Is FedEx the First of Many Trade War Casualties?

June 3rd, 2019

Late last week, China announced it was launching an investigation into FedEx, alleging that FedEx had “not made deliveries according to the name and address” of the intended recipients of packages FedEx handled.  As a result, China said companies that shipped and companies that were supposed to receive packages suffered damages.  You give me tariffs, I’ll raise you by investigating your companies.  (https://www.bloomberg.com/news/articles/2019-06-01/china-launches-investigation-into-fedex-xinhua

Perhaps most interestingly, at least two packages that were not delivered properly were sent from Huawei, the telecom technology company whose products the US has essentially banned from being used.  The packages were destined for Japan but somehow got routed to the US.  The packages were then returned to Huawei.  FedEx apologized for the “delivery errors.”  This situation has all the makings of a good Tom Clancy book. 

Analysts are already speculating about which company China will investigate next.  Businesses and financial markets do not like uncertainty.  China understands that and will continue to fight the trade war by creating uncertainty for US companies.  US companies will respond by tempering their investments both at home and abroad.  Less investment means less growth.  Less growth means less jobs.  President Tweet better be careful or he’ll become a casualty of the trade war. 

We’re More the Same Than We Think

May 27th, 2019

We recently got a new car.  My father in law is the consummate car guy.  He literally spent his life working on cars.  Now into his seventies, he is currently restoring or building at least 3 cars.  I lost count. 

I took him for a ride in the car, just the two of us.  He’s normally a pretty reserved guy.  Something about our journey caused him to open up.  He started reminiscing about his high school years.  He is among the first baby boomers and grew up in the 1950s and early 1960s car culture.  He said, “I’d go to the local burger joint and rev my engine.  Before it stopped, there were three guys lined up that wanted to race.  We’d go race on the streets.  We’d have someone look for the cops.  That was dumb; we could all outrun the cops in our cars.”  He chuckled as he said that.  He continued for a while, describing different engines they modified and where they raced.  He then concluded, “Boy, were we stupid.  If my kids ever did anything that stupid, I would have killed them.”

At that point, I smiled.  I wanted to say, “I’ve known your daughter a long time.  We’ve done some stupid things.”  Thankfully, common sense or lack of chutzpah stopped me (definitely the latter). 

After he left, I thought about our conversation.  Our son has entered his teenage years and clearly is looking to test his boundaries.  It’s part of growing up.  I pray he does it safely.  I also thought about the reminders of generational and political differences we hear incessantly from the media.  We’re really not that different.   In the spirit of remembering those that died for us and what they believed to be the greater good, let us focus on our commonalities, not our differences.  The world will be a much better place if we do. 

Take a Step Back

May 20th, 2019

After a rainy and dreary month of April, it appears that spring has finally sprung.  I’ve been able to grill outside multiple times in the last few weeks without fear of the food getting soaked. 

I recently went out to uncover the grill.  I noticed the thermometer read over 200 degrees.  It was a sunny day and the area where our grill sits gets a lot of sun.  The grill felt hot but not 200 degrees hot.  Still, it concerned me.  I grilled our food and shut the grill off.  I waited a while to cover it.  The thermometer read around 200 degrees.  It didn’t feel that hot but I got concerned.  I convinced myself I smelled gas, even though the grill had been off for a while.  I shut the gas off and started to look for a leak.  I told my wife I thought I had a leak in a burner and I’d add it to the projects I needed to complete or outsource.  (I’ll be honest; she’d probably have to complete it or I’d continually turn the gas on and off for the foreseeable future.)

I went in the house and forgot about the grill, or so I thought.  About an hour later, I had one of those “You’re such an idiot” conversations with myself.  I went back out and looked at the thermometer.  It still read the grill temperature was in excess of 200 degrees.  The grill was cool to the touch.  Sure enough, my thermometer was broken.  The replacement part is on its way.

The human mind is pretty good at convincing itself the first thing it thinks of is the answer.  Life isn’t always black and white.  Walking away from a situation is a good way to clear your head and examine alternatives. 

Chaos Theory and the President: Be Prepared for Unexpected Outcomes

May 15th, 2019

To greatly over simplify, chaos theory states the behavior of dynamic systems is greatly dependent on initial conditions.  (Read more: https://en.wikipedia.org/wiki/Chaos_theory)  The classic example used to explain this complex mathematical theory to us mere mortals is a butterfly flapping its wings can create the impetus for a hurricane somewhere else in the world. 

To say we have never had a president like Donald Trump is an insult to the phrase stating the obvious.  One thing about President Twitter I am just starting to truly understand is he thrives on chaos.  In general, humans like order.  We like when the world works as we expect.  If I do “X”, I get “Y” is how most of us expect and want the world to operate.  When that does not happen, we get nervous.  There is a segment of the human population that likes chaos.  They are entrepreneurs.  They are commissioned based sales people.  They are the people whose performance reviews say “not a team player.” 

Donald Trump is one of those people that thrives on chaos. 

Over the last week or so, Trump has escalated the trade war with China.  He has threatened war with Iran and moved ships to the Persian Gulf.  He has threatened military action in Venezuela.  I’m sure I missed a few other potentially major things he has threatened to do or has done, but you get the point.  The political class is in an uproar.  Volatility has returned to the financial markets.  Ships are being attacked in the Middle East.  The world is indeed chaotic. 

I am concerned that we have a person who likes chaos have control of nuclear missiles.  I pray he and his advisors have the sense to not embrace too much chaos.  If Trump can keep himself (and the world) from going over the edge, his embrace of chaos just might lead to positive results. 

Technology and Human Interaction: It’s a Balancing Act

May 7th, 2019

Yesterday, I went into a local Starbucks.  It was after lunch and the store was not busy.  I was the only person in line.  I ordered my drink (a simple iced tea) and waited.  And waited. And waited.  Fortunately, I was not in a hurry.  I counted five workers behind the counter.  Two were engaged in banter with each other on their headsets.  They appeared to be having fun.  One was feverishly typing on her phone.  I couldn’t figure out what the other two were doing.  After I stood there for what seemed to be an eternity (it was probably 3 minutes), one of the Starbucks employees asked me what I ordered.  I told her and she quickly made my drink.   She handed me my drink and apologized for the delay.   

I frequently use the app when I order from Starbucks; I chose to not use it yesterday because I was meeting someone in the store for a meeting.  This experience made me think:

  1. Starbucks wants me to avoid human contact and exclusively use the app. 
  2. Starbucks’ employees are not properly trained.
  3. A combination of A & B.

A business like Starbucks that gets a premium for the “experience” it offers customers is in a challenging position.  Technology can make interactions more efficient but it can also take away the personal experience.  Limited resources make it difficult to both invest in technology and train people, especially on soft skills that a bean counter cannot measure.   An old business axiom says you can only choose to offer two out of three attributes: fast, cheap, or good.  That axiom remains the same, regardless of what technology brings to the table.    

Lies, Damn Lies, and Government Statistics: Is Inflation Really Low?

April 30th, 2019

Yesterday, the U.S. Bureau of Economic Analysis released its March inflation data using the Personal Consumption Expenditure (PCE) model.  https://www.fxstreet.com/news/us-annual-core-pce-price-index-comes-in-at-16-in-march-vs-17-expected-201904291236

The core inflation number came in at 1.6%, below the 1.7% expectation and below the Federal Reserve’s 2% inflation target.  According to this data, prices are rising moderately.  Or are they? 

The government also calculates inflation using the Consumer Price Index (CPI).  The latest CPI data, released in early March, shows inflation running at 2.0%.  https://www.bls.gov/cpi/latest-numbers.htm 

Those do not sound like big differences, but over time they become significant.  Consider this graph from our friends at the Federal Reserve.  CPI increased significantly more than PCE.  Based on recent data, that trend is continuing.  (If you are really bored, you can read the differences between PCE and CPI via the link below the chart.) 

https://www.clevelandfed.org/newsroom-and-events/publications/economic-trends/2014-economic-trends/et-20140417-pce-and-cpi-inflation-whats-the-difference.aspx

The Federal Reserve, which sets interest rate policy, has been on record as favoring PCE as its preferred inflation measure.  That’s why this distinction in inflation measures is important.  The Fed risks continuing its easy money policies based on data that understates inflation.  When the Fed finally recognizes inflation is here, it will be too late.  Assuming the China rebound is real, prepare to pay more for everything in the very near future.    

Disrespecting Customers Has Consequences

April 23rd, 2019

A few years ago, we remodeled our basement.  At the time, I was just starting to collect wine.  Several times, my lovely wife asked me how much wine storage I would need.  I was certain I would never exceed 150 bottles.  Well, I exceeded that limit quite a while ago.  I’ve hidden wine and even stored some in offsite locations.  The basement was getting a little tired so we decided to augment our wine storage. 

Last week, my wife stopped in a local custom cabinet store.  She was the only customer in the store at the time.  She asked the salesperson about wine storage solutions.  The sales person said, “We’re only doing big projects.  If you’re not prepared to spend $X, we won’t do it.”  Shocked, my wife said, “Thank you,” and walked out.  The sales person asked no qualifying questions.  She never learned that our project will be many multiples of their self-imposed minimum project size. 

Maybe she was not trained.  Maybe she had wasted time on small projects the company did not make money on.  It really doesn’t matter why she failed to find out more about a customer that came in the store.  What does matter is that customer has friends (and a husband that blogs) who have repeated the story.  Even if our project did not qualify for their services, a better approach would have been, “We aren’t the right solution for your needs.  I suggest you go to…” 

Every interaction with a customer or potential customer should be used an opportunity to create good will.  No company can be all things to all customers.  There are respectful ways to communicate that message.  If you do not respect your customers, your business will suffer.

A Reason to Smile

April 15th, 2019

On tax day, I normally ask for a simple thank you for paying my taxes to multiple jurisdictions, most of which I cannot vote in.  Rather than repeat myself, I am going to try to spread some cheer.

Over the weekend, we attended our goddaughter’s school play.  Last year, her school decided to change up the format.  Instead of a traditional play put on by the school’s students, the school partnered with The Penguin Project.  (https://penguinproject.org/)  The mission of The Penguin Project is “Empowering Children With Special Needs Through Theater.”  In a nutshell, the children from our goddaughter’s school acted as mentors to kids with special needs who performed “The Wizard of Oz.”  They rehearsed after school for over four months.  You could see the friendships that formed between the mentors and the performers.  You could see how proud all the kids were of their performance, and justifiably so.  After the show, the cast and crew sang and did a choreographed dance to “Don’t Stop Believin’.”  The principal of the school said they ended every practice with that routine.  The sheer joy that emanated from that stage is something I will never forget.      

To see what these kids accomplished on stage puts life in perspective.  I forgot about my taxes.  I forgot about our political discord.  I forgot about challenges at work.  My faith in humanity was restored.   The world would be a much better place if we all treated each other like these kids treat each other.  If you are in need of a smile, check out The Penguin Project.    

April 9th, 2019

The US Economy Needs People to Grow

I have written about this topic in the past.  Apparently, President Trump is not a regular reader.  Recently, he decided to announce that the United States “is full” and does not need more people.  For a guy who describes himself as smarter and better educated than most people, including his adversaries, he displays a lack of understanding of basic economics.

Two inputs drive the supply side of the economy: capital and labor.  Capital investments are made when companies see an increase in demand and/or an improved return on their investment.  Labor growth can be broken down into population growth and productivity growth.  Our labor force is aging; demographics are not working in our favor as they did throughout much of the twentieth century.  People are having less children.  Plain and simple, if we want economic growth, we need population growth.  Hopefully, that population growth is driven by people that want to come to the US and contribute to our society.  I believe we should prevent people from coming to this country illegallyand we should encourage legal immigration. 

Virtually every business laments the challenges of hiring today.  Academics and the left leaning pundits think raising wages will magically make skilled workers appear.  If they stepped into reality, they would realize there is a general shortage of skilled workers.  The right needs to understand we need to embrace legal immigration and fix our education system in order to grow our workforce and therefore, grow our economy.  It’s not that complicated.  Our politicians like to make it complicated to appeal to their radical constituents.  Stop pandering and focus on what is good for our country. 

McDonald’s Will Stop Lobbying Against the Minimum Wage Because They Can Automate

April 2nd, 2019

Last week, McDonald’s announced it will stop lobbying against efforts to increase the federal minimum wage.  Proponents of an increased minimum wage took that as a positive sign that they will have success raising the federal minimum wage from $7.25 an hour to $15.00 an hour.   McDonald’s supports a “phase-in” approach to raising the minimum wage.

Supporters of a minimum wage increase might have missed that this announcement came the same week McDonald’s announced its largest acquisition in over 20 years: a $300MM purchase of a software company that specializes in decision logic.  Instead of a pimply 16 year old asking, “Would you like fries with that,” a prompt on a kiosk or a phone will ask that question to McDonald’s customers.  McDonald’s has already begun to automate the ordering process and will use the acquisition to increase its automation push.

I doubt the timing of both announcements was a coincidence.  McDonald’s is willing to pay $15 an hour because a lot of its entry level (clerk) jobs will go away as it uses its new automation platform.  Its competitors who cannot automate will have to pay a higher wage.  A local restaurant cannot make a $300MM acquisition to automate ordering.  They will either pay the new wage or go out of business.  When labor becomes more expensive relative to capital, companies will invest more in capital if they can.  Expect more national chains to follow McDonald’s lead and continue automating.

Automation is already here.  It will continue to alter the employment landscape.  I am all for the creative destruction that is the hallmark of capitalism.  I despise crony capitalism that gives those with influence power to support initiatives that enrich themselves.  That’s what McDonald’s is doing and that is what a lot of our politicians support.  It’s a shame.

https://www.wired.com/story/mcdonalds-big-data-dynamic-yield-acquisition/

https://www.politico.com/story/2019/03/26/mcdonalds-lobbying-minimum-wage-1238284

https://www.marketwatch.com/story/mcdonalds-will-stop-lobbying-against-minimum-wage-increases-report-2019-03-26