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July 31, 2005
Fear, Personal Responsibility, and Assessing China’s Rise
"Don't waste life in doubts and fears; spend yourself on the work before you, well assured that the right performance of this hour's duties will be the best preparation for the hours and ages that will follow it." (Ralph Waldo Emerson)
Ben Stein, in an excellent commentary in Sunday’s New York Times, helps put some Americans’ fears of China in perspective, and offers the opportunity to learn from them.
By even the most optimistic CIA data about China, Stein notes, the country’s purchasing power parity GDP is two-thirds of the United States. At the same time, China’s population is five times that of the United States. Per capita GDP in China, therefore, is a fraction of what the United States enjoys.
Even if China’s 9 to 10% growth and the 3% growth of the U.S. continue uninterrupted for another quarter of a century, Chinese per capita GDP would still be less than 80% of that in the United States by that time. Again, that’s using the CIA’s most optimistic estimate of Chinese per capita GDP.
Who wants to bet that China’s growth will be an uninterrupted 9-10% for 25 years? If nothing else, the law of large numbers will start to kick in, just as was the case with the United States and other now developed economies. Remember, China’s path is not without pitfalls similar to what the United States must navigate, such as an aging population.
Stein writes:
But suppose that it does happen. Suppose that China becomes a larger economic power than the United States. Suppose, in our great-great-grandchildren's day, that the average Chinese citizen is about as rich as the average American. How would it hurt us? Why would we be worse off? If the Chinese were richer, they could buy more from us and employ more of our workers. They could buy more of our stocks. They could tour our beautiful nation more.
The fact that our neighbors are worse off does not make us richer, and the fact that they are better off does not make us poorer.
But another factor is even more important: personal responsibility. Americans who want to make sure they stay well off accomplish nothing by worrying about China. But we can certainly learn something from China. Individuals and nations become rich by investing in human capital - getting a good education, learning good work habits, saving and investing prudently and living healthy lives. Any young Americans who want to keep up with the Chinese can get a good education, work hard, save as much as possible, invest prudently - and they will be just fine now, in 25 years and in 50 years.
The moral here is simple: learning from our friends, the Chinese, means something. Fearing and envying them means nothing.
Even more to the point, fear and envy accomplishes nothing. Not for China, India, CAFTA countries, or any other boogeyman which might be blamed for U.S. ills.
Fear and envy achieves nothing. Putting your Emerson into action will.
Posted by John at 8:32 PM | Comments (0) | TrackBackThe Coming Oil Glut and the "Law of Long Lead Times"
We recently pointed to a study by Cambridge Energy Research Associates (CERA) on the coming supply glut of oil, due to a 20% addition to worldwide capacity over five years.
Daniel Yergin, Chairman of CERA and author of The Prize: The Epic Quest for Oil, Money and Power, adds an exclamation point to this study with further perspective in a Washington Post commentary:
While questions can be raised about [capacity expansion scenarios for] specific countries, this forecast is not speculative. It is based on what is already unfolding. The oil industry is governed by a "law of long lead times." Much of the new capacity that will become available between now and 2010 is under development. Many of the projects that embody this new capacity were approved in the 2001-03 period, based on price expectations much lower than current prices.
Yergin goes on to point out, however, that world demand for oil could rise 50% over the next 25 years. The question then, is whether we will take advantage of this moderation in energy prices over the coming few years to develop more efficient long-term sources of energy and conservation technologies.
Posted by John at 6:37 PM | Comments (0) | TrackBackThe Vital Ingredient for a Company’s Success: Culture
Doug Sundheim, writing for the Fast Company blog, makes a tremendously important point about the critical importance of culture in a company’s success.
A friend of his, it seems, ran into frustrations with her own company because the top executives didn’t have time to spend on people issues. If that company is publicly-traded, it’s probably a great short candidate.
It’s really simple: there are no other issues than people issues. Even the issues that are ostensibly "numbers" issues have their roots in people.
I’ve spent over two decades looking at banks, and actually worked for a bank holding company—one of the best, by the way—at one point. Banks can get quickly turned into numbers driven organizations by managers who don’t appreciate the people who create the numbers. Such banks are invariably deal-driven, ultimately having to rely on financial maneuvers and accounting gimmicks created by acquisitions to manufacture results which resemble true growth.
The best performing banks over the long run are invariably those companies which understand the value of people and the culture those employees can create. Because they value culture, these banks generally attract the best, most loyal people. While they also become desired acquirers for other banks looking to sell out, they’re not forced to do deals to grow. Such companies are able to attract and motivate the people necessary to grow organically.
Over time, the long hard work of developing the right culture translates into results for shareholders which strongly beat the rest of the industry. I’ve see it again and again. Synovus revels in being one of Fortune’s Best Places to Work. It makes sense that they do, because it’s that culture which has created their strong financial performance and a stock which has consistently outperformed the industry over the years.
You see the same recipe for success simmering in banks like Alabama National, United Community Banks, Cascade Bancorp, Boston Private, and Capital Corp. of the West. Because they spend time on the people issues, these banks are magnets for good people. Because such companies can attract good people, they generate organic growth.
Organic growth, growth independent of acquisitions, generates tremendous shareholder wealth in banking.
It’s true for any other industry, too.
Doug remarks:
Culture is your organization's DNA--the blueprint for everything you do. To be better at innovating -- your culture must expect and foster innovation. To improve customer satisfaction - your culture must expect and foster great service. Great leaders realize this. They know that "culture" isn't a single item on a task list. And it can't be delegated to a committee. It's all encompassing. It's the real work--and legacy--of leaders.
It’s the legacy of winners.
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Quote of the Day for Sunday, July 31, 2005
Today's quote is from Nobel laureate Milton Friedman, born on this date in 1912: "Industrial progress, mechanical improvement, all of the great wonders of the modern era have meant relatively little to the wealthy.
The rich in Ancient Greece would have benefited hardly at all from modern plumbing: running servants replaced running water. Television and radio? The Patricians of Rome could enjoy the leading musicians and actors in their home, could have the leading actors as domestic retainers. Ready-to-wear clothing, supermarkets—all these and many other modern developments would have added little to their life.
The great achievements of Western Capitalism have redounded primarily to the benefit of the ordinary person. These achievements have made available to the masses conveniences and amenities that were previously the exclusive prerogative of the rich and powerful."
Posted by John at 12:00 AM | Comments (0) | TrackBackJuly 30, 2005
Rapid Minority Business Growth
USA Today reports on data just released from the 2002 Census, which finds that Hispanics own more businesses, 1.6 million, than any other minority in the United States. This represents a 31% increase since 1997. Annual revenue at Hispanic-owned businesses rose 22% to an average $143,866 per company.
African-Americans owned 1.2 million businesses in 2002, up 45% from 1997.
Minority-owned businesses make up 18% of the 23 million businesses in the United States, up from 15% in 1997.
The number of companies owned by women rose 20% from 1997 to 2002, to 6.5 million.
Posted by John at 2:15 PM | Comments (0) | TrackBackGeneral Motors: A Microcosm of the U.S.?
Market maven Ned Davis, whose firm's work I value, made comments on General Motors that I thought were very interesting:
. . . How, with high levels of car sales, still relatively low interest rates, firm economic growth, and decent job growth, etc., could such a plunge happen to GM earnings? Who saw it coming?
My guess is that GM is indeed a lot like the U.S. in that it has huge unfunded future liabilities, a heavy debt load that is surely declining in quality, dependency on the price of oil, is a victim of lower cost, better quality products from abroad, rising health care and pension costs, and is dependent on overextended consumers.
General Motors put itself in a position where it no only had little margin for error, where even small problems could have very harmful financial consequences. The comparison with the United States overall might be a little too ominous than most of us would like to admit, but it screams for your attention.
Ned goes on to say that high public and private debts and the large twin trade and budget deficits will cause a serious impediment to growth if interest rates continue to rise. I believe the attendant implications for the stock market would be damaging.
Posted by John at 5:10 AM | Comments (0) | TrackBackOpening Up Apple
My friend Tommy Perkins has a blog, Digital Dharma, you should pay attention to if you’re interested in digital distribution of content. I met Tommy while he was writing for the Memphis Business Journal. He left journalism to go to the University of Texas, from where he just graduated with his M.B.A.
Tommy just posted an excellent analysis of the issues surrounding Apple’s iPod, iTunes, and whether Apple should open up the iPod format. Take a look and keep an eye on Tommy; he’s a talented person who’s going places.
Posted by John at 5:01 AM | Comments (0) | TrackBackQuote of the Day for Saturday, July 30, 2005
Today's quote is from C. Northcote Parkinson, born on this date in 1909: "Perfection of planned layout is achieved only by institutions on the point of collapse."
Posted by John at 12:01 AM | Comments (0) | TrackBackJuly 29, 2005
Altera and the Screams of My Four Year Old
The New York Times’ Gretchen Morgenson wrote a story a few days ago on veteran semiconductor analyst Tad LaFountain’s decision to drop coverage of Altera Corporation. The Wells Fargo Securities analyst made the decision after the company informed him that his phone calls were not welcome and he would not be allowed to ask questions on conference calls.
LaFountain’s offense, Morgenson reported, was to have the temerity to question Altera’s use of share buybacks and options:
. . . Altera's main complaint about Mr. LaFountain's analysis relates to how he views the company's share buybacks, he said. Altera uses such buybacks, as many companies do, to offset the share increases that result when stock options are issued to compensate executives and lower-level employees. In Mr. LaFountain's opinion, those repurchases are not in the shareholders' interests and are the equivalent of using stockholder money to buy shares at high prices and issue them to executives and employees at much lower prices.
For example, from 1999 to 2004, Altera issued 29.5 million shares through option grants at an average price of $6.94 a share. During the same period, Altera bought back 54 million shares at an average price of $23.97 each.
"When Altera has made over the last five years $2.44 a share and its tangible book value goes up only 61 cents, that means 75 percent of the earnings have disappeared," Mr. LaFountain said. By contrast, over the last five years, Xilinx, an Altera competitor, earned $2.88 a share and recorded a $3.91 jump in book value.
At Altera, Mr. LaFountain said, "while money was coming into the tank from the income statement, it was being siphoned off by share repurchases to cover options grants by and large." Altera has said in comments to analysts that the stock repurchases are its preferred method for returning cash to shareholders. . . .
The resulting press and blog commentary on this issue resulted in a "we goofed" statement issued yesterday afternoon by Altera’s chief financial officer, Nathan Sarkisian, which read in part:
In March, I informed Mr. A.A. (Tad) LaFountain, III, semiconductor securities analyst at Wells Fargo Securities, that I, our CEO, and our investor relations staff would no longer continue dialogue with him. I took this action because, in my view, we were having unproductive conversations on a topic for which we had irreconcilable differences. Consequently, on July 26, Mr. LaFountain chose to drop Altera coverage. Regrettably, as a result of our action and the ensuing press coverage, some have concluded that our intention was to manipulate opinion. In retrospect, our decision to disengage was in error, and I apologize to Mr. LaFountain, our investors, and the investment community.
We have never discontinued relations or challenged an analyst because of a rating. The core of our differences with Mr. LaFountain is our share repurchase program which he asserts has destroyed shareholder value. We implemented our share repurchase program in 1996, and at that time our market capitalization was $1.2 billion. The program has since returned $1.5 billion in cash to shareholders - more than their starting investment, and today the company is valued at $8.1 billion. We remain firmly committed to our share repurchase program . . .
Congratulations to Altera for at least having the good sense to realize how utterly asinine they appeared, and for correcting the problem.
Addressing the criticism directly, as Altera did in their release and will hopefully continue to do, is a much more appropriate way to deal with this issue than shooting the messenger.
In my book, when a company attempts to embarrass an analyst or singles them out in a disparaging way, that company becomes automatically guilty as charged. My experience, generally, has been that the naysayer is either right on or very close to being correct in their criticism. The truth is so painful that the company just can’t stand to hear it.
Think about it for just a second: when you have a debate with someone who engages you, what happens? Sometimes that exchange results in one mind or the other being swayed; other times both parties modify their position. Even when neither side moves an inch, both sides understand the other’s position and the depth of conviction behind that viewpoint much more clearly.
On the other hand, have you ever had an interchange with someone that simply refuses to communicate?
It reminds me of a recent incident with my four year old son. The other day, when arguing with his older sister, he got frustrated with what she was telling him. My daughter, a confident second grader, was using perfect logic to explain, and she was right, based on what I could see.
Frustrated, he finally just stuck his fingers in his ears and started screaming. It was a four year olds’ way of saying: "I don’t know the answer, so I’m done with you."
When Altera’s Sarkisian cut off LaFountain, he was screaming with his fingers in his ears, just like my four year old son.
This incident should serve as a lesson for publicly traded companies. Deal with the criticism directly. The critics may have a point. Even if they don’t, you’ll earn a lot more respect from the investment community because you were willing to address the issue directly.
Posted by John at 11:52 AM | Comments (0) | TrackBackLessons from a "Nerd" on Customer Service
Craig Newmark, the founder of Craigslist, has published an outstanding missive on customer service in MIT's Technology Review. After reading it, you can understand why 10 million people a month use Craigslist, despite the fact that the site’s popularity has been earned almost entirely through word of mouth:
I figure that reasonably good customer service is part of the social contract between producer and consumer. In general, if you're going to do something, you should follow through and not screw around. As a nerd, I have the tendency to take things pretty seriously, so if I commit to something, I try really hard to stay committed.
This isn't altruism or social activism; it's just giving people a break. Pretty much all world religions tell us that one moral value is to help other people if you can. I feel that customer service, even when you get paid for it, is an expression of that value, an everyday form of compassion. . .
I feel that all this is a deep expression of democratic values. From a business point of view, of course, it makes good sense, too: it lowers our costs and improves the quality of what's on our site. Finally, it helps keep management in touch with what's real--or at least that's what we hope.
Unfortunately, in contemporary corporate culture, customer service is often an afterthought, given lip service only. This seems to be part of the general dysfunction of large organizations. As a company accumulates power and money, the people who are skilled at corporate politics take control of it. Customer service never seems to be highly prized by people with those skills. Maybe it's because they lack empathy.
I speak with a lot of workers at many companies, and for the most part, they really want to provide good customer service. But they tell me they're often prevented from doing so because service is seen as a cost and not something that contributes to profits.
Me, maybe a lot of my motivation derives from the name of our site; I take things personally. Maybe sometime this year I can go part time as a customer service rep, and I could use a day off, maybe a Sunday. But I plan to be doing customer service forever. . .
Wow! How many commentaries like this a from Fortune 500 CEO would you believe were truly sincere, particularly based on your own experience with their organization?
Social contract between producer and consumer? Deep expression of democratic values? Say what?
Run through a few big-time CEOs in your mind. How many of them can you visualize working part time as a customer service rep? How many provoke your laughing out loud at the mere thought of it?
Reading such a powerful statement helps illustrate in vivid colors how a "small" attitude can make your business big. It's certainly done so for Craig Newmark.
Posted by John at 4:09 AM | Comments (0) | TrackBackQuote of the Day for Friday, July 29, 2005
Today's quote is from Dag Hammarskjöld, born on this date in 1905: "Never look down to test the ground before taking your next step; only he who keeps his eye fixed on the far horizon will find the right road."
Posted by John at 12:01 AM | Comments (2) | TrackBackJuly 28, 2005
Eisner as Machiavellian CEO Outsells Eisner as Campfire Kid
The folks over at NotSoCommonCents point out that as of a few weeks ago, Michael Eisner’s book Camp was being outsold by DisneyWar eight to one, which has to amuse anyone familiar with the debacle that was Eisner’s Disney.
Camp is Eisner’s recounting of his childhood summers at a Vermont camp and the values he gained from those experiences. DisneyWar is the tale of Eisner reign as CEO as Disney, told by the excellent journalist James B. Stewart. Stewart describes a Machiavellian character who, after early success, led Disney through several years of mediocrity and missed opportunities.
Indeed, Amazon.com ranks DisneyWar at 2,121 in sales as of today, while Camp’s sales rank is 5,050.
By the way, I just found NotSoCommonCents, and it’s a terrific blog you should check out. As they say, "NotSoCommonCents is your daily source of evidence that in the business world common sense isn’t really common at all."
Ohmae on Africa
As I mentioned a couple of days ago, I’m currently reading The Next Global Stage, a book I highly recommend.
One of author Kenichi Ohmae’s themes is how nation-states inhibit economic development. The most severe illustration, he notes, is in Africa:
. . . it is in Africa that the nation-state concept has had the most disastrous consequences for people and economics. In 1885, the European powers met in Berlin to carve up the continent among them. The entities they created are still with us. They were not making states at all in Berlin; they were establishing colonies or protectorates. When a growing tide of African resentment forced the rulers of Western Europe to concede independence and political self-government to their African holdings, it was agreed that the border demarcations drawn up in Berlin should serve as the borders of the new crop of nation-states. This was to avoid border conflicts and the incipient risk of conflicts. Nation-states were born that made no sense. They had territories comprising few natural resources, a food production sector dominated by subsistence cultivation and chronically vulnerable to natural calamities. Not surprisingly, many of these states have remained at the bottom of the world’s GDP league.
Apart from the economic myopia of these policies, ethnic and religious borders were ignored. Many of the new states contained festering internal conflicts. In the case of Nigeria and the Congo, these have spilled over into bloody civil wars with predictable impacts on resources. Other areas that had the potential for growth, such as the Niger Delta region, were divided between two separate nation-states (Nigeria and Cameroon), neither of which was interested in cooperation—both wanted only total control.
I had a conversation with economist Don Ratajczak last week in which he made the very same point.
Posted by John at 6:00 AM | Comments (0) | TrackBackChina’s Migrant Population Officially Tops 140 Million
The official estimate of the migrant population in China is now over 140 million, according to People’s Daily.
If this population were its own country, it would rank eighth in the world in size, just behind Bangledesh and ahead of Nigeria and Japan.
Miami Condos: Build, Build, Build
The Miami condo building binge continues, according to the Miami Herald:
. . . Nearly 65,000 condo units are either under construction, approved for building or in some stage of the permitting process. The number is an increase of more than 3,000 units from last month, when the total stood at 61,748.
Currently, 11,161 units are under construction, 23,266 were approved for construction by the Miami City Commission and 30,375 are in the permit application phase, according to the city's latest Large Scale Development Report.
Demonstrating the size of the roaring construction boom, in the past 10 years just 8,477 units were built in the city.
As Jeff Matthews so appropriately notes, condos are the eToys of the real estate market. Read his excellent commentary to see what he means.
Posted by John at 5:03 AM | Comments (0) | TrackBackQuote of the Day for Thursday, July 28, 2005
Today's quote is from Karl Popper, born on this date in 1902: "No rational argument will have a rational effect on a man who does not want to adopt a rational attitude."
Posted by John at 12:04 AM | Comments (0) | TrackBackJuly 27, 2005
Mutual Funds Flows and Financial Services Stocks
One of Wall Street’s oldest adages is that "the trend is your friend." In the case of mutual funds money flows, however, this bromide doesn’t hold, as the New York Times points out:
Contrarians who track the flow of money into and out of mutual funds say that they can profit by buying fund categories that others shun. In the late 1990's, for example, most fund buyers were buzzing around high-octane growth offerings that emphasized technology. They were selling real estate and small-capitalization value funds, categories that had underperformed. . . .
The numbers tell the story. In 1999, according to Lipper, the fund tracker, investors yanked almost a net $12 billion out of real estate funds and about $4 billion from small-cap offerings. But for the last five years through Thursday, real estate was the top-performing fund category. And small-cap value funds were up 15.3 percent, annualized, in the five years through Thursday, versus an average annual decline of 2.2 percent for the Standard & Poor's 500.
In retrospect, at least, fund flows foretold the bursting of the dot-com bubble. Money flooded into technology funds for years before the collapse. A net $13.8 billion moved into technology funds in just the month of March 2000, when the Nasdaq reached its peak. Then came the fall: over the last five years, technology funds have been down by an average of 19.1 percent a year.
The article goes on to mention Morningstar’s annual look at this phenomenon. At the beginning of every year, Morningstar looks at the fund groups which have had the highest and lowest percentage of outflows relative to assets.
The three least popular fund groups (most outflows) typically outperform the average stock fund over the following year or more. The three most popular fund categories (most inflows) typically underperform prospectively.
I’ve looked at Morningstar’s work on this subject firsthand. Looking backward, some fund categories can be unpopular for a few consecutive years, so cherry-picking from the top three is unwise.
Which brings me to my point: this year’s most unpopular fund categories, according to Morningstar, are technology, financial services, and utility funds.
For financial services funds, the money flow indicator hasn’t worked quite yet. This category remains in the doldrums, returning less than 1% year to date according to Morningstar, hovering near the bottom of all domestic stock fund categories.
It this performance continues—and it’s likely to, in my view—then the financial services funds will continue experience outflows through the remainder of the year. (Such a factor is in itself a headwind for stock prices of this group.) Consequently, financial services funds are likely to be among the most unpopular of Morningstar’s groups for the beginning of 2006 as well.
Such an occurrence would place financial services funds in the ranks of the "most unpopular" for two years running, and most likely will set up 2006 to be quite a good year for the group.
Posted by John at 7:15 AM | Comments (0) | TrackBackCorporate Mergers Spawn a Favorite Tool of the Propagandists
My friend Vitaliy Katsenelson, a portfolio manager with Denver-based Investment Management Associates, has a blog which is one of my favorites. I met Vitaliy while we were both writing for TheStreet.com, and he is a very thorough, well-spoken investor who I invariably learn a lot from.
Vitaliy recently wrote on the $6.9 billion acquisition of IMS Health (RX) by VNU, Inc.:
I have a theory that there is a "Mergers for Dummies" handbook secretly floating in corporate hallways, as all merger/acquisition conference calls sound identical. Both companies are excited, the praises are sung to the quality of opposing management team. Words like synergy (used 7 times in RX/VNU conference call) is only superseded by "opportunity" (used 14 times in RX/VNU conference call). Management usually makes sure to insert at least one of them in every sentence. Since it is assumed that employees from combined companies are listening layoffs are downplayed and no specifics are given. Very few large mergers work out, most mergers fail miserably as egos, incompatibility of corporate cultures and premiums paid make it very difficult. This one looks no different to me.
For their Mergers for Dummies book, serial corporate acquirers have taken a chapter from the operating manuals of political consultants. These handlers tell their candidates to keep hammering at the same message repeatedly. If an assertion is repeated as fact long enough, an audience will often come to accept that opinion as fact, even it doing so requires them to suspend their better judgment.
Mind-dulling repetition is a classic propaganda tool; it is called argumentum ad nauseam (argument from repetition).
It doesn’t matter than in the process of realizing "synergy" (code word for cutting costs), a lot of "opportunity" for building revenue may eroding, thanks to loss of people, morale, or any number of unforeseen factors. That’s next year’s problem, after the deal is done.
By that time, of course, another deal—-with the requisite conference call for analysts—-can be hatched and trumpeted to the Street, and the Mergers for Dummies handbook can be pulled off the shelf yet again.
Posted by John at 5:58 AM | Comments (0) | TrackBackQuote of the Day for Wednesday, July 27, 2005
Today's quote is from Norman Lear, born on this date in 1922: "Life is made up of small pleasures. Happiness is made up of those tiny successes. The big ones come too infrequently. And if you don't collect all these tiny successes, the big ones don't really mean anything."
Posted by John at 12:01 AM | Comments (0) | TrackBackJuly 26, 2005
The Humongous Cybercontinent
I’m reading The Next Global Stage, by corporate strategist and prolific author Kenichi Ohmae. If you liked Thomas Friedman’s The World is Flat, then you’ll love Ohmae’s book. Nothing against Friedman, but Ohmae's book it The World is Flat to the third power.
One of Ohmae’s themes is the rise of borderless domains like the cybercontinent or the region-state, which make the nation-state less relevant. The cybercontinent, Ohmae notes, is humongous:
[The] cybercontinent is greater than any country on Earth or even the extended European Union. For the first time in human history, the world changes its habits in a matter of days rather than years. By the end of 2004, 800 million people had a URL or were connected to the Internet. This is the same number of people who lived in countries with a per-capita GDP of more than $10,000 10 years ago. These people are all connected, one way or another . . .
More to come from Ohmae. . .
Posted by John at 9:52 PM | Comments (0) | TrackBackThe Washington Post on the Real Beneficiaries of a CAFTA Defeat
The Washington Post tells it as it is on this morning’s editorial page: many of the most vocal opponents of CAFTA in Central America are not so much the anti-globalization groups as they are the Bolivarian anti-Americans, starting with Venezuela’s President Hugo Chavez:
Posted by John at 10:35 AM | Comments (0) | TrackBack. . . Most House Democrats don't want to hear this; they claim that CAFTA is opposed by "pro-poor" groups in the region. But this claim is troubling on two levels. First, CAFTA would actually help the poor: It would create 300,000 new jobs in shoes, textiles and apparel; it would create a new mechanism for enforcing labor rights; and a World Bank study has found that the vast majority of poor families in the region would gain from the deal. But second, the defeat of CAFTA would help not anti-poverty movements but anti-American demagogues, starting with Mr. Chavez. For them, the retreat of the United States from partnership with Central America would be a major victory.
Quote of the Day for Tuesday, July 26, 2005
Today's quote is from Aldous Huxley, born on this date in 1894: "Experience teaches only the teachable."
Posted by John at 12:00 AM | Comments (0) | TrackBackJuly 25, 2005
The Hispanic Media Audience: ‘The Surface Hasn’t Yet Been Scratched’
Saturday’s All Things Considered from National Public Radio offered a story on the boom in U.S. Hispanic media outlets. You can listen by following this link.
According to an advertising executive from Miami’s Zubi Advertising: "We are not at all, I think, even scratching the surface in terms of what the Hispanic audience can bring. . ."
Posted by John at 10:14 PM | Comments (2) | TrackBackThe Economic Stake Georgia Has in Chinese Imports
Buying clothing with a "Made in China" label isn’t just an exercise in sacrificing U.S. jobs for cheap underwear. Jobs actually get created in the U.S. because of imports.
Robert Morris, the Director of External Affairs for the Georgia Ports Authority, which runs the Savannah and Brunswick ports, explained it recently in a speech in Atlanta. This report comes through RedNova originally from the Savannah Morning News:
A study by the University of Georgia's Selig Center for Economic Growth in the Terry College of Business credits the ports with 270,000 jobs across the state and a $54 billion annual economic impact. And the ports have been the fastest growing in the United States for two of the last three years.
Morris said the number of jobs could grow further if more Asian merchandise was shipped to the state by water instead of overland from the West Coast. Currently, 70 percent of the giant cargo containers brought into the state come by land.
Incidentally, 270,000 jobs represents approximately 7% of the state’s total employment.
Where do you guess those containers are coming from? I’ve been to Savannah and I’ve seen them; they’re from China.
Posted by John at 9:38 PM | Comments (0) | TrackBack“My Friends are My Estate”: A Tribute to Bernie Porter
Bernie Porter died unexpectedly last week, the victim of an automobile accident. Bernie was a partner and investor with us, but he was also a great and generous friend.
Bernie was clearly a success in the way most of the world measures it: in terms of material comfort. Bernie didn’t want for anything he needed.
| Bernie’s real success and wealth, however, came from the pieces of himself he planted in everyone he came in contact with. The great American poet Emily Dickenson once said that “my friends are my estate.” By that measure, Bernie died a phenomenally wealthy man. |
His wife Audra, his children and his grandchildren were his joy. His friends come from all over the country and all walks of life. Bernie was quick to suggest a solution to a problem or someone he knew could help you.
In that particular regard, the connections he generated between people are simply too numerous to count. Bernie, in that sense, was willing to lend not just an ear, but put his reputation and good name on the line for those he believed in. The value of such a gift is incalculable to those that receive it.
God be with you, Bernie, and thank you for your example. We will truly miss you.
Posted by John at 6:10 PM | Comments (0) | TrackBackQuote of the Day for Monday, July 25, 2005
Today's quote is from seven-time Tour de France champion Lance Armstrong: "Pain is temporary. It may last a minute, or an hour, or a day, or a year, but eventually it will subside and something else will take its place. If I quit, however, it lasts forever."
Posted by John at 12:00 AM | Comments (0) | TrackBackJuly 24, 2005
“Pakistan Remains the Global Center for Terrorism”
Germany’s Der Spiegel has an interesting and often disturbing interview with Pakistani journalist Ahmed Rashid, regarding his country’s role in international terrorism:
SPIEGEL ONLINE: So how great a role does Pakistan play in international terrorism?
Rashid: Pakistan remains the global center for terrorism and for the remnants of al-Qaida, which is still very strong here. The fact is, after Sept. 11, despite the many crackdowns made by the military regime of Gen. Pervez Musharraf, we haven't effectively shut down the Pakistani militant groups. The reason for that is that these groups are very closely tied into the military's foreign policy, especially with respect to Kashmir and Afghanistan. The militant groups here have not been crushed and if the madrassas they control -- they all control a certain number of such religious schools -- are not shut down, we're not going to see an end to militancy here.
SPIEGEL ONLINE: So in other words, despite Musharraf's claims to be combating terrorism -- claims that he repeated in his speech to Pakistan on Thursday evening -- he is not doing enough. Is that what you are saying?
Rashid: When crackdowns do occur, they aren't effective. Three hundred, or even 2,000, people are picked up, they're held for 90 days and then they are freed as soon as the attention and pressure from the West has stopped. There has never been an organized campaign to combat it. It has never taken place. . . .
Rashid goes on to argue that the West, including the United States, needs to bring the arm twisting it is doing with Musharraf out in the open. At the very least, I’d say.
Posted by John at 11:15 PM | Comments (0) | TrackBackLance Armstrong: What An Example . . .
As far as I'm concerned, its hard to give Lance Armstrong enough accolades. He deserves every one of the tributes he’ll receive for winning his seventh consecutive Tour de France. His competitive will is an incredible example:
Posted by John at 9:00 PM | Comments (0) | TrackBackFor six hours, the surgeon scraped tumors from Lance Armstrong's brain. Once the delicate operation was over, and as the anesthetic was wearing off, the doctor checked whether his knife had done lasting damage by asking the patient his name.
"Lance Armstrong," came the reply, according to his autobiography. And I can kick your ass on a bike any day."
Against such implacable will, is it any wonder that Armstrong's Tour de France rivals barely stood a chance? . . .(read more of this tribute by John Leicester of AP)
Quote of the Day for Sunday, July 24, 2005
Today's quote is from Amelia Earhart, born on this date in 1897: "Better to do a good deed at home than go far away to burn incense."
Posted by John at 12:00 AM | Comments (0) | TrackBackJuly 23, 2005
Quote of the Day for Saturday, July 23, 2005
Today's quote is an Eskimo proverb: "You never really know your friends from your enemies until the ice breaks."
Posted by John at 12:00 AM | Comments (0) | TrackBackJuly 22, 2005
The Invisible Disaster Caused By the Expensing of Stock Options
Deloitte recently surveyed 340 firms in a variety of industries, including the technology, media, telecommunications, life sciences industries, to determine their use of stock compensation.
Options use is declining, attributed largely to requirements under FASB Rule FAS123(R) that stock options grants be expensed.
Rank and file employees are taking the brunt of the cuts:
. . . More than 75 percent of respondents said they are reducing, or had already reduced, the number of options granted. Among those reducing option grants, 45 percent indicated reductions would occur below the executive/management level. However, 91 percent of respondents said they have made no change in option grant eligibility for senior executives from 2004 to 2005.[Emphasis mine] "As a result, it appears that it will be lower-level employees who will take the biggest hit, as options seem to be reverting to their former use as compensation mainly for management," commented [Deloitte Consulting principal Mike] Kesner. . .
No surprises so far: the big cats keep their goodies, accounting rules be damned. According to the survey results, companies are now more innovative in their compensation plans, using time-vested or performance-vested options.
Remember, though, all the hullabaloo, particularly from Silicon Valley, about how expensing stock options would hurt stock prices, in turn reducing risk taking, retard innovation, and cause Americans everywhere to lose their taste for Mama’s apple pie?
Here’s just one reminder of the hyperbole and scare tactics, this from Cisco’s John Chambers, speaking at a trade show two years ago: "If you take away employee ownership, and you have engineers in another area around the world work for one-tenth the cost with a better infrastructure and better supportive government, how many people in this room don't think that you're going to see an exodus of jobs from this country?"
Bet you didn't know that outsourcing of jobs is caused by FASB! Yes, the bean counters are forcing American corporations to send jobs to India.
Spare me.
Meanwhile, back in today’s world, buried in Deloitte’s press release is this line:
Even with all the controversy about this rule change, survey respondents don’t believe expensing will affect stock prices. In fact, more than eight out of 10 respondents (83 percent) believe the change will have little to no impact on their stock price.
As the late Gilda Radner’s Emily Litella used to say: "Oh . . . well, never mind. . ."
Posted by John at 11:19 PM | Comments (0) | TrackBackQuote of the Day for Friday, July 22, 2005
Today's quote is from comedian Albert Brooks, born on this date in 1947: "It's better to be known by six people for something you're proud of than to be known by sixty million for something you're not."
Posted by John at 12:01 AM | Comments (0) | TrackBackJuly 21, 2005
The Perils of Company "Infomercials": A Lesson from Professor Matthews
IBM delivered the goods with strong 2Q operating results. . .
Thus begins the Merrill Lynch message on last night’s second quarter earnings report from Big Blue, in which net income grew all of 5.4%.
And thus begins an outstanding commentary by Jeff Matthews on his blog, "Jeff Matthews Is Not Making This Up."
Jeff, who I met while we were both writing for TheStreet.com, has a combination of talents I admire deeply. First, he’s an outstanding hedge fund manager; his partnership is Greenwich-based RAM Partners. At the same time, he writes so thoughtfully that I’m often left thinking, after reading one of his missives: "man, I wish I’d written that." These two traits are rarely encountered so firmly wedged in the same person, but Jeff is one of the accomplished few in this regard.
If you have the slightest interest in separating cheerleading from facts in publicly-traded equities, Jeff’s blog should be part of your Internet reading routine. It’s a regular part of mine.
Jeff’s recent post on IBM is an illuminating dissection of the cheerleading which often masquerades as serious Wall Street research. At the same time, Jeff deftly and vividly illustrates what real analysis looks like.
For example, Jeff’s homework on comments from IBM’s competition leads him to skepticism regarding one of IBM’s bright spots, as identified by Merrill Lynch, this quarter:
Services bookings and profits sharply improved. Services bookings soared to $14.6 billion…
"Soared" is, in fact, an appropriate verb, since the services bookings were 45% higher than the year ago quarter. Unfortunately, bookings are still down 12% for the trailing twelve months.
Furthermore, the question arises as to how exactly did this company magically turn around a multi-billion dollar, people-intensive business in a mere 90 days? Accenture provided the answer when, on that company’s recent conference call, management spoke of IBM’s "aggressive behavior" in pricing new deals by saying "at any point in time" people act in such a way that "you scratch your head. . . "
Accenture’s comments on their current business trends—not even their actual results themselves—help explain what’s really going on with IBM’s earnings. In one sentence, Jeff illustrates the value of understanding touchpoints between companies, and how to use such information to come to a better understanding of the dynamics of those companies individually.
Living in the snug cocoon assembled by companies through their conference calls and presentations is a dangerous place for investors. These activities are often as much an exercise in marketing as are television infomercials. The only difference is that with a Bun and Thigh Max you might lose a few pounds and some girth here or there; blindly swallowing the company line in conference calls could cause loss of your capital.
Jeff has recently covered the power of Google’s single-minded focus, the deceit of Disney’s Michael Eisner, and the danger for Kodak shareholders of buying into rumors that Hewlett-Packard is about launch a buyout.
Read Jeff’s work; enjoy and learn. I do.
Posted by John at 9:20 PM | Comments (1) | TrackBackSpanish-speakers Likely to Grow by 45% Over the Next 20 Years
Over the next two decades, the number of Spanish-dominant and bilingual Latinos will grow by 45%, according to a study commissioned by Hispanic U.S.A. Inc.
The study finds that while acculturated Latinos will continue to grow as the numbers of second and third generation immigrants expand, the use of Spanish will be retained across a large segment of the population. One explanation for this phenomenon is that Spanish connects in an "emotional and visceral" way with Latinos, according to Hispanic U.S.A.
According to the study, Spanish-speaking Latinos are likely to exceed 40 million two decades from now, up from about 27 million today.
Among the nation’s top 25 markets, Los Angeles, as might be expected, leads the list in sheer number growth. The Spanish-speaking population in Boston, Las Vegas, and Austin will be growth leaders, expanding by 55% each, according to the study. Expected growth in San Diego, Washington, DC, Phoenix, and Atlanta is likely to be only slightly less.
Posted by John at 6:19 PM | Comments (0) | TrackBackChina: Just the Latest in a Long Line of Boogiemen
Author and enthusiastic reinvention advocate Tom Peters interviewed management professor Donald Sull about his new book Made in China: What Western Managers Can Learn from Trailblazing Chinese Entrepreneurs.
During the interview, Sull identified the trend in U.S. business to come up with a “boogiemen” to blame their troubles on:
. . . every 10 years, U.S. managers come up with a boogieman that strikes terror into the hearts of all responsible managers. So now it's China; in the '90s it was the dot.com; in the '80s it was Japan, Inc; in the '70s it was OPEC; in the '60s it was the Soviet Union; in the '50s it was U.S. Steel. Let's look at that list. The dot.coms, yes, they have been important, but nothing like folks were afraid of. Japan has been a flatliner for a decade. OPEC is back, okay, fair enough. The Soviet Union has dissolved, and U.S. Steel is effectively bankrupt.
I think people get into this sort of panic mode and stop thinking sensibly when these boogiemen are invoked; and China is the current boogieman. . .
It’s much easier to find a boogeyman to blame than to get about the business of reinventing your business in reaction to competition that is inevitable, whether it comes from China, India, or a company just up the street.
I want to read Sull’s book after reading Peters’ interview. His book sounds interesting since it is not just a series of hagiographies of Chinese entrepreneurs; it contrasts failures along with the successes.
Quote of the Day for Thursday, July 21, 2005
Today's quote is from Marshall McLuhan, born on this date in 1911: "Most of our assumptions have outlived their uselessness."
Posted by John at 12:00 AM | Comments (0) | TrackBackJuly 20, 2005
Cheap PCs for Chinese Farmers
We noted India's plans to build computer kiosks for farmers to provide help with crop cultivation and marketing. Chinese farmers apparently aren’t getting left behind.
A personal computer priced at just over $350 designed specifically for farmers and other rural users has been unveiled in China. Several enterprises contributed to the development of the computer, including Red Flag Linux, one of China’s largest Linux software developers.
Posted by John at 5:11 AM | Comments (0) | TrackBackA Marker of the Importance of Latinos: Politicians Studying Spanish
Hispanic Business reports that politicians on both sides of the aisle are learning Spanish and increasing delivering their messages bilingually:
. . . Spanish has become so important that the Republican leader in the Senate, Bill Frist, who has presidential aspirations, began studying Spanish and dared to record in Spanish a political statement on the contentious Central America Free Trade Agreement (CAFTA), in his unmistakable Tennessee accent.
"Many politicians are studying Spanish. It is a phenomenon that reflects the demographic, cultural and political reality of the country," said Michael Shifter of Inter-American Dialogue, a Washington-based research institute.
"The trend of speaking Spanish will increase over the next few years," not only inside Congress but also in public, Shifter said.
Shifter jokes that "Soon no one will speak English in Congress."
But no one jokes about accommodating the increasing political weight of US Latinos, whose votes have become a key to political success in recent years.
The spread of Spanish inside the buildings of Congress has been going on for five or six years, said Fabiola Rodriguez, director for Spanish media in the office of Senate minority leader Harry Reid.
Rodriguez, whose post was created at the beginning of this year, said the embrace of Spanish follows the sharp growth of the US Latino population and of Spanish-language media. Spanish language newspapers have tripled their circulation since 1990, she noted.
"The politicians have come to understand that there is a void, and that they have to give information in the preferred idiom of many Hispanics," said Rodriguez.
Alejandro Burgos, who has been responsible for Spanish language communications for the Republican Party for just over a year, said "the future of our party depends in a great part on our skill in attracting more Hispanics . . . "
The reliance of Latino voters on Spanish-language media for their news, combined with their growing numbers, should translate into record Spanish-language political ad spending in next year’s elections.
Posted by John at 4:51 AM | Comments (0) | TrackBackQuote of the Day for Wednesday, July 20, 2005
Today's quote is from John Shedd, born on this date in 1850: "A ship in harbor is safe, but that's not why ships are built."
Posted by John at 12:00 AM | Comments (0) | TrackBackJuly 19, 2005
Brad Faxon, Champion
Congratulations are due to Tiger Woods, who won the British Open this past weekend, and in doing so, won his tenth major tournament and the career Grand Slam for the second time.
For me, though, the hero of the weekend was Brad Faxon. (Full disclosure: I’m biased; he’s a pal of mine.) Brad has had a tough year, due in part to a knee injury which you never hear him use as an excuse. Consequently, if he were going to play in this year’s Open, he had to win a spot in a qualifying tournament.
Many golfers, under the same circumstances, would choose to stay at home and rest or play in the United States at a less prestigious tournament where the chances of taking home a paycheck are greater. (I don’t begrudge anyone’s choice, by the way. Professional golfers have families, too; families that they need to spend time with and take care of.)
Brad chose to go to Scotland and attempt to qualify for the tournament, one of almost 400 players trying to snag one of only a dozen spots in the Open field. He played against a field of Scots, Brits, and other Europeans on a links course. (For you non-golfers, a links course for an American golfer amounts to playing an “away game” in other sports; most U.S. golf courses are nothing like a links course.)
Brad was the only American out of almost 90 playing at Lundin Links for an Open spot. He shot 11 under par over two days and earned his ticket to the Open by a single shot.
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Brad not only went on to make the Open cut, but played very well. The first two days he shot an even par 72 and a bogey free 66, ending up not only making the cut but putting him on the leaderboard. On Saturday, in spite of an early double bogey, he shot 70 and was tied for fifth, only four shots behind leader Woods. |
Unfortunately, Brad had a couple of bad breaks on Sunday, shooting a 76 to finish at four under par and tied for 23rd.
By any measure, though, Brad’s a champion, and a teacher of an important lesson for all of us. If you don’t try, you won’t succeed. If you stay at home, you’re automatically out of the race. Sometimes you’ve got the winning “stuff,” even if you don’t feel like it.
Congratulations on such a great run, Brad. Thanks even more, though, for a great life lesson, my friend.
Posted by John at 6:04 AM | Comments (0) | TrackBackWhy We Should Support China's Economic Rise
Alex Singleton, who writes for the blog of the London-based Globalization Institute (one of my favorites), recently published an excellent piece on why we should favor and support the economic rise of China:
. . . It is partly because it will make us better off. China is already helping us to benefit from lower-cost products. But we should also favour China's increasing interaction in international trade because trade is the best way to promote liberal democracy around the world. . . .
Building the Chinese middle class through trade, Singleton argues, is the way to promote peace. He's absolutely right.
Posted by John at 5:54 AM | Comments (0) | TrackBackQuote of the Day for Tuesday, July 19, 2005
Today's quote is from A.J. Cronin, born on this date in 1896: "Gratitude is something of which none of us can give too much. For on the smiles, the thanks we give, our little gestures of appreciation, our neighbors build their philosophy of life."
Posted by John at 12:09 AM | Comments (0) | TrackBackJuly 18, 2005
Needed Perspective on China and India from Dallas Fed President Richard Fisher
Richard Fisher just became the President and CEO of the Federal Reserve Bank of Dallas, and from that perch he’s offered compelling arguments—backed by tremendous experience—for the United States continuing to lead in developing a freer trading environment around the globe.
In a recent speech, "A Walk Around the World Economy," Fisher puts the economic relationship between the United States, China, and India in historic proportion. His entire speech is worth your close attention; an excerpt follows:
. . . In 1979, I was the youngest member of the U.S. delegation Jimmy Carter sent to China . . . So we could begin to trade with each other and get on with a normal relationship, Secretary of the Treasury Mike Blumenthal was sent to negotiate with Deng Xiaoping. I was Blumenthal’s assistant, so I accompanied him to all his meetings with Deng.
I will never forget our first meeting with Deng. He was electric. You may remember he was a short fellow—about 4-foot, 8-inches, if memory serves. But he was a giant of a man with big dreams. In our first meeting, he entered the room and cackled, “Where are these big American capitalists I am supposed to be so afraid of?” And then he went about laying down his vision of driving China down “the capitalist road,” a plan that he did not proclaim publicly until years later.
Posted by John atDeng told us then that he would unleash the Chinese genius, and focus it on development and modernization. To him, when it came to ideologies, it didn’t “matter whether the cat is black or white as long as it catches mice.” And mice they have caught in droves. Since 1979, China has grown at better than 9.4 percent a year. If you do the math, that adds up to an almost tenfold expansion of the economy. Last year, China chalked up another 9.5 percent growth rate, defying the pundits who for years have projected a sharp slowdown. Since Blumenthal’s meetings with Deng Xiaoping, China has moved more than 300 million people out of poverty.
Capitalism is a brilliant thing.
I am convinced that India would not have gotten on the ball if it were not for the example of China. India has been growing at a 7 percent clip, though for a shorter time. It has some disadvantages that China does not suffer from—a lack of gender equality, an underdeveloped educational system for the masses and the lingering problem with castes. But it has some enormous advantages in addition to a colonial legacy of widespread use of English, foremost among them a respect for intellectual property and the rule of law.
When it comes to China and India, I ask you to think beyond the headlines—beyond the hype—and keep their burgeoning economic miracles in perspective. Measured in dollars, the economic output of China is roughly that of one U.S. mega-state, California. India’s economy is 20 percent smaller than that of Texas.
As fast as China and India are growing, these two countries have a long way to go before they overpower the United States, as some alarmists claim they will. We are a $12 trillion economy. Let’s do the math together. Pick a number of, say, 3 percent for real U.S. growth—well within our recent experience. Just to match the dollar value of our annual increase in production, China would have to grow 21 percent. India would have to grow 56 percent.
That said, it is true that they are growing like “gee whiz”—thanks, to a great extent, to U.S. consumers of goods and services. China’s exports to the United States have doubled since we inked our bilateral World Trade Organization deal and by 1,600 percent over the past 15 years. India has become a major information technology and business-processing center for U.S. companies, and jobs are shifting to Bangalore from Baltimore and to Delhi from Dallas.
You may have noticed a recurring theme in what I have said tonight. Trade underwrites global economic growth—exports to the United States in particular.
We buy $1.9 trillion a year in goods and services from the rest of the world—16 percent of our GDP. We sell $1.2 trillion to other countries.
>Once again, some simple math will put this in perspective: Each year, we buy more from abroad than the entire French or Chinese economies produce; what we sell overseas exceeds the total yearly output of the economies of all but six foreign countries—and one of them is California!
America is a mighty economic machine. . .