I love Costco, in spite of the fact I run a tremendous trade deficit with that company. I buy a lot from Costco, but they buy nothing from me. We are both happy with the situation. (This is why the fact we run a trade deficit with China or Japan does not matter, any more than mine with Costco matters).
I sell nothing to Costco because we at the small business level have no business selling to Costco. Costco is fairly unique inasmuch as they will take product from small businesses and offer it for sale. The few instances that I know of personally, this usually ends up a disaster for the small business. To match the costco demand the small business will borrow and ramp up production. Eventually Costco moves on and the small business folds due to inability to service the debt for the ramp-up.
I sampled an excellent high end product this evening at Costco. The product was selling well. I doubt these people will be in business in a year. Too bad, since they might have grown by selling on frequency and not volume. Don't sell to Costco.
Friday, January 23, 2009
Do Not Sell To Costco
1/3rd Women Will Spend Nothing on Clothes in 2009
But 2/3rds will, if you read the report. The trick will be to have the products those 2.3rd will buy.
Taxpayers Auto-Cover Madoff Theft
You'll be delighted to know you automatically cover Madoff's theft through our tax code. Consider the moral hazard: turn $50 billion over to a person who then makes it disappear into "bad investments" no one can trace. The "victims," since they are rich, get 40% back immediately out of the paychecks of working Americans.
Where did the $50 billion go? Into the untraceable accounts of the "victims." In less than 6 weeks (note the tax filing schedules) they make 40% on their money, compliments of the taxpayers.
Now am I not saying this is the case in the Madoff affair. No, probably too many people involved to pull it off. But if you think it cannot happen, you need to watch Jack Nicholson's film PRIZZI's HONOR. The scam in the heart of the 1970's story is exactly one such scam.
Condon had 2 stories made into movies: the Manchurian Candidate and Prizzi trilogy (Better to read prizzi's honor, even more fun than the movie). Condon will teach you how Hamiltonian America works.
As an aside, given our tax code, Charities lose their money, and it stays lost. Go figure.
Newspapers and Internet
On Jan 23, 2009, at 10:46 AM, Anthony wrote:
We're in a lawless wild West period of news and information availability thanks to the Internet (unfortunately soon to be regulated). Blogs/Internet have opened up a wealth of information previously hidden by Editors who's power and whims decided what was important and what wasn't. With blog information available for the cost of an Internet hook up, why would anyone read the newspaper?
***Not lawless, spontaneous order... it is how humanity operates absent of government.***
So, Tell me, Why are Rupert Murdoch and other ultra rich people investing in newspapers? Do they see something they can pick up on the cheap? Do they believe they are getting a bargain?
***Yes and yes and yes...***
Like a cheap horse when everyone is moving to automobiles.
***No they are not stupid....**
Are they too old and curmudgeon to see how the news business has changed, OR, are they seeing something we're not?
*** Something I have already stated and everyone should know. Mark my words... within 5 years You Personally will demand the internet be shut down, due to attacks, virus, whatever... the issue wil be security. It will open up as a series of AOL's for certain functions, the ones we need, and you' need a license and pay a fee to go on the info superhighway, and permissions to access your bnking, pay bills etc. (Is it a coincidence that AOL and the CIA are headquartered in Langley VA?) The net will go into expensive lockdown. It is already a crime to criticize congress on the internet and not report yourself. It will get worse. When info on the internet is too expensive or in lockdown, the newspapers will re-emerge in the hands of fewer people more tightly beholden to government. Right now is one of the best times in history to start a newspaper.***
Listen For It: Freeze Salaries
One of Prez Obama's first acts was to freeze the salaries of his top people (were they expecting raises on the first day?) Corporations and other large groups are announcing the same. In deflationary times, prices of everything drops. In this environment, a salary freeze locks in high wages while prices of what you buy and the income of everyone else drops. In this upside down economy a salary freeze is a raise.
As I said here, if lobster fisherman are getting less money for their crustaceanous harvest, what does it matter when food, clothes, housing, gas, vacations, anything and everything the fisherman would buy is cheaper too? Lower prices only matter if you saddled yourself with debt you cannot service with the lower income.
If you find yourself with debt you cannot service, let me tell you the reason why. Usually we humans judge each other by wealth, real or imagined. Most people fall into the trap wherein you can get esteem and reputation, on credit. This is where "they" got you. "The home you deserve..." The vacation you deserve..." "You need HDTV..." What is logowear except expensive advertising of one's putative position? Macy's, soon to go under, is advertising its credit card as "you can have it all..." In the last month 2 billionaires and several millionaires have committed suicide over money losses. The heart of that is somehow who they are got tied up with what they have. That's a mistake.
If you find yourself caught in the trap, then of course job number one is to admit it is your own fault, and certainly do not try to get others to bail you out. Your job now, what falls to you, is to show those around you what happens when a person is wrong about money and finances. And do it again, right. If you are busted, you've got a job to do.
Example of Free Market and Competition
Here Mish Shedlock, just a money manager, gets named the top financial blogger by Time magazine. When government does not have control over the media, talent rises to the top. The other two top financial bloggers (read in the link) were his inspiration, and actually advised him as he started up. A double winner of free market and competition. Note also if you've heard or read Mish you did so, most likely, becuase of my reference. How come it took Time over a year to spot what I did? Now you see one reason government controlled media is dying out.
As an aside, I always modeled my web presence on Lewrockwell.com, but initially could get no help from them, not even any answers. A year ago or so they finally loosened up with some ideas. Today I read the fellow in charge of the free-market blog and website used to want to stop any copiers. Go figure, the "home" of free markets is trying to suppress freedom. He has since repented, and now welcomes competition, as he explains here.
This desire to dominate, to own and control, is something we must learn to reject in ouorlseves, like like a desire to lie and steal.
Anarchy
Say anarchy and what comes to mind is the bearded bomb-thrower. Strictly speaking, anarchy simply means no government. People will equite "no government" with chaos, missing the point that most society has nothing to do with government. Harder to grasp is the fact that with no government we get spontaneous order. We saw much spontaneous order during the storms last holidays, and the private rescue efforts/first responders to the jet-in-the-river a week of so ago. Here is an article comparing Swiss and British versions of anarchy.
Thursday, January 22, 2009
Now This Is Cool....
I'll buy one, and it certainly is an example of thinking of a solution rather than a problem... and it will sell in any economy... perfect example of what we should be developing as mentioned in this blog.
Microsoft Losing Control
News today is bad for microsoft, but no one seems to notice what I mentioned here before... government is Microsoft's #1 customer, and it has stopped growing. Microsofts fortune rose with big government, and it will shrink thus too. Remember all the money we forked out to block the Microsoft monopoly under the Clinton Administration? What a waste, of money, time and creativity.
Wednesday, January 21, 2009
What is Going On...?
There are very many definitions of money, depending on who you talk to. Money is a medium of exchange, and anyone who defines it as anything more than that has designs on separating you from your money. Click to read on...
In terms of money, savings is wealth. In most economic theories, money and all other wealth can be objectively calculated, whereas the Austrian theory says it is subjectively calculated. Say I own a box of apples. I feel it is worth $20. You feel it is worth $10. There is nothing to keep the two of us at arriving at a price of $15, making us both wrong, but satisfied.
Now what is my $15 savings worth? All savings turn into investments. Either they are lent out, used to buy machinery or equipment that enhance my earning power, or I put it in a mattress where it gives me a confidence to do something risky, like go to school. Or I buy a painting that inspires me. It is all investment, and we would all generally disagree what it is worth.
In spite of this, progressives tell us they can objectively know value. To do their good work, they need to institute Communist manifesto item # 5. “Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.”
Even under communism money is still a medium of exchange. But at some point money taken over by government in every case in history ends up in disaster. So much so, our government take over of money in 1913 was rather poorly hidden behind a legal fiction that the Federal Reserve Bank is a private entity (Ha!) and even in Hong Kong they do not let the government control money, indeed, various private companies issue money, they way it should be in a free market.
With control of money, governments tax and transfer wealth... so far so good. It is wrong to take money from one group and give it to another, we call this stealing, but it does work. It does transfer wealth with some unintended consequences, but it works. It is wrong, but it is not real harmful, since the targets learn to adjust.
But when the powers-that-be go to far, the productive elements in society resist, and the progressives see diminishing returns. In this case, schools of economics such as supply side, Chicago and monetarists figured you can inflate the money supply and stealthily increase taxes by means of inflation. The advantage here is the cost of inflation is pushed down the line so banks and industry avoid paying the inflation while ultimately workers pay the most cost. It is so subtle few realize that 40 years ago one wage-earner could own a home and support a family, while now mom has to work just to pay the taxes to keep unessential government workers employed, and kids come home from government school to empty housing.
This inflation distorts the economic landscape and causes malinvestment., too much unproductive capacity. The diminishing returns reappear, leveraged.
So the government tries to stimulate growth to employ excess capacity by printing more money. Which is pouring gas on a fire, making things all the worse. Stimulus packages and printing money is both wrong, but it is also harmful because it is transferring money that does not exist to unproductive capacity. It is either paid for by diluting what wealth people have, or charging off to the future some folly today.
The democrats tax and spend takes wealth and forces it around. At least there is wealth being spread around. The republican lend and spend is based on pretend wealth. It was wildly successful in stimulating consumption, and the productive capacity to deliver much. But such bubbles pop. Since all politicians benefit from both scams, they all vote to bail out the system that benefits themselves.
Can you protect yourself?
“Too big to fail” banks were bailed out with money they will never pay back, so it was nothing to agree to pay 5% interest on the bailout money. This is bad. But it gets worse. To advance the US Govt policy of “get big or get out,” the plan requires small responsible productive banks to join the large irresponsible banks ini taking bailout money. IN this way , no bank is allowed to be rewarded for being prudent in its banking practices, and expand where to powers that be have failed. At 5% return, banks must lend out at about 8% to turn a profit. There is nothing out there investment wise that can earn 8%. Lend the money and you will go out of business. Bank officers at small responsible banks can say good bye to equity, stock options, pensions.
Better to just park the money and collect the money on the bonds. Bubble time in bonds
This is a twist on outlawing shorting. In one you are not allowed to protect yourself, in the other you are obliged to join the losers.
You can fight this entire system. Find your customers, develop your product, and get enough orders to cover the suppliers minimum, in a workable amount of time, profitably.
John
PS
Here are all ten points of the Communist manifesto.
1. Abolition of property in land and application of all rents of land to public purposes.
2. A heavy progressive or graduated income tax.
3. Abolition of all rights of inheritance.
4. Confiscation of the property of all emigrants and rebels.
5. Centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.
6. Centralization of the means of communication and transport in the hands of the state.
7. Extension of factories and instruments of production owned by the state; the bringing into cultivation of waste lands, and the improvement of the soil generally in accordance with a common plan.
8. Equal obligation of all to work. Establishment of industrial armies, especially for agriculture.
9. Combination of agriculture with manufacturing industries; gradual abolition of all the distinction between town and country by a more equable distribution of the populace over the country.
10. Free education for all children in public schools. Abolition of children's factory labor in its present form. Combination of education with industrial production, etc.
Name one that has not been implemented, more or less, in USA:
Aaron Checks in From San Francisco
AS I've said in earlier posts, the time is right to start your business. San Francisco has too many restaurants, but here a young cook opens a very hot new thing, and has no real overhead to service... Now he quit his job to do his work...
Andrea Checks in With a Video
When I opened this I thought it was Jim Cramer, but it is a funnyman named Louis C K, someone I've never heard of, but he is very funny. I think he has hit a new attitude spot on...
It's Illegal To Test for Mad Cow Disease, So No Cheese
Once we get into one crazy rule, then other things go bad... so we have one kind of beef rejected, so we reject roquefort cheese... consumers lose.
Tuesday, January 20, 2009
Wine Freedom in Hong Kong
I was surprised to see wine was regulated in Hong Kong, but at any rate, it was deregulated last year and of course with deregulation comes more and better business.
Start-up Strategy Today
Imagine a graph in which over time both supply and demand were drifting downward. In this graph, supply is dropping at a faster rate than demand, and the rate of drop of supply is accelerating. Such a graph would visually illustrate that although both supply and demand are contracting, demand is actually expanding on net. Right now I hear people saying this is no time to start a business, and they cite falling sales at both the mass merchandisers such as Walmart and high-end such as Tiffany’s.
Also cited is the difficulty of getting finance. I believe it is true that both supply and demand is crashing in this economy. But that does not mean there is not a net expansion of demand that is overlooked by the nay sayers. There is actually unmet demand out there. I’ll explain how this is happening, and something you need to know yourself, and share it with anyone else planning to start a business, because this is not limited to import/export.
The key to the phenomena is debt. Does a given company have debt they cannot handle with the reduced sales, and lower profits on what sales they do get? If they can, they will survive. If they cannot, they go under, whether a retailer, a wholesaler, competitor or customer, high-end or low-end. If you cannot handle the debt, you are toast.
What is Crashing the Demand?
Circuit City is gone and Walmart and Best Buy will benefit to be sure, but Walmart and Best Buy are both weaker now too. This is true at the high end level as well. This just means the economy is adjusting downward to a more natural level, an economy in which there never should have been a Circuit City anyway. The printing of money and the easing of credit created a demand for things people cannot afford and don’t really want anyway, resulting in a particular kind of malinvestment called overinvestment..
But given some net reduction of demand at the high-end level, why are sales not rising for Tiffany’s if demand is, on net, widening?
Because Tiffany’s etc. are still offering boom time product selection. The product selection is for a the last economy. They are selling off their boom time selections and working through what is in the pipeline. People do not want the 75% off merchandise. As for perennial standard items, customers know they can get it later for less. Why buy now? Hence lower sales for those stores that would exist in a natural economy. It is not a lack of money, it is a problem of product selection that does not match current demand. So the problem for high end retailers to solve is where are the new products people would buy? That is where you come in.
What is Crashing Supply?
We are at the beginning of a process in which people and businesses who took on too much debt are trapped. Their capacity is tied up or lost. Some players are personally trapped, and it will be ten years before their credit is restored and they can operate again. Some are psychologically trapped... they believed they were smart and cannot understand what happened, and are afraid to go out again.
Add to this the government actions (there is no real policy, they are making it up as they go along) that have tied up lending and forcing perfectly viable businesses to close down for lack of lines of credit.
Demand for goods and services is falling, but specifically in the standard items category and at a slower rate. These elements are killing suppliers all along the chain:
1. Big discounts on what nobody wants anymore, so lower revenue and profits.
2. Standard items that will be around a while will be cheaper later if you wait.
3. Viable businesses that can’t get lines of credit.
4. Factories tooled and organized for what nobody wants.
5. Distribution in a manner nobody wants
6. R&D money diverted to more pressing issues.
7. Psychological blocks, people afraid to act in times of uncertainty.
8. Bankruptcy
Booksellers and car dealers are two good examples, but in every category these are the problems.
Solution
As suppliers go down with their boom times array of assets, they take capacity for innovation with them. At the same time, consumers are buying, but less, and more carefully. If they cannot find something that pleases them, they will hold on to their money. This widening unmet demand is where you belong, where you are needed to do good while doing well.
All industries are being hit tight now, so every industry is ripe for innovation.
Anyone who is listening to the customers, and redesigning for here and now, working in frequency, not volume, can both feed the widening demand that is not being met, plus come up with products for which people would in fact loosen their wallets, and thus retailers would welcome on their shelves. Start-up businesses provide
1. since it is new and may not be available later - buy now.
2. quantities are “test-level” so is not going to be discounted - buy now.
3. We carefully target by means of orders from customers exactly where people buy such things.it is where people buy such things.
4. it is fresh and new... lifts the spirits...it represents new when there is so much old still hanging around. - buy now.
3. We are financially stable, because we are operating within our means. We take advantage of excess capacity in furniture, equipment, space and logistics to better serve our customers. We even convert what was after tax costs to pre-tax expenses, to the extent allowable by law.
As for finance, the players are so keen right now that a factory that was once fully booked with 1000 customers is now serving 500, and would be keen to take you and 499 others on to feel out what opportunity there is in what is still the largest economy in the world. Whatever money you have in savings, or you can save in six months, that is all you need. You will self-finance with what you have.
This puts the entrepreneur, for the first time in at 30 years, on exactly equal footing as the established company, in fact, because of no debt, better than most. And rest assured the retailers you target have the time and are quite keen on helping you develop the products that will loosen the wallets of the few people who do walk through the retailers doors.
You know the rest from my book and classes.
Where We Belong
Long ago, working in glassware, I found an opportunity to make a quick and easy few grand by slapping logo images for an event onto Libbey Glass, mostly as a favor to a Museum I had as a customer. The Libbey sales rep was quite accommodating, as was Libbey Glass. I shared with the rep my wholesale prices, and he quickly figured out I was making about $250 an hour on the deal. So I asked him why Libbey did not go around me, and cut me out of the deal?
The answer of course, is although the sales rep may be making only say $40 an hour, to make that $40 he has to sell about $10,000 in glass, every hour every day. Billion dollar businesses like Libbey have reps spending days working on quarter million dollar orders for chains and mass merchandisers and simply cannot take the time to spend 12 hours on a small order to a museum. Given Libbey’s overhead, they would lose money. On the other hand, I can make money where they cannot.
There has always been that empty space where we at the small business level may provide a value. Given the depression we are heading into, that space has been enhanced, and I want to make sure you all understand what and where it is.
As you all know you are free to email me with questions, and I try to put them up on the blog when I can, and if the questioner agrees. I have been assisting quite a few people lately, one in particular starting a wine export business, a case in point regard in the above.
Take Constellation Brands, the worlds largest wine producer is selling off most of it's low-end lines to reduce debt.
In the wine industry, there is a 5 million dollar a year product demand that is presently unmet. The net profit will be some $500,000. Constellation Brands would lose money pursuing any product line that gained a mere $500,000 in net, given the cost of their bloated, boom infrastructure.
On the other hand, one person working out of a small cheap office as a wine negociant can spend a year of his life developing this one product area and earn $500,000 gross on 5 million in sales. Nice work if you can get it.
For people who’ve studied what I teach, this is nothing new. I mean only to reiterate the points given the new circumstances, and lay out the relevance today. Self-employment directs your whole resources to your own well-being... but there is a paradox, the more you serve others, the better you do. It was true in boom times, it is true during this bust.
Forward this to anyone you want. WE have to save this country from the government.
WSJ: Obama Calls For New Era of Responsibility
After today Pres. Obama will be in charge of one branch of the federal government, and nothing else. I've blogged regarding the idea we need responsibility and freedom to get out of this mess. Obama has called for a new era of responsibility. Does he mean this regarding the branch of government of which he is in charge? Or does he mean it will be business as usual in government and taxpayers must give up more? I wish these things were clarified.
Singapore Responds to Econ Slowdown
In a free market like Singapore, when there is an economic slowdown, step one is to cut the salaries of government workers. Learn From Singapore!
In a refreshing twist in governance, the minister of defense is in charge of the civil service. Makes perfect sense!
Sunday, January 18, 2009
BofA Bailout - Limits To The Size of Corporations
Austrian school economists argue socialism failed for the reason that when the state owns the means of production, there is no way to know prices or costs, so allocation is distorted until things get so bad it all falls apart. Think Soviet Union.
RH Coase argued the point of a corporation is to take advantage of costless or less cost transactions: think of your copper tubing company buying copper from another company versus mining your own copper; also if you and I run out and get photocopies, we pay sales tax on the transaction using after-tax dollars. A corp pays no tax using pre-tax dollars. The list goes on.
Austrian economist Peter Klein has blended both points "Economic Calculation and the Limits of Organization," Review of Austrian Economics 9, no. 2 (1996): 51-77." Available here in .pdf.
His thesis is simple: there is a limit to the size of corporations for the same reason there is a limit to the size of states. They lose control of costs. Bank of America has gone from over $40 to $7 in less than 3 months after engorging on other failed banks. Now Bank of America has been given its first tens of billions with many more to come.
Since in this election ideas do not matter, we will get more of the same. If the government keeps it up, we will get to where the Soviet Union got in 1990. This prospect does not worry me. I spent a few weeks in Moscow in 2004. While the vast majority of people were experiencing want of basics, there were some terribly wealthy people and a wide swath of self-employed doing just fine. If the Hamiltonians fail with Obama, it will have no impact on the Jeffersonians.
National Service
In a free market you do not need to draft people into a national service to make up for the failed policies of the politicians.