On Feb 13, 2009, at 9:16 AM, Anthony wrote:
Toyota cutting executive salaries by 30%.
Meanwhile, US Bank executives are handing out "Cash Rewards", and asking that they not be called bonuses.
Was management always expensive in the US....in modern industrial history.
Anthony
No, not always as expensive... but the main factor driving usa int'l trade is management cost, the other factors are minor, negligible, or in the case of cheap labor, nonexistent. When clinton and congress capped exec salary at 1 million and put heavy taxes on corp that paid more, corps merely switched to stock options, which entirely changed the incentives and helped destroy our economy. Another example of do-gooderism going very bad. We need free markets.
Also note, recall when people said japanese workers and management have lifetime guranteed jobs (and how good or bad that was, depending on your point).. well, I was shaking my head then... and sure enough, they have lifetime jobs until they don't.
Management in USA got expensive after WWII when we were the victors, to the victors go the spoils... all that gold that went from south america into spain put spain into a 400 year decline... to the victors go the spoils... a double entendre?
Friday, February 13, 2009
Anthony is Perplexed
Alvaro On Gold Advice
On Feb 13, 2009, at 5:20 AM, Alvaro wrote:
Estimado John, I was reading a posting of yours from June 2005 :
"You could also take your equity and hedge the house with gold coins... if the housing bubble busts gold very well may shoot up (assuming this is the last asset class to bubble in this series).
Remember, the bottom of a market is not low prices, but "no buyers." During the depression 20,000 properties were on offer along the French Riviera. There were no buyers"
If the guy followed your advice, he currently has a bundle!.
***Alvaro, thanks for your note... I should make clear I am not a financial advisor, and it is not really "my" advice. One of the benefits of being self employed is you are connected to a wide group of other self-employed people, who tend to be skeptical of the official advice. Gold would have never occurred to me unless I was working with and listening to people far more experienced and wise than I. Yes, if someone took the advice, he would have a bundle now. And if I was wrong, he would be busted. The best advice going right now from my point of view is mish shedlock at
http://globaleconomicanalysis.blogspot.com/
and anything by Dr. Gary North at http://www.lewrockwell.com/ Right now they seem to disagree on a fundamental point, but that is even better, because you can weight the facts for yourself...***
So what should he do now?
***And my best advice is always start your own company.***
I have two sovereigns and a small mexican gold coin. Not much left for saving, believe me. We do save nevertheless, and dollars _look_ attractive if only because our uruguayan peso depreciates faster. However, given the high price of buying gold coins from dealers (relative to the gold price) I have my doubts.
***Right, I learned that there is so little trade relatively speaking at retail it is very possible for them to run out of stock, which jacks local prices up, both buying and selling. But I would be afraid of any currency at all at any time, unless you plan to get rid of it pretty quickly. The USA is able and ready to introduce a complete new currency at any time, requiring you exchange old currency for new. If so, you may find as a practical matter your dollars are worthless.
Gold has problems too. If Gold shoots up to $4000 an ounce, as I have been convinced it will within the next couple of years, then your coins will be quite valuable. But when you visit the coin dealer, he will say "no tiengo mas dinero." When gold hit $1000 a year or so ago, the coin dealers , who have bank lines of credit with which to buy gold, used up their lines and could not buy any more gold. So, if gold does shoot up, be prepared to trade the gold for something you want and need (a fishing boat) and get a receipt of sale noting you paid in gold.***
Also, I now will have to borrow some dollars to build an extra room for my house. I think inflation will drive the net weight of debt down, but it will also erode my salary.
***I do not know how it is in Uruguay, but we have built enough for 100 years in USA. I would build nothing right now, and rent what I needed, and certainly not borrow anything. Yes, inflation should drive the burden of debt down, but as you say if it drives wages down then you have no advantage, and inflation may come much later than you expect, hurting you slowly. Right now I would borrow nothing and start a business, any business... something you love.***
So I am writing you to ask for your opinion. I hope I don't come across as too daring ("atrevido" is the word here) given that we only exchanged a couple of emails.
***In English we say "forward" as in he came across very forward... daring is usually with acts, not relationships... and don't worry, I learned a new word today, atrevido, so it is very much worth it to me.***
Best regards and thanks in advance for your answer,
Álvaro
Royalties
On Feb 13, 2009, at 4:17 AM, Duncan wrote:
Hi John,
I got a surprise when I read the income statement in the book and your sample royalty agreement together. If the normal royalty in gift and housewares is 6% and net income % is 9.9% then 60% of the profits go to the designer... Or do you mean 6% of net income (gross revenue - cost of sales)?
***What are profits? Are they what's left over, or are they an expense, as drucker says? The biz entity nets 10% of revenue, the designer nets 6% or revenue, net is net. It is what it is. People get paid what they are worth. Your competitors are paying it. You leave out of your equation all of the other expenses that go to support the lifestyle of the biz owner that hired the designer.***
I found out that often licensees shoot for 25% of net profit, so that 60% is significantly higher... unless I've got something wrong is this because at this level we pay more for everything?
***Different industries have different ways of calculating... it is what it is, practice settles the matter***
Depending on the product, of course, it doesn't seem to me that the designer warrants such a high royalty, simply because 25% is usually a rate applied to licensing patents (which would attract a higher royalty than a design on its own).. but in this case we're just licensing the design, we are doing all the work, we could go to another designer, and they get a royalty in perpetuity for 2 weeks of work?
***Patent is IP law and monopoly and wrong to begin with, plus you are making the false assumption that patented items somehow are more valuable. If there is any correlation at all, patents = failure. As to going to another designer, I think you underestimate the value of the best designers.
At this level, the design is the thing. the designers get royalty in perpetuity for the ones that work and the ones that fail. they make nothing on the ones that fail. Further, rarely is a design right it its first iteration and rarely is a design saleable for more than 3 or 4 years before you dump it in favor of newer more profitable designs. The designer does a lot more work than you imagine.
John
Thursday, February 12, 2009
Relentlessly Bad, What to Do?
I have been reading Hong Kong Newspapers for 35 years, appreciating their independence and sobriety. Never have I seen such unrelenting bad news in the headlines... I quit at eight pages of bad news stories...
The question is, what are you going to do? Sell everything and buy gold? The government seized US citizens' gold in 1933, and they will do it again. So what to do. The only possible defense is to start your own business. Happily, the opportunity is most prime today as well. But you have to reject the nonsense coming out of government and think independently.
Wednesday, February 11, 2009
Well, Of Course!
The president says Caterpillar promised to keep some of the 22.000 people slated for layoff if the stimulus package4 passes. Of course they will. It is over $800 billion in complete waste, fraud and abuse, and a continuation of the Bush presidency, but it will get spent on boom time malinvestment and overinvestment. That is exactly the point, to keep the partay going... businesses that should never have grown so much during the overinvestment boom will keep going, for a while.
When this effort goes bad, and it will be very bad, then the powers that be will blame it on Obama. If you think Bush's ratings were low, wait until this plays out.
Plan A and Plan B
Keep in mind I argue always for plan A, wherein you develop your own line of products. Since so many people want to sell off-the-shelf items, I had to develop plan B so they could get to the point with the least possible risk of time and money. Week one transcripts cover this... www.johnspiers.com
What New Products?
Saks is doing it right.... during Christmas sales season they slashed prices 70%, driving plenty of people who tried to match them out of business... Sak's boss knows to clear out the old stuff while customers are in the stores...
As I mentioned before, the goods on the shelves and in the pipelines is not what people are buying. Stores are desperate for what will sell, what will loosen up the wallets of those who are in their stores.
Of course take feedback directly from your customers, but also note what others are doing. Coke and Pepsi are supposed to be recession proof, but they have learned people are eating out less often. So, what are they coking with? Is there an opening?
Apple is finding sales of iPhone to poor people, as I mentioned earlier in this blog. So, economy commands a higher price.
Starbucks is going down market, but here is a case of big mistake. Mickey D will slaughter them, as I've pointed out before.
Wonderbread is launching a natural, organic line. The mind boggles!
Neiman Marcus is advertising Old World Chain, a company offering heavy gold chains. It is only a matter of time until this govt seizes citizens gold, as they did in 1933, so gold jewelry is a good idea. The heavier, more pure, the better. Branding here is important.
Best Buy is still selling boom economy products with boom economy sensibilities. "Be the one who gives the presentation of a lifetime, every time." What? Expecting to testify before congress? Who is making presentations anymore? I'd short Best Buy if I was in stocks right now.
China Peanut... I mean USA, Recall
I think this article is unfair quoting the owner as saying we have to get the peanuts "off the floor" and on to the market... it sounds as if he is saying sweep up peanuts off the floor and ship them. Anyone with a warehouse says "off the floor" to mean ship regular stock out the door. I also doubt shipping tainted goods is all that unusual, as the story suggests, and in any case, the solution is to end all govt oversight.
Red Red Wine
People's taste in wine is changing, so if that is your passion, the field is wide open.
Oh No - Gogol Bordello
I was asking my daughter the other day if there is anyone writing music these days that captures the times like there was in the sixties, and this morning in class fellow recommended this... here are the lyrics... (the genre is gypsy-punk)
Sometimes when facing common trouble
When whole town is screwed
We become actually human
Act like Prometheus would
Suddenly there is more humor
And a party tabor style
People ringing one another
"Yo man, how was your blackout?"
Suddenly there is more music
Made with the buckets in the park
Girls are dancing with the flashlights
I got only one guitar!
And you see brothers and sisters
All engaged in sport of help
Making merry out of nothing
Like in refugee camp
Oh yeah Oh no, it doesn't have to be so
It is possible any time anywhere
Even without any dough
Oh yeah Oh no, it doesn't have to be so
Forces of the creative mind are unstoppable!
And you think, All right, now people
They have finally woked up
But as soon as the trouble over
Watch them take another nap
Nobody is making merry
Only trotting scared of boss
Everybody's making hurry
For some old forgotten cause
But one thing is surely eternal
It's condition of a man
Who don't know where he is going
Who don't know where does he stand
Who's dream power is corked bottle
Put away in dry dark place
Who's youth power is well buried
Under propaganda waves
Who's dream life is in opposition
With the life he leads today
Who's beaten down in believing
It just kinda goes this way!
Oh no, it doesn't have to be so
Forces of the creative mind are unstoppable!
Tuesday, February 10, 2009
42% Taxes
I fly into the San Francisco Bay Area at least once a month, usually more. Figure 1/2 hour to the airport, hour and a half wait and security nonsense, 2 hour flight, and an hour getting a car, out of the airport and to my hotel, if not air traffic delays.
Car rentals carry 42% in taxes. The air ticket carries about 25%. Both services are in financial trouble, and both carry these taxes to cover pointless security or boom time excess capacity construction. If the airlines were responsibility for their own security, it would be cheaper and more secure. if the govt was not involved in airports, car rentals would be cheaper and faster. Both would probably be profitable.
I blow five hours and spend $350 getting from house to hotel. I can drive the distance in 12 hours, for $200 in gas, and the longer the trip the more I save in car rental, driving my own. Plus, driving my own I write off the mileage.
Driving my own I can carry far more gear, to do more things in the Bay Area, and on the trip, without risk of losing my things checked as luggage (and now another extra cost).
If I take someone with me (I do enjoy the solitude) then the savings are exponential.
The best part of the easy drive down I-5 is listening to books on tape. I get through 2-3 books a trip (24 hours driving time).
Too bad for the airlines and the rent-a-car companies, they should have maintained their independence.
Coltan and Tantalum
One reason your cellphone and computer communicate cheaply worldwide wirelessly is a tiny bit of mineral called coltan, that comes from the Congo. Big biz, backed by big govt, incite wars to secure access to this.
Right now we are bailing out that system.
In the video linked above, the videomaker calls for overseas businesses to make contracts with the government, not support warring factions.
A better system would be to to recognize natural law and property rights. We must repudiate the idea of "corporation." In USA corporations use legal protections to aggregate enough power to incite war for corporate aims. If we need coltan, let USA small businessmen buy it from Congolese small businessmen, and leave all government out of the transaction. In this way Congolese will benefit and the Congolese can sort out their own issues without USA interference.
The fascist elements in USA depend on their exploitation of overseas resources to maintain their power in USA. For our part we ought to defend the Congolese aspirations to the good, the true and the beautiful by disarming the USA multinationals and corporations. Make clear to our citizens they will get no support inciting war in teh Congo, and then let the Congolese deal with the Congo counterparts who make war among the Congolese.
Children in the Congo have had their arms hacked off in the struggle for access to get minerals for cell phones. It does not have to be that way. We might have to pay 75 cents more for a cell phone, but we can have our cell phones and Congolese children can have their limbs.
Another China...Oooops... USA Recall
What goes around comes around. Regarding the recall of peanut Corporation of America tainted products, you have to dig deep to learn the FDA has been citing these people since 2001. But no enforcement. One shipment from PCA was exported to Canada, and it was so nasty the Canadians rejected it and shipped it back. Nonetheless, the FDA let it come on back in without inspecting it. Gross! Here and here is more.
Note how we blame "China" and the "Chinese" when some importers sneak in tainted products to USA. Do you suppose the Canadians say "America" and "Americans" shipped tainted, death-dealing peanuts into Canada? No, they say Peanut Corporation of America shipped them in. (Too bad "america" is in the name, though).
And note, Canadian govt inspectors did not catch th4e bad peanuts, the importers did. I'll say it again, we will be far safer when there is no government inspections to cause false sense of security, when we require importers have sole responsibility for quality control.
Why do we pretend government can assure quality control? Why do we pretend business cannot assure quality control?
Monday, February 9, 2009
Top Marginal Tax Rates
With Pres Obama pushing for the massive bailout stimulus, which will not work, at some time the govt will have to push the marginal tax rate back up to 90% from the 30+% it is now. But note something, last time it was at 90%, there was a small business renaissance in USA. I suspect when the govt is taking it all, one way to defend your income is expense your lifestyle being self-employed and in effect avoid those massive taxes. The last thing you want to be in the next 30-50 years is an employee.
Sunday, February 8, 2009
Businesses That Must Fail
Here is a critique of a kind of company that comes only in a boom and necessarily busts with the economy. Study the patterns and see if it applies to any other customers...