Tuesday, November 22, 2011

STOP WORRYING ABOUT GLOBILIZATION...START WORRYING ABOUT OURSELF

A while back we wrote about the effect of the tablet on PC sales. At that time we didn't fully grasp the competitive impact. It's real, it will continue.

Meg Whitman is a smart woman. She was recently appointed CEO of Hewlett Packard. Traditionally, a new management of a historically great company, with a low share price based on historical financial relationships, would be a good place to consider investing. Over time, many financial assets that go out of favor return to favor at another time. But some do not. They go down, they stay down. Looking backwards to their prior greatness becomes a loser's game.

I took a quick look at the recent financials on Hewlett. I hadn't done it in awhile. What I found was a company with about $127 billion in revenues and costs which used up $115 billion of the $127 billion in revenues. That means that before taxes, interest and depreciation, Hewlett was making about $.10 per dollar of revenue. Now imagine this, you have to sell $130 billion dollars of goods, have a couple of hundred thousand employees and end up with what is low return on a dollar of sales.

But that's not the real story. The real story is much more dramatic. The implications are scary.

Way back when, a company like Hewlett Packard went to find manufacturers overseas for its products. It significantly dictated the terms as the foreign manufacturers needed business. Now, whether we like it or not, the negotiating power has shifted. It's as if the foreign manufacturers say "We'll make the product for you, we'll let you sell it under your name, but most of the money from the sale of the products will go to us". There are only so many places an American company can go to offset this type of negotiating tactic. It's complicated to change manufacturers. The net result is that power, in terms of trade, has shifted more than most of us realize. Obviously we now know what CEO Meg Whitman has to do, drive the cost of sales down .

Fifty years ago, the President of US Steel, when I asked him about imports said, "We are US Steel, we never lose".

Friday, November 18, 2011

WORDS THAT DESTROY RATHER THAN HEAL...PENN STATE VS. SMU

We sent our daughter to a Jewish religious school. One day my former wife and I came across a teacher beating up a ten year old child outside the classroom. We intervened but were told to mind our business. We were large contributors to the religious school. We went to see the Chairman of the Board to register our disgust. He was a much larger contributor than we were. We were actually told that we didn't know what we saw and should mind our business. We were told the reputation of the school was more important than the event. We went to see the Rabbi, but the Rabbi could be fired by the Chairman of the Board. He told us the kid probably needed discipline. We didn't go to the police.

A Cantor, at one of the most famous Jewish temples in New York City, was once arrested for child molestation. I don't know what happened to him but I'm pretty sure he was found guilty.

A few years later a Senior Rabbi at the same Temple was arrested for soliciting an underage child for sex.

My wife and I recently found an article about a Lutheran preacher who was arrested for solicitation for underage sex.

What's occurred with the Priests in the Catholic church is arguably among the most atrocious events in the history of this important institution.

The myriads of scandals in the Presbyterian and Baptist religious orders have made significant headlines over the years.

The point of this discourse really concerns an editorial by a well known left wing writer in a well known New York newspaper. I quote from this editorial:

"In words and deeds they have shown that their priorities are askew. After its death sentence SMU football (other crimes) never regained its previous prominence. But it would be okay if it wound up permanently diminished like SMU". (i.e. Penn State)

The writer in his egotistical wrath actually used the words "after its death sentence."

In accordance with this kind of thinking the mentioned Jewish temples, the Catholic Church, the Lutheran orders and the other religious orders would also be accorded a "death sentence" according to his way of thinking.

Human nature, being what it seems to be, dictates that in every large institution there will be transgressions by the criminal, psychopathic, borderline, narcissistic, weak minded personnel. With this writers kind of thinking, every city would be closed down because within it you would find criminal elements.

The criminal actions of a few individuals within a large institution or group should not constitute a "death sentence" for the entire institution or group. In all fairness, if that was the case, the abuses that have occurred in the large religious institutions would have also commanded enforcement of some type of "death sentence" to them also and society in general.



Mr. Sandusky maybe guilty of horrible crimes, but courage to step forward in a judicial process that would take ten years to convict him is naive especially when the perpetrator has power.

Wednesday, November 16, 2011

COURAGE IS A RARE COMMODITY...

The government fines an airline for keeping people in a plane for too long during a storm. The government fines the airline almost $1 million dollars. Now the airline has $1 million dollars less for raises, fuel purchases, airplane maintenance, etc. The airline will simply transfer this expense back to the consumer in the form of higher ticket prices.

Picture this plane, safety is first, therefore in trying to avoid a storm they get sent to a new landing field. When the plane gets there its storming. The weather forecast says it will clear in an hour. The airport tells the unexpected planes, "hey guys, clearing in an hour", but the weather forecast changes and the storm continues. So many planes have unexpectedly overloaded the airport that all the gates are filled. Its tough to move the planes out of the gates because there is nowhere to put them. The storm makes its dangerous to move the planes in the first place. There aren't any extra employees at the airport and certainly no highly trained ones. Several more planes arrive because all the other airports are closed. The pilot has rightfully upset passengers on the plane. These passengers have connections to make to get to where they were going in the first place. They are held up by the storm and throughout the whole country planes are waiting for passengers that never show up. Who was responsible to move a plane from the gate during the storm? Who would be responsible if a gate was cleared and a serious accident occurred by moving planes under hazardous conditions?

Some people think it was the airport that should have paid the fine. The airports are concrete and wires. The fact of the matter is that there is no system in place where the staff is large enough and trained enough to accommodate our airline system during unexpected hazardous weather conditions.

Fining the airlines, which is a paper entity, is another example of political expediency before honesty. There will always be a set of conditions where we can't get people off planes which might be a greater risk than leaving them on them.

So again instead of telling people the truth that no matter how hard we try, individual people, usually with limited authority and responsibility, will generally not take the risk of some extraordinary action plan that could jeopardize their jobs.
 

Shepard Osherow. All Rights Reserved