Economic Growth Return?

May 18th, 2020

Every talking head, every politician, and virtually every citizen in the United States has the same question:  when will economic growth return?  Prior to the coronavirus shutdown, the US economy was doing well. Unemployment was at a record low.  Capital was available.  Then came the shutdowns. 

As states begin to “open up” their economies, we are treated to alphabet soup of what the recovery will look like.  “V” represents a sharp bounce back.  “U” a gradual recovery.  “L” represents a long time at depressed economic levels.  These descriptions make for good soundbites but they really don’t get to the underlying issue:  under what conditions does the economy start to grow again?

For growth to return, we need to let businesses focus on value-add activities.  I submit businesses, even those that never shutdown, are in survival, or at best, wait and see, mode.  When businesses worry about complying with unclear health and safety regulations, they are not adding value.  I talked with a friend of mine who also owns a business, “I spent a half hour today talking about whether or not we’d provide coffee in the office when office workers return.”  He laughed, only to text me a few days later, “I had the $&#&*#@ coffee pot conversation today.”  Another business owner friend texted, “I’m playing psychologist, health and safety advocate, purchasing agent of hard to find items, and FDA expert.  All in the same hour.”  Nowhere in there was anything about working with customers or thinking about the future.  

When do businesses get to focus on value-add activities?  When the fear level of the general public drops.  Right now, our political leaders have indicated the fear can only drop if there is a vaccine, more testing,  or better treatment for covid-19.  That could be a long way off.

The esteemed governor of Illinois is only allowing 2 people on a boat, even if you’re in the same family.  You can live together but “you are putting your family at risk” (his words) if you go out on a boat together.  I wish I were making this up.  https://chicago.cbslocal.com/2020/05/04/boat-owners-say-social-distancing-rules-under-revised-stay-at-home-order-dont-make-sense/

The US has always had tension between the value of individual freedoms and the collective good.  We have prospered more than any society in history because people have used their individual freedoms to improve the collective good.  Right now, the political narrative is we must sacrifice our individual freedoms for the collective good.  Unless our leaders change the narrative, we’re in for a painfully slow economy for the foreseeable future. 

Big Companies are Starting to Flex Their Muscles

May 11th, 2020

In the spirit of “Never let a good crisis go to waste,” many large companies are starting to demand concessions from their suppliers.  We, like many manufacturers, have received numerous requests for extended payment terms and discounts.  Generally, those requests come from big, well-known companies trying to use their power to improve their own financial situation.  If they bankrupt a few suppliers, so be it.  They’ll find someone else.  There’s a sucker born every minute.  In times like this, people often forget that there is no sale until you get paid.

One of my favorite lines came from a well-known public company.  In their letter, they said, with presumably a straight face, “Due to the inefficiencies caused by our staff working from home, we are immediately extending our payment terms to 120 days.”  Really?  We’re a little company and we figured out how to pay our bills.  This company has almost $40 BILLION in revenue and can’t figure out how to do ACH payments from a home computer.  Of course, their website lists values of communities and integrity.  I beg to differ.

Another large company sent a letter that included the excerpt below to their “supplier partners”:

As a result of extensive analysis internally and the unprecedented economic conditions, we are having to move forward starting May 18th with:

  1. Increasing our payment terms to NET 90 days, if you are not already at those terms.
  2. Apply a 10% below the line (bottom of invoice) discount to all goods and services ordered from your company. This discount would be in addition to any standard unit price discounts you may be currently extending to us.

Ridiculous demands like this are how the economic system falls apart.  For our economic system to work, trust has to be prevalent.  If I do not trust that you will pay me, I will not sell to you.  If you do not trust that I will deliver a good or service to you, you will not buy from me.  It sounds pretty simple but trust is the bedrock of our economy. 

There is a time and a place for the capitalist golden rule to be invoked. (He who has the gold makes the rules.)  Given the current economic challenges, trying to squeeze suppliers to effectively force them to become your bank or improve your margins is reprehensible behavior.  If you can’t make money buying from me and I can’t make money selling to you, it is best that we don’t do business together.