Below The Crowd

Market Implosion Notes

Well, things continue to implode, or re-implode. I suspect that we found something of a bottom around DOW 7700 last week and would be a cautious buyer of select stocks and funds as we approach it again. Rare to see a re-test quite so soon, but just about everything we've seen lately is rare.

• Dylan Ratigan on FastMoney is straight to the point today. Confidence is not going to come back until the politicians who have created the environment which has failed are taken to task. Sadly, we have the absurd situation where the same politicians and institutions that either directly created or at the very least allowed the situation to develop are being called upon to solve it. Many of them are just broken records, "solving" the problem with more and more debt, which is what caused it in the first place.
• And let's be clear that this is not a Republican or Democrat issue. The difference between the two is where they tried to direct the huge flood of easy money that their common policies created. The Democrats wanted it sprinkled on housing assistance for the poor, on ACORN, and on support for old-line union-heavy employers. Republicans wanted as much of it as possible to head to Wall Street and to incompetent greedy managements. And of course, both sides wanted to spend it on a variety of government programs with the distinction being which programs, not whether the money really existed or could be spent. Nobody stood up and said "40-1 leverage is a bad idea." Nobody asked "why are we allowing trillion-dollar markets to develop with no regulation at all?" The only argument was where to spend the money. That continues to be the only argument. And that is why there is no confidence.
• Of course, all this might have been avoided if the government had allowed even one large institution to fail 10 or 15 or 20 years ago. The message would have been sent. Instead, we find ourselves in a situation where the insitutions have grown so out of control that even a single failure turns into a disaster.
• I continue to believe that the only way out of this is going to be printing money, and am slowly accumulating hard assets, but am mindful of the fact that a global slowdown means that many hard assets will face pricing pressure in the immediate term. Gold and silver, in that order, are my preferences right now. I expect that over time silver will outperform but at present it's getting killed by the fact that it is at least partially perceived as an industrial metal.

The De-Financialization of Everything

For the past 25 years, the trend in the world's economy has been to financilization of everything. It doesn't matter what business you have been in, some form of securitization, new financial products, hedging, derivatives, financing, or other financial intermediation has been part of your world. Those of us who actually like to create stuff have been playing second-fiddle to those whose game has been moving the financial blocks around, slicing and dicing them beyond recognition, repackaging them into incomprehensible forms, and then trying to sell them back to us.

A Financialization Orgy

That world hit incredible heights. General Motors (NYSE:GM) and Ford (NYSE:F) have become shells of their former selves, making most of their money from financing. Automobile manufacturing has become practically a sideline, something they needed to do in order to have something to finance. Even General Electric (NYSE:GE) has become much the same kind of company, slowly shedding low-profitablilty manufacturing divisions, while securing the rights to provide financing to purchasers of the products that are manufactured by others yet still bear their name. Jack Welch's success wasn't so much in making GE's manufacturing divisions better as it was in making them less relevant to GE's financial results, depending more and more on easily game-able financial business results. (Jack Welch's greatest genius may have been realizing when it was time to get out with his money intact. His jumping off the financialization train was -- in retrospect -- an early signal that it was about to run off a cliff.)

Even small companies with little financial sophistication were caught up in this. As Kevin Depew pointed out in December, little CKE Restaurants (NYSE:CKR) got caught flat-footed in a bad interest rate swap deal. Why an interest rate swap made any sense for a company in the business of operating fast-food restaurants is not clear to this relatively sophisticated investor. Hedging food costs? Maybe. But interest rate swaps? Most likely it made no sense to anybody other than the bankers who sold the deal and the auditors who were paid to tell management that it was a valid use of shareholder money. (Hint to all managers of small companies: Remember the poker axiom that if you can't see the sucker at the table, it's probably you. If you're sitting at the table with a bunch of investment bankers whose job is to create financial products, each of whom makes more in a year than the top ten earners in your company, then odds are you are the sucker.)

Most of us have been suckers. It's just taken a couple of decades for the final cards to be dealt and the reality of things to kick in.

The New Frugality

A few weeks ago I noted that I had encountered the term "Voluntary Simplicity" during an Anderson School-sponsored career options exercise.

The MBA Indicator

I found it interesting at the time that such a concept would even be offered as an option in a gathering of top-10 business school grads. I found it even more interesting that many of them thought it was a topic worth discussing. And I was quite surprised that nobody in the room completely dismissed the concept, thought most of us found the spiritual aspect of the idea to be somewhat unnecessary.

That's 12 people, in the most image-conscious city on the planet, all of whom have had significant business success, who in fact went to school to get ahead in business and who are used to 60-70 hour workweeks, all of whom are looking at their lives and thinking that maybe wanting less and having less could be a better way of living.

There's been more and more evidence that this idea could be a force in the economy in the coming years

How to Fail at Organizing a Meeting

I’m currently sitting in a meeting for the local chapter of a sizable professional organization. The fact that I’m writing this probably suggests to you that I’m not all that excited about what’s going on. The reason is that despite being a supposed professional organization that as part of it’s “agenda” promotes good management, communications, and other process, nobody in this group has ever put together a good quality meeting in their lives.

Look at the agenda:

• 8:30 – 8:45: “Warm up”
• 8:45 – 8:50: Opening, welcome and introductions
• 8:50 – 9:00: Meeting agenda and organization
• 9:00 – 9:55: Department introductions, 6-8 minutes each
• 9:55 – 10:00: Team formation
• 10:00 – 10:10: Break
• 10:10 – 11:00: Breakout Sessions
• 11:00 – 11:10: Closing

What do you think is wrong?

Well, let’s start with the obvious. What is the purpose of this meeting? Can you even divine this from the agenda?

OK, I’ll clue you in. The purpose was to get volunteers involved in the organization and assigned to specific responsibilities.

Can you see on the agenda where this would come across?

Can you see how this agenda drives towards that ultimate purpose?

Neither can I.

And not surprisingly, the meeting is wasting a lot of time and heading towards being a complete failure.

Here’s my agenda, should anybody ever ask me for one:

Purpose: To introduce volunteers to the organization and allow them to select an appropriate volunteer opportunity.

Homework: Review the attached powerpoint describing each of the departments, it’s functions and its volunteer needs. Please complete this before the meeting as we will not have time for review.

Schedule:

• 8:30 – 9:00: Bagels and coffee.
• 9:00 – 9:05: Welcome and quick agenda overview
• 9:05 – 9:20: Quick intro of each department's needs by the director, 1-2 minutes each. (Reminder, we expect you to have reviewed the background information provided in advance for details.)
• 9:20 – 9:30: Break
• 9:30 - -10:10: Department roundtable #1, select one of the departments you may be interested in volunteering for and speak with the director about opportunities in a small group setting. Identify opportunities and fit.
• 10:10 - 10:15: Quick break and reorganize
• 10:15 – 10:55: Department roundtable #2, same as the first roundtable, in a second department.
• 10:55 – 11:00: Closure and review next steps/action items

Action Items::

• Directors to follow up with volunteers to confirm choices and assignments.
• Additional action items to be agreed to between directors and volunteers.
• Other items resulting from meeting

Next steps: Be prepared to present final teams, assignments and expectations at next board meeting on [date]...

[Off topic. I am now listening to one regularly self-interested participant who has hijacked the meeting to discuss his pet topics. Nobody is telling him: “not on the agenda, we need to table this, shut up.” But running meetings is a topic for another day.]

Why is my agenda better?

Retail Redux

Following up on earlier comments about retail, I just ran into my friend with the gift store at the one local bar that was open Christmas Eve.

Her business is at roughly 50% of where it was last year. And she's already been experiencing some returns. That usually doesn't happen until after New Year's.

Her feel is that it's been a completely lousy year for specialty retail, even at the high end.

-btc

The Employment View from My Window

For the past year or so, I've found that the number of companies looking for contract employees and consulting services has dropped off significantly compared to the number that wanted to hire me to full time project management positions.

Recently, I've noticed this has reversed.

Typically, this is a sign of reduced willingness to commit to hiring, and perhaps a weaker employment market.

Obviously, I'm just a very small sliver of overall employment, and a fairly high-end one as well. I'll be following up with a few recruiters I know to try to get a better understanding of what's going on a bit further beneath the surface.

-btc

Brief Notes

Crazy day today. I'm working on a lot of little things and watching the market.

• I'm working on a complete revamping of my business website. My business works mostly on referrals, so I haven't ever thought about this much, but I really should have one even if it's only a few simple pages. Building from a fairly nice template, but the content is what's getting me.

  I can come up with dozens of anecdotes and stories to tell about my work and what I bring to the table. But summing them up into a few simple pages is turning out to be more of a challenge than I expected. My focus has changed somewhat since I started and bringing that new context to the pages is forcing me to rethink what I'm actually selling. I got so frustrated with this yesterday that I decided to skip a networking meeting this morning so I could refine my pitch before I botch it in front of fifty people.

• I've been getting lots of postcards and letters from real estate agents in Miami. Actually,they're addressed to the former resident of this place, who pretty much dropped off the face of the earth when he left here. (Some suspect he went back to Europe. Others have suggested that he had "pharmaceutical" issues of some sort. Nobody knows.)

  In any case, from what I've been able to tell, he's been trying to sell his Miami condo. Unsuccessfully. Last year, the card were all from agents anxious for the listing. This year they're all from agents noting that his listing has expired from the Miami MLS, and offering their "specialty" services in disposing of properties that are not selling well. The latest one was from a vulture who is offering to trade the condo (presumably at a very low valuation) for income-producing commercial real estate (presumably at a high valuation). Why the title on this condo still lists my address is unknown.

  I suspect things in the hot markets have not gotten as bad as they will. I'm waiting for the foreclosure notice.

• Apparently Miami Beach is also having a problem with receding sand, and there is no easy solution in sight.
• Not much new to say about the markets. We'll know more about hedge fund redemptions tomorrow and it'll be interesting to see if the selling is taking place in advance of expected redemptions, or if the redemption requests will trigger more selling. In any case, virtually impossible to game it right now. I'm doing very little. Sold a bit of the silver position in my IRA because I'm increasingly concerned about deflation and a further wave of selling everything, and added a bit of Korea Fund (NYSE:KF), but it's a tiny position.
• I do not believe that the Fed is going to loosen unless things get a lot worse. The Fed quite clearly is intent on crushing speculation in all markets. Until or unless the political pressure gets big enough to demand otherwise, I think they'll stay in that mode. Ultimately the economy will benefit far more than they would from a more accomodative policy, but it could be a painful second half.
• Caution is still the only reasonable strategy.

-btc

The Customer is Sometimes Wrong

Somebody is finally taking my advice.

About eight years ago I was working for a major PC manufacturer, doing analysis on customer support patterns and costs. The results I came up with were not surprising. 80% of our support costs were due to about 20% of our customers. And worst 1% were almost 30% of the total cost. For the most part, these were not people whose PCs were not working properly. Many of them were people who just did not want to be bothered with learning, who would call in to ask the same questions about basic operations day after day. Some of them felt that our customer service people were there to provide free tutorials for hours each week. A few of them -- like a priest in a remote parish who called us 3-4 times a day -- were clearly just lonely and looking for somebody to talk to.

At the time I had other suggestions too. It was pretty easy to identify that the biggest problem customers tended to have purchased their products from certain retailers, and usually at certain times of the year. So I recommendded, among other thing, that we reconsider doing things like day-after-Thanksgiving specials at Wal-Mart, or at the very least do some further analysis, to attempt to determine if the long-term value of the new customers acquired could ever justify the cost of getting them up to speed on their intitial purchases, and whether in fact they ever would come up to speed and be satisfied with the product.

For those people who were truly at the extreme -- the ones who were five or six standard deviations away from the norm -- my recommendation was simple: Repurchase their PCs and all accessories from them at the original MSRP (probably less than they paid at retail), and even provide them an extra $100 gift card which they could use to buy a competing product. Getting rid of that small number of people would be worth the money.

So yesterday's news about Sprint Wireless did not surprise me in the least.

MythBusters Jumps the Shark

Up in Utah where I spend as much of my winters as I can, I'm friendly with a dog named Midas. Midas is the senior avalanche dog on the Snowbird Ski Patrol, and also one of the most experienced dog/volunteers of Wasatch Backcountry Rescue. I've done some avalanche training at Snowbird and seen Midas in action. In his career he's been responsible for at least a couple of successful rescues that I know about. During the 2005-2006 ski season, which was the most deadly on record for the Utah backcountry, Midas was responsible for recovering many of the victims.

I was thinking about Midas last night as I watched MythBusters clumsily go about "busting" all sorts of myths about avalanches. I have been a fan of MythBusters since it started airing several years ago and have generally found it to be pretty well put together, if not always completely thorough.

Until last night, that is.

Last night's episode was so badly done that it makes me doubt I can ever take them seriously again. For me, it was one of those "jump the shark" moments, in which a show goes from being good, to being one that is coasting on its past glory, trying desperately to be as cool as it once was but unable to because it has exhausted all real possibilities.

There were so many things wrong with the experiment it's not even funny.

Advertising

If you've looked at this blog, you'll note that there are now some Google ads embedded in the main page as well as in all of the posts. There are a few reasons for this:

• I've finally hit the point where the traffic justifies trying to monetize this thing.
• Anecdotal evidence suggets that pages with embedded Google ads do much better in Google's rankings than pages without them. I suspect the reason for this has less to do with an overt bias and more to do with the fact that sites with ads get crawled a lot more frequently, but I wouldn't put it past Google or anybody else to favor the folks who drive traffic their way.
• My accountant would really prefer that my business has multiple streams of income, even if they are small. I've never considered this blog a "business," but I suppose I might if there's a few hundred bucks a year in it.

I've rebuilt the pages to keep the ads as unobtrusive as possible. They should blend in pretty well and are located at natural break points or at the ends of blog entries.

I have also updated my search box to use Google for searches both on this site and on the web.

-btc