Four Basic Truths to Help You Navigate the Financial News

Dictum Number 1: People do not get what they want or what they expect from the markets; they get what they deserve. 
 
Dictum Number 2: The force of a correction is equal and opposite to the deception that preceded it.
 
Dictum Number 3: Capitalism doesn’t always take an economy where it wants to go; but it always takes an economy where it ought to be.
 
Dictum Number 4: The severity of a depression is inversely correlated with government’s efforts to stop it.
From Bill Bonner onThe Daily Reckoning, Oct. 31, 2014.

Next Phase of QE Coming Soon

To listen to the media it appears that Quantitative Easing (QE) is a thing of the past.

According to Jonas Elmerraji that’s not the case at all.

The Fed fears deflation. Turns out the forward inflation is only 18 basis points above the level that started Q1, QE2, and Operation Twist. Forward inflation has not fallen below 2.2% since Post-2008.

When the Fed fears deflation they give the economy another round of QE. Next QE program  could start in 2015, perhaps earlier. The Fed will start talking about it before implementing it. Talk is cheap. Another QE program is expensive. Previous QE’s have not boosted the inflation rate as much as the Fed had hoped, nor as quickly.

What’s the implication for your business?

What’s the message in this? Watch for inflation rate to fall below 2.2%. Then step back and think about businesses that will benefit from another round of QE. How can your business offer more to attract customers from companies/organizations/governmental agencies? What can you implement to get more of that business.

Next how will QE affect your business. Which vendors will it benefit that you need to leverage on price? Which vendors will be adversely affected?  What’s your plan? Would another round of QE help or hurt your prices? If it will hurt what can you offer as inducement to maintain your prices and margins?

What’s the implication to you personally?

QE always increase some prices and decreases others. Historically it seems to increase prices on the basics we all buy. Big ticket items typically don’t increase as much. Likewise, QE has implications for your personal investments. Spend few minutes evaluating your investments to see which will benefit. Be sure the benefits of selling assets will more than offset the tax consequences.

QE isn’t just a Fed program. It has important implications for your company and for your personal finances. Histrorically we know that inflation dropping below 2.2% historically has triggered another round of QE (regardless of what the government calls it.)

Russia & China Jointing In Another Venture

Over last few years the BRIC’s nations (Brazil, Russia, India and China) have been working together in various ways to offset the influence of the US. Brazil is experiencing financial difficulties so most of effort is falling on Russia and China.

Over last 3-4 years both Russia and China have greatly increased their stockpiles of gold to strengthen their currencies to offset the US Dollar. Additionally the BRIC nations now freely trade with each other in their own currencies, cutting the US Dollar out of those transactions. What’s the big deal? In the past all international transactions had to be converted to US Dollars. Think of the conversion as a credit card charge. Every time country converted to US Dollars the US got a percentage.

Earlier this year China and Russia jointly announced Russia had agreed to provide China with massive amounts of Oil and Gas. Part of the deal is to build a pipeline across Russian and through Iran to deliver gas and oil to a port facility.

Russia and China have just announced a joint venture to build a huge port facility in Russia, but just 18 miles from border with China, and close to North Korea. This port will rival Immingham in Great Britain and Le Havre in France. It will provide the most extensive and modern port facilities in that part of the world and will have economic impact on other major ports throughout the world, including West Coast ports in the US, Houston, and even East Coast ports.

Europe is trying to lessen their dependence on oil and gas from Russia. Slow decisions by US in allowing exports of natural gas hurt Europe’s efforts to wean themselves from Russia.

World is moving forward on hydrogenics as method to store electricity making solar powered generation more reliable by converting electricity to hydrogen. That would give Europe (and many other parts of the world) a reliable supply of electricity produced in their own countries. Russia of course is aware of all of this and is planning ahead, knowing that China is still going to need massive amounts of gas and oil, regardless of China’s own efforts in hydrogenics..

Bottom line, world is rapidly becoming less dependent on the US. That will significantly curtail the world’s need on the US, to our economic detriment.

Is there a silver lining? There always is…IF…a country takes full advantage of it with technology breakthroughs. For that to happen a country has to have a government working with companies advancing new technologies. So far US government seems to be throwing up roadblocks.

 

Citizen Vigilance

“Vigilance is the price our citizens must pay for having the most free and independent government on earth. We must be aware at all times of our liberties and guard them zealously. They’re our most precious possession, our richest heritage, the one inheritance that we can pass along to our children in full confidence and pride.”

This is a concept that is getting lost in America. Each of us needs to remind others that “freedom isn’t free.” We are only free as long as we hold politicians, people we meet, and ourselves accountable. One of the best ways to encourage others to be accountable is by the example we set each day.

Freedom isn’t achieved by taking from one person and giving to another. Freedom is achieved by creating opportunities for people to improve their lot. That also means people must take accountability for improving their lot in life. No one is “owed” anything in life.

US Now Envious Society

The US used to be an inspirational society. Now it is a society dominated by envy.

In “aspirational societies” productive work and success are rewarded. Envious societies undermine productive work and success.

The Greeks recognized that envy manifests itself in 2 ways. To them, one type of envy fosters war and battle and is cruel. The other type of envy lifts up the shiftless to toil and compete to have what their neighbor has.

Aristotle (387-322 BC) referred to bad strife as envy. Good strife as emulation. “Emulation makes us take steps to secure good things, while envy makes us take steps to stop our neighbor from having them.”

That statement describes the difference between capitalism and socialism. Between aspirational societies and envious societies.

Aristotle went on to say “We envy those whose possession of or success in a thing is a reproach to us.  For they are our neighbors and equals, thus it is clear that it is our own fault for having missed the good thing in question.”


Envy starts in the person themselves. It occurs when people recognize they don’t have the ability, smarts, or work ethic to compete with their neighbor. People dislike admitting their short-comings so many make up excuses to justify their short-comings. The other guy is a heartless SOB, the rich exploited people to get where they are, wealthy people really didn’t earn it, etc.

The world had demonstrated that people are going to envy success and achievement. This applies to large percentage of American population. It also applies to Moslem terrorists.

How do we counter envy?
We can start by remembering FDR in his inaugural address in 1933 said: “The only thing we have to fear is…fear itself – nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.” Good words to focus on as we deal with Moslem terrorists.

Fear, by many of our leaders,  of those that are envious stymies the efforts to confront them. It also creates a feeling of need by people to appease the envious. The envious guilt those who have, to give up a portion of what they have.

American success is unparalleled. We are the envy of the world…and now the majority of people in America.

Have you ever owned a slave? Of course not. No one has in 150 years, yet there are those in America that continue to try to make every white American still feel guilty. Likewise those same people try to make black Americans feel they can’t rise above their “station in life.” This is wrong on both counts…and only benefits those that appease.

Unfortunately, many in Congress and the Administration fear envy. They are making every effort to appease people who hate America, in and out of America. Fear can be described as the defining characteristic of liberals in America…those elected and many in media. They have adopted  a psychological strategy of envy-appeasement. More welfare benefits, food stamps for millions more, creating animosity against the rich, drives for major increase in minimum wage, etc.

Whatever the evils that exist in the world, they won’t be solved by anyone in America apologizing for being an American. Or for the American tradition to emulate opportunities for success.

To change things Americans must reject the envy of the world, whether Moslems or those in this country. How? By finding and electing leaders who quit apologizing for America. Leaders who appeal to the aspirational best in America to inspire those in America and other parts of the world.

Above inspired by article by Jack Wheeler, “9/11 and the 10th Commandment” in To The Point News 9/11/2014.

 

 

This ‘N That 4/24/14

Central Planning Always Fails in the End-Now it’s Yellen’s turn to learn.
Ms. Yellen is strong proponent of central planning. Shortcoming is not using practical rules. She prefers economic models with names like “optimal control” or “communications policy.”  To Yellen, ‘optimal control” equates to abandoning current conditions and substituting a policy to keep rates lower longer. She believes that by communicating the Fed’s intentions individuals will “get the message,” making decisions on investments, spending, and borrowing based on promises of lower rates. That in turn will lead to increased demand, strong economic growth and higher employment. When that occurs the Fed can start to withdraw support so inflation doesn’t occur.

That’s her theory. How about reality? The Fed is trying to change consumer psychology. The trouble occurs if it succeeds. Once consumers change philosophy it’s very hard to get them to change back. Kind of like putting the tooth paste back into the tube. The Fed would like inflation at 3% or so. Fed believes they can control it. But like all central planning that rarely happens.
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We live in a bi-polar world. There are practical solutions. This is longer than practical here. Published on SecurEmploy Blog 4/12/14 Just scroll down.
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It’s All a Matter of Perspective. We are all aware of self-serving nature that fill politicians minds, and how dysfunctional our government is. But the larger picture is pretty good and we each need to remind the pessimists of the world how good we have it. We have a stable “democracy.” A military power that is the primary defender of the free world. Our economy is still the largest. Our dollar is still involved in 87% of currency transactions. Our financial markets are the freest. Our free enterprise system is still envied. Our economy is expanding. Unemployment just hit a 5 year low. New technologies are driving additional and new manufacturing.
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71% of US workers actively looking or open to new opportunities. If 71% are looking for new jobs how come we are making recruiting employees so difficult? Only two things are needed for successful recruitment. First, make sure recruiters are spinning the dial…calling prospects, calling peers in position to ask for leads, etc. Second, Require every manager in your organization to refer at least 4 “A” candidates to your company every year. What’s an “A” candidate? The types of employees you need the most. Recruiting should be the responsibility of the managers who have the direct responsibility for the function. Remember: Every new employee should make a contribution to profits = to at least 5 times their salary the first 12 months on the job. Sales people 10x.
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Degenerate Capitalism. What’s implication for our industry? Three thoughts. This one is little longer than fits here. Published on SecurEmploy blog April 23. Just scroll down.
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Foreign Investment. Last year, foreigners invested a record $38.7 billion in commercial property, according to real estate brokerage Jones Lang LaSalle. That’s a 44% increase from 2012.

Ask Employees to Tell Their Friends About Your Job Openings We all know the value of employee referrals. Have you asked your employees to tell friends and family about your openings? Or do you just assume they do that? Expand your network of referrals. Be sure to offer an incentive for any referral hired.
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French social commenter and political thinker Montesquieu once wrote, “There is no greater tyranny than that which is perpetrated under the shield of law and in the name of justice.”
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Why is Russia really interested in Ukraine? Why doesn’t US have a dog in this fight. SecurEmploy blog post 4/21. Just scroll down.
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Crimea is resource rich. Rest of Ukraine is resource poor. Crimean resources are very important to Russia. Without Crimea, Ukraine can not continue to exist. Russia can threaten and bluster but starve Ukraine into submission. Inflation in Ukraine is already at 25%. Russia is Ukraine’s largest trading partner making up 70% of Ukraine’s exports. Take away Crimean commodities and Ukraine doesn’t have enough to export to survive.
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From Chicago: “In Chicago, armed civilians justifiably killed three times as many violent criminals in past 5 years as did the police.’”Civilians defending themselves captured, wounded, killed or scared off criminals in 75% of confrontations.” Professor Don B Kates Jr, St Louis University law professor, Laissez Faire Today.
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China’s trade agreements to use Yuan to replace $. Good or bad?

Already, China has trade agreements with Brazil, Australia, the European Union, and other nations. Most international trade is conducted in dollars

Last year, the yuan surpassed the euro as the second-most-used currency in the world… It made up 8.7% of global trade in October 2013 compared with 6.6% for the euro. In 2012, the yuan only made up 1.9% of trade compared with the euro’s 7.9%.

If the world rejects the dollar in favor of the yuan – or any other standard for trade – it would end US ability to print a limitless number of dollars and issue limitless amounts of debt

OR WOULD IT?American public seems to have no ability to stop government printing presses. Politicians certainly have no reason to stop the presses. Perhaps the only thing that will get US to address our issues is by losing the Dollars position as world currency of choice.
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Two numbers the government can’t fudge. Employment-to-population (currently just under 59%) and Participation Rate the actual percentage of the population, of working age, that is working (currently 63%, down from a high of 67% in 2000). US had 118.5 million full time and 26 million part time workers in 2013. That means that 37.5% of residents are working to support the other 62.5%. That’s not sustainable. Only part of that 62.5% are children.
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Current Career Opportunities Corporate, Hotel, and Resort opportunities.

Training for Revenue Generation by Ed Iannarella.

 

Degenerate Capitalism Returns…Again

Degenerate Capitalism is term that’s starting be thrown around…again. Term originally used may years ago by economist Dr Kurt Richebacher. Degenerative capitalism occurs when a capitalist economy is taken over by the financial markets. When economists view economic data only on the basis of what impact the data has on the immediate financial markets.

In 1970’s economists universally agreed a nation needs savings to assure prosperity. Fast forward to 2013 and we have the view that consumer spending makes any nation prosperous. If deficit spending by the government is bad, then deficit spending by consumers has got to be equally bad. Media, economists, and Federal Administration (and many states) are ignoring it.

In healthy economies, consumption has to be fueled by production. Americans are getting poorer at rate of 2.3% per year.

What’s implication for our industry?

  1. Look for industries that are expanding production and increasing their margins.  Get greater share of your business from them.
  2. Recognize that general public is going to have less and less to spend every year.
    How much of your business is dependent on discretionary spending by the consumer? How successful can your business be going after a shrinking percentage of upper middle class Americans? Can you upgrade your amenities as fast as chains think you should, and still keep the margins you want?
    If not, what’s your plan? Those that anticipate will do ok, others will lose profits…too quickly .
  3. Use creative thinking to identify how to restructure hotels to a different business mix.
    Perhaps you can rent out some rooms to professional businesses that have base of customers coming to town consistently. Office services you currently provide can help those businesses reduce expenses. Then get tie in to have those customers stay at your hotel rooms. Means their customers can do business without having to leave your hotel…reducing their expenses. Many hotels already have tie-ins with local restaurants to deliver meals. Done right, you may not need that expensive franchise affiliation. Or you can get a less expensive affiliation without losing rate.

Industry emphasis has been expanding/upgrading amenities. That’s forcing businesses to go after the same upscale customers…a customer base that is increasingly affluent…but declining in numbers. How long will you be competitive in that environment? Maintain your desired profit margins? Understand if the overall market by your hotels is upgrading, staying the same, or starting to slip.

Like all businesses…to thine own self be true. Trust me, the franchisors are.

Tell Friends About Your Job Openings

Ask Employees to Tell Their Friends About Your Job Openings.

We all know the value of employee referrals. Have you asked your employees to tell friends and family about your openings? Or do you just assume they do that?Expand your network of referrals.

Be sure to offer an incentive for any referral hired. (What get’s rewarded gets done.)

Why is Russia really interested in the Ukraine

We hear a lot from Russia about historical significance of Ukraine . That’s only a small factor.

Energy breakthrough is driving it. Russia is losing it’s dominance as world player in gas and oil. Ukraine is key player in pipeline that can go down into Europe to deliver oil and natural gas from Middle East, by-passing Russia oil and gas production, and avoiding expensive shipping.

As long as Russia controls the Ukraine they can extract tariffs from the pipeline to keep their revenue up. Probably can also tie in with pipeline for distribution purposes to reduce their expenses.

Oil and gas make up 70% of Russian export earnings. It also makes up 50% of Russia’s tax percentage. Controlling the Ukraine is critical to them. Short term for reasons above. Longer term, if they get by with grabbing Ukraine without world doing anything it gives them leverage to take over the rest of the former Soviet Union, a long time goal of Putin.

It also explains why EU is anxious to have Ukraine in the EU fold. EU will benefit the same way US will benefit from the pipeline from Canada to the Gulf of Mexico.

Why doesn’t US have any clout in controlling this? Because this Administratiion has dragged their feet on permits  to build export LNG facilities for over 5 years. US only has one LNG facility at present, in Houston. Administration just approved a second one for east coast in last few weeks.

These facilities cost billions and take several years to build. Had those permits been issued 5 years ago the facilities would have been completed. US could have exported massive amounts of natural gas to Europe. Lessening dependence on Russian natural gas exports. That would have put tremendous economic pressure on Russia. Right now Russia provides huge percentage of oil and natural gas to Europe. Enough that Europe doesn’t dare defy Russia by cutting off Russian oil and gas imports.

As usual, US Administrations, of both political persuasions, have had very little understanding of world economics and less interest in preparing US to exploit our advantages. Instead we have relied on military. Now that country is no longer willing to do that we will play catch up for several years. Putin is smart enough to know that, thus he’s moving now in hopes he can take over all of former Soviet Union before world can do anything to thwart him (short of military involvement.)

71% of US Workers are looking/open to new opportunities

71% of US workers actively looking or open to new opportunities.

 If 71% are looking for new jobs how come we are making recruiting employees so difficult?

Only two things are needed for successful recruitment.

  1. Make sure recruiters are spinning the dial…calling prospects, calling peers in position to ask for leads, etc.
  2. Require every manager in your organization to refer at least 4 “A” candidates to your company every year.

What’s an “A” candidate? The types of employees you need the most. Your ‘A’ candidates are different than mine.

Recruiting should be the responsibility of the managers who have the direct responsibility for the function.HR Departments can be responsible for recruiting hourly associates, but individual managers are the most efficient when it comes to identifying the people they need to meet their goals.

Remember: Every new employee should make a contribution to profits = to at least 5 times their salary the first 12 months on the job. Sales people 10x.

 

We are interested in hearing and sharing steps you are taking to make sure your key employees are in the 29%.