Having destroyed the small farmer in USA, the US Govt now sets its sights overseas...
Friday, July 25, 2008
Bananas!
One of the strangest and most convoluted regimes in international trade is the rules for bananas. In essence, Europr encourags bananas from Africa and some Caribbean Islands, and USA encourages bananas from South America and some different Caribbean Islands.
This issue is so tid up with colonialism and keeping black countries under control that the stakes are high and the battles intense. Here comes and article that suggests the topic could break up the WTO. Sounds good to me.
Thursday, July 24, 2008
McDonalds Vs Starbucks
Starbucks is sunk. Their big move is a new brewing machine, named after Donald Duck's cow. Look at what is new at McDonalds.
Starbucks Clover
The problem is misallocation of resources and malinvestment, not the coffee brewing. Starbucks should be aggressively selling its retail stores to its employees, and let the chips fall where they might.
The Starbucks purchase of Clover would be too little to help Starbucks, and the designers of Clover left vast sums on the table by failing to let Clover go through the process of market adoption. When Starbucks folds, the developrs at Coffee Equipment Company will find better alternatives to Clover on the market, and their Starbucks coffee stock options not worth much. I think in time they will regret their cleverness.
Anthony Wants To Kill The Messenger
On Jul 24, 2008, at 10:43 AM, Anthony wrote:
John,
I blame you for my newly found fascination with economics, a topic I found agonizing in high school. I've asked myself a half a dozen times why I'm even interested in the topic. I don't have a good answer. An awakening of sorts. I don't consider myself a big thinker, but rather a pragmatic tradesman (soon to be merchant). I like to apply knowledge vs grinding away studying theories.
Anyway...
Is there a big difference in the ideas of Chicago School of economics and the Austrian School of economics? What is your view, and or the Libertarian view of Milton Friedman?
***The differences are profound... Read transformation of American Law, 1780-1860, by Morton Horwitz to get an explanation of what went wrong... how come big biz/big govt got into bed together... how come pollution happened, war etc... why small biz became hated... the changes to 1860 caused tremendous problems, which were solved by worse policies... and chaos... the chaos serves the big boys, bd boys, but it was very clear it was bad... so along comes Ronald Coase in the 1930-1950s to offer a way to rationalize the status quo. Check out his book The Firm, The Market and The Law. The Chicago school is the heart of this system, and they call themselves the Chicago school, of which monetarism is a cousin. Friedman (his book Free To Choose) calls himself a Libertarian, but his "Freedom" is in the service of efficient government. I am an anarchist so my views are not libertairan. Austrian economics starts with nonagression. Then it views humans as actors. Human motivations are ordinal, not cardinal. Austrians think anyone who tries to make a mathematical science out of human action (all public policy is based on this today) is nuts. Humans do not act as though all water is $1 a bottle, the act as though under certain circumstances, if thirsty, a human will pay $1 for a bottle of water, and then not care about the second bottle of water, at any price. Austrians recognize you cannot reduce humans to a formula. It is the only school of economics to do so.***
I've heard Naomi Klein on several left leaning radio stations in the past month or two. Klein said we should be worried about Barack Obama having been influenced by the "Chicago School" or "Chicago Boys" of economics. Klein wrote this book:
http://www.amazon.com/Shock-Doctrine-Rise-Disaster-Capitalism/dp/0805079831
***Klein is regular on govt owned media. Don't worry about Obama, Hillary will be president. But Hillary will be "chicago" too.***
She blames Free market economics for several 3rd world disasters (like Chile and Pinochet). For example, on NPR, she linked the Iraq mess to free market policy. That the policy of Paul Bremmer and other war architects (citing Paul Bremmers declaration that Iraq was, "Open for Business" shortly after the invasion) was a disaster. There was no regulation...hence the mess. She points out the Chicago School had influence on the architects of the Iraq invasion. No one challenged her assertions, she blabbed on for an hour.
***Right, Chicago also spawned the neocons... Hmmm.. Saddam hussein had free market policies? the invasion of a country is a free market event? Free markets bomb customers? Fact is, Iraq is an example of massive government intervention. Bremer said an occupied territory was "open for business" to us big biz. Blackwater, Halliburton, KBR are free market entities? I've seen countless videos of USA military taking action against free marketers on the street selling gasoline or other goods. Always the military destroys the means of production or distribution, and too often the kill the merchants. Understand, USA military operates on socialist theory. Iraq needs free markets. Yes, there was no regulation, but that misses the point. Post invasion chaos is short on regulation, isn't it? hardly a free market failure. the second part is we do not need regulation, we need agreements and property rights. Klein blames the results of socialist/neocon evil on the active good of free markets. I am sure she blabbd on for an hour without contradiction, govt owned radio sees to that.***
There was nothing free about the Iraq market. I seem to remember several stories where small US contractors were denied access to business in Iraq even though they were very qualified. You had to be with Halliburton, or KBR, or some other politically connected business to get access to Iraq. Even other countries were denied access, like France (remember, it was some kind of punishment for France's opposition to the war). How is that free? Tell me Naomi, How is that free?
***OOOhh.. you are drinking the Kool-Aid!***
Also, she has a particular distaste for Milton Friedman.
***Friedman is a gateway drug... read him and you'll end up libertarian, then off to anarchy eventually... but IRS withholding was Friedmans innovation early in his career... the wicked school- voucher idea is his... (flawed, because it is exactly what we already have...!) Friedman repudiated just about his entire life work before he died, so he is loved by those who loved his bad stuff, and loved by those who hated his bad stuff... ***
John
One Trillion Mortgage Losses?
One reason my investments are holding their own is I listen to Bill Gross. His facts and analysis are excellent, although I abhor his advocating for govt bailout. (Technically, his solution is socialism, which supports my theory that Marxists make the best analyzers, but offer lousy solutions to the problems.)
Mish Shedlock is better on solutions, and he also makes clear the crimes being committed. Gross say the banks need to raise a trillion... Mish shows how they are stealing it (his recent posts on Washington Mutual are breathtaking)...
in any event, "be self-employed or be standing in line" will be the mantra soon.
Amazon vs Costco
Both will survive, indeed thrive... it is the Macy's, Penneys, Sears that will get hammered this downturn... and Nordstrom must make up its mind soon as to where they want to be... upscale or out of business.
A key factor in all of this is mass merchandisers move things cheaper than a homeowner... Amazon can deliver the goods cheaper than you can go gt the goods...
AND Finding Designers...
Once we know the problem we want to solve in life, and make it our business, and we have customers who say our solution is a good idea and does not exist, then we likely need the services of a first rate designer to get the idea in a form the factories can translate into samples, of something manufactured, a service or agriculture... This is covered in the book HOW SMALL BUSINESS TRADES WORLDWIDE and here in the classroom...
Finding product, service or agriculture designers part one...
Finding product, service or agriculture designers part two...
Finding product, service or agriculture designers part three...
Finding product, service or agriculture designers part four...
Finding product, service or agriculture designers part five...
John
Videos Finding Product To Trade
Here is the series on finding product...
Finding product part one
Finding product part two
Finding product part three
Finding product part four
Finding product part five
Finding product part six
Finding product part seven
And again, these should be read in conjunction with HOW SMALL BUSINESS TRADES WORLDWIDE.
JOHN
Export As A Small Business Videos
This series of videos should be viewed in conjunction with Chapter Eight in the book HOW SMALL BUSINESS TRADES WORLDWIDE, and you can find it free to read on GoogleBooks and type in page 292, although I think page 292 comes up with this link...
The videos are in three parts:
Export Part One
Export Part Two
Export Part Three...
Get Big or Get Out, Radio Division
As absurd as telephone monopoly was, a radio monopoly is even weirder. We have the technology for anyone and everyone to open his own radio station without interfering with anyone who came before, but we still linger in the dark ages of government regulation of telecommunications.
In USA, communications are bought and paid for by the govt. Air America, Rush Limbaugh, the Spanish station Univision would not exist without the government and Army recruitment ads, plus the money they are paid for govt policy "content" in the shows. What would exist if govt was eliminated from telecommunications would be more better cheaper faster.
Now the government is collectivizing satellite radio.
Tuesday, July 22, 2008
Even More Brits Get Rich
Here is more on the Brits Get Rich Discussione.
On Jul 22, 2008, at 2:12 AM, dun.com> wrote:
OK, I'm not cogniscant of the outlook so much in the US, but although the mortgage crisis is going to affect business in Europe as well, is it really going to be as catasrophic as this?? You're saying that the real estate boom and remortgages has fuelled consumer spending artificially and so when consumer spending has to cut back it's going to wipe out large swathes of companies, such as medium sized cushion manufacturers?
*** Not going to be, is already. The policies of the US Fed and the cooperation of the other central banks in printing money profligately, low interest rates, easy credit over the last decades in particular, has led to massive misallocation and malinvestment. Bankruptcy filings are up 45% first half of 2008 in USA... 3200 martial arts studios to name one segment have closed down in May alone. Cities and counties are going bankrupt due to dramatic drop in tax revenues (biz and real estate taxes). Yes, it is that dire already, and it is early yet. Vance and and Tony believe they are smart because they made money when everybody made money. Now they are being taken because they think they are smart.
Of course there is money to be made, such as the Chinese who are selling vance forests and quarries, and taking tony's money to build factories, when you can drive around china and see plenty of unfinished factory buildings, abandoned. The problem in China right now is labor shortage, not finance.
There is also plenty of legitimate money to be made, plus, if your goal is to spport a lifestyle, you can make more money that you know what to do with doing well while doing good.***
Tony is selling to a large/medium sized chain in the US though, those guys always pay on time, no?
***No... Bed Bath and Beyond is in trouble, Macy's is for sale, as are most in both of these fellow's customer base. The mass merchandisers are doing fine, the upscale are doing fine. Mid market is in trouble. the first thing they do is slow pay...***
Vance is already selling direct to consumer in the UK and getting paid, going into China doesn't change that? Unless I misunderstand you.
***Your premise is Vance is "just seeking wider margins..". he would say that, wouldn't he? My premise is his UK biz if folding, and these China antics are desperation moves.***
Also something else you mentioned before... You said that these guys have the wrong strategy to go big to get the price down, because the Wal Marts of the world can always buy cheaper. I'm not saying they're competing on price mind, I just think they're hitting a specific price point for the quality, design, service they provide. Anyway, you say that Walmart would just go in and take Tony's order but cheaper. However... there must be a place for companies competing on the scale of Vance's and Tony's operations, because they both get orders. If the Walmarts serviced that market or were cheaper they wouldn't have any sales. I think there are two reasons:
- Just like we provide a value to retailers by splitting up the minimum order quantity, Tony provides a value to retailers, because he accepts lower orders than the big importers, and because he will have a larger range of designs due to them not being manufactured in huge quantities. Also, the customers don't want the same design as everybody else.
*** $3 million dollar orders for 4 pillows at FOB is big biz... he will meet plenty who will beat that...If I was his chinese factory partner, I would undercut tony without him knowing, break him financially, then own the factory and cut tony out, and have the advantage of not having to amortize the cost of the factory in the cost of the pillows, because tony sunk and lost the money. The scene where Tony is at the trade show worrying about people taking cell phone pix was funny, because his biggest threat was standing next to him... his partner! Tony and Vance got the partners they deserve. The first rate biz people would not work with Tony nor Vance.***
- Dealing with small/medium sized retailers is not hte core business of the big importers/wholesalers, they leave that to the likes of Tony.
***I've seen so many Tony/Vance's go under.***
John
How They Steal
Folks,
I hope you all are reading Mish Shedlock every day, since he is covering exceptionally well the economy around us, and what is going on. Now comes Eric Englund on another technique for stealing money legally, with an assist from Warren Buffett.
The rich are not getting richer because of some flaw in our system. The rich are getting richer because people are stealing money. The amounts are billions, perhaps trillions, and you can quickly see how they are doing it, with Mish Shedlock the narrator in one of those shows that explain how magic tricks are done. There will always be thieves, nothing new there, the problem is those in the commanding heights have withdrawn from the field. The law is focussed on Martha Stewarts and self-medicating Americans, and working immigrants. Labor and academia have checked out. Religion, Wall Street and big biz are all getting theirs, so they have nothing to say. The media is bought and paid for by big biz/govt. Farmers are too busy chasing ethanol subsidies to care. Not to worry, we've got first rate politicians who will save us. Not.
If you object to what is happening, you are for terrorism or global warming. Strange days indeed. When I say the best and last hope through this mess resides with the Central Committee of the Communist Party of The Peoples Republic of China, I am complaining, not praising. Who else is providing adult supervision right now? As one who smuggled bibles into Maoist China in the 1970's, it is disconcerting to find myself saying, "thank God for the Chinese communist party."
We in small business cannot do these things, we have no leverage (that is not to say we would not if we got the chance). Our businesses are so marginal we cannot afford the luxury of anything beyond straight and plain dealing. Individually we matter not, collectively we are the only entity left that still has Jeffersonian ethic coursing through our veins. that is the bad news... the good news is all fields are wide open.
Monday, July 21, 2008
Brits Get Rich In China - Debate
The mentioned below series provoked some good debate... as follow...
On Jul 18, 2008, at 5:30 PM, Duncan wrote:
You say Vance and Tony should go upscale rather than compete on price. For the usual reasons, less risk, same return or higher for less effort. If I were starting in either of these two industries I would do as you suggest, but I think these two may have the right strategy for their situations. Kitchens and cushions are basically commodities and there's not much innovation possible (ok, you may argue this..). The main point is they both have the capital, the know-how, and the customers to go big, all of which severely reduce risk. It might be a bigger risk for them to go upscale, in fact, because all their know-how and customers are large. They'd be entering a new market.
***They have some capital, know how and customers... but not enough to compete on price at the level they intend... thus they will lose what customers they have... success is not up to them, it is up to the customers... when they fail, it will be for the reasons of lack of customer interest...***
I think Tony has to compete on price because... he has top class knowledge of the cushion industry, and buyers willing to buy due to his previous business, and contacts... he just needs to hit a certain price point that became impossible by producing in England. So I don't see much risk getting orders, only that things go smoothly setting up and running the factory. Maybe it would've been better to reduce risk by doing what Nike does and deal with manufacturers' agents. However he has a Chinese partner with skin in the game.
*** He gave the partner 30%, which is hardly skin... she will end up with 100%...***
Vance's all about competing on price. You say better for Vance to go upscale in UK and Europe. I happen to know that Vance does very well selling in the UK, competing on price, why would he disrupt his business, lose his customers and go after new ones by going upscale?
***Here is the problem... when you say you know he does well, have you reviewed his financial statements, or is it that he appears to be doing well...?***
All three make the fundamental mistake of trying to control matters in china. they have neither the skill, nor is the direct intervention necessary to achieve the goals they seek.
You mean they should do as Nike does, by dealing with manufacturers' representatives and let them do all the China negotiations etc? Sounds easier and less risky. I don't know how much of a margin Vance saves by owning the factory vs dealing with manufacturers' representatives, and I know that at the small business level owning your own factory is an unecessary risk. But at a certain point, when you get big enough, it may make financial sense to cut out the middleman. Obviously, Nike chooses not to.
***Nike is not big enough yet, or is your premise flawed?***
Also, I notice that the production processes are quite specific, uses his own machines from England, so this is part of his competitive advantage which could only really be achieved by owning his own factory. Plus you're saying business is an extension of you, your passion. Vance's passion is to get in the trenches, and if he's passionate he'll be good at it, so why shouldn't he?
***It is up to the customers... my argument is the customers he seeks he cannot serve as well as far larger companies. He got others' machines cheap in the UK... he should ahve let the chinese decide if THEY wanted to buy them...***
All three have partners to who they entrust large amounts of money. The film makes clear in all instance these investors have overpaid for what they get. Not mentioned but inevitable is the question of how the money will be recouped.
(It won’t, these efforts will fail, none of these Brits have any rights in China, the building will go surplus and pass to the Chinese. Same story going on over the last 30 years... why people still fall for it, I don’t know.)
Really? Can you give some examples, this is really interesting?
*** I should do an article on this... it happens in waves... the factories come in, the conditions change, the owners are wiped out, and then the factories are acquired... back circa 1980's it was tens of companies (in fact, it happened to NIKE 1.5 times), then in the late 80's another wave it was hundreds of companies... in the 90's it was thousands.... it will happen again with tens of thousands.... for a tip as to why, here is a recent article... http://www.business-in-asia.com/location_for_factory.html ... REad LaDany on Chinese law... LAW AND LEGALITY IN CHINA, and check out a municipal code...http://english.linyi.gov.cn/optimize.htm ***
The funny thing is, if their plans have merit, it could all be accomplished without investing a dime in China. I personally know a pillow importer who is doing quite well in China, without having invested a dime. She has been doing that for the last 20 years selling in usa, and doing exceptionally well at the small biz level. She leaves china to the chinese, and there is more than enough to do dealing with usa markets for her to bother with managing the Chinese.
I assume her business isn't as big as Tony's, though?
***How big is Tony's...? he is busted in the UK and starting from zero in China... he is in the hole several hundred thousand right? she is profitable with a considerable income and none of his problems... again, I'd like to see a follow up in a year...***
But fundamentally all the plans are flawed because although they all invest considerable mounts of money, none have the buying power and resources of the big biz who can and will undercut them toot sweet.
Vance and Tony? Aren't they pretty much amongst the biggest fish in their industries? Basically Vance and Tony are the conservators in their industry, no? They're not really doing what we're doing, no? Would another company really place an order larger than an entire cushion factory coudl push out? Or would a kitchen manufacturer contract as many factories as Vance does, or owns, and still make significant savings, even iwth the manufacturers' agents cut?
***IN both vance and tony's industries, there are companies employing hundreds of people just in sales and distribution... not to mention home depot and walmart will bury them... the premise that a person with a load of cash can make a killing in china is just plain wrong...***
By the way what did you think of Tony's concerns over others stealing his cushion designs? If it goes on there to such a scale it must be something to be concerned about, no?
*** He is right... tony offers at $7.50 presently... since he plans to compete on price, other larger chinese factory owners with far better orgs will watch the film and find out who it is placing the order with tony in NYC and offer him the exact same thing at $6.50. The $400,000 savings will go straight to the buyers bottom line. Competing on price is not a game a one-person show can handle... the real problem is, these guys command hundreds of thousands in capital... and going up against people who command tens of millions... they will lose...***
I don't understand why Peter doesn't sell in western countries, seems far easier.
Everybody thinks... "gee, if I could just sell 10% of the chinese, I'd get rich..." McDonalds has been at it in china for 30 years, with about 1000 stores, has sales less than $2 billion, 75% of that done by franchises.. they know what hey are doing... and that is all they can get... guys like peter are delusional.. it is the "get rich" that is the downfall of these guys... they'll just get poor. The old joke, "You know how to make a small fortune in China? Start with a big fortune."
On Jul 19, 2008, at 3:32 AM, Duncan Keir wrote:
You're arguing that Vance and Tony should retrench themselves into the high end, while they've been serving the mass market previously.
***How well were the serving the mass market if they both went bust doing so?***
In Tony's case the argument is, he can no longer produce in the UK at a price to serve the mass market, so he shouldn't go to where he can. In Vance's case we don't know whether he could just use manufacturer's representatives in China and maintain sufficient margin, although I expect he could given the markups he was talking about. He's just after more margin, that's what seems to get him going, that's why he's going into China himself. In both cases they could probably use manufacturer's reps in China, not invest a penny, and continue to serve their current markets, don't you agree?
***If they had slowly folded in Chinese products 20 years ago they might have acquired to infrastructure, trained employees, relations in China, improvements in China to grow to big biz by now. Both are starting from zero right now... just as if you or I were to do so... it might have worked over time, but not shock therapy like this... also, both grew during the real estate boom and its attendant profligacy... the coming storm may wipe out their customers... I'd trim the sails and sail upstream.... also, I can almost predict... they WILL get large orders, but have extreme difficulty collecting receivables after the sale, if at all...***
Sure, if we're starting out in this industry we'd serve the high end like you say.
***Yes, but I say in effect they are starting at zero.***
So they've both taken on unecessary risk by building their own factories and meddling directly in China, as Nike, and your other examples demonstrate. That's not to say it won't succeed though, is it?
***Sure, I've been wrong plenty of times...***
Just that at their size and capitalization it is unecessary risk and probably poor strategy. But like you say passion trumps... I really think in Vance's case he's perfectly suited to muscling around China, although he may lose his shirt, who knows. I agree with you that it's generally bad advice to build factories at their level though.
***Here is the problem... people watch these films and say "O, is that what it is like? I wanna do that. " and some people say "O, is that what it is like? I 'll do something else. " These antics tend to shoo away the good and encourage the foolish. None of these three look remotely like the people who actually thrive in biz. They were all caricatures.... then we have the problem of the generally disinterested majority smugly agreeing with regulators and tax collectors that biz people are scamsters and unworthy so whatever the govt does is ok. That is a core complaint for me...***
All depends on how much it costs, and the potential payoff. He's going for mega returns by buying forests, etc, and the cost doesn't seem to steep £30k for example.
The idea that a foreignor can by a quarry or a forest in the PRC is absurd. He was taken before he got going. There is a wonderful Chinese film about scamsters recruiting impoverished city dwellers to work in communes, kill them in an industrial "accident" and then have outraged "relatives" come in an promise to denounce the operators to the central committee... the party underlings would pay off for fear of the upperlings... anyway, if scamsters did this during the reign of Mao, just think how common it must be now. Vance may find himself in the hoosegow for something he nothing to do with...***
Take this and him buying machines for £20, it appears that there are always opportunities and hidden value for he who's prepared to look for it and go the extra mile. And this strategy suits Vance's temprament, so he should be good at it. I'm sure we can find out how they fared just by contacting them directly and asking them in the future.
***There is a canadian news report on 3 small biz in textiles, which strike me as precisely how it really works... I am begging them for the clip right now... we who actually do business provide all of the food, housing, security, defense, clothing, communications, etc... that those who would regulate and tax us claim they provide. There is a radical benefit natural to business, and a symbiotic relationship between small and big business that works very well... but is interfered with to the detriment of all. The extra mile is what people do who love their work, so maybe Vance will pull it off. AS for contacting them in the future, good idea.***
Duncan.
.
Learn From Cote d'Ivoire!
A sensible start to solving the problem of high prices... from our friends in Africa.
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