Obama Claims Credit for Making America Great Again

Nothing like the stench of dirty politics polluting our every breath. Yes, it's election time again and the Cabal's machine is running at full power. When the Fake Media promotes an idea, we know that reality resides somewhere geometrically opposed to what they say. Believing what they say is akin to eating the CIA's koolaid in granular form.

Recently, Obama tried to argue that it was he who Made America Great Again. This despite the fact that he will soon face military tribunals for treason for his involvement in Iran's manufacturing of a nuclear head that was to be detonated within the continental US. Yes, the Cabal continues to lose ground.

Following is the transcript from a presentation by Chairman of the Council of Economic Advisers, Kevin Hassett, to the press at the White House. As expected, the 4 AM memo from the CIA gave the media their talking points the following day. All, tried their version of 'debunking'. Unfortunately, anyone following my blog knows that capital spending is at the core of economic growth and that it had gone to zero during Obama's terrible tenure. 

And then there is the fact that dozen's of Cabal-controlled pseudo-economists had claimed for eight Obama years that the era of economic expansion had come to an end and that we would only now experience the 'New Economic Reality'. Following the Cabal's agenda, we were made to believe that higher than 1% growth would be impossible in the future. Well, the future came quickly thanks to Trump and growth blew all their mechanized prognostication. 

Enjoy the charts.

CHAIRMAN HASSETT: 

You know, one of the hypotheses that’s been floating around about the economy lately is that the strong economy that we’re seeing is just a continuation of recent trends. And, you know, since we’re the nerds at the White House, we decided that this is a testable hypothesis. And so what we can do is we can go out and we can estimate recent trends — that is, trends that ran in the economy up to the point of the last election — and then compare the latest data to the recent trends.

In most cases, by the way, the estimates of the trends that we present to you here are very statistically significant, as are the deviations from the trend.

And so now I’m going to, as I always do, show you a few slides. Could I have the next slide, please? That’s the first slide again. There we go.

So the first slide that we’re looking at is small-business optimism. And this is basically — for parallel construction, you’re going to see that each of the slides we go through is going to look a lot like this. And so the blue part to the left of the slide is what happened from the 2012 election through the 2016 election. And the dotted blue line is the trend that President Trump inherited from the previous President. And the red line is what actually happened with the data.

And so, I think that if you look at this chart, you can see that the first thing is small-business optimism. The middle chart is the percent reporting now as a good time to expand. The last one is the percent expecting higher real sales in six months. I think if you look at any of those, you’d say, “Gee, that doesn’t really look like the continuation of a recent trend.”

The next chart is something that, in my first presser here, way back last fall, we talked a lot about. It’s business investment, which is more than $300 billion over the trend. Again, if you look at the blue line on the left, the first chart is nonresidential fixed investment. And the dotted line is the trend and the growth rate to that, that President Trump inherited.

For the middle chart is structures, or buildings. And that, as you can see, the dotted line is something that is headed straight down.

And then, the final chart is equipment investment, and that went straight down before President Trump was elected.

And I think that if anyone were to assert that the capital spending boom that we’re seeing right now was a continuation of the trend that President Trump inherited, then, well, you know, they wouldn’t get a high grade in graduate school for that assertion.

Durable goods orders, capital goods orders — it’s a key part of the economy, and it’s one of the factors that we look at most closely because it characterizes, basically, the good-paying jobs, the jobs that affects normal Americans — blue- collar Americans.

And the first chart is core capital goods orders, and the second chart is core capital goods shipments. And if you look at it, the blue again shows a clear downward trajectory and billions of dollars. And then that trajectory reversed itself completely when President Trump was elected.

If you were going to assert that the current good news is just the extension of a recent trend, then you’d just simply be factually incorrect.

Here we’re looking at the ISM purchasing managers index, which is a survey of people who are purchasing managers for manufacturing firms. And so they’re the folks that, you know, as the title suggests, manage the purchases. And so it’s a really great indicator of the economy because you can survey them and say, “Hey, have you been buying lots of stuff this month or have you not?” And the index shows what their responses look like.

And you can see that the trend on the purchasing managers index was pretty much flat when President Trump took office. And the red line shows you what happened since, that there’s a clear inflection right at the election and a clear break in the trend.

Now, one of the things that I can remember at the American Enterprise Institute talking a lot about before I came in here was the fact that entrepreneurship in America was falling off. And one of the ways we can measure entrepreneurship is that, if you start a new business, that you have to apply for an ID number — a tax ID number — for your business.

And so, in this chart, we’ve plotted the EIN applications for new businesses. And if you look at the blue line, they were heading up because we were at a recovery, but there’s clear upward trajectory way above the trend at the end.

And, you know, Sarah — like John Roberts — is a calculus geek. And so she looked at that one, and said, “Jeez, that looks like a very strong second derivative to me.” (Laughter.) And then, I said, “I didn’t know you did calculus.” And she said, “I like calculus better than talking to these guys.”

The next chart is prime-age workers reentering the labor force. And again, if you look at the trend, one of the things people said when we put out our growth forecast that said that we’d have 3 percent growth was we said that President Trump’s policies are going to bring factories back to the U.S., give you the capital spending boom that you saw in the previous chart, and that was going to bring people back into the labor force at precisely the right time. Once again, you can see that there’s clear break in the trend.

And so, if you see a break in the trend in the capital spending, the new plant formation that gives blue-collar workers their jobs — go to the next slide, please — then maybe we see a break in the trend in blue-collar workers employment as well. And so this is employment for people in goods-producing industries.

If you look, again, at the blue part on the left, you can see that there’s a clear downward trend going on in the growth rate of that for President Obama, and then a clear inflection timed almost precisely, once again, at the election. And the notion, again, that somebody might defensively attempt to assert that this is a continuation of the trend is almost laughable if you look at this chart and, you know, look at the rest of them.

Now, somebody might say, if you’re showing a bunch of charts, well, gee, maybe it depends on when you estimate the trend. And I’m sure that if you went back and began your estimate of the trend at the Civil War, and then thought about, well, what trend do we get then — well, then, maybe we’re not — yeah, well, you would get a different answer from what we see.

But another way to sort of test whether the data that I just showed you is a fair representation of what a trend looked like when President Trump was elected is just to compare it to what nonpartisan bodies were saying.

So if I could have a look at my final chart here. I know — guys, I heard this sigh of relief when I said “final chart.” So if you look at the final chart, you’ll see that the black line is, in June of 2017, what the CBO — Congressional Budget Office, a nonpartisan agency that has a job, really, of looking at recent trends and projecting it — what they said would happen to capital spending back in 2017. The blue line is what they said in April 2018. And the red line is what’s actually happened.

And so, I would assert that if you look at the collective body of evidence, the notion that what we’re seeing right now is just a continuation of recent trends is not super defensible. And I think that — I know that we’re in a political time and passions are high. But, as geeky economists, one of the things we have to do is think ahead to what historians will think when they look back at this time. And I can promise you that economic historians will 100 percent accept the fact that there was an inflection at the election of Donald Trump, and that a whole bunch of data items started heading north. They will, of course, argue for a long time about why that happened.

But my final thought for you is just this: That when they do that, and when you watch people do that in the media going forward, with op-eds and so on, that you should watch out for ex-post theorizing. As an economist, one of the things I most care about is an ex-ante theory — something that happens before, and then let’s watch the data, and then see if it agrees with a theory. That’s how you test a theory.

You might recall that I came back here last fall, and I told you that if we had the tax cuts that President Trump advised that we have, that he pursued — if we passed them, then there would be a boom in capital spending this year.

In fact, we provided estimates at the time last fall that said that capital spending this year would go up about 11 percent because of the tax cuts. So far, in the first half of the year, capital spending is up 10 percent.

And so you don’t have to really reach far for a theory of what happened. President Trump deregulated the economy; we’ve talked about how that affects growth. The tax cuts have had exactly the predicted effect on the economy that’s brought businesses back to the U.S., factories back to the U.S., and created jobs for ordinary Americans. It clear in the data that there’s been a trend break.

Following is a video edit that includes the above White House presentation. 

Low Friction Products; Touch-and-go Development

Guess which one of these two products was designed by engineering experts. This is not a trick question. I am being as serious as a heart attack.
For many years, engineers have been designing ever more complex remotes. Technological features have become the dominant factor in product development to the dismay of consumers. So it took for a group of non-expert outsiders to come up with a simple handheld device that would be capable of hundreds of functions; all with just two buttons. The rest, as they say, is history.
The iPod started it's product development life by ignoring all industry expert assumptions and went on to become the first member in a very successful family of products. The resulting Apple products reached every segment of the consumer population; thus shattering any and all sales metrics.
How? By assuming that the experts were wrong and that humans were right, Apple designers went away from the prevailing product development dogmas and focused instead on what any human would find simple to use. Their method went well beyond focusing on ergonomics. The remote to the left has buttons hierarchically located, shaped and colored with the exact goal of achieving great ergonomic performance; or at least that is what the experts that created it thought.
On the other hand, the iPod focuses on the elimination of all friction. Like with any long lasting machine, low operational friction was the key. By being simple to interface with, the iPod is a much more welcoming product that the usual TV remote control. But do we think that remote control companies have learned a lesson? No way! Long established dogmas are hard to leave behind.
This begs the question: how do you do product development? What is your focus?

Why We Buy by Paco Underhill

After a couple of decades of product development experience, it surprises me how often I come across products that ignore friction. These products are difficult to be placed in stores. Their packaging makes it difficult to sell. And, as if things weren't bad enough, users find them difficult to use. In other words, there is friction around every aspect of product supply-chain and performance.
Paco Underhill in 'Why We Buy' covers many of the behavioral nuances that matter most to consumers. While Paco strongly focuses on retail-anthropology, there are many valuable angles to be understood about how users feel and think.
But I guess that I should not be surprised with under-performing products everywhere. Most products are designed based on a consumer need. As long as they solve a problem consumers have, product development engineers completely ignore all else. This might have been enough years ago. Still, today we play by high performance rules.
Think of it within the following context. Let's say that I am on a boat that capsizes away from port. As I try to stay alive, I have access to one of the most effective lifesavers in the industry; the most clever and feature-loaded product. The problem is that it isn't clear how it's supposed to be used. It is so advanced that it requires the equivalent to a college degree before it can be used. So, I die.
Have you noticed that most consumers don't take advantage of most of your product features? Do you wonder why? In a way you are leaving them stranded.

Innovator's Dilemma
by Clayton Christensen

Often the problem is that you confuse progress with evolution. To the many remote control engineers out there, more features is progress. To their customers, it just turns a bad design into something much worse.
First, let's get something clear. If you have a Cash Cow, a product that makes you lots of money with little effort thanks to the fact that it is well established among your customers, don't ever attempt to turn it into a disruptor. You won't be able to. Clayton Christensen, in his fantastic book 'Innovator's Dilemma', clearly demonstrated how companies are trapped by their existing product successes. To then assume that radical change can be made to such Cash Cows would be both, foolish and wasteful. So, identify these Cash Cows as soon as possible and make sure that your best designers create efficient face-lifts and product extensions that can keep the product fresh but without ever killing the golden goose or your development budget. Efficiency is the key. Don't waste time or money fixing your old mistakes. Keep the money coming in and move on.

'Blue Ocean Strategy'
by Renée Mauborgne and W. Chan Kim

Meanwhile, look at new unsolved product design opportunities and come up with industry disruptors that demonstrate that you can design low friction products. Renée Mauborgne and W. Chan Kim describe in 'Blue Ocean Strategy' the kind of mindset needed to find new angles that can become competition-proof over the long run. This is important because, the longer that you can play in a new field without competition, the easier it will be to ensure recovering your investment and reaching profitability.
Still, success can be achieved even if your new product faces a low barrier of entry into the category. As long as you stick to low friction designs, your product will retain the advantage.
To create a successful new product or service begin by clearly laying out consumer needs. Keep meetings short. Most product managers force their team members to use their brain's neocortex to come up with smart solutions. They ask them to consciously think. But while the most advanced part of the brain is great with simple decision making, it is horrible with complex, multidimensional problems. Instead, saturate the team with data and end the meeting early. It's a touch-and-go strategy. Meet again the next day and do another touch-and-go session where you give them more data. End the meeting by asking each member to bring sketches of any ideas they may have to the next day's meeting. So far, both meetings have taken less than half an hour in total.
For the next meeting, have each member present any new ideas they came across. This is the third time that you will be passing information in a touch-and-go form. But now, you will ask two people or teams, depending on the size of your group and the importance of the project, to come up with a way to bring all the ideas together. This methodology periodically results in four to five very viable and innovative approaches to address consumer needs.
Next, bring in average people and ask them to identify friction. Ask them to note the areas that are cryptic and difficult to understand or use. Bring the findings to the whole team once again as part of another touch-and-go session. Ask the team members to once again come up with sketches of any ideas they may have. End the meeting quickly by asking two people to put the ideas shown together.
With less that two hours-worth of total meeting time, you should be close to having a new low friction product and a new company culture.
Make sure that packaging, pricing and all supporting marketing materials go through the same process to ensure low friction through out.
As experience grows, low friction products and services will be easier to develop.
The best product development isn't about the company, packaging colors or technological features. No. To do fantastic products, experts must bathe in humility and realize that they know nothing. They must put technology aside and listen to the signals that help us understand how it is that humans function. Successful product development is about frictionless products and services that grant ease access to all with the need. The key phrase among all these thoughts is: to give access.


PS.
I have written a couple of other articles on the books discussed in this article:

Innovator's Dilemma
Clayton Christensen
2013 Top 20 Business Books List (Part II)

Why We Buy
Paco Underhill
2013 Top 20 Business Books List (Part I)

Why We Buy
Paco Underhill
Paco - Shopping and Anthropology

Low Friction Marketing

What does marketing mean to your organization? Is marketing an operational expense or a profit center? The difference is not academic. It can mean leaving thousands or millions of dollars in profits on the table. In fact, marketing should be a leveraged asset to your company; it should transform a small operational investment into a much larger bottom-line improvement, today and overtime.
Exceptional marketing transcends the sum of marketing activities. This is a case where the 'whole' is much larger than the parts. Two companies can easily invest the same time  and money into equivalent marketing activities and still achieve completely different results.
So how to know the difference? Let's start from the beginning. You hire a marketing expert. She looks the part; from fashionable dressing, to accentuated body language, to chic enunciation. All her descriptions rely on colorful images that seem to float in midair. Her marketing strategy is loaded with the latest trends in social media. Needless to say, it's hard to argue against any of it.
But how effective is all that? A little over 12 Years ago, marketing gurus exulted the value of Flash coding. Flash promised to be a fantastic way to make your website stand out over the crowd while making it much more interesting and entertaining. Thankfully, time proved that your online consumers don't have the attention characteristics of a two-year-old. After every website in the planet attempted to maximize the use of Flash, the hyperactive graphics slowed downloading and made them all look commonly noisy and annoying. Rather than standing over the crowd, they all became the crowd.
Today, we have worked our way back into the time-tested method of simplicity. The almost pale looking websites of today are easier to read and navigate. There's a lot to be said about simple and effective messaging.

Yes, time proved that Flash gurus were wrong. This is because time is a ruthless judge. Almost all the must-have marketing trends of yesterday have reverted over time. Even AMC's Pacer was revered by the gurus after its launch. Disgusting indeed. I anticipate that the same reversion to the mean awaits the must-have trends of today. Regression from these extremes is normal.
But how is it possible? Aren't we a society that constantly demands progress? Don't we need marketing to evolves at the same pace as technology? Well, the answer is no. As for the reason, it's a simple one. Humans don't evolve at the same rate as technology. Our bodies have hardly changed for the last million years. While our mental processing has increased, we're doing it with the same old hardware.
Meanwhile, our environment is as noisy as ever. The number of things clamoring for our attention have certainly increased. As a result, it's simple and clear messages that gain our attention.

Think of the fact that tens of thousands of the most brilliant engineers and marketers continue to design ever more complex remote controllers for the many electronics around us. Every extra button promises to open a gate to a new feature. Moreover, consumer electronic manufacturers argued that a dependency on specifications made innovative technology intrinsically male. In other words, a larger number of buttons meant a higher degree of masculinity. Not surprisingly, they were very wrong. Remote control users, male and female, continued to ignore most of such buttons. Average users relied on a few familiar buttons for their operational needs. This meant that, to most people, most evolutionary changes in technology remained unnecessary.
And then something brilliant took place. Apple introduced the iPod. A little electronic gizmo smaller than most remotes. Remarkably, the iPod needed only two buttons to give access to a plethora of features and functions. The rest, as they say, is history. A revolution in consumer acceptance took place. Apple's products, lacking technological superiority over their competitors, became incredibly successful thanks to their simplicity. Contrast this with the fact that NOKIA phones where once the most advanced cell phones in the pre-smartphone era. Still, NOKIA sales in the biggest market in the world, the US, failed against all metrics. Apple's experience demonstrated that a holistic approach to marketing is paramount. It's essential to understand users and their nature. Humans gravitate towards simplicity.
In engineering terms, we're talking about low friction interfaces between the technology and the user. Any engineer will easily understand the idea that low friction is essential when designing a mechanical device. An engine with too many rods, exchangers, transformers and connections will result in excessive friction and a subsequent loss of energy. Aside from being deficient, the engine will inevitably self-destruct.
Generally, low friction is achieved through minimalist designs. In the same way, the conversion from technology to user experience goes through different interfaces that can result in predicted losses and perhaps catastrophic failure. This is what happens when your products and services are rejected by consumers regardless of innovation value.
BOSE makes some of the lowest quality consumer electronics products in the world. Have you ever heard professionals in the industry say "no highs, no lows, must be BOSE?" Still, these guys are masters of low friction selling, marketing and use. As a result, their consumers love BOSE widgets so much that they're willing to certify their affinity by paying the highest price premiums in the industry. Yes, BOSE like Apple know the bottom line value of low friction marketing.
But isn't marketing only about advertising and using social media? Again, no. Opening an Apple device is such an experience that hundreds of people document the process and share it over YouTube for anyone to see. Look it up. This means that properly designed packaging can give so much satisfaction as to create a viral wave. Talk about marketing effectiveness. Two companies create packaging at the same expense. One goes unnoticed while the other increases sales by transforming packaging into a profit center.
The American Marketing Association defines marketing as "creating, communicating, delivering, and exchanging offerings that have value for customers, clients, partners, and society at large." They have clearly adopted the holistic view. Notice that their definition is not limited to just creating demand for a product or service. It is also worth considering the fact that they're not saying anything about social media which is today's buzzword everywhere.
Look at any marketing job description today and you will find that every one of them demands search engine optimization (SEO) and social media excellence. Under such conditions, Steve Jobs would never land a marketing job. Both SEO and social media reflect expertise on database and algorithm design. Neither have anything to do with understanding human nature; something that separated Steve Jobs from the rest.
Before our ubiquitous use of smart phones and tablets as personal assistants, Apple had a product called Newton that require a stylus. There's no doubt that the Newton deployed the latest and technology at that time. Still, Steve Jobs discontinued the product because the need for a stylus meant that consumers couldn't use their fingers to operate it. The stylus was an unwelcomed additional step in the user's experience. Steve Jobs waited until touchscreen technology made the iPad and iPhone possible. To create incredible success, Steve Jobs focused on human nature rather than technology.
But can all job listings demanding SEO and social media expertise be wrong? Is it possible that social media is useless? Unfortunately the answer isn't so simple. Yes, most human resource departments are blinded by the social media fad. The noise is deafening in this zero-sum game.
Yet, social media use doesn't have to be a waste of time. Consider one of the most expensive kitchen utensils available in the market: a Bledtech blender. Yes, even something as basic as the time-tested kitchen blender can become exciting enough to go viral. But simply going viral isn't valuable enough. Real value resides in the tens of thousands of consumers who happily opened their wallets to pay a five-times premium for one of these machines. Blendtec created a series of YouTube videos that highlighted the durable nature of their blenders. Through a simply-produced series of videos, viewers can indulge all their destructive desires as anything from cubic zirconia to iPhone's are pulverized by a Blentec blender. Everything becomes liquefied; literally. Even Costco couldn't ignore the videos'effectiveness. In a world of highly commoditized products with perpetually lower profits, Blendtec found a path to extreme profits and a much wider distribution network than would normally be the case for such a niche product. Throughout, Blendtec's advertising costs remain very low by all marketing standards.
And then there's those who spend just to spend. It's said that Coca-Cola knows that 50% of their marketing budget is wasteful. Their problem is that they don't know which 50%. Don't make the same mistake. Many companies treat marketing expenses as pacifiers. Their leaders are emotionally satisfied only after continuing to spend on the same untested marketing efforts. Department managers are giving their marketing budgets with the expectation that they will spend all the funds. This is detrimental to your bottom line and produces no value to society. Everybody loses.
In a nutshell, understand your users, consumers, partners, distributors, buyers, sponsors and even your own salespeople. Focus on their fundamental nature. Make products and services that they all can resonate with. Communicate such resonating values to all of them in a simple and succinct fashion. Reduce all interface frictions. Measure all performance and don't waste your money. Finally, don't follow the herd and deploy low friction marketing. To be remarkable and effective, it's essential that your marketing stays clear of all trend noise and lands precisely over the fundamental human nature.

Congratulations to Britain!

BREXIT

Once again, the British nation has acted with courage and decorum. They have followed the most difficult of paths knowing that they were doing the right thing. To all my British friends I send you a resounding thank you for continuing to be our inspiration.

Having lived in the UK, I know firsthand that the United States has no other partner as solid and as reliable as the British nation. I am also witness to their strong sense of identity and individuality. No, the Brits are not European. They are Brits. The only way for an American to relate is to see how Texans are Texans. Don't dare to tell a Texan that they are either southerners or mid-westerners. They are Texans before anything else. 

This time, the Brits faced their challenge with the same kind of resolution that they displayed when being incessantly bombed by the Nazis during the Second World War. We all know that the French just folded as soon as they saw Nazi hats. But the Brits stood despite incredible destruction all around them. 

Magna Carta

History has shown that the British nation will always do the right thing. They first gave average people a path to a better living thanks to the Magna Carta. They started one of the most incredible global advances thanks to the Industrial Revolution. They first understood the double face nature of central-national management and bloated-bureaucracies. And now, they faced the so called Globalists which want to destroy democracy in the name of a safe future for the powerful and wealthy. Yes, people like George Soros have long proposed a world vision that would safeguard their wealth. 

First, Globalists promote a world where populations have no way to defend themselves from tyrannical governments. Look at Venezuela. People are dying daily from starvation, from a lack of clean water and from a total absence of medicine. Yet, people can't defend themselves. The political way-out has been completely eliminated by a government that changes the constitution and laws whenever it wants. Moreover, the army and the militia are both controlled by the government while arms are made illegal for citizens to own. The Globalists talk about weapons as the cause of all evil, but their plan is simply to create defenseless societies that will comply to all government demands. 

Venezuela: A Compliant Society

Second, the Globalists are not about global markets, they are instead about globally controlled governments. Unfortunately their "global" name creates the illusion that they are seeking economic well being for people. But they don't. They initially tried to scare the people of Britain by telling them that the Brits would lose access to the EU's markets and that it would mean an end of their economy. But the Brits new better. Whether adjusted to GDP or on a per-capita basis, Switzerland sells more stuff to Europe than the UK despite not being part of the EU. Switzerland doesn't even have to pay the massive taxes the Brits have to in order to be part of the bureaucratic club. So the Swiss get the benefit without the fees. Why couldn't the Brits do the same. Furthermore, the Brits are not the sellers to Europe but buyers. They buy much more from the EU than they sell to it. Do you think that the Germans will say no to selling to the UK? They would be crazy.

So the Brits realized that all the scare tactics from the powerful elites were simple bluffs. They also understood that the European Community has created a massive government with great regulatory power over British citizens but without any accountability. Bureaucrats in Brussels pass rules in secret that affect all citizens while they face no concern for losing their jobs. The EU is a safe heaven for all retired politicians. They simply can't get fired while enjoying great salaries paid by the people of member nations. Yes, this is the real Globalist vision. To them, the best government is one where power over people is abundant but accountability to the same people is nonexistent. 

Do you think that Americans are immune to central management with impunity? 

The FED: incredible power without accountability

How about the Federal Reserve. They completely overshadow all other market participants in the economy. Our future is 100% dependent on their decisions. Yet, the Fed is not elected and thus fear nothing about losing their jobs due to an upset public.  

Finally, the Globalist want central management. Yes, they promote the same type of central government as that from all communist countries of yore but without the loss of property rights that happens in Communism. The Globalists call this Socialism. The right unfortunately calls it Big Government, which misses the real issue completely. By having a government that promotes public dependency rather than independence, Globalists ensure safety for their families and property. No risk of a Bastille-like revolution where kings would lose all. Instead, Globalists want a big and powerful government to protect their property. But their plans have no regard to the fact that central management has failed in every country it has ever been tested. Again, look at Venezuela and the total absence of toilet paper and basic necessities like medicine. 

SDR's for more global inflation

It is just like smoking. It would be easy to talk to a smoker who swears they'll face no harm from smoking and who offers her experience as evidence. She shows you that she is in great health.
Europe is already there. They already have the disease. But like all smoke-addicts, they simply don't see that their seeming success has only been tested over a very short term when placed within a historic frame. Yes, fifty years of Socialism are nothing when compared to say the Roman Empire. They should know better, especially under the circumstances they already face. Think of it, Europe is just getting started with Socialism and they are already looking at building a government that will protect the powerful when the system fails and people try to get out of it. Moreover, the International Monetary Fund is already testing SDR's; the future global currency that will allow central bankers to continue to inflate, thus maintaining the illusion of financial growth while allowing governments to operate while insolvent. Thankfully the Brits figured the risk before they had to face an American-style secession war to get out of the EU. We could call it a near-miss. 

The Brits have served us a great lesson in civility, again!

Thank you.

After the article was published, Nigel Farage, the architect of Brexit, addressed the European Parliament. If you like British humor, his speech was a gas. Enjoy the video that captured the moment: 

The Canary in the Industrial Mine

The Canary in the Industrial Mine

People across the nation seem to know that something is wrong. Yet, the media continues to collude with the Obama administration in their attempt to hide what's clear to all: the economy never recovered.
While the eerie feeling that something bad is about to happen is pervasive, most find it challenging to know exactly what causes it? After all, the stock market boomed higher and higher, right? Well, yes. But like with all other asset bubbles, higher equity prices don't guarantee value. Just remember that homes went up in price not because of a higher value to society but because there was too much speculative money chasing the homes available. The same is happening with stocks. How do I know? It's easy. There is simply no national economic activity to talk about. And to make things worse, capital spending since the White House scared the hell out of businesses has remained at zero. In other words, there has been no investment in future productivity.
When looking at our GDP, we all know that the president got a free ride thanks to the fracking revolution that took us from being a heavy oil importer to energy independent. All the buildup that saw Texas go through an incredible economic boom took place not because of Obama's support for hydrocarbons but despite of his direct opposition. I wrote about this in a previous article.

Fed's Industrial Production Index

Yet, outside of our oil renaissance, industry in general remained quiet. When looking at the government's own data on industrial productivity, it is clear that we never recovered. The Federal Reserve's chart to the left shows that industrial activity in the US has followed a very different path than that from the stock market. While technically we went back and touched the pre-recession top, we didn't achieve any such thing in real terms; after accounting for the eroding effects of inflationary pressures. After adjusting for inflation, we simply have yet to reach levels achieved by the Bush administration.
You don't have to believe shadowstats.com and their estimate of what the Industrial Production Index would look like after removing the effects of inflation. Their chart below uncovers our countries terrible economic performance. Still, we could at least acknowledge that in real terms the so called recovery would be much more anemic than what is suggested by the FED's chart. If so, it is safe to conclude that there has been no recovery.

Shadowstats.com - Industrial Production Index after Inflation

Still, many would argue that we are not an industrial nation. That our GDP's strength lies on the incredible American consumer. Here, I raise the bull-sh&#t card once again.
Understanding why the American consumer is not what the media would lead us to believe isn't hard. It just takes a little business insight.
Any business person knows how to price their products. Keystone-markup, for example, is a well known term among professionals. Well, anyone with a pen, a napkin and half a sense on how to price goods will intuitively understand that, if factories and retailers get their typical markups, the consumer will account for about 60% of all the translations taking place.
When the government calculates GDP, they take all sales by every entity in the economy and reduce them by the value of imports. So a factory in the US pays about $15.75 for labor and raw materials. A retailer pays about $45.00 for the factory's gizmo after it is delivered to its doors. Finally, a consumer pays $100 in retail value for the same gizmo. Even under this simplistic scenario, an average consumer will be 62% of the total GDP. Now that if the country is a heavy exporter, an average consumer will become a higher percentage of the GDP. If, on the other hand, the country is a large exporter, then the opposite happens; the consumer's portion of GDP goes down.

The very average US consumer 

Let's take a look at the portion of consumers around the world and their share of their national GDP. I invite you to browse the list to the right.
American consumers are clearly not exceptional. Instead, they are average at best. The US consumer is right at the middle of the group. Now that if we still insist in arguing that our consumer is somehow very strong as a way to explain its large portion of GDP, then how do we explain Guatemalan consumers, who are in fact a larger portion of the Guatemala's GDP? Do American consumers aspire to be like Guatemalans?
It simply doesn't make sense. We are not a consumer based nation. If anything, all nations are consumer based. As long as manufacturers don't pay more for their inputs than consumers pay for final goods, the same scenario will prevail. I think it is safe to assume that the consumer's portion of GDP is to remain within a narrow range until the earth cools.
As I have shown in many previous instances, our elected leaders are economically handicapped. They themselves do not understand even the simplest of economic principles. Moreover, they are apathetic to the smallest of financial research. Yes, they don't know business and don't want to learn. It is no wonder that they are currently pushing thousands of businesses into the abyss.
At the end of the day, our economy will continue to depend on industrial activity as the place where every good renaissance starts. God have mercy on us!

Less In, Less Out - Today's International Trade

Would you say business is booming when both inventory purchases and sales are down? Of course not. The same dire reality applies to nations like ours.

US International Trade
2013-07-03

Today, Haver Analytics reported their monthly data on US international trade. On a year to year basis, both exports and imports are at best near zero.
Most worrisome is the fact that the three and a half years trend is stubbornly down. If the US was a business, its business would be shrinking. If the President was the CEO, he would be fired.
Industrial companies, like Caterpillar, and the agricultural complex were completely oblivious to our economic problems of the last five years because international demand for their products continued to be robust as middle classes expanded everywhere. These new groups demanded better roads and more beef, which is much less efficient as a nutrient than say corn.
The fact that the US dollar fell below historic lows meant that everybody could better afford our products. But the trend is no longer robust. In fact, the risk is that the Dixie, the name given to the dollar by Futures traders, may increase now.
An increase in the value of the dollar is one of the key indicators of deflation. This and lower US international trade could signal  the beginning of a period when assets lose value. Just like last year's cell phone is now worthless, your inventories could face a net loss in value if deflation takes hold.

Dollar Futures (2001 to 2013)

Deflation is generally recognized as an important problem during the Great Depression. It is not clear, though, whether deflation was the cause of the Depression or just a symptom. The argument persists.
What is clear is that deflationary periods pose different challenges to businesses. Computer manufacturers like Dell for example, know well that they must create manufacturing models that reduce the need to inventory any more parts than absolutely necessary. In their segment, extra parts lose all value in just a few months after purchase. Most businesses, on the other hand, sit on inventory for longer. There are plenty of small local retailers who struggle to turn their stock more than once per year. This even happens to apparel retailers. In apparel, manufacturers rotate product lines at least four times per year, something that their retailers can't even dream of doing. As a result, these retailers are forced to discount their older models or else risk losing them all together.
The need to discount something to try to find the price where new buyers are trading is deflation; which is at the core of what I want you to get from this post. If the macro indicators are truly giving us a view into what the near future will bring, then you need to be concern with the effects of deflation.

Deflation Risk

Keep an eye on your inventory levels. Extra inventory should be converted to cash ahead of deflation. Remember that during deflation all assets go down in value while dollars goes up. Having extra dollars will actually be the smart thing to do since their purchasing power will go up during the deflation.
Recall that after oil and commodities skyrocketed in 2008, we experienced a short deflation. The dollar went up while oil, copper and even gold dropped.
This time, gold may not fall as it did before. Gold is both an asset and a currency. It is highly possible that as the Europe drops, gold's currency value may compensate for asset value loss.
But this article is not about gold but about your business and your business holds assets in the form of inventory. keep an eye on the price of the dollar and the size of our national and international economic activity. More expensive dollars or less economic trade will continue to point towards deflation risk.
Don't count on the Fed's money printing as a solution. The so called Liquidity Trap has rendered all the added liquidity from Japan, Europe and US useless. Inflation from too much liquidity is taking place not within the real economy but with bonds and dividend paying stocks. Bonds are tanking as we speak.
If you see deflation in the horizon, plan to eliminate low velocity inventory, those that do not sell all of the time. Use that cash to take advantage of the opportunities that will come soon after.

Paco - Shopping and Anthropology

Avoid the Butt-brush and raise profits with science. Paco Underhill's advise is coveted all around the world. Working with the best brands, best retailers and best restaurants, Paco has touched your life in a way that is effective, yet hard to notice. That is, after all, what an Anthropologist does. He observes, records and concludes without interfering with his subjects. Paco is known as the father of Retail Anthropology.

Paco Underhill

It would be odd to think that anthropology, a seemingly boring science, could have any impact on the design of the most exciting new products in the market today. Nonetheless, this is exactly what's happening. After discovering Paco's work, it all just made sense to me about 15 years ago.
Starting as a typical anthropologist doing work at Central Park for the city of New York, Paco serendipitously took his academic education and started recording the behavior of music shoppers. The rest, as they say, is history.
All marketing guru's take an artistic approach. There is no science to what they do; it is just a feeling of what seems right. They develop a hunch, which is then tested with your customers without any real certainty of success.

Paco, on the other hand, makes recommendations that have already been proven to work. Why? Because they follow human behavior rather than fads. Paco's team has documented more shoppers in more countries than anyone else. His methodology is based on the fact that humans have changed very little over thousands of decades. Paco's goal is to improve the retail experience through solutions that are both predictably superior and repeatably effective. That you aren't aware of his work speaks bundles of the secrecy with which companies guard what he does for them.
The kind of science that he deploys is not rigid, fake or unnatural. On the contrary, Paco adds value to the existing environment by making it look and feel much more natural and fluid. If consumers felt that they were being trapped by a scientific experiment while doing something as personal as shopping, they would just exit the store. But consumers respond well to Paco's creative solutions because these resonate with the human nature.

Subway Napkins

Have you noticed that fast food restaurants try to keep their tables free from clutter. There are no table tents offering the latest specials, for example. This means that these restaurants miss the opportunity to sell additional products or services to customers who spend more than a few minutes eating alone and without anything to look at. But Paco found a solution. While helping Subway restaurants', he realized that there was a great opportunity to push Subway's main marketing message. So he used the company's napkins to highlight the nutritional values of their sandwiches. The solution was clever and it has become part of the daily Subway experience.
Placing aspirins in the most easily accessible shelve, perhaps near the entrance of the pharmacy, would seem to make sense. Pain medications are an important category. Moreover, these products see strong consumption by the elder; people who generally appreciate ease of access. But Paco knows better. Displaying aspirins in such a main isle will place their users right on the path of fast walking teenagers who rush towards the back of the store to grab the latest energy super drink; resulting in the dreaded Butt-brush. Shoppers, specially the elder and females, hate the Butt-brush. No matter how strong their need for pain relief may be, getting Butt-brushed will force them to shop elsewhere. The data corroborates with the thesis that these are terrible areas for these types of products.

Why We Buy by Paco Underhill

Paco knows precisely how many minutes will a customer spend looking at a pair of jeans, how often she will consider their price, how many pairs she will try each visit, which way she will navigate the store, and how many times she will experience frustration along the way. His body of data is uniquely robust.
If you are a retailer, a product manager, a manufacturer of consumer products, a packaging designer, or a commercial interior designer, you are missing your biggest tool. You must read his books; starting with Why we buy, The Science of Shopping. This book sets the foundation needed to internalize the concepts. There are no narratives to waste page space; Paco goes to the point. He teaches how to understand consumers and shares the source for his conclusions.
He knows shoppers so well that he is also referred to as a environmental psychologist.
If you are serious about your work and have an open mind to be proven wrong, make sure that you and your team start following Paco today.

Book Title: Why We Buy
Book Subtitle: The Science of Shopping
Author: Paco Underhill
Publisher: Simon & Schuster
ISBN: 978-1416595243

Price Increases - Targeting Just Past Nuisance

Upset your renters only to the point before they'd move.
This technique is what rental property owners view as the best way to increase the value of their assets. They use what's often referred to as the nuisance rental increase. Small increases in rental prices become a nuisance to renters but no more. As a result, occupancy remains the same while revenue increases substantially at the margin.

For businesses elsewhere, it is not as simple. Often, customers can walk away without having to bring in a U-haul. Price elasticity is much more difficult to anticipate. As a result, price increases risk damaging client relationships or even loss of share. Because sales teams are strong detractors of any corporate plan to increase selling prices, it is safe to assume that all companies struggle pushing inflation to their customers. 

This is something that the Federal Reserve understands well. They take advantage of the fact that the market displays plenty of friction when trying to pass inflation from input to output. What this means is that businesses everywhere are the first to suffer when the economy experiences inflationary pressures. Because profits decrease one dollar for every dollar of cost increases, the associated damage to businesses is high. Yet, businesses still find it difficult to efficiently transfer inflation to their customers . 

The fact that raising prices is difficult makes it noteworthy when empirical evidence uncovers a wave of increases. Usually, businesses will hold until they can no longer sustain the pressure. Then, suddenly prices increase by quite a bit. This would be analogous to a dike break. 

I have observed costs at Costco increasing by a large percentage: in some cases over 10%. Costco is a great indicator of what the consumers will experience because they follow a strict policy of always marking all products exactly 10% above their cost. This means that any increases reflect actual cost changes at their vendors and not within Costco. So, price increases throughout the store result from price increases throughout their supplier network. As almost all important American consumer companies sell through Costco, their increases are quite responsive to market movements. Unlike Costco, most other companies retailing goods to consumers raise prices after a central decision at corporate, which masks market gyrations.

Another sign of accelerating inflation comes from the transportation sector. Transportation affects the cost of all products. If you ever wonder how is it that there is a large difference between the cost of a coffee bean at the farmer and at the store, you probably get an idea of the costs of transportation contained within the products that you buy. Yes, Starbucks makes a good profit for themselves. Yet, transportation costs are a substantial part of the price of the final product.

I am aware that UPS, FedEx and pretty much all transportation companies charge an additional amount to cover fluctuations in fuel costs. Fuel surcharges were the response to fuel inflation and are directly driven by market changes. But these are not the cost increases I am referring to. Instead, I am addressing the actual transportation rates charged. While many companies pay a discounted version of the official rate, a 6% increase in this rate will still equate to a 6% increase in the discounted rate. So it is easy to see how much inflation customers are experiencing from simply looking at the notices from these shippers to their customers. 

If only things like fuel went up, the important stuff, the Fed would simply hide it under the rug. They do it every month in the Core Inflation data they report. But when inflation finally becomes a businesses output across the broad market, no magic trick can hide it. I am seeing evidence of this exact thing happening. 

Am I being overzealous? Absolutely, I could be. Perhaps there is no need to start panicking yet. Just note that all discoveries are born from plain observation and that the increases I noticed were not trivial in magnitude; they certainly exceed the 3% long term inflation number.

These increases go past the nuisance level and should be considered. Paul Volcker, former Treasury Secretary, has highlighted that it is important to be aware of any changes in the inflationary environment because of the risks associated with high stimulus by central banks and the potential sudden break higher. The last thing that we need now is for businesses to face another round of profit erosion. Let's keep an eye on inflationary changes.