We Interrupt This Blog To Gloat Over T.J. Oshie and Team USA

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TV hockey color man Eddie Olczyk said during the USA vs. Slovakia game that TJ Oshie would become well-known in the hockey world during these Olympics.

Eddie nailed it.

@OSH74 scored 4 shootout goals in 6 chances to lead Team USA to 3-2 win over Russia this morning.

The official St. Louis Blues website: T.J. Sochi!

Get your tickets at stlouisblues.com
Get your tickets at stlouisblues.com

Check out these Bruins fans at a Boston bar:

Here’s TJ Oshie’s updated Wikipedia page:
TJ Oshie is an American hero
T.J. Oshie’s Wikipedia entry after Oshie lifted Team USA to 3-2 shootout win over Russia in 2014 Winter Olympics. Oshie scored on 4 of 6 shootouts, including the game winner.

People made fun of me for using this image as my iPhone lock screen background:

Oshie
America’s newest hockey hero, T.J. Oshie

Here’s the game winner. From another bar:

Finally, a little stroll down Olympic hockey memory lane:

Are We Watching The Central Bank Era End?

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Are they going to peg all the banks? Why, they could buy ground and build a new Mississippi cheaper. They are pegging Bulletin Tow-head now. It won’t do any good. If the river has got a mortgage on that island, it will foreclose, sure, pegs or no pegs.

— Mark Twain quoting Uncle Mumford, Life on the Mississippi

When I last checked the Internets last night, markets were booming in Asia, and US futures were soaring. All in response Turkey’s central bank, which raised its interest rate benchmark to north of 12 percent. Unheard of territory.

From ZeroHedge,  on 01/28/2014 18:09 -0500

Judging by the reaction from SocGen and JPY crosses (and thus global equity markets), the Turkish Central Bank’s decision – to tighten aka ubertaper – has solved all the tapering, tantruming, turmoiling problems in markets. JPY crosses instantly exploded higher, automatically lifting US (Dow +60) and Japanese (NKY +110) stock futures markets before they closed.

The rate hike was meant to attract capital to into Turkey. With interest rates on “safe” investments–government bonds–remaining at historic lows, an offer 12 percent would seem like a windfall for people sitting on globs of cash (borrowed from governments).

But today’s bull market didn’t last. Again, from ZeroHedge.com:


The Carnage Continues In Asia As China PMI Confirms Contraction Deepening

Submitted by Tyler Durden on 01/29/2014 – 20:50

Sharp change in just over 24 hours, wouldn’t you say?

No one seems to know why the markets so quickly reversed, but continued bad news (often spun as proof of recover) from earnings and government reports didn’t help. The “experts” have told us for months that there is no stock bubble. The Dow’s going to 20,000 and beyond. Get used to it!! Get your butts to Costco, and buy, baby, buy!

On November 24, one of the greatest minds alive–Ben Hunt–noted that two mega-bears threw in the towel and joined the “markets will rise forever” camp.

I started this note with quotes from two prominently bearish money managers – Jeremy Grantham and Hugh Hendry – both of whom are throwing in the towel on the upward trajectory of the market in the face of inexorable government bond-buying. Their change of heart reflects (finally and begrudgingly) the overwhelmingly dominant Narrative of Central Bank Omnipotence, that for better or worse it is central bank policy (particularly the Fed’s QE policy) that determines market outcomes.

Meanwhile, I’ve been warning: when the experts agree on the future, bet the other way.

Experts Tamed the Mississippi 130 Years Ago, Don’cha Know

In Life on the Mississippi, Mark Twain takes readers up and down the Mississippi. He takes us on this trip as a historian, then as a young man in love with the river, and, finally, as an old man on a nostalgia trip to New Orleans. 

We learn that between Twain’s last trip as a pilot on the Mississippi and the time of his later voyage, the Army Corps of Engineers has tried to tame the mighty river. But an old pilot, Uncle Mumford, offers Twain his opinion. The engineers are smart fellows, Mumford admits; smarter than he. And West Point taught them more about the river than Mumford could comprehend.

But the engineers didn’t live on the river the way Mumford had. They didn’t know the river. The learned about the river.

Mumford’s warning, “If the river has got a mortgage on that island, it will foreclose, sure,” foreshadowed the floods of 1993.  That’s what inspired me to read the book, and that quote was the main learning I took from it. Warning of foreclosure stuck with me.

Question Expert Consensus

When all the experts agree, expect the opposite.

From a rooftop smoking lounge at work, we could see the price at QuikTrip. Every day in 2008, the price went up. Every day, we expected to see it fall. Finally, we all gave up because, according to the USAToday headline of June 12, 2008: “Oil Experts Contend High Energy Prices Are Here To Stay.

But the experts were wrong. And shortly after those experts reached consensus, the market reversed. By the time trees were turning in the fall, that QuikTrip sign dropped under $1.50.

This chart shows gasoline prices in the US at key points during 2008. Remember, the experts reached consensus in June.

US Gasoline Prices 2008
US Gasoline Prices 2008

Here’s the chronology of US gasoline prices of 2008 from Treehugger.com:

July 7, 2008—Crude oil prices settled-in at a new record of $147 per barrel. The U.S. average price for regular gasoline climbs to an all-time high of $4.11 per gallon. Road trip style vacations are put on hold for many summer travelers.

Aug. 5, 2008—Oil prices fall below $120 a barrel. Treehuggers search for the good within the escalating gas prices.

Sept. 15, 2008—The barrel continues to drop below $100 a barrel for the first time in six months. The idea of a serious financial industry recession is discussed as the market literally begins to melt down!

Oct. 16, 2008—Oil prices fall below $70 a barrel, which is less than half of its July peak. Signs of $1.99 a gallon gas brings celebration to the masses. Some consumers begin to talk about dragging out their gas guzzling SUV’s and Winnebago’s for the first time in months.

Nov. 3, 2008—U.S. Gas prices drop to $1.72 a gallon. Some gas stations even roll out a $.99 cent promotional deal. Treehuggers question whether the sudden drop is as good as most consumers seem to think it is.

Dec. 17, 2008—OPEC removes 2.2 million barrels from its daily production. Crude oil collapses to $40 a barrel, becoming the lowest price in almost 4 years.

I Am NOT An Expert And This Isn’t Investment Advice

I own four stocks that I bought on my own through Sharebuilder. Three trade at less than a penny a share, and I paid at least $10 a share for each.

But I do pay attention to expert consensus. And I have looked into the phenomenon of experts being wrong. It’s not a difficult field to study, because it happens often.

In the present case, the experts are central bank planners. They want to control the world’s economy. They believe their expertness allows them manipulate the economy any way they want.

But they can’t. No more than the Army Corps of Engineers could keep the Mississippi from foreclosing on its mortgage. No more than oil experts could keep the price of gasoline rising. No more than the Soviets could command a robust and growing economy with toilet paper for all.

Yes, power allows central planners to control aspects of the economy for periods of time. But the forces underlying the economy don’t stop moving. Pressure doesn’t stop building. It’s simply contained, like the water of a giant river, or the cap on a super volcano.

When outside forces that the planners can’t control or didn’t know about strike the planned economy, the dam bursts, the cap ruptures, the economy crashes.

I’m not sure we’re witnessing the rupturing of the central banks’ plan. This could be just a temporary blip.

Even if this isn’t “the big one,” though, the big one’s coming.

The central bankers have run up a massive mortgage that all the people alive on earth cannot repay in a lifetime.  No central planner in history ever kept control forever, and no pegs ever kept a river in its banks for good.

When Will Minimalism Reach Government?

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Progress isn’t made by early risers. It’s made by lazy men trying to find easier ways to do something.

–Robert Heinlein

I threw away some of favorite clothes.

It was 2008. The economy was crumbling. My job hung by a thread. Even sober, wise people warned of global economic collapse.

So I threw stuff away or gave it to Goodwill.

I was reading Leo Babauta’s blog, Zen Habits, at the time and also Jefferson’s letters.

Jefferson was a minimalist. He was lazy, too. Industrious men don’t work as hard as Jefferson at inventing machines to increase their leisure.

Jefferson had a proper disdain for pomp and ceremony and a health respect for simplicity in republican government. Jefferson spoke of the Federalist tendencies late in his life:

the forms and ceremonies which I found prevailing, not at all in character with the simplicity of republican government, and looking, as if wishfully to those of European courts

And he let us know that one federalist agreed that pomp and ceremony have little place in a republic:

Hamilton and myself agreed at once that there was too much ceremony for the character of our government.

Nathan Raab’s column in Forbes today reminded me of that period in 2008 when simplification became paramount to me. Raab points out that Jefferson hated the state of the union speech, preferring to send Congress a letter when needed. The precedent Jefferson set prevailed until the progressive Woodrow Wilson dusted off his crown and restored the British monarchy’s tradition of the “Speech from the Throne.”

Tonight, Wilson’s philosophical descendant will recreate, in Jefferson’s words,

…the pompous cavalcade to the state house on the meeting of Congress, the formal speech from the throne, the procession of Congress in a body to re-echo the speech in an answer…

America was once a republic, which means simply a government of the people, by the people, and for the people. In other words, open government in which any citizen may take part. The other kind, the private government, is like a closed club. You must apply for membership.

We seem to have a semi-private government today. Yes, the public can still book tee times, but we’re limited to times left unused by members. We can look into the ballroom, but we can’t use it. No matter our handicaps, we never lose the understanding that, while we might play the course, we don’t belong.

Tonight’s pomp, and the king instructs Parliament in the presence of the court and Joint Chiefs, reminds us of our place.

The Constitution requires the president to inform Congress on the state of the union and to recommend legislation he deems “necessary and expedient.” No requirement for a speech exists, though.

Minimalism is all the rage in the design world these days. I’m a fan. When I look around, I see an overbuilt America. We’ve overdone everything. Everything.

But most of all, we’ve overdone the value and importance, size and scope, of government.

Jefferson was lazy, simple, and minimalist. His inventions and designs were purposeful and useful. As Heinlein points out, progress comes from man’s search for an easier path to an end.

It’s time we stripped government of its wasteful ornaments and de-festooned the whole damn thing. I’d like to begin that journey with a simple request: that the next president take an oath to email his state of the union message to Congress and free us of that trapping of monarchy.

Companies Should Adopt Conscious Capitalism Because It Pays

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You’re going to hit me with the small sample size argument here, but that’s okay.

I firmly believe that the purpose of a company is to make life better, and if it does that well, it will make a profit. If, on the other hand, a company makes life worse, the market should let that company die.

Some companies try to improve life with insanely great technology products. Some make life better with fast, safe cars that are fun to drive. Some make life better with clothes people want to wear. Some make better components for those other great products.

But no business exist just to make money, because no reasonable person would buy from such a firm. Or work for it. Or supply it.

Imagine you have a choice in buying a computer. One computer was designed by a man whose stated ambition is building “insanely great” products “that people love.” The other computer comes from a company whose stated goal is to “make as much money for ourselves as we possibly can.”

The only rationale for buying the computer designed to make its seller richer–even at the expense of the customer, its employees, and its vendors–is because you can’t afford the “insanely great” computer. So you settle for something cheaper.

No one in his right mind would help a company get rich if the company’s only mission is to get rich. Why would they? That’s stupid. On the other hand, neither will most people buy an inferior product simply because the company that made it donates money to the customer’s favorite charity. The customer could just as easily buy the superior product and donate to the charity on his own.

People gladly do business with companies whose purpose involves great missions–like building insanely great products that people love. And companies that consciously put customers first, employees next, the community after that, suppliers, partners, and, finally, investors outperform companies that exist only to make a buck.In fact, according to Harvard Business Review, conscious companies outperform the S&P 500 by a factor of 10.

You’re probably skeptical. In fact, if you read my blog, chances are you agree with T.J. Rodgers, founder and CEO of Cypress Semiconductor.

Back in 2005, Rodgers and Milton Friedman engaged in an online debate with Whole Foods Market CEO John Mackey. Mackey and I agree on the purpose of companies, but Rodgers says we’re Marxists. (Rodgers isn’t alone. A gentleman called me as much in a comment to yesterday’s blog.)  Here’s how Rodgers summarized Mackey’s business philosophy:

It seems Mackey’s philosophy is more accurately described by Karl Marx: “From each according to his ability” (the shareholders surrender money and assets); “to each according to his needs” (the charities, social interest groups, and environmentalists get what they want). That’s not free market capitalism.

Rodgers goes on to talk about his pride in putting profits ahead of his customers, his employees, his suppliers, and his community. While he encourages his employees to donate to charity, he lets everyone know that they better keep their eyes peeled when doing business with Cypress Semiconductor. He will do anything the law allows to maximize his profits.

Mackey, on the other hand, won’t. In fact, Mackey subordinates profits to five other stakeholder: customers, employees, community, suppliers, and the environment. Mackey believes that building a company with a higher purpose results in better value for everyone involved. Profits are, to Mackey, a necessary byproduct of doing great work.

Of course, Mr. Rodgers, who’s been labeled the toughest boss in Silicon Valley, has earned a lot more money for his investors, right?

Wrong.

In fact, when it comes to running a successful business, it’s doubtful Mr. Rodgers could even get a job mkanaging a Whole Foods Market.

At the time of their debate in 2005, Mr. Rodgers’ company had negative retained earnings of over $400 million. That means Rogers had lost $400 million of investors money through his “profits for profits’ sake” business philosophy. At the same time, Mr. Mackey’s Whole Foods Market had the highest profits of any food retailer, including Walmart.

Since the debate, things have only gotten better for Whole Foods Market and worse for Rodgers’ Cypress Semiconductor. In their latest reports, Whole Foods returned a profit to its investors of $1.47 per share, while Cypress presented its investors with yet another loss of -$0.31 per share.

Rodgers started Cypress in 1960, and he’s grown the company to a market cap of $1.6 billion. Impressive.

But not as impressive Mackey’s Whole Foods Market. Whole Foods went public in 1985. Its market cap today is just under $19 billion. And, unlike Cypress Semiconductor, Whole Foods regularly increases the value of its shareholders’ investments.

I agree wholeheartedly with Mr. Mackey’s assessment of T.J. Rodgers and his company’s performance:

Cypress Semiconductor has struggled to be profitable for many years now, and their balance sheet shows negative retained earnings of over $408 million. This means that in its entire 23-year history, Cypress has lost far more money for its investors than it has made. Instead of calling my business philosophy Marxist, perhaps it is time for Rodgers to rethink his own.

When you read the entire debate of Friedman and Rodgers vs. Mackey, and I strongly encourage to do so, you’ll realize that Rodgers is not a gentleman or scholar. As Mackey noted in his rebuttal, Rodgers clearly failed to actually read Mackey’s original arguments. Instead, Rodgers jumped to angry and wrong conclusions. For instance, Rodgers assumed that all of Mackey’s employees were unionized, but none of Mackey’s employees belong to unions. Rodgers assumed that Whole Foods Market loses money, when Whole Foods’ balance sheet blows Cypress’s out of the water.

Perhaps Conscious Capitalism is new age bunk, as my commenter believes. It makes more money than a narrow profit motive.

At the beginning of this post, I asked question about why businesses exist. Now, think about why movements like the Tea Party exist.

Does the Tea Party exist, as that commenter wrote yesterday, to express “anger and rage?” Is that our version of the profit motive? Getting things off our chests? If so, we don’t need a tea party; we need psychiatrists. Or confessionals. No one who’s not already involved in the Tea Party movement would join to help us vent. Sure, we can get up from our couches, throw open our windows, and yell “I’m mad as hell, and I’m not going to take it anymore!” We’ve done that. It didn’t work. But maybe it made some people feel better. “I’ve done something.” Right. Liberals wear goofy ribbons to express their concern, and conservatives yell to express theirs.

And Jamie Dimon gets a raise.

And the government rakes in more power.

And the debt grows.

And the community banks sell or fold.

And the labor force shrinks.

And we’re still yelling.

If our purpose is to live up to our notion of American exceptionalism, on the other hand, then yelling won’t get us there anymore than a narrow focus on profits made Cypress Semiconductor a good investment. If our purpose is to arrest America’s decline–and it’s in steep decline–then we need to live that purpose.

It begins with developing a stakeholder map. Yes, the people who show up at our After Parties and rallies, and the people who read the daily newsletter, are stakeholders. Very important ones. The people who donate $2 or $5 every month, they’re invaluable stakeholders. But they’re not the only ones.

If we’re truly the examples of American exceptionalism, we better get a clear picture of all of America’s stakeholders. Let’s begin with the generation that’s now inheriting this great country. You’ll know them by their tats and piercings. They’re under 31. And there’s a lot of them.

Another stakeholder is the GOP establishment–that cursed body of bumbling nabobs that gave us TARP. Yes, they are stakeholders, too. So are many Democrats.

Many of the people who jumped into the OWS movement are stakeholders, too. Not the nut jobs highlighted on the evening news for defecating on police cars and raping women. Not the true Marxists, either. But those criminals and crazies weren’t the only people in those OWS camps. I’ve met a few of the first joiners. While, on the surface, their “demands” were mostly out of sync with the Tea Party, when I applied the 5 Whys, I found that the basic problems that motivated OWSers were the same problems that motivated the first Tea Parties. Namely, bailouts.

Thomas Jefferson once wrote:

I know of no safe depository of the ultimate powers of the society but the people themselves; and if we think them not enlightened enough to exercise their control with a wholesome discretion, the remedy is not to take it from them but to inform their discretion.

I believe that most of those who oppose us–those who would trade their own freedom and yours for a bit of promised security from the government–are ill-informed. I believe that most Americans are good people who simply want to live out their lives as best they can. If I didn’t believe that, I’d leave this country and renounce my citizenship. And I might still be convinced that escape is my best option.

If our purpose is to reform America, to incubate American exceptionalism from a theory to truth, then we cannot simply stand in parks and yell. Nor can we cloister ourselves in secular monasteries, re-reading the Constitution and obscure theories of government.

If we are to restore (or establish) American exceptionalism, we need to inform their discretion. That’s not easy work. It’s not nearly as fun or sexy or thrilling as screaming at hippies in a park. But it might actually work.

If you want to get started on this noble path of informing their discretions, look into the Center for Self-Governance. Turn passions into purpose.

And let yourself smile. It’s going to be okay.

Let’s Not Prove Karl Marx Right

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Karl Marx foresaw something that’s now playing out. As corporations cut labor costs to increase profits, they also destroy the markets for their goods and services.

This chart shows corporate profits (red) and wages as a percentage of GDP (blue) from 1944 to 2012:

profits vs. wages
Corporate Profits vs. Wages as Percentage of GDP, 1944-2012

When the blue line is higher than the red line, you get savings. For the red line to hang above the blue line, you need debt. (I’m guessing on this, but I think I’m right.)

Henry Blodget explained it perfectly last year.

Because when inequality gets bad enough, serfs can’t afford to buy products from overlords. This hurts the overlords’ ability to get even richer.

And that’s what’s wrong with the American economy right now. The serfs are tapped out. The overlords are responding by cutting costs (firing serfs), to increase profits. Unfortunately, one person’s “costs” are another person’s “wages,” so this is making the problem worse.

From 2002 to now, the United States have racked up massive debt. The profits companies have amassed came from debt and labor cuts. I know the government says that unemployment is falling, but the government is lying. Here’s the labor force participation rate from the US Bureau of Labor Statistics as of January, 2014:

Labor Force Participation
Labor Force Participation, 1950 to 2013

The labor force participation rate has fallen to mid-1970s levels, and it shows no sign of coming back up.

Yes, there were 2 million new jobs created since the official end of the recession. But many of those jobs were never filled. As the government pumps more money into income redistribution programs that allow companies to eliminate workers (without eliminating jobs), people give up and decide to go on the dole. Plus, most companies suck at recruitment.

So what fuels the massive corporate profits and the ridiculous stock market bubble is pure, unmitigated debt. And its government debt in the forms of Treasury bills and bonds. The food stamp program is corporate welfare, allowing corporations to pay unrealistically low labor costs.

Guess what would happen if these companies failed to pay high enough wages and food stamps didn’t exist? There would be massive employee organizing and ultimately the companies would have to change tact. This of course doesn’t happen when the taxpayer makes up the difference, and that is exactly what they want.

In other words, our business and political leaders seem bent on proving Marx right. Or driving workers into the arms of the SEIU.

Conservatives Don’t Help When They Defend Big Business

The problem with some conservatives’ blind embrace of big business is that big business hates free markets. Big business leaders are no friends of liberty, freedom, and free markets, but they say all the words conservatives love to hear. The business and finance lions are just cynical crony capitalists who eat out your existence while the government holds you down.

Here’s how it works:

  • Government proposes legislation that might hurt big business
  • Big Business sends swarms of lobbyists to Washington
  • Congress and the White House accommodate the lobbyists by letting the lobbyists write the legislation (“It’s only fair.”)
  • The supposedly anti-business legislation kills competition and protects the businesses that wrote the law

We’ve seen this process repeat more than season three of Friends.  Every cycle of legislative reform makes it harder for new, insurgent companies to compete while making it nearly impossible for big, established firms to suffer. This cycle resulted in the “too big to fail” myth, as a handful of American companies commanded so much of the US economy that their paid moutpieces in Congress and the White House stole trillions of dollars from Millennials (and younger) to keep the billionaires full of billions.

Meanwhile, most large American companies recognize only one principle: maximize shareholder wealth. That’s it. And that maximum wealth principle applies only to the immediate future, not long-term, sustainable company growth. That’s why Carl Icahn wants Apple to, essentially, sell off its assets and give him the proceeds. In a sick and perverted way, Icahn has been taught that he has moral right to all the value Apple employees have produced.

When you combine this myopic pursuit of short-term profits with lack of accountability and easy government money, you get the chart at the top of the page.

But that will all change.

Either the economy will crash or the non-elites will revolt. And by revolt, I mean something really ugly with much loss of life and, possibly, the end of Western Civilization. What would happen to the economy if China and Japan go to war?

What Can We Do?

First, stop thinking Republican and Democrat, liberal and conservative, right and left. The real fight today is between the elites of politics, business, finance, and media, and the rest of us. There are more things that unite Tea Partiers and Occupy Wall Streeters than divide us, but we got all caught up in the emotional things that seem to separate us.

Next, stop playing the electoral politics game. Stop worrying about issues. Issues are what the elite use to keep us from taking back power. Forget issues, and start working on your personal power.

Finally, stop running to the defense of big corporations. Start analyzing corporations for their commitment to value creation, not profits. Yes, companies have to make a profit. But profits are a by-product of excellence. Profits are not the reason companies exist. You can learn more about the real purpose of companies at ConsciousCapitalism.org.

The gap between profits wages cannot continue to grow. That gap cannot event remain constant. It will shrink. It will shrink because markets (aka, people) refuse to work for or with crony capitalist companies, or it will shrink because of a collapse.

If the markets discipline corporations, the correction will be painful but bearable. If, however, the market collapses, a lot of us won’t be around to see what comes next.

UPDATE: I’m not the only one thinking this way. Joe Weisenthal at Business Insider quotes Nouriel Roubini:

“…between technology, globalization, trade, the winner-take-all superstar effect, inequality is rising. This is not just a “moral” issue but also an issue of too little consumption too little savings that is bad for global growth. So it becomes vicious cycle. It’s a bit like the old Marxist idea that if profits grow too much compared to wages, there’s not going to be enough consumption, and capitalism is going to self destruct. So I think that insight of Karl Marx is as useful today as it was 100 years ago.”