Thursday, April 23, 2015

McDonald's Turn-Around Fails, So They Repeat, P&G Losing Too

The great credit deflation wipe out continues:
While those 700 store closings this year represent a fraction of the 32,500 or so restaurants worldwide, they show how aggressive McDonald’s is getting in pruning poorly attended locations that are dragging down its results.
That is about 1 in 50 stores.  A couple months ago they said 350, now it turns out 700.  This is not the end of it, just the beginning. That is massive sales volume that will be spent elsewhere.  They claim it is an Asian food scare...  how about Asian food awareness?
Earlier on Wednesday, McDonald’s hadreported an 11% decrease in revenue and a 30% drop in profit for the first three months of year, a continuation of its troubles in the last two years as it has struggled to compete with new U.S. competitors, a tough economy in Europe and a food safety scare in Asia.
McDonalds knows what its customers want, but it cannot meet demand with the infrastructure, branding, pipelines that McD owns:
For instance, earlier in April the companyannounced it is testing out a larger, pricier, third-of-a-pound burger for $5, two years after dropping the similar Angus burger line because they were too pricey for McDonald’s diners. Despite that earlier failure, new CEO Steve Easterbrook expressed confidence his customers would go for premium burgers.
Now that is creativity, try again what you know will fail.  Into this void small business can organize to bring customers exactly what they want.  The world is cracking open.

The next dinosaur to feel the cold is Proctor and Gamble:
The maker of Tide detergent, Pampers diapers and Gillette razors reported net sales slipped 8% to $18.1 billion in the January-March quarter. Organic sales, which exclude currency swings and P&G’s recent divestitures, actually rose by 1% as sales grew or were at least even to last year’s level in four of five reporting segments. Higher prices broadly helped results. Core earnings slipped to 92 cents a share from $1 last year, though the bottom line would have increased by 10% excluding the stronger dollar.
Really, if USA is doing so well, how come they just gave the North American head the boot?  Temporizing by saying it is just the strong dollar is like Noah noticing the hatch is still open.

These huge companies depend on overseas sales to in effect launder their profits and escape USA taxation.  The larger the USA share, the more they pay in taxes, the less sales overseas, the less they escape taxes. The strong dollar is a by-product of credit-deflation.  For the dinosaurs, there is no way to respond in time.

The game the last 40 years is for Harvard MBA managers to get early inflated credit from Harvard MBA bankers and steamroll any competition, while proffering subsidized frankenfood (McD) and favorably regulated chemicals (P&G) to Harvard MBA cohort managers in government and industry overseas.  Write tax loopholes to allow the tax avoidance, and live high on the hog, ever concentrating wealth in fewer hands.

Lowes rolled up the neighborhood hardware store, Michael's rolled up the neighborhood five and dime,  Office Depot rolled up the neighborhood stationery store, Petco the neighborhood pet shop, Sears/Kmart (not long for this world) rolled up the neighborhood boutique, Blue Cross rolled up the neighborhood doctor, Union76 the corner gas station, McD the corner soda shop, CVS the neighborhood pharmacy, Safeway the corner grocer, BofA the neighborhood banker, and so on across the entire landscape.  Well, none of these dinosaurs can survive credit deflation, since credit inflation is entirely their DNA: size, systems, skillset, product assortment, logisitcs, all wrong for credit deflation.

These taxes, rules, regulations, banking, all of the judges, cops, armies, rolling stock, real estate, all of it is wrong for a natural economy, let alone an economy in credit deflation.  Too bad for Warren Buffet.  But excellent for anyone who starts up his own business.

Rules for the last forty years.

1. Get a steady paycheck with benefits.

2. Max the 401K and and other tax-avoidance programs as possible.

3. Get as prestigious a degree as you can gain with as much student loan as ppossible.

4. Get as much real estate as your credit rating will allow.

5. Keep your credit report clean.

Now -

1. Never be an employee.

2. Cash out your 401K, IRA etc, take the 30% tax and 10% hit, it will be far less a loss than what is coming.  Invest in your own business.  Compete on design not price.

3.  Skip the prestigious degree, no one is hiring anyway.  Get educated off the smorgasbord of what is available cheap and plentiful ed opportunities.

4. Own no real estate  Sell it off and rent as small as you can get by living in.  (Rural is the fasting growing section of USA in-migration.)

5. Extend credit to customers, at no interest.  Have no credit rating, let alone a good one.  In this way your assets are too hard to steal by uncle same.

Fifty years ago, when my brother in law laid out the first five, that was cutting edge thinking, and absolutely right.  It worked well for him.  Now things have changed.  If you understood the game 50 years ago, you did fine.  Understand the new game now.

Our Fortune 500 are experiencing chaos.  Like GE, they will all escape to anarchy.

That's my story and I am sticking to it, we'll see what happens the next couple of years.

Feel free to forward this by email to three of your friends.


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