Chicago Boyz

                 
 
 
 
What Are Chicago Boyz Readers Reading?
 

Recommended Photo Store
 
Buy Through Our Amazon Link or Banner to Support This Blog
 
 
 
  •   Enter your email to be notified of new posts:
  •   Problem? Question?
  •   Contact Authors:

  • CB Twitter Feed
  • Lex's Tweets
  • Jonathan's Tweets
  • Blog Posts (RSS 2.0)
  • Blog Posts (Atom 0.3)
  • Incoming Links
  • Recent Comments

    • Loading...
  • Authors

  • Notable Discussions

  • Recent Posts

  • Blogroll

  • Categories

  • Archives

  • Archive for the 'Business' Category

    April Showers

    Posted by Grurray on 29th April 2016 (All posts by )

    Yesterday, the GDP figures were released for the first quarter of the year, and they showed that the economy is flatlining. We grew at only a pitiful 0.5%. Much of it was caused by a huge decline in business investment, which saw the biggest monthly drop since the recession.

    This is mostly blamed on the troubles in the oil and gas industry, but output in other areas of the economy also showed weakness. Factory orders dropped and have remained flat the past several months. Car sales plummeted 2.1% last month, their biggest drop in a year. With gas prices low this is the one thing we should see rising. The car industry stumbling means there may be some other underlying problems.

    The conventional wisdom, on the other hand, views this as just a blip. The winter season in the post-recession era has usually been the weakest time of year only to be followed by a rebound into the rest of the year. The exception was 2012 where the high hopes at the start gave way to the rising probability of an Obama reelection. The economic shock spread during the year, and the traditional holiday hangover came a little early in the wake of the electoral wreckage. This year, with the jobs market expected to stay strong and the Fed signaling it will put the brakes on further interest rate increases, the economy is seen bouncing back as the rough waters give way to the calm port.

    It may very well turn out that way for all I know. My crystal ball has been a little foggy lately, so I wouldn’t venture a guess either way. However, there may be some other causes for concern further down the road. This week the McKinsey Institute just issued a research report on the stock market, ominously titled, Diminishing returns: Why investors may need to lower their expectations. In it they provide a detailed analysis of why the next 30 years will see lower stock market returns than the previous few decades.

    Now admittedly, most analysts’ forecast for the next 30 days can usually be attributed to luck. A forecast for the next 30 years probably isn’t something you want to bet the whole farm on. A small corner of the barn maybe, but I would save the rest of the homestead to see how things actually unfold.

    The report lays out in detail why the oversized returns between 1985 and 2015 were possible, and the reasons they say are because of four factors: low interest rates, low inflation, high productivity from technological advances, and favorable demographics from emerging markets entering the global economy. Nothing controversial there. The first three elements increased profit margins, and the last one provided cash influxes, which kept interest rates low, which in turn increased the others. Virtuous cycle – wash, rinse, repeat. They also include some calculations, but the self-evidence is apparent enough.

    The wrench in the works is going to be the fact that those elements won’t have the effect that they once had. Interest rates are already rock bottom, and in some cases even below that. Squeezing more out of low yields is going to be tougher and tougher. In 1980 inflation was 13% and interest rates were 20%. Now they’re currently at 1.6% and 0.5% respectively. There’s nowhere to go but up. Sideways is always a possibility, but we’re still in the same boat. That won’t drive future growth either like it once did.

    Demographic growth may still hold up. There’s still a whole lot of world out there with the potential to drive a modern global economy. The question is will they be capable of replicating what we saw in the recent past with hundreds of millions of Chinese rising out of the Maoist ashes and into the middle class? Any new emerging markets will have a lot more work to do. The report points out that the countries with the largest economies have seen slowing population growth, and that will continue to decelerate

    In Western Europe, aging is more striking than in the United States. In France, for example, the share of the working-age population is expected to decline from 63 percent to 58 percent over the next 20 years. In Germany, the fertility rate has exceeded replacement rate in only seven of the past 50 years. Employment has already peaked in Germany, and its labor pool could shrink by up to one-third by 2064. Until the 2015 influx of refugees from Syria, Iraq, and elsewhere, the German population was expected to shrink by as much as 0.3 percent per year over the next 20 years.

    Germany has decided to address their demographic collapse by welcoming in an unproductive culture. Either way they haven’t much left to contribute in preventing the forecasted shortfall.

    McKinsey does hold out hope for some technological breakthroughs which could pick up the slack in productivity. Whatever it may be, they say it will need to have a bigger impact than the previous computer and internet revolutions because of the other headwinds. The best scenario would be in some combination with fast growing emerging market or industry. The problem with that happening is now that taxes and regulation are increasing, companies involved in fast growing sectors will tend to want to stay private, so equity returns will be elusive for only a select few.

    Interestingly, one sector highlighted that will benefit from higher interest rates is insurance companies. The era of low to zero interest rates has made it difficult for them to make any money on annuities. Their annuities pay out guaranteed yields to customers, but ZIRP and NIRP keep profits low. Fixed income annuities in which insurers bear most of the risk will benefit from higher yields.

    However, variable annuities where the customers share the risk have more exposure to equities, so they would be vulnerable to the lower growth/lower returns environment. Providers of variable annuities along with other asset managers will need to adjust their investment strategies:

    To confront this, asset managers may have to rethink their investment offerings. One option would be for them to include more alternative assets such as infrastructure and hedge funds in the portfolios they manage. Such alternative assets already account for about 15 percent of assets under management globally today.

    To chase returns, investors will be forced into riskier assets, possibly with dubious intentions, i.e. government boondoggles otherwise known as shovel ready infrastructure projects. We may already be seeing something like this with the imminent government takeover of financial advisors

    The Department of Labor dealt a bit of a surprise blow to fixed indexed annuities in the final iteration of its rule, issued Wednesday, by lumping the annuities into a more complex and costly regulatory regime than they have presently, representing an about-face from the department’s original proposal.

    Just like Obamacare pushes out the small to medium firms that can provide much needed innovation in order to capture the market, the new DOL fiduciary rules will push out small to medium sized advisors to replace them with automated puppets that will be programed to herd investors into investing in government programs.

    There’s a good reason the Obama Administration is currently fighting so hard to keep these rules. It’s a template for taking over other industries. And with that it’s another impediment to productivity growth and innovation which reinforces the grim forecast of diminishing returns by McKinsey.

    Posted in Business, Economics & Finance, Miscellaneous, Politics | 7 Comments »

    The Stupidest Man on the Face of the Earth…

    Posted by Sgt. Mom on 20th April 2016 (All posts by )

    … Must be the LGTBYTUVXYZ activist and alleged Christian minister who bought a specially-decorated cake from the Whole Foods store in Austin, and tried to claim that a disparaging message had been iced upon it. The shock, the horror and all of this devastating experience (Devastating, I tell you!) led him to post at length on YouTube, hire a mouthpiece and alert The Media! Very shortly afterwards. So shortly, I reckon it was done at something close to light-speed as the social media cycle goes these days.

    Sigh. This in Austin, and at Whole Foods. I can only guess that an HEB bakery counter was just too infra dig, and any Christian-owned bakeries were just too damn far out in the suburbs, and like ick! Straight and white people cooties! Like – he would have to have driven simply miles to have found a commercial bakery outlet which would have delivered a product absolutely guaranteed to live up to all those sweaty social justice warrior fantasies. So pick on Whole Foods … where a video rundown of the staff likely would have looked like the sequence of Roger de Bris’ stage crew in the remake of The Producers.

    Brilliant, guy – simply brilliant. And Whole Foods is going to sue; all props to them for not caving.

    There may be real hate crimes being perpetuated in these somewhat United States, but anyone paying attention to news reports of them usually must conclude that if they have not been faked outright by the so-called victim, it’s some curious circumstance that has been wildly misinterpreted by hysterics. Discuss.

    Posted in Business, Culture, Current Events | 24 Comments »

    TechnoProletarians?

    Posted by David Foster on 18th April 2016 (All posts by )

    Here’s a story about some Silicon Valley tech workers protesting outside a Hillary Clinton event co-hosted by a venture capitalist and George Clooney.  One might expect that these people are protesting Clinton because their political preferences lean toward the Libertarian or Conservative side.  But then, one would be wrong.

    They are mostly Sanders supporters.  And they feel oppressed by the industry that they are in, and especially by the VCs who fund the companies where they work. Here’s the complaint of a 26-year-old software engineer:

    “They sell you a dream at startups – the ping-pong, the perks – so they can pull 80 hours out of you. But in reality the venture capitalists control all the capital, all the labor, and all the decisions, so yeah, it feels great protesting one.”

    “Tech workers are workers, no matter how much money they make,” said another guy, this one a PhD student at Berkeley.

    Now, one’s first instinct when reading this story–at least my first instinct–is to feel contempt for these whiners.  Most of them are far better off financially than the average American, even after adjusting for the extremely high costs of living in the Bay area.  And no one forced any of them to work at startups, where the pressures are well-known to be extreme.  They could have chosen IT jobs at banks or retailers or manufacturing companies or government agencies in any of a considerable number of cities.

    Looked at from a broader perspective, though, the story reminded me of something Peter Drucker wrote almost 50 years ago:

    Read the rest of this entry »

    Posted in Business, Current Events, Deep Thoughts, Elections, Entrepreneurship, Management, Society, Tech, USA | 48 Comments »

    Culture, Cooperation, and Entrepreneurship

    Posted by David Foster on 6th April 2016 (All posts by )

    Claire Berlinski is very pleased with the response to the GoFundMe page in support of her new book ($9700 as of this writing) as well as the strong interest in the crowdfunding investment possibility.

    A conversation between Claire and her brother Mischa suggests some grounds for cautious optimism about the future of this country:

    Read the rest of this entry »

    Posted in Business, Capitalism, Civil Society, Tech, USA | 25 Comments »

    Europe, Crowdfunding, and a New Publishing Model

    Posted by David Foster on 3rd April 2016 (All posts by )

    Claire Berlinski wants to write a sequel to her important book Menace in Europe, which I reviewed here.  She hopes to do this via a  self-publishing and investment model, under which people will make contributions toward the estimated $60,000 cost of the project and receive in return a percentage of the profits.

    Obviously, it will take some work to structure a deal like this properly and in compliance with all relevant regulations.  In the meantime, Claire is doing some initial fundraising via GoFundMe–see the link at Brave Old World.  Contributions here, which will go especially toward development of the project website, are straight donations without expectation of any financial return.  However, you do get the benefit, as Claire notes, of helping to replace the New York Times and similar publications as gatekeepers of the news.

    Posted in Business, Europe, Media | 6 Comments »

    Unions and Robots.

    Posted by Michael Kennedy on 30th March 2016 (All posts by )

    port

    California has now decided to impose a a $15 per hour minimum wage on its remaining business economy.

    Denial of consequences is an important part of left wing philosophy.

    “California’s proposal would be the highest minimum wage we have seen in the United States, and because of California’s sheer size, it would cover the largest number of workers,” said Ken Jacobs, chairman of the UC Berkeley center. “This is a very big deal for low-wage workers in California, for their families and for their children.”

    Implicit in all the assumptions is the belief that employers will not adjust by reducing the number of minimum wage employees they have.

    The UC Berkeley estimate also includes some who earn slightly more than the lowest wage and stand to benefit from a ripple effect as businesses dole out raises to try to maintain a pay scale based on experience, Jacobs said.

    If Brown’s plan passes, 5.6 million low-wage workers would earn $20 billion more in wages by 2023, according to the UC Berkeley analysis. It assumed no net jobs would be lost as businesses look to trim costs.

    The experience in other places has not been positive.

    Even a former chairman of President Obama’s Council of Economic Advisers, Alan Krueger, has cautioned recently that “a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences.”

    Read the rest of this entry »

    Posted in Big Government, Business, Economics & Finance, Politics | 27 Comments »

    Another Software & Systems Debacle

    Posted by David Foster on 10th March 2016 (All posts by )

    I’ve previously written about the failure of the “Advanced Automation System,” an FAA/IBM effort to create a new-generation system for air traffic control: the story of a software failure.  (The post excerpts the thoughts of Robert Britcher, who was deeply involved in the effort and is an excellent writer–very much worth reading.) The AAS project has been called “the greatest debacle in the history of organized work”–there are a lot of contenders for that honor, though, and here’s another one…

    Read the rest of this entry »

    Posted in Business, Management, Tech | 25 Comments »

    Disruption – Part Four – The US Airline Industry

    Posted by Carl from Chicago on 6th March 2016 (All posts by )

    I have been considering “disruption”, including what is hype and what is real. Here is one on the cab industry where it occurred, in the electric and gas utility industry which has proven resilient in its current business model, and retail which is in the process of being disrupted.

    My theory under these posts is that increasing supply (broadly defined) has been the key to whether or not “disruption” is truly real or not occurring. I don’t know if it will play out that way or not in the end but this is a starting point.

    I have been interested in the airline industry for decades… in high school for my statistics class I built a model which correlated the profits of United Airlines with the price of oil. As an auditor and consultant I spent hours every week on a plane crossing the country serving utilities. And ever since I have traveled at least ten times a year for business or pleasure. So perhaps I would not consider myself an expert on the airline industry but certainly an interested observer.

    The airline industry famously de-regulated in 1978. From 1978 to 2010 the airline industry added myriad new entrants and saw them fail along with much of the old guard. Wikipedia summarized this era here. In recent years, through bankruptcy and mergers, the US airline industry consolidated into four major carriers – American, United, Delta and Southwest. These four carriers control the vast majority of gates at major cities and effectively operate as an oligopoly. Now these four carriers are in rude health, as you can see in the stock chart below. Their stock prices have increased between 135% to 355% over the last 5 years. As an investor I bought Southwest after 9/11 and held on to it for years as the price languished; unfortunately I exited the stock before they became today’s oligopoly.

    Another contributor to these gains is the collapse in oil prices. During the “peak oil” era, the airlines profits were strangled by the high cost of fuel – today they benefit immensely from today’s commodity price crash. This article describes how lower fuel costs saved them $4.3B in the third quarter 2015 alone and these lower costs have generally not come through to end users as price decreases – the airlines have banked the money or used them for dividends and capital improvements.

    Read the rest of this entry »

    Posted in Business, Economics & Finance, Tech, Transportation | 13 Comments »

    Humble

    Posted by Sgt. Mom on 1st March 2016 (All posts by )

    Humble Oil
    In San Saba, Texas. (Which, I am told, is correctly pronounced “San Say-bah” locally.) I met there on Monday with a gentleman who is a descendant of Frank Hamer, in the course of doing a book-talk presentation. I also met with a descendant of John Meusebach.  I heard all about a Meusebach daughter, who became a dentist and had an extraordinarily interesting life.

    You never know what you are going to find out about in small-town Texas.

    And I got some nice pictures in San Saba, and in the next town over, called Cherokee.

    Posted in Business, Diversions, Photos | 6 Comments »

    Could iPhones be built robotically in the USA?

    Posted by Michael Hiteshew on 24th February 2016 (All posts by )

    What if someone were to apply the computer-controlled logistics system of an Amazon.com type business with robotic manufacturing? At Amazon, parts are stocked and retrieved robotically, inventories are updated, parts ordered, payments made, payments received, all with a minimum of human intervention. Humans manage the system, the system does the grunt work. Everything that can be automated is.

    Combine that with robotic assembly, robotic inspection, robotic test, robotic packaging and shipping, and it seems one could easily compete with China for manufacturing a product like an iPhone. If something seems obvious yet does not occur, then one has not accounted for some key thing.

    From my perspective, the key engine of economic growth is manufacturing; taking raw or less valuable material, applying know-how and capability, and creating something with greater net worth than the sum of its raw material worth. It is the foundation of wealth creation. And wealth creation is the foundation of a healthy economy, a high standard of living, social stability and opportunity.

    Are we so tangled up in taxes and EPA and OSHA regulations we simply cannot manufacture anything competitively in the United States any longer, even with robots? If so, what is the solution, realistically? Is it possible to reform the regulatory state or does it need to be discarded, starting fresh? Can the tax system be fixed or should it burned and rebuilt? What is required to get manufacturing back on track in the United States?

     

    Posted in Business, Economics & Finance, Tech | 26 Comments »

    Disruption – Part Three – Retail

    Posted by Carl from Chicago on 20th February 2016 (All posts by )

    I have been considering “disruption”, including what is hype and what is real.  Here is one on the cab industry where it occurred and in the electric and gas utility industry which has proven resilient in its current business model.

    While “retail” is a nebulous category, it is one that touches virtually everyone in the USA. Let’s start with the definition of retail:

    the sale of goods to the public in relatively small quantities for use or consumption rather than for resale.

    My experience with retail has been that of a consumer, although I live in an area near Michigan Avenue which features a huge variety of stores of all types, from mass market to high end “showcase” stores. I also have a long history with e-commerce, having been involved in a variety of businesses helping them to go “online” and “digital” from the earliest days of the web. Since the primary threat to modern retail today is from e-commerce, this experience is relevant.

    This chart above is from a recent Business Insider article on retail. The graph clearly shows how shopping is moving from the physical retailer to the online retailer, and it is being accelerated by the adoption of mobile technologies (which enable you to shop and research while on the move, not just when you are in front of your computer at a desk).

    Read the rest of this entry »

    Posted in Business, Economics & Finance, Tech | 17 Comments »

    Meanwhile, In Europe

    Posted by Michael Hiteshew on 17th February 2016 (All posts by )

    Who does one call to get Europe on the phone? What is causing all the economic problems?

    And what is happening in Ukraine and why?

    And what should the USA be doing in all this? And is the USA an empire?

    Posted in Business, Crony Capitalism, Current Events, Economics & Finance, Entrepreneurship, Europe, International Affairs, Politics | 10 Comments »

    Disruption – Part Two – Electric and Gas Utilities

    Posted by Carl from Chicago on 16th February 2016 (All posts by )

    I started a trend of posting on disruption with the taxicab industry being walloped by Uber. While disruption is everywhere in the press, the question is – when is disruption truly real and where is it a distraction? Let’s move on to the electric and gas utility industry.

    The electric and gas utility industry is the “exact opposite” of the classic “disruption” thesis… although disruption and revolution have been promised many times over the years, they have failed to materialize. Let’s look at the characteristics of this industry and find the salient facts that either “enable” or “defeat” disruption.

    I worked in the electric and gas utility industry throughout all of the 90’s. I traveled to over 100 public, private and municipally owned utilities (there aren’t that many left today because there have been many mergers in the industry space). Since then I have followed them through business publications and public sources of information.

    The electric utility industry has 4 main components:
    1. Generation – the generation of power through nuclear fuel, coal, natural gas, hydro or solar / renewable
    2. Transmission – moving power via high voltage lines from where it is generated (remote) to the cities where people live
    3. Distribution – the local city with overhead and underground wires and substations and physical trucks
    4. Customer Service – who you call and how they dispatch crews and respond to incidents

    The electric utility industry also is characterized by “real time” surges and the fact that power can’t be stored (yet) on a large scale; thus peaks occur on the hottest days or the coldest days and power is needed exactly at that moment at your particular location. These peaks can results in demand far higher than during a “typical” day.

    The natural gas utility industry is conceptually similar to the electric energy industry with two main differences. Generation isn’t handled by them (exploration companies find natural gas and get it to their system through their own processes and methods) and natural gas is much less “peak sensitive” and can be stored near the point of demand and injected into the system.

    Broadly speaking, there have been many attempts to “de-regulate” the electric and gas utility markets over the last THREE decades. Let’s start with natural gas.

    Read the rest of this entry »

    Posted in Business, Economics & Finance, Tech | 11 Comments »

    Disruption – Part One – the Taxicab Industry

    Posted by Carl from Chicago on 14th February 2016 (All posts by )

    The term “disruption” is everywhere in the popular press. You should “disrupt yourself” and new internet unicorns are going to “disrupt” all kinds of industries. Let’s think a bit about what really is disruptive and what isn’t. This post is going to start with the taxi industry. Later I will turn to other industries, where disruption was predicted but didn’t occur, and we can try to determine why.

    I am very familiar with taxis, having traveled all around the country for business over decades and using taxis all the time in Chicago. Downtown Chicago is one of the few places where you could hail a street taxi at almost any hour of the day or night and assume that one could be found in a relatively short period of time (within 10-15 minutes at worst).

    What were the elements of the traditional taxicab industry? They were as follows:
    – Limited numbers of licenses were offered, and they were generally bought up and consolidated into a few taxicab companies
    – The taxis operated mostly where they offered the highest returns; downtown, in wealthy areas, or near clubs and nightlife. While they theoretically served the entire city, in practical terms they ignored the poorer areas not only for the inherent danger but also due to the fact that it was hard to get a “return” trip once you dropped someone off, necessitating a drive back to a wealthier area and lost time with no earnings
    – If you talked with a taxi driver, they typically worked very long hours and did not earn much money. Since driving a car an “entry level” skill, there were in practical terms an infinite number of possible drivers (a large supply) so the earnings of the drivers were as low as the market would bear (very low). The medallion owner then kept all the remaining profits
    – The taxicab experience as a rider generally was lousy and perceived to be unsafe to single women. You didn’t have any information about the driver and they could be anyone; the low wages of being a taxicab driver also tended to attract drivers on the margins economically
    – The taxicab used a consistent rate based on time or mileage plus a charge to start the meter and often specific additional charges such as tolls or airport fees. The costs could be high; for instance in Chicago if you left the city limits after the first city you were charged “meter and a half” – thus to travel out to a far suburb the fare could easily exceed $100. This was explained as the fact that the cab can’t get a local fare (they are licensed to pick up in Chicago, not the remote city such as Naperville) so they had to drive all the way back to the city to start working again. And on a big night like New Years’ Eve, it was a crapshoot to find a taxi since supplies were limited and not everyone was out driving
    – The main role of the taxi associations was to limit new medallions (which increased competition) and manage the local regulators, who generally defined rates and other business conditions. After a while most cities had “regulatory capture” and didn’t issue new medallions and mainly kept the status quo
    – If you were out of a major city, generally no one used cabs except maybe to go or be picked up at the airport. When I lived in Texas in the late 90’s I tried to get a cab and I was laughed at; cabs were terrible and no one took them. The alternative was drinking and driving or finding a designated driver

    By now everyone knows what has happened to the taxicab industry. They have been disrupted practically out of existence by Uber (and to a lesser extent ride sharing apps like Lyft).

    Read the rest of this entry »

    Posted in Business, Economics & Finance, Tech | 4 Comments »

    In Defense of Wall Street A**holes

    Posted by Kevin Villani on 11th February 2016 (All posts by )

    Long time Democrat turned Republican Donald Trump, who as a business titan relied more than any of his opponents on “Wall Street” funding, decisively won the Republican primary. In sharp contrast, socialist Bernie Sanders decisively won the New Hampshire Democrat primary by attacking his opponent’s Wall Street ties. Trump supporters apparently believe that the way to deal with Wall Street a**holes is a bigger a**hole who will negotiate much better deals, whereas Sanders supporters believe that “Wall Street (a synonym for the entire US financial system) is a fraud” requiring major extractive surgery.

    Most people within the NY financial community including the numerous mid-town asset management firms agree that many Wall Street players were a**holes during the sub-prime lending debacle leading to the 2008 financial crisis, but surely the Sanders pitchfork brigade wouldn’t travel uptown. This may explain why among the thousands of books and articles written in the aftermath of the financial crisis and the Occupy Wall Street movement, Wall Street hasn’t defended itself and has found few defenders willing to go public.

    Truth be told, Wall Street has always attracted more than its share of greedy a**holes. But historically they discriminated against the less profitable investments in favor of those that had the highest return potential relative to risk. This represented the brains of a heartless US capitalist system. Defenders of capitalism correctly argue that it is the only economic system at the base of all human economic progress, however unequally distributed. Progressive critics argue for greater equality, the poor made poorer so long as the better off are equally so (although this is not the way it is typically represented).

    Read the rest of this entry »

    Posted in Business, Crony Capitalism, Economics & Finance, Human Behavior, Markets and Trading, Politics, Predictions, Public Finance, Trump | 6 Comments »

    Worthwhile Reading

    Posted by David Foster on 9th February 2016 (All posts by )

    Content abundance and curation in the media industry

    18th-century Scotland had an interesting system for paying for college

    Has getting things done in business…hiring new employees, finalizing business-to-business sales deals…become slower?

    Rejecting one’s country for aesthetic reasons

    Overconfident students major in political science

    This should be obvious, but to many people it’s unfortunately not: why the best hire might not have the perfect resume

    Interesting thoughts:  how debt/equity mix affects the trajectory of oil prices

    This writer is pessimistic about pessimism

    Posted in Business, Economics & Finance, Education, History, Human Behavior, Media, Organizational Analysis | 11 Comments »

    To Borrow a Phrase from Glenn Reynolds

    Posted by David Foster on 25th January 2016 (All posts by )

    …well, this is the 21st century, you know

    used-robots.com

    Posted in Business, Economics & Finance, USA | 2 Comments »

    Re-reading Drucker: Concept of the Corporation

    Posted by David Foster on 17th January 2016 (All posts by )

    Concept of the Corporation, by Peter Drucker

    It’s been a long time since I read this 1946 book by Peter Drucker.  I recently pulled it down from the shelf and thought it worth a reread.  I’ll be excerpting some passages I think are particularly interesting, not necessarily in sequential order.  For starters, under the heading the corporation as a social institution:

    Americans rarely realize how completely their view of society differs from that accepted in Europe, where social philosophy for the last three hundred years has fluctuated between regarding society as God and regarding it as merely an expression of brute force.  The difference between the American view of the nature and meaning of social organization and the views of modern Europe goes back to the sixteenth and seventeenth centuries.  During that period which culminated in the Thirty Years’ War (1618-1648) the Continent (and to a lesser degree England) broke with the traditional concept of society as a means to an ethical end–the concept that underlay the great medieval synthesis—and substituted for it either the deification or the degradation of politics.  Ever since, the only choice in Europe has been between Hegel and Machiavelli.  This country (and that part of English tradition which began with Hooker and led through Locke to Burke) refused to break with the basically Christian view of society as it was developed from the fifth to the nineteenth century and built its society on the reapplication of the old principle to new social facts and new social needs.  

    To this social philosophy the United States owes that character of being at the same time both the most materialistic and the most idealistic society, which has baffled so many observers…The American who regards social institutions and material goods as ethically valuable because they are the means to an ethical goal is neither an idealist nor a naturalist, he is a dualist.

    Read the rest of this entry »

    Posted in Book Notes, Business, Europe, Management, Political Philosophy, USA | 10 Comments »

    New Era Drugs and Death

    Posted by Carl from Chicago on 17th January 2016 (All posts by )

    One of the most fascinating shows that I watch is called “Drugs, Inc.” on National Geographic, which describes the “business” of drugs from its creation (chemicals) or growth (agriculture), through transportation (to America or Europe) and then to distribution (street level), along with interviews with drug abusers and their families.  I did a blog post about this show here if you are interested.

    Unlike television shows with a “narrative arc” of redemption, the business of Drugs, Inc. shows users as ever-insatiable and ever-addicted to the various drugs that are investigated by the show.  Drug dealers are meeting demand that exists and is never questioned; the only risks to the dealer are competition from other cartels / distributors or the police.  The fact that demand will always be there assuming the quality of the product is solid is taken as a given.

    When they interview addicts their lives are not glamorous and often are morose and filled with regrets.  The addicts may take an hour to find a place on their body to inject the drug, they steal from their own families, and they live brutal and dangerous lives in order to acquire the cash to make the next fix.  The traditional high school movies that tried to scare you off drugs have nothing on this systematic and pragmatic approach to just watching the destroyed lives of drug users as they live to support their next fix.

    Read the rest of this entry »

    Posted in Business, Current Events, Health Care | 17 Comments »

    After the Gold Rush

    Posted by Grurray on 4th January 2016 (All posts by )

    3D printing industry leader 3D Systems announced last week that it plans to stop making consumer 3D printers. They’re going to concentrate on supplying the industrial markets. It’s the culmination of a significant reversal from just a few years ago when the media hype was fueling a bubble among these additive manufacturing makers like 3D Systems and Stratasys. The trend now is moving away from supplying the much publicized hobbyists and enthusiasts and towards the more reliable demand of professional customers

    The company has indicated that the discontinued product line will account for < 2% of revenue, roughly $13M in sales, which is much less that the ~$45M in “Consumer” sales we had projected in our model. The primary difference is likely to be materials (which the company has indicated will still be supported), desktop printers, scanners and Gentle Giant studios.

    The revenue numbers are a big disappointment because the printers were supposed to follow the time tested and much beloved razor blade model with most of the sales coming from resin filament. The markup on the filament in most cases is a holy grail level 1000% – 2000%. The fact that 3D systems, the pioneer of additive manufacturing, couldn’t make this work is bad news for the industry as a whole.

    Stratasys, the other big competitor in the sector, isn’t doing much better. Last year after acquiring Makerbot, perhaps the current top brand in consumer 3D printers, they let go about 1/3 of the workforce (just after making the founders wealthy, of course). Now after seven years and several different updates and revisions, they’re still trying to make a product that works. The class action wolves are now circling, so it may be only a matter of time for their consumer business also.

    Meanwhile, dead tree printing stalwarts such as HP and Toshiba are poised to enter the 3D fray, but they will be making industrial 3D printers. The plan is to leverage their already considerable strengths in sales and distribution to medium and small businesses. Mostly they’re drawing on their experience in the consumer sector where they long ago learned that consumer hardware is a commodity business with little prospects for the big growth expected of startups.

    One business model for 3D printing that seems to be working isn’t selling the devices but making and selling the final product. Such is the case with Proto Labs.

    Proto Labs, on the other hand, enjoys far less competition because the manufacturing services industry is highly fragmented and often slow to turn around orders. This dynamic has allowed Proto Labs to establish itself as lowest cost and fastest provider that can take a product developer through the entire design and manufacturing process — from conceptual model or prototype using 3D printing, to a mid-volume manufacturing run exceeding 10,000 units using injection molding — all in a matter of weeks.

    Years ago, I used to do a lot of business with their rapid prototyping division, Fineline, before they bought them out. They were a nice little group of industry experts in the Research Triangle, and it was always super easy and inexpensive to get anything made and in your hands within a few days. There’s a wide moat, as they say, with this business because of capital requirements and technical skills, so I’m sure acquiring Fineline was a great value. This is a good example of the discipline of Proto Labs, unlike 3D Systems which gorged on any over-hyped acquisition it could find until it suffered its current debilitating indigestion.

    Another business model that seems to be flourishing along with supplying industrial customers is metal 3D printing. In fact, despite today’s overall market drop, 3D Systems stock was up double digits on an announcement it would aggressively pursue this market. Aside from appealing to deep pocketed industrial customers, metal printing may have certain other advantages over plastic which could win it over in the consumer market.

    Metal printing may have the fabled killer app that every innovation must possess to be successful and that has heretofore been so elusive for current 3D printers. Unfortunately, that killer app is firearms, and they are now fighting for their lives. 3D printed guns may save the desktop 3D printer, but first their advocates must save themselves against a State Department ban claiming the guns violate export controls on weapons.

    This case is an exceptionally complicated one that hinges on several legal rulings that honestly I don’t see being resolved until it is kicked up to the Supreme Court. Namely, are digital files considered free speech or are they considered objects, and are 3D printable guns covered under the Second Amendment? Several court cases have been working their way through the courts asking similar questions for different reasons, but as of yet there has been no precedent set–though on the other side of the world New South Wales, Australia has been working to ban 3D printable gun files.

    While everyone is waiting to hear how Obama plans to slap more regulations on gun sales, the additive manufacturing industry is waiting for the Supreme Court to finally potentially unleash their long awaited and much hyped consumer devices. So stay tuned. Defense Distributed is being represented by Josh Blackman, who as far as I can tell is one of the best experts out there on constitutional law. If he can get the case before SCOTUS he’s got a good chance in my estimation to win it, and with that salvage the consumer 3D printing business.

    Posted in Business, Tech | 13 Comments »

    Christmas Reflections

    Posted by Sgt. Mom on 22nd December 2015 (All posts by )

    The long pre-Christmas market marathon is finally complete – this last weekend was our last event, and possibly the most strenuous, involving as it did two days in Boerne (three, if you count set-up on Friday afternoon), with the pink pavilion and all the gear – the tables, display racks, two strings of Christmas lights and an extension cord – not to mention my books and my daughter’s origami earrings and bead bracelets. We have had a market event every weekend since early November, save for the weekend after Thanksgiving, so our state of exhaustion is nearly total. This was compounded (1) by both of us having caught (in sequence) a filthy cold/cough/flu and (2) a mid-week overnight trip to Brownsville to tend to the project of one of the Tiny Publishing Bidness’ clients. The client covered the costs of the hotel stay and gas, and treated us to a perfectly magnificent lunch at an Argentine steakhouse, so there is that. But my daughter felt perfectly awful for one week, and then the cold hit me on the return from Brownsville and I have been barely able to function ever since. Monday was the first day that I could really succumb to how awful I felt, and crawl into bed for much of the morning. Until some robocaller (curses be on their head this Christmas season, and all their stockings be filled with lumps of coal) on the cellie woke me up and set the doggles to barking about mid-afternoon. Read the rest of this entry »

    Posted in Blogging, Business, Holidays | 14 Comments »

    Some Random Thoughts

    Posted by David Foster on 29th November 2015 (All posts by )

    Hillary Clinton, if elected president, would likely do for gender relations what Barack Obama has done for race relations.

    Speaking of Hillary, anyone remember her response when the harmful impact of her proposed healthcare plan on small businesses was questioned?  Her response was: “I can’t be responsible for every undercapitalized small business in America.”

    No one was asking her to “be responsible” for them, of course, only to refrain from wantonly devastating them.  Should Hillary become the Democratic nominee, Republicans need to ensure that this quote, and other similar ones, are brought to the attention of every small business owner in America.

    There are a lot of small business that are run by women, and an effective attack on the Democratic hostility toward small business should help to reduce Hillary’s advantage among the female demographic.  Part of such attack should consist of hammering on the cultural factor–the truth is, Hillary feels contempt for you, Ms small businessperson–and part of it should consist of a very specific and tangible critique of particularly obnoxious regulatory and tax policies.  (I recently ran across a message board on which Etsy sellers, really micro-manufacturers, almost all female, were discussing the pain suffered while trying to comply with IRS inventory accounting rules.)

    Marco Rubio’s comment statement that “we need more welders and less philosophers” was unfortunate.  His overall point is entirely correct–we need to stop stigmatizing vocational education and assuming that College is and should be the only path to a really good job–but he could have said it better.  (See discussion at Ricochet, led by an actual philosopher.)  Republicans need to be careful not to project contempt toward anyone who thinks of himself as an intellectual, in the way that Obama projected contempt for a wide swath of working people with his snide comment about “clinging to guns or religion”…which comment certainly cost him votes and would have cost him a lot more had Republicans been able to use it more effectively.

    In that same debate, when the subject of whether large banks should be bailed out in crisis situations came up, neither Cruz nor Kasich mentioned the existence of the FDIC.  I don’t care about Kasich, but Cruz should have responded that ‘we have the FDIC to protect the vast majority of depositors–although we need to ensure that it is adequately funded by fees to the banks–so the real question about a bailout has to do with protecting the bank shareholders and bondholders–and no, we shouldn’t do that.’

     

    Posted in Academia, Business, Economics & Finance, Education, Politics, USA | 14 Comments »

    Book Review: On the Rails–A Woman’s Journey, by Linda Niemann (rerun)

    Posted by David Foster on 22nd November 2015 (All posts by )

    (Norfolk Southern has renamed its Memphis railyard in honor of Deborah Harris Butler, who is retiring as their EVP of planning.  I notice that Ms Butler started out with a degree in English literature…which reminds me of another woman who went from an English degree to a railroading career, and wrote a truly great memoir about her experiences.)

    On the Rails: A Woman’s Memoir, by Linda Niemann

    What happens when a PhD in English, a woman, takes a job with the railroad? Linda Niemann tells the story based on her own experiences. It’s a remarkable document–a book that “is about railroading the way ‘Moby Dick’ is about whaling”, according to a Chicago Sun-Times reviewer. (Although I think a better Melville comparison would be with “White Jacket”, Melville’s book about his experiences as a crewman on an American sailing warship. Which is still very high praise.)

    Niemann had gotten a PhD and a divorce simultaneously, and her life was on a downhill slide. “The fancy academic job never materialized,” and she was living in a shack in the mountains and hanging around with strippers, poets, musicians, and drug dealers. Then she saw the employment ad for the Southern Pacific railroad.

    When I saw the ad in the Sunday paper–BRAKEMEN WANTED–I saw it as a chance to clean up my act and get away. In a strategy of extreme imitation, I felt that by doing work this dangerous, I would have to make a decision to live, to protect myself. I would have to choose to stay alive every day, to hang on to the side of those freightcars for dear life. Nine thousand tons moving at sixty miles an hour into the fearful night.

    Niemann is hired by the Southern Pacific to work at Watsonville, a small freightyard whose main function is to switch out all the perishable freight from the Salinas Valley. Other pioneering women are also joining the railroad at this time, and Niemann soon finds herself a member of an “all-girl team,” assigned to work the midnight shift during the rainy season. Their responsibility will be to reorganize all the cars that have come in during the day, positioning them on the correct tracks and in the correct sequence. They will have at their disposal a switch engine and an engineer, but it will be their responsibility to plan the moves as well as to execute them–coupling and uncoupling cars and air hoses, setting and releasing handbrakes, throwing switches. Before work, they meet at a local espresso house.

    It was an odd feeling to be getting ready to go to work when everybody else was ending their evenings, relaxed, dressed up, and, I began to see, privileged. They were going to put up their umbrellas, go home, and sleep. We were going to put rubber clothes on and play soccer with boxcars…

    Read the rest of this entry »

    Posted in Book Notes, Business, History, Transportation, USA | 7 Comments »

    Manufacturing Day

    Posted by David Foster on 2nd October 2015 (All posts by )

    Today, October 2, is Manufacturing Day…”a celebration of modern manufacturing meant to inspire the next generation of manufacturers.”  There are opportunities for plant visits all over the country, many open to the public and some limited to school tours, etc.

    There’s a lot more manufacturing going on in the US than most people seem to realize, but not as much as there should be.

    See my related post faux manufacturing nostalgia, also  myths of the knowledge society and “protocols” and wealth creation.

    Posted in Business, Economics & Finance, Management, Tech, USA | 2 Comments »

    Who Is Buying That Crap?

    Posted by Carl from Chicago on 9th August 2015 (All posts by )

    Dan and I follow municipal bonds, which is a bit more exciting than it sounds. The State of Illinois, the City of Chicago, Cook County, and many other entities in which I am a semi-unwitting participant will likely soon be on the front pages of newspapers as it sinks in that we can never repay these debts.

    Back in late 2008, during the height of that financial crisis, the State of Illinois issued debt. In this post I basically asked the question “Who is buying this crap?” and the answer was JP Morgan, showing its solidarity (in a way) with the state of Illinois by buying the ENTIRE issue.

    Puerto Rico is the new problem child of debt failure, and as Dan calls it, a “gapers block” over the entire municipal debt market. There were a lot of good reasons to buy Puerto Rico municipal bonds for many years – it was tax exempt, it had high yields, some of it was insured and / or tied to revenue streams like power or water, and historically there had been few or no failures of large-scale municipal bond issuers. It was great to own this debt and collect the high interest rates, as long as you watched it and got out before it collapsed. In a way this is “momentum investing” of sorts – get in and enjoy the ride up, but make sure you clear the exit before everyone else runs out of the movie theater screaming “fire”.

    But the question in the back of my mind was always “Who is buying that crap”. Not sophisticated investors who knew how to ride the wave up and get out before it collapsed, but people who honestly believed that a set of statements by politicians and / or laws as they were currently constructed would magically allow a tiny and impoverished island to pay inordinate debts while their economy imploded around them.

    A recent NY Times article titled “Pain of Puerto Rico’s Debt Crisis Is Weighing on the Little Guy, Too” provided a timely answer to my question.

    To Lev Steinberg, it seemed like a good place to park his nest egg. Puerto Rico bonds offered high returns and tax-free income. And there was little chance, his broker assured him, that the government would default on its debt. So Mr. Steinberg went all in, investing more than 85 percent of his retirement savings in funds with large concentrations of Puerto Rico bonds.“They told me this was safe,” said Mr. Steinberg, a 64-year-old mathematics professor at the University of Puerto Rico, “that the legal protections to repay the bonds were strong.”

    The NY Times article describes how local brokers and banks created products that leveraged up these bonds with borrowed money and then they were sold to Puerto Rico citizens (they were illegal on the mainland). The article said that 20% of Puerto Rican debt is owed to local citizens, and they bought many of the most “toxic” issuances (those with the least protections, like pension obligation bonds).

    Thank you, NY Times, for helping to answer the timeless question “who is buying that crap”. The answer is gullible citizens, who believed in their government’s promises, and also thought that years and years of high returns could be manufactured endlessly out of thin air without corresponding risk.

    Cross posted at LITGM

    Posted in Big Government, Business, Economics & Finance | 15 Comments »