2014 the Time is Right

surfing 0012014 looks like it has the potential, the wheels on the ground to become a very good year for business.  Since it doesn’t end with a ’13 and because many businesses seem to be gathering enough wind in the sails to overcome the dramatic over-regulation of the Federal Government.  There is light at the end of the tunnel.  We may even see a resurgence of focus on real rate of return business rather than empty estimates and internal redistribution of assets to tweak the balance sheet.  Productivity is coming back into practice.

Where can we see evidence of this?  Not in retail sales but in attitudes of professionals and the better quality of service expectations.  Everyone I talk to is leaning toward productivity, not just streamlining expenses.  More people are interested in innovation than ever before.  Successful business investors are awash with money and seem poised to invest in good business ideas and plans.  People are focusing on smart rather than government and this will win in the long run.

If you have a business idea or plan you have been waiting to launch, do it now.  I believe a good wave to ride is coming in now.  Get up on your board and surf!

Good Politics are Most Important to Business Owners

Business and practice owners need to consider the most important thing for the continuing development of their business.  Customer service, sales and marketing, product and service development, and productivity

Fill the Chair
Fill the Chair

are all a constant but their effectiveness is not.  In the wrong political environment these constants are negatively impacted by slow growth, reduced number of customers or patients, low productivity, and worst of all, reduced customer service.  We are all front-line witnesses to this.

The most devastating feature of a negative political environment is ‘Trickle-Down Negativity’.  We may or may not want to believe in trickle-down economics but the effect becomes very real when our own business venture is impacted by increased regulation, increased taxes, and customers and patients who are less willing or unable to pay.  The environment is difficult and requires more time and effort, thus expense, to overcome the downdraft of a poorly run government.

Economic cycles come and go but political impact can be long lasting and indeed reduce the merits of small business for an extended period of time.  As business owners we must be cognizant of a situation in which this extended impact could be in the heart of our development and earning years, and its impact on our own families and livelihood, not just the success of our business.

We currently operate our businesses in an environment of increasing over-regulation, increasing taxes, withdrawn customer base, and dramatically reduced opportunity in venture.  Our own customer base is eroding, not because we are poor at business, but because the opportunity is poor at best.  When our best customers cannot afford us anymore, there is something wrong.  It isn’t our prices, since we actually feel the need to raise them in order to survive.  It isn’t service if we already feel we are giving away all we can afford.

The politics of our situation, this poor business environment, are not about party or personal feelings toward elements of the platform.  Our situation is about ideology.  We are currently under the thumb of anti-business ideology and an executive branch which seemingly wages war against our potential for prosperity.  Fix the current ideology, return to the belief that business owners and entrepreneurs are the fuel of our existence and opportunity, then we can worry about the platform issues later.

In short, the cost of our current political ideology is very expensive.  When this same ship had to be turned in the past it took 20 years to overcome in one case and 10 years in the last.  We have no way of knowing if the next leadership will be effective enough to keep that time at the low end of the scale.  Can we afford to wait 4 more years to see if the current failed ideology will change course?  If the impact deepens it will take even longer to turn back around.  Are you willing to wait 15 to 25 years for your prosperity to return to reasonable levels?  Start the change now.

The Fed vs Banks, Gold Grab DejaVu!

It’s the 1930’s gold grab all over again, maybe.  Sure feels like it, looks like it, walks and talks like it.

Today the Fed is suing banks over mortgage drivel.  Drivel because the Fed helped cause it, and drivel because their only remaining point of first bailing them out and then suing them is to force a sea change in currency for the Fed’s own benefit.  And of course congress can “window-dress” and make themselves look good in the media.  That’s all it is.  The Banks did what the Government designed the banking business to do, and in support of the Government’s creations called Freddie and Fannie.  Everyone should care.  They are trying to force banks to release deposits back into the Fed.  Didn’t we read in the news that the banks had paid back the bailout money?

Like the late 1920’s and early 1930’s, there’s been a lot of cash hoarding going on in corporate America, as well as asset realignment.  In the days of the Great Depression there were not enough dollars circulating because of hoarding.  Those who had lots of currency wanted to control more of the government as well as the people they employed.  In the 1930’s the Federal Government of the United States of America virtually outlawed the ownership of Gold and forced the banks to move all gold into the Federal Reserve Deposit in consideration of the Fed’s full faith and credit to guarantee cash.  Nobody seems to have seen the famous Fort Knox gold ever since.  But that’s not the point.

The reason they did that, back in the 1930’s, was to flush cash out of hoarding accounts and back into public distribution.  What good is cash if it isn’t trading hands?  Velocity at which money moves is very important to the economy.   The method the U.S. used is highly questionable, taking everyone’s gold and giving them dollars instead.  Sounds okay to you?  Well, right after the Fed confiscated the gold, through an act of congress creating a law to do so they reset the price of Gold to double what it was and effectively increased the value of the Federal deposit while cutting the value of the dollar in half.  Snap!  The rest of the depression years were spent trying to overcome the negative effect of doubling the cost of living overnight.

So here we are, this many years later, and maybe this action against the largest banks is very similar.  They can’t force banks to deposit gold again, since they don’t have gold on deposit like they did long ago.  This may not have the full effect and fury of resetting the Gold and Dollar price, but it may be one of several steps to cause much of the same effect over time.  It’s a bit early to tell because we have to see what happens with the dollar.  One thing is obvious, through fines levied on banks, quite a few billions of dollars could end up in the Fed’s account very soon and then some other action to cut the value of the dollar in half could take place.  If this happens it could be very hard on the citizens of the country.

Why would the Fed do this today?  Several reasons come to mind:

1. Increasing the deposits through payments of billions of dollars in fines can allow the government to circulate more currency without printing it.

2. The Fed can then afford to issue more debt which can then be leveraged by banks and other institutions.  Feds get cash, then they sell bonds, the banks leverage the bonds.  That’s like you using a credit card to secure another credit card; chasing debt with debt.

3. If they find a way to reset the value of the dollar, they can effectively lower the cost of  Federal debt.

4.  Causes the value of the dollar to sink low enough that those who hold dollars in large hoarded amounts will want to free them up, thus creating higher circulation.

5.  They can afford more bailouts with cheaper dollars and that means more regulation and therefore more control.

6. Increases the net power of the U.S. Fed in terms of currency control.  Imagine a King who circulates his own money with his image stamped on it.

7. Citizens become even more dependent since they cannot afford the new cost of living.

8. It’s a way to bankrupt the system quietly.  At that point they may also have the option of replacing the currency with a completely new one.

Maybe this is the only way to manage the currency, debt, and productivity crisis when we come to this point in the economic cycle.  Maybe there is no better way.  Reducing hoarding is a positive but maybe there is a better way to cause the dollar to be more valuable in circulation.  When investment in business, employment, and other things can give a higher return than the simple yield/risk model in a bank account, then people will put their money to work.  When fear is high, risk is out of control, there are few options, and it is normal to hold cash.

There is a possibility that over-regulation, over taxation, and the high cost of fees, fines, and employment overhead such as employment tax, insurance, and other benefits, actually add up to cause a reduction in productivity of investment.  Because of this firms and those who hold cash must choose to avoid the risk of new business.

This is how our system of freedom and opportunity depends on less government.  This is how it works.  The more value government takes out of the system of free enterprise, the less opportunity its citizens will feel they can afford.

Now you must ask the question of how to prepare for the dollar to collapse, if it does.

Fed Department of Justice Investigating S&P, What?

In obvious retaliation for downgrading the US, the Department of Justice has decided to put together an investigation to hunt for a witch called Mortgage Ratings!  If this doesn’t make you laugh, you may need a clue!  Yes, it isn’t funny in one sense but it’s still laughable.  Do we need to “take a look” at what we already know?  Don’t we already know the problem with past mortgage ratings?  Don’t we already know the markets were manipulated, potentially by friends of Congress and Wall Street?  Don’t we know that S&P likely reported based on lies told to them, maybe even by Congress?  We can already answer these questions without taxpayer funds to cover a big worthless investigation designed to either create scapegoats or put S&P down.  Maybe S&P will have a Howard Hughes moment in front of Congress or the Department of Justice.

To reiterate, S&P is one of the very best rating agencies, and most people have not heard of the others.  S&P has done a great job for many, many years and through some very bad years of government.

This simply appears like a “gangland” style of attack by a government which may want to tell its citizens what to do and how to think.  If they had their act together, then they wouldn’t need to worry about their rating.  Should we just maintain a AAA rating without ever discovering excesses in government-run financial programs?  Who investigates them?

At the end of the day, all this action does is serve to reduce confidence in an already volatile market and economy.

Job Report Statistically Irrelevant

The job report today came in at +117,000, creating an unemployment number of 9.1% vs. last reported 9.2%. The error margin is +/- 100,000. This means that the number is statistically irrelevant. Yet our news media and low-level talking heads in the financial industry choose to play it up as if it’s the beginning of economic recovery.  This won’t last long since the markets are already giving up the plus side.

In order for the number to be statistically relevant, new jobs created would need to be 4 times greater or more. To have any meaning at all we would need to see a monthly increase in the 300K plus range over an extended period of time. As it is, it would take decades for the current number to have any impact at all!

Other irrelevant numbers are the S&P 500 and DOW indexes, which have barely moved this year, yet the media has continued to hang on every 100 point move in either direction. They love to squeal about the VIX volatility index; why anyone would follow this redundant number which tells you only what is currently happening is beyond me.  I remember when 100 DOW points meant a 10% move, but today it’s just 1% or less and yet receives even more attention. There really must be no real news to report these days or they would completely ignore these things (um, sure).

All of this implies two important things: 1) you can’t invest according to the news headlines, and 2) this truly is a trader’s market, maybe the best ever. The first item is not a shocker, and if you have been watching the markets for any length of time you’ve even heard the culprits themselves (reporters) state that you can’t just follow the headlines. The second is the real revelation which any savvy investor should be taking note of.

Disproportionate Sell-off of Japan

No doubt Japan has suffered a tragic loss of life and property, and the risk of nuclear radiation is real.  The problem here is the apparent panic sell-off which is already out of proportion with reality and more in proportion to a real war.  What’s pushing this negative market activity?  Is it just the news, or is it some other fear? Disproportionate is right, unless you are banking on another quake and tsunami.  I seriously doubt the productivity of the Japanese people has been impacted enough to warrant a collapse in their corporate world.

Maybe the markets are down because of the number of Americans who begin standing around pointing fingers at others, trying to blame them for being unprepared for one of the worst quakes and tsunamis in history.  Reminds me of what happens when I honk at someone to move out of the way and their reaction is to either hit the brakes and look around or stop and stare at you.  Few ever get what the honking is about, or they are just angry and impolite enough not to care.

It is kind of sad to see American news focusing on a few boats bashed around by a wave, or one guy being washed out to sea in comparison to the overall tragedy in Japan.  Really though, the comparison may be better explained by how little economic effect it will have compared to the surviving population.  Japan will survive, and so will America.

Although this sell-off in Japan is disproportionate, it may actually be the correct thing in comparison to where the markets were.  It may be that a correction was at hand and the quake, tsunami, and reactors simply allowed the markets to face the truth.  I really can’t say for sure.  In the U.S. this simply is helping the markets get on with a correction which was already forming and may help it end that much sooner.

Overall, humans need to get a bit better grip on reality.  If they would stop hyping up prices in commodity, stock, realty, and other markets we wouldn’t be as susceptible to large sell-off activity.  Imagine if people invested according to the merits of valuation and earnings rather than speculation of future value and the psychological need to participate with the crowd.  But then that would imply people would be doing their own homework and understand the risks they take.  On the other side of things, if people were not as inclined to over-react there wouldn’t be as much opportunity for those who know how to play the game of risk and investment.

New York Stock Exchange Sold To German Boerse

The NYSE was sold out yesterday to the German Boerse exchange in a merger deal.  A major icon of our American ingenuity and capitalist structure has truly been sold out to a foreign entity.  Even if they try to say Americans still have an interest in it, it’s like you owning one share of Walmart and thinking you can control the company; not enough votes.

We may as well take all the stuff out of the Smithsonian and put it all on Ebay.  How about if we give a patent and copyright to China for the American Flag?  The amazing thing is the press isn’t reporting that we’ve been sold out and it’s just being treated like the sale of a bank branch.  Much of the world’s economy, the real and free part, was exchanged through the NYSE.  The name will even disappear soon.  The NYSE was created in 1792.

Being a member of the NYSE was prestigious.  I really don’t know what it will mean now that descendants of Prussia will be in control.   The amazing thing is the sale price was only $10 Billion.  Shall we sell our bridges and canals to India or how about give them as a gift to Iran?

We have such an incredibly failed government…

Read more here:  http://bit.ly/ghrmkQ

Good Business, Good Politics

Is it good business to want the Federal Government to be supportive of small and mid-size business in this country?  Yes!  Is it also good business to vote for representatives, presidents, and laws which support small and mid-size business?  Of course!  Then isn’t it also good business to talk politics as a business owner or entrepreneur?  Absolutely! 

Where does this notion come from that it is bad business to discuss politics in business?  How is it possible that doing so is a negative thing?  The men who founded this country were the top business owners and entrepreneurs of their day.  How would they have ever created the United States if they didn’t believe that good politics was also crucial to good business?  Isn’t that the entire reason behind the Tea Party of their day?  I can see where employees of large corporations may think that politics has no place in business, but they are not in business, not really, they are just employed and fear for their jobs, not their freedoms. 

Because small and mid-size business owners, as a group, are the biggest employer in this country, they need to have a loud voice. Since many of those currently running the Federal Government are not in business, and would simply like to take away as much as they can from business owners to further their own power and spending needs, it is economically important for the well-being of our country that our business owners have a loud voice.  Our business owners and entrepreneurs need to do all they can to make sure our representatives support small business because how else will jobs increase, demand increase, the economy increase?

The point is, it’s very important for business owners to talk about their needs, their ability to make a profit, their ability to employ more people.  It is rare that a business owner is in the business only for the money.  They usually want satisfaction in a variety of areas like helping customers, helping community, helping employees by providing jobs and good benefits.  They help the economy in more ways than just making and spending money.  They buy property, save money, build communities, and much more.  So why should they be quiet about what they believe regarding politics?  Business owners and entrepreneurs can claim to be a member of a party or independent, it doesn’t matter.  What does matter is that they realize the importance of the position they are in and how to increase the power of business rather than allow any party to hamper opportunity.  Owners and entrepreneurs need to speak out and help their employees and friends understand the importance of good business with good politics, thus good representation.

“All of us need to be reminded that the Federal Government did not create the states.  The states created the Federal Government.” – Ronald Reagan

Congress Can’t Hurt Home Prices by Dumping Freddie, Fannie

Don’t any of our congress people get it?  Home prices can’t be hurt by the Government getting out of home loan guarantees.  Are they REALLY so ignorant that they believe this?  They have no thinking associated at all with free markets and yet they are in charge of the freedoms of our markets?  I could REALLY get angry about this one.  The only effect they have right now in maintaining inflated prices is to remove assets from the market since nobody wants to invest in artificially over-priced property.  If the government wants to guarantee a floor price on the property, then it becomes an issue of time; time value of money matters to smart investors!

First off, homes which cannot get loans have no market!  Second, the government has no business making a market, in any market.  Third, if they would let the real markets take care of it the homes would have value because then they could be traded, profitably, and at low risk.  That’s the whole point!  Risk avoidance and over-insurance caused the entire problem in the first place.  So one would ask, “what about the people who need homes?”

Yes, it’s true that some people might be homeless.  I don’t want that any more than they do themselves.  But this does bring up another good thing about American free markets that makes us so competitive with the rest of the world and a much better place to live than other countries.  When things are priced according to market valuations, there is more free cash for gifting and projects.  What that means is that money will find a way to make sure that everyone has a roof over their heads.  What did we do before Freddie and Fannie?  In this country people really don’t go hungry and without a place to sleep unless they want it to be that way.  Once in a while someone becomes new to the process of not owning a home or having the ability to rent.  The system finds them, because we have good people in the system, who want to help, and we have both the facilities and the money to make sure it all happens.  Guaranteeing them a loan is not the way to go.

Allow properties become valued at market price so they can be purchased and traded again.  This will increase the momentum of money and the properties will eventually go back up in price.  Proof of this is in taking a look at Houston and the rest of Texas, during the S&L collapse of the late 1980s and early 1990s, when home prices dropped dramatically.  They have since recovered nicely because free markets made the homes valuable again when they fell to reasonable prices that could be afforded.  Barney Frank and the rest of the gang in congress should be required to take classes in economics, so that they will know the potential impact of the laws they pass.

Why are SMIDs Important to Economic Recovery?

SMIDs (small-mid size businesses) employ at least half of the workforce in this country.  Corporate jobs are not the only jobs around yet our government is focused on dealing more for large corporation benefit because of the big dollars they represent.  Small business represents half or more of the voter base indirectly but do have a greater impact on local government through state and local taxes.  Anyone can own a small business including teenagers on the internet and retired people running a small business of any type, which I’m sure we will see even more. 

SMIDs offer the best way for Americans to fight against socialism.  There is no doubt whatsoever that this country has voted in a very socialist congress and president.  We don’t need socialism since we already have social programs in place to help those who really need help, despite the few that abuse that system.  In any case, the point is that true freedom is the ability to decide how to live your life.  The ultimate form of that freedom is not in owning a house but in owning the ability to not be in debt for that house, to have financial freedom, the ability to enjoy life.  Good business owners have that.  They can decide how much to earn, how much to spend, how much to invest, and most importantly for their lifestyle, when to do these things. 

SMIDs help control taxes in an environment in which our representatives would have everyone making a good living pay even more into their coffers of ill-will.  We really have the butting of heads between ill-will and goodwill.  Goodwill is the ongoing viability of a business or venture and ill-will is the opposite.  The government’s ill-will would take as much as possible from SMID business owners and damage their ability to prosper and grow.  In opposition, the effective business owner has the ability to operate with some tax rules that allow write-offs; discounts for employees to some degree; and control of forces effecting net income by writing off expenses, assets, and fees.  All this activity creates cash flow for suppliers and advisors of the business owner as well.  A lot of people feel they enjoy writing off their home mortgage interest and they should also realize business ownership is a multiple of that.  The knowledge a business owner gains in dealing with smart business concepts is key to our economy.

SMID owners become very aware of our taxation problems and can educate family and friends.  Through the process of learning about their tax liability and the resulting shock and awe of the ridiculousness of it, owners become acutely aware of the need for better legislative representation!  They learn what it takes to successfully profit in the environment of business ownership and generally become advocates of smarter government along with smart business.  This advocacy can have a direct impact on employees when business owners take the time, and they should, to educate them on how the process works, limitations on benefits imposed upon the owner by tax law and regulations, and how to work better as a team to enhance the business so it benefits employer and employee alike.  This knowledge of the average owner and employee should have an impact on future elections of government representatives. The evidence of this is the current effort of the federal government to employ more people and compete for those votes which will favor big government and corporations over small and mid-size business.  This is a fight, not just for the right to make a good earning, but also for true freedom.

Our freedom depends on the abilities of SMID owners and their partners.  If the U.S. Government continues to be in direct competition with business in this country and move forward with the effort to remove the ability of employers to provide enticing benefits to employees, the social impact will move us closer to economic failure similar to that of the Soviet Union.  That failure represents socialism’s negative impact on maintaining and growing a good quality standard of living which the U.S. enjoyed for so long.  We don’t want to be another Soviet Union for any reason.  China also represents a low standard of living in comparison to the U.S.  Independent business owners are much more capable of taking care of employees and their needs than the government will ever be.  The difference is in taking a number to stand in line for benefits or having an employer who needs and wants to keep employees healthy and happy so they can be much more productive.  When a business and its employees are successful they have a direct positive impact on the economy and are more able to expand and provide more products and services.

SMID partners must create opportunity as well.  Partners are those who use the services or provide services to a business.  If the efficiency of the business and its employees is high, then the services and demands they represent are high as well.  Customers benefit from a lower overall cost since they receive higher efficiency, and this directly impacts the next customers in line.  Nobody wants to purchase low quality goods and services since the replacement costs end up doubling the overall cost!  Example: In the past, Xerox offered copier equipment with a 5 year fix or replace guarantee which none of their competitors offered.  To compare total cost of ownership on a $15,000 copier all one had to do was assume that in any of the 5 years the unit could fail to the point it might have to be replaced.  A one to one comparison showed that a competing unit discounted to $12,000 had a 5-year risk of actually costing $24,000 if it failed and had to be purchased again.  Which would you buy?  It was a simple decision.  Quality of employees and quality of services is important to the economy and the ability of increasing the number of consumers, of which the Federal Reserve is always hopeful of.

SMIDs as consumers are the segment most likely to grow our standard of living and consumer economy.  Because small and mid-size business owners enjoy economies of scale, even if their net revenue is low, they can purchase more goods and services.  If they expand their business and customer base they also expand their economies of scale.  This can happen rapidly!  Remember the technology bubble?  The expansion, based on demand, was incredible.  The money available to invest in these ventures seemed unlimited.  Yes,  it got out of hand, but look at the previous expansion of the SMIDs in the 1980s and 1990s.  Prior to the tech bubble we were enjoying a comparably low cost of capitalization, expansion of good quality services, an increase in technological breakthroughs, and at the same time an increase in employee benefits to a level never before seen.  Prior to the 80s hardly anyone had a retirement plan and most people were on a cash basis for retirement based on what they had saved in the bank.  Our standard of living increased dramatically throughout the 80s and early 90s.

Every successful SMID is like adding another wealthy or near-wealthy entity to the country even if the owners do not become very wealthy.  A business owner may take home only 5 figures but the business itself may generate a gross in multiples of 7 figures.  That cash flow has to go somewhere!  It does.  It goes to employees, suppliers, taxes, fees to banks and professional services, utilities, charities, and in some ways to customers who save money on convenience and services.  A well-run business can spend money like a very wealthy individual can.  Yes, I realize not all businesses are run efficiently but many are — just look around you and especially in the older business districts of your community.  Some of those companies have been around long enough that their low overhead cost alone allows them to hire more people and expand into new products because they can afford to do so.  When they finally decide to spend they are more likely to make a quality decision that not only makes more money for the business but also for all of those involved. 

SMIDs can employ more people rapidly.  SMIDs are quick to notice uptrends in the economy and because of their size they are able to move quicker on new business opportunities than their large corporate counterparts.  They have the ability as a group to suddenly expand the employment base since they have fewer obstacle between the decision maker and the employee in the form of a ridiculous legal moat called Human Resources ,which so often is merely a group of attorneys trying to protect the firm from what they believe could be rogue employee complaints.  This wouldn’t be such a problem if the government didn’t automatically impose higher expenses each time an employee needs to be terminated.  It’s still a problem for SMIDs but there are fewer layers to go through.  Remember the days when managers hired and fired?  Now corporations refer potential employees to HR at the home office. 

Small and mid-sized businesses only survive if they benefit people.  Unlike the   Government which is neither intended to benefit employees nor able to do so, it seems, at least not in an efficient form; SMIDs must create value for everyone involved.  Employees, providers, and customers must feel it is worth doing business or they will go elsewhere.  This really goes without saying.  A government entity can only enforce participation in the form of regulations that reduce choice and cause stress, as it flexes its muscle to impose its position on the citizens.  As a competitor of SMIDs the government is truly a destructive force to society.