Tuesday, January 29, 2008

Bernenke, Hero or Goat?

Fed Chairman Bernenke didn't make a good first impression. He seemed to react quickly to stock market downturns in reducing rates rather than taking the more measured "wait and see" attitude of the Greenspan years. This lead to a perception that Bernenke was out of his league. Now, it may turn out that Ben Bernenke made exactly the right moves at the right times.

The country was and is experiencing a credit crunch. People and businesses are having a tough time finding capital. Bernenke's swift move to add liquidity to the marketplace and bring down interest rates despite a falling dollar may make this one of the shortest and shallowist economic downturns in recent history.

Housing slumps are always followed by a rebound, led first by bargain hunters. This normally takes quite some time as interest rates gradually come down and the economy slowly strengthens. This time around interest rates have come down fast and many are of a mind that they can't go much lower. The bargain hunters may enter the game very early in the cycle. At the same time, refinancing is bouying the mortgage broker market, where many individuals got hit hard.

On the world stage the dollar may be poised for a big comeback as the US has gotten ahead of the curve and is taking steps to avert a recession well before one sets in. Europe's delay may mean they'll be cutting rates and looking for answers while our economy is entering a new phase of growth.

The jury's still out on Bernenke's policies, but in this fast-paced market place, a fast-paced Fed chairman may be just what the doctor ordered.

Thursday, January 24, 2008

RateMDs.com - Injecting market forces into medicine

The medical profession has been largely insulated from market forces for decades. Third party payer systems ensure that they do not have to compete on price, at least not directly with the people receiving the service.

It has also been taboo for medical professionals to market themselves to the public. Evidently, medical elders decided long ago that the general public was just too stupid to be deciding what constitutes a good doctor.

Well, we're nowhere near eliminating third party payer, but a new website is putting Doctor's reputations with their patients on world wide display. It works much like PayPals "feedback forum". You can search doctors by region and specialty, view or add comments, even add your doctor if he or she is not currently listed. Doctors are given an overall quality rating between 1 and 5 and judged on staff, punctuality, helpfulness and knowledge.

No longer do you have to base your choice of doctor, dentist or other medical professionals on the certificates displayed on their wall. No longer do you have to wait until you've been harmed to find out that a doctor's not very good at his job. No longer are you totally without recourse when a doctor keeps you waiting for hours because he or she overbooked. I hope we see a lot more of this type of service in the future.

Kudos to RateMDs.com for bringing some common sense back to health care.

Note: This is not a paid or solicited endorsement and I have no vested interest in RateMDs.com

Wednesday, January 23, 2008

The Economy - Prescription for Recovery

To understand how to correct the current downturn in the economy one has to have a good sense of what got us here. For the past couple of decades, corporate earnings growth has been strong. Individual disposable income, not so much. Consumers have been living on credit and their earning power has not kept pace with spending. Banks are now having to face the reality that a lot of the money they loaned out isn't coming back.

I'm in the marketing products business. I don't regard my job as selling ads and printed products. I regard my job as helping my customers increase their revenue and earnings. If my customers don't do well, I don't do well. Government needs to come around to this same realization. Individuals need to be empowered to have higher earning potential. They don't need handouts and make-work programs that are the jist of the the "stimulus" packages now being proposed. We are not going to rebuild a thriving private sector by growing government.Government needs to get out of the way. The capital gains tax needs to be eliminated. People need to have incentive to earn, save and invest. It's hard to get excited about the prospect of netting 30% on your investment and then giving a big chunk of it to the government. We need less regulation and paperwork. The income tax needs to be eliminated. How many hours a year are wasted filling out tax forms and complying with employment regulations and filings? When you pay an independent contractor, they do the work, you write them a check. Transaction complete. When you make them an employee you get a helpful guide to federal payroll regulations that proudly proclaims on the cover how simple it is. The instruction guide is 70+ pages long and much of it just refers you to other forms and manuals. As for taxes, a sales tax form takes about ten minutes for a merchant to complete and most taxing authorities offer a small rebate in return for your work. The monstrosity that is the income tax code requires a team of professionals, none of whom really understand the whole thing.

Regulation, taxation and government intervention in general is mostly well intentioned, but it has the the opposite of the desired effect. In the interest of providing security and stability we are stifling the dynamics that have made this country so successful. The Soviet Union provided security and certainty. Everyone had Jack Squat, but it was predictable. Is that where we want to go?

Risk taking is not something that needs to be eliminated. It needs to be encouraged. It has to come with potential reward and we have to accept the consequences of failure. There's no way to win if there's no way to lose. The incremental steps taken by government to reduce or eliminate risk are ruining the game. Get out of the way and let us play.

Tuesday, January 22, 2008

The Great American Garage Sale - Playing the Crash

The Fed cut rates, in intermeeting move today by 75 basis points for the first time since 1984. Congress and the administration are actually in agreement on the need for a stimulus package. This has lead traders to wonder, "what do they know that we don't?" This has actually caused more panic and selling in the market. How should one repond to these circumstances? Time to go shopping.

This is the most opportune point of the market cycle. When almost everyone agrees that the economy is heading for a train wreck. Goods, services, commodities get cheap and nobody's buying. I would not recommend putting all your money to work in one fell swoop, but if you've got some saved up for a rainy day....it's raining.

In the stock market, start dollar cost averaging into it. That is, purchase the same amount of a broad basket of stocks (exchange traded index funds) each month or every couple of months. In real estate, start looking for bargains and pick one up when you have the opportunity. Spend the next year or so refurbishing and getting ready for the turn in the market. In business, rent a store room and start picking up equipment on the cheap. For consumers, spend your money productively on home repairs, landscaping improvements, etc. Start visiting pawn shops, thrift stores and flea markets on occasion. Good stuff is about to show up there. Use downtime to gain education in something you're interested in. There's free education all over the internet. Go get some.

The train is in the station. Don't wait for it to start to pull out and join the clamor to get on. Find yourself a good seat now and enjoy a good book while anticipating the next leg of the journey.

Thursday, January 10, 2008

GE, Halliburtan and their business with Iran

Despite US sanctions against doing business with Iran, GE, Halliburton and other companies have continued to do business with that country and others such as Syria and Libya.

While they don't do it directly, they go through foreign subsidiaries and have defended the practice by stating that they are in compliance with current US law.

That may be the case, but how do you morally and ethically justify doing business with a regime that we know is supplying weapons that are being used to kill Americans in Iraq and Afganistan? The companies believe they are looking after the best interests of their shareholders. I would submit that supporting state sponsors of terrorism against US citizens is a bigger concern to their shareholders than an extra couple of cents in their dividend payment.

Capitalism at its best is not all about cash. It's about improving your quality of life by finding ways to improve the quality of other people's lives. It's about creating value. Providing support and stability for regimes that want to kill us is not providing value.

Claiming a legal responsibility to honor existing contracts is complete BS. The minute the Iranians and others decided to sponsor the killing of Americans they voided any legal rights they may have had. No legitimate court in the world would hold GE or Haliburton to those contracts if they terminated them tomorrow, which is what they ought to do. Even if it did mean taking a hit in court, how about sucking it up and taking one for the team? Suppose a company like GE got involved in a highly publicized case in which they refused to honor contracts with Iran because of their involvement in the killing of US service members. What do you think would be worth more? The less than 1% of revenues that GE makes on Iranian business, the penalties or fines they might have to pay, or the PR?

I would highly recommend that US citizens refrain from patronizing any company or its subsidiaries that continues to do business with our enemies, regardless of existing contracts.

The Economy - What Happened?

Prelude to Recession

No, this isn't an "I told you so" piece. Nor is it an explanation of how things would be better if I'd been calling the shots. It's just an observation of our current reality, how we got here and what I expect going forward, based on observation, personal experience, data and anectdotal evidence.

In the beginning....there was much liquidity. Home prices were going up every year. This allowed people to tap into extra cash flow by rolling over their mortgage every year or two and cashing out equity. This went on for quite a while, allowing people to safely spend 10k, 20k, 30K or more above and beyond their income. Suddenly, housing prices stopped going up. That extra cash flow went away. Some got behind in their mortgages as they were no longer able to roll them over. Mortgage lenders got more restrictive on lending.

The housing market, already in decline, suddenly saw half the potential buyers disappear as they were no longer able to qualify for mortgages. The mortgage brokers got hit, the realtors got hit, then the home builders, construction workers, suppliers.

Meanwhile, back at the ranch, consumers begin to consume less. First off the shopping list: big ticket items. People held on to their cars longer, their appliances, put off home improvements. With rising home equity no longer available, they turned to credit cards, which soon became overextended as well.

Now we are near the end of the cycle. Credit card deliquencies go up. Bankruptcies skyrocket, retail sales tank. This may sound like a doomsday scenerio, but wait...the good part's coming up.

Some businesses try to compensate for lower revenues by raising prices. This goes over like a lead balloon. Many of them fail. Others recognize that they need to go in the other direction. They find ways to cut costs, increase productivity and offer lower prices. Prices of goods, services and commodities all head downward. This creates new opportunities and sets the stage for a vibrant recovery.

It's the circle of life in a free market. Good times lead to over-indulgence. Over-indulgence leads to recession. Recession leads to recovery and the return of good times. Some remember and learn from the past, but there will always be newbies and declarations of a "new paradigm" in which the old rules don't apply, so many continue to get caught up in the cycle, and it continues. In the process, new ideas are developed, new discoveries are made and generally speaking, life gets better.

The only potential monkey wrench in the system is when government panics and decides to "fix" it. A sure way to prolong and even institutionalize a slow down is to raise taxes, increase regulation and increase government spending. There is plenty of room for improvement in the US business model, but they all involve less regulation, lower taxes and less government "assistance". We need to make it easier for low income individuals to find the way up, not by giving them money, by giving them freedom. People need to be encourage to try and they need to be allowed to fail.

The prescription for the future is more information, less regulation, fewer barriers to entry, more flexibility, less paperwork, more encouragement. Above all, it's important to recognize, going into a rough patch, that this is a normal part of the business cycle. Step one in dealing with it: DON'T PANIC!

Saturday, January 5, 2008

First Robitics Competition

It may be a not-for-profit organization, but it employs the old capitalist principal, helping yourself in the process of helping others. Dean Kamen may not be in this to make a bunch of money, but compensation isn't always money. Kamen would like to see more young people get involved in science and technology. To do so, he had to create a fun way to make it happen. The participants aren't necessarily after the monetary compensation either. After all, most of them will lose. It's fun, it's competitive, it's challenging, it's entertaining. The sponsors get to be associated with the excitement of learning, competition, new discovery, while at the same time generating goodwill among a pool of potential employees and partners. Everyone walks away with more value than they came in with. That's Capitalism. Here's the story:

Life-changing program inspires young people to pursue
opportunities in science and technology

Over 37,500 High-school Students to Compete in 41 Regional Events
MANCHESTER, N.H.--(Business Wire)--FIRST (For Inspiration and Recognition of Science and Technology)
launched its seventeenth FIRST Robotics Competition season today with
a Kickoff at Southern New Hampshire University in Manchester, NH,
hometown and headquarters of FIRST. The FIRST Robotics Competition is
an annual competition that helps students discover the rewards and
excitement of science, engineering, and technology. Over 37,500
high-school students on more than 1,500 teams from Brazil, Canada,
Chile, Israel, Mexico, the Netherlands, the U.K., and every state in
the U.S. are participating in this year's competition.

At the Kickoff, all teams were shown this year's game field for
the first time and received a common kit of parts made up of motors,
batteries, a control system, and a mix of automation components - but
no instructions. Working with mentors, students now have just six
weeks to design, build, and test their robots to meet the season's
engineering challenge. Once these young inventors create the robot,
their teams participate in regional competitions that measure the
effectiveness of each robot, the power of collaboration, and the
determination of students.

In this year's game, "FIRST Overdrive," students' robots are
designed to race around a track knocking down 40" inflated Trackballs
and moving them around the track, passing them either over or under a
6'6" overpass. Extra points are scored by robots positioning the
Trackballs back on the overpass before the end of the 2 minute and 15
second match.

Teams across the nation and in Brazil, Canada, and Israel watched
the Manchester Kickoff proceedings via NASA TV broadcast or Web cast
from 49 local kickoff sites, many of which also offered workshops and
a chance to meet other teams. The Kickoff agenda included
presentations by FIRST founder Dean Kamen; New Hampshire Governor John
Lynch; FIRST advisor Dr. Woodie Flowers; FIRST chairman John Abele;
FIRST president Paul Gudonis; and NASA program executive Dave Lavery.

In 1992, the FIRST Robotics Competition began with 28 teams and a
single 14 x 14 foot playing field in a New Hampshire high school gym.
This season, more than 1,500 teams - including a record 316 rookie
teams - will participate. Forty-one regional competitions will lead up
to the 2008 FIRST Championship at the Georgia Dome in Atlanta, April

Since its beginning, FIRST has had a positive impact on students
and academic communities. Research has shown that FIRST has
significantly improved students' attitudes about math and science and
has fostered a culture of teamwork, leadership, and self-confidence.
FRC participants are eligible to apply for over $9.5 million in
scholarships from leading universities, colleges, and companies. In
addition, interest in internship and employment opportunities with
sponsoring companies has increased.

To find FIRST Robotics Competition events and teams in your area,
visit www.usfirst.org and click on the map in the top right corner.


Accomplished inventor Dean Kamen founded FIRST (For Inspiration
and Recognition of Science and Technology) in 1989 to inspire an
appreciation of science and technology in young people. Based in
Manchester, N.H., FIRST designs accessible, innovative programs to
build self-confidence, knowledge, and life skills while motivating
young people to pursue opportunities in science, technology, and
engineering. With the support of many of the world's most well-known
companies, the not-for-profit organization hosts the FIRST Robotics
Competition and FIRST Tech Challenge for high-school students, the
FIRST LEGO(R) League for children 9-14 years old, and the Junior FIRST
LEGO League for 6 to 9 year-olds. To learn more about FIRST, go to

Marian Murphy, 603-666-3906 ext. 409

Copyright Business Wire 2008

Wednesday, January 2, 2008

Why Socialism Wont Die

It's been tried and tried and every time it rears it's ugly head, it fails. It goes against the very nature of human beings, yet in some form or another it keeps coming back, whether it be universal health care, wealth redistribution through taxation and entitlement or subsidies.

The reason was pointed out to me in an anonymous email. "There is a large percentage of people, motivated by emotion rather than reason, who hold onto the undying belief that it is entirely possible to pick up a turd by the clean end."

Tuesday, January 1, 2008

The Google Way

You can't help but be impressed by the rise of Google. It's even more impressive when you see them making the right move, time after time, and just cleaning the competition's clock at recognizing emerging markets and opportunities.

What is their secret? What is the core difference between Google's mode of operation and that of traditional firms? I think I've boiled it down to a difference in the approach to new product development. When Google comes up with a new product or service offering, their initial focus is not "How can we make money on this?" but "How can we give this away and make money doing it?" Google has developed and aquired an awesome array of software, service and products and for the most part, gives them away.

The revenue stream comes primarily from advertising, but Google is much more than an ad sales company. By providing free webhosting for blogs like this one and now experimenting with web pages, they are establishing a huge, eternal database of immense knowledge, imagery, entertainment and insights that only gets more valuable over time. You can look at it any time you want, on their platform, with their ads and links and bells and whistles, but the pages belong to them.

How can other industries get in on this model? Free airtime in exchange for rights to the digital product? Free lab time in exchange for licensing or patent rights? Free art supplies and studio time in exchange for reprint rights? The terms of the deals will depend on the risk/reward ratio, but it's certainly a good starting point for a pricing model.

How can we make money giving stuff away?

Death and Taxes

by Captain Capitalist

Taxes are no doubt going to be a key issue in this presidential election once again. The tax cuts put in place after 9/11 are due to expire soon. Some want to make them permanent. Others want to allow them to expire. Which way to go?

The tax cuts in question probably spared the US from falling into a deep recession after the 9/11 attacks. Still, as some have suggested, they would have done better if they had been accompanied by spending restraints. Spending control is a must going forward, but I don't believe the case can be made that the US would have been better off if more money had been put at the government's disposal and less in the hands of the private sector over the past several years.

Yet the same people who point to the deficit as "out of control" want to give the government more money, and even use the deficit as justification! It's like pumping more water into a broken pipeline. How is that productive?

One of the worst tax policies in this country is the estate tax. This is a tax on money and assets that have already been taxed. The amount is irrelevant. Even if they raise the minimum to 100 trillion dollars, there is no justification for taxing it twice just because the producer has passed away. The person who created and/or accumulated the wealth, and paid his or her taxes while doing so, has earned the right to decide where it goes, all of it, when they die. This is a private property issue. Is what's yours really yours, or is it just on loan from your government? It's easy to see why politicians would like to fully reinstate the "death tax". As the baby-boomers age, this county is going to undergo the biggest transfer of wealth in the history of the planet. Politicians are licking their chops and don't want to think about all that capital going from point a to point b without them getting a cut.

We are at a critical point in our economic evolution. We can proceed to new heights as technology, communication and innovation enable more and more individuals to share their ideas, products and services or we can pull the "emergency brake" of higher taxation, bringing about a more sluggish, perhaps even stagnant or backwards economy in the name of "fairness".

Government is supposed to enable a free society, not dominate it. It is there for the protection of individuals, not their enslavement or indentured servitude. Society is a mutual convenience to be voluntarily participated in, not a master to be served. To fund government at levels appropriate to its legitimate functions we've got a long way to go, and it's all downhill.