Just a heads up but I'm going to use the term difficult people to describe micromanagers, sociopaths, narcissists, psychopaths. It's just faster. :)
Studies show that difficult people contribute to lower productivity. Therefore, if workers quit their jobs and found new jobs with better people the world would be more productive with the same amount of resources. So, at a very high level, the proper course of action when you encounter a difficult person -- is to leave.
That's right, just leave. Quit your job, move away from difficult friends or family, break up. Do it gracefully and politely, but do it.
You see, difficult people are unlikely change. Spending resources trying to change them is a fruitless endeavor. Seeking strategies for dealing with difficult people is one step better, however, the time and resources spent learning these strategies could be spent on more productive activities.
Think of the countless hours people spend reading and writing articles titled "5 Ways to Manage a Micromanager" and "How to Get Along With Your Sociopath Boss." What if that time was spent trying to cure cancer or invent spaceships or volunteering with disabled kids? We waste millions of hours every year just trying to learn about getting along with difficult people. Does it help?
Think of difficult people like lids on your productivity. Remove that lid. The results would be massive. If the entire US workforce increased their productivity by 1% it would be like adding 1.5 million workers to the economy but with no additional cost. In my experience I am about 100% more productive without a difficult person in the way. That would be like adding 150 million workers to the economy at no additional cost.
So leave. Leave the difficult person. Yes they will call you immature and a quitter and a baby whatever else but the truth is they are stifling you, wasting your time, and imposing a time tax on everyone. Leaving is okay. It's hard but it is valuable, very valuable. So leave.
10.12.2016
Economic Change is Happening Yesterday
Data lag is a big problem.
Right now we have the following occurring:
1) Unemployment ticked up
2) Corporate profits continue to decline
3) Job postings are down
4) WIRP is down
5) The Gold Put/Call Ratio is down
6) The SPY Put/Call Ratio is up
7) Class 8 truck sales looks like 2009
And all of this is on a data lag because it takes a few weeks to gather the data. Then it takes a few weeks to write and publish the report.
That means that as of yesterday when I put that list together, we are even farther down this road than the data shows. Plus I noticed most of this stuff in July so we're talking a major data lag. By the time the data catches up it will be too late.
And a little FYI, the media sentiment lags the data lag by a few months so don't wait for them to report what's happening now. They'll be late by a few months and call it breaking news.
Right now we have the following occurring:
1) Unemployment ticked up
2) Corporate profits continue to decline
3) Job postings are down
4) WIRP is down
5) The Gold Put/Call Ratio is down
6) The SPY Put/Call Ratio is up
7) Class 8 truck sales looks like 2009
And all of this is on a data lag because it takes a few weeks to gather the data. Then it takes a few weeks to write and publish the report.
That means that as of yesterday when I put that list together, we are even farther down this road than the data shows. Plus I noticed most of this stuff in July so we're talking a major data lag. By the time the data catches up it will be too late.
And a little FYI, the media sentiment lags the data lag by a few months so don't wait for them to report what's happening now. They'll be late by a few months and call it breaking news.
Journalists Should Write and Not Speculate
Do you get car advice from your barber? Do you get spiritual advice from your banker? Do you get insurance advice from your grocer? No. Nobody does. But everybody gets financial advice from journalists.
Here's a little secret. Journalists almost never have enough depth of knowledge to be taken seriously. They report the news. They are incapable of interpreting it.
Case in point. The unemployment rate ticked up yesterday while companies simultaneously posted fewer jobs. I read a story where the writer actually argued that this is a good thing. But it's not. It never is. Ever.
You see. An expanding economy is a good thing and a shrinking economy is a good thing. However, for an economy to expand it needs employees to fill all the new jobs. Shrinking job openings and an increase in people hunting for jobs means the economy is shrinking, not expanding.
Now those data points (unemployment and job postings) are early indicators. So we should monitor them closely. We should not say the economy is shrinking. We should not say it is continuing to expand. We should say it looks like something might be happening. Let's verify.
When journalists are reckless we all lose. Journalists should report new from experts and stay out of speculation.
7.13.2016
9 Reasons Why a Recession is Imminent
First let's be clear. I don't know when the next recession will hit.
Timing is impossible to predict with precision. However, I've noticed a handful of indicators that are shifting together. Any one indicator is questionable on its own, however, I believe that, taken as a whole, they are showing that the economy is shifting.
Let's examine them together:
1) Class 8 truck sales is down.
A recession is when GDP is declining. That means the economy is shrinking. This happens when people reduce their consumption of goods. The first way this shows up is in reduced inventory reorders from stores, which automatically means truckers see fewer shipments. When truckers see this happening they stop buying more trucks. We are currently seeing class 8 truck orders drop off a cliff. That can only mean there is reduced demand for shipping goods. I don't really care about the argument for new emissions rules creating false demand over that last few years because you can go to trucking forums and see that truckers are doing one way shipments when they used to be able to drive a full truck both ways. Face it, stores are ordering less goods because they are selling less goods. That is the definition of a recession.
2) Gold is up.
When people are uncertain about the economy they buy gold because they consider it safe. Gold has risen by 40% this year. That means demand for it has increased. In other words, demand for safety has increased because uncertainty has increased. However, in order to move to safety, investors have to sell assets (stocks and bonds) to buy gold. That means increased selling on the stock market. That puts downward pressure and reduces the ability of the market to rise. I am aware that the S&P is still rising as I write this but so is gold. The money going into gold is coming out of something.
3) Treasuries are up (prices, which are inverse to yield).
Same rationale as gold. People are moving to safety which means they are selling something that is more risky, but what? Corporate bonds are up. Stocks are up. Where is the money flowing out so that people can buy gold? Perhaps the smart money is flowing to safety. They are the earlier birds and main street is always late. This is a downward spiral, the more people move to safety the more people have to move to safety. It is only a matter of time. At this point what change could possibly occur to make the markets safer or more valuable than treasuries? Until that change happens we will continue to see the shift to safety accelerate.
4) Unemployment is down.
When everyone has a job companies must compete for workers by raising wages. As wages rise profits fall, forecasts fall, and hiring slows. We are currently at full employment which will begin the downward spiral of shrinking corporate profits. Additionally, unemployment is nearly crossing the 3 month average of unemployment which is a reliable indicator of a recession.
5) Temp agencies are experiencing a slowdown.
Temp agencies see demand when companies are expanding. It's easy to hire temps for uncertain growth when businesses are expanding. When demand for temporary workers drops, it means that companies are cutting their expansion projects. That indicates their forecasts are weakening and executives are nervous about adding costs and risks within their companies. (Perhaps due to diminishing demand. See the class 8 trucking argument above.) Anyway, nobody wants to jump into the water right now. It's only a matter of time before companies begin to cut losing projects, which is when hiring stalls and unemployment will begin to rise. We're already seeing hiring slow a bit.
6) An election is near.
People get nervous around elections. There has been a recession within 12 months of almost every presidential election in the 20th and 21st centuries. Just speculation here, but elections cause uncertainty and that causes people to move to safety. It's just part of the spiral to safety (reflexivity is the formal term) you see in gold and treasuries.
7) Billionaires are betting on a recession.
See George Soros, Jeffrey Gundlach and Stan Druckenmiller. They are all betting on a recession. These guys are early birds that can take the pain of short term losses to be right on the big move. Soros is long gold, short the S&P and short Deutsche Bank. Gundlach is long gold too. They have access to far more resources than just about anyone. The decisions they make risk billions of dollars so they aren't playing around when they bet big. Plus, they play the numbers game using probabilities. Bearish bets by these guys indicate that the probabilities are in favor of a shift to safety. That's how they play the game and why they are billionaires. They take high probability trades.
8) Talking heads are pitching safety.
Talking heads lag reality. They always do. I don't have any data, just experience to verify this but if you watch over the next few months you'll see their recommendations are always behind and therefore cause main street to lose money. They only say 'buy' when the market is topping. They say start to say 'buy' the dips when the market is tanking. The say it can fall another 30% when it is at the bottom. They say it's at the bottom long after it starts to rise. Given this trend, when the talking heads pitch safety. It's too late. We are long past the time to move to safety which puts us in a risky place.
9) Totality of the above 8 points.
So, let's review. The country is buying less goods as evidenced by trucking. Therefore, company's reduce their forecasts and are not pursuing growth projects as evidenced by fewer temp workers and slowing hiring. This makes Wall Street nervous so they being shifting money away from stocks to safer positions such as gold and treasuries. The more Wall Street shifts money to safety, the less dollars companies have to expand which reduces hiring and reduces consumers discretionary income. A reduction in discretionary income reduces demand for goods which reduces trucking...and we're back to the beginning.
Now, just in case you think this is all doom and gloom and I'm just looking for the bad...you're right, there is no good. I've looked. Where is a bright spot? Russia, Venezuela, and the Middle East are broke because oil prices are down. Europe is in question due to Brexit and hefty debt and demographic challenges. China is in a slowdown. Japan is...well...Japan. Where can a guy put his money with confidence and an expectation of growth?
Right now the only question is where can a guy put his money that he won't lose it.
The answer is gold and treasuries. As more people discover this it will lead to an acceleration in the movement towards a recession. The exception to that is if Ray Dalio is correct in his estimation that we are headed for stagnation. Either way, safety looks good.
Timing is impossible to predict with precision. However, I've noticed a handful of indicators that are shifting together. Any one indicator is questionable on its own, however, I believe that, taken as a whole, they are showing that the economy is shifting.
Let's examine them together:
1) Class 8 truck sales is down.
A recession is when GDP is declining. That means the economy is shrinking. This happens when people reduce their consumption of goods. The first way this shows up is in reduced inventory reorders from stores, which automatically means truckers see fewer shipments. When truckers see this happening they stop buying more trucks. We are currently seeing class 8 truck orders drop off a cliff. That can only mean there is reduced demand for shipping goods. I don't really care about the argument for new emissions rules creating false demand over that last few years because you can go to trucking forums and see that truckers are doing one way shipments when they used to be able to drive a full truck both ways. Face it, stores are ordering less goods because they are selling less goods. That is the definition of a recession.
2) Gold is up.
When people are uncertain about the economy they buy gold because they consider it safe. Gold has risen by 40% this year. That means demand for it has increased. In other words, demand for safety has increased because uncertainty has increased. However, in order to move to safety, investors have to sell assets (stocks and bonds) to buy gold. That means increased selling on the stock market. That puts downward pressure and reduces the ability of the market to rise. I am aware that the S&P is still rising as I write this but so is gold. The money going into gold is coming out of something.
3) Treasuries are up (prices, which are inverse to yield).
Same rationale as gold. People are moving to safety which means they are selling something that is more risky, but what? Corporate bonds are up. Stocks are up. Where is the money flowing out so that people can buy gold? Perhaps the smart money is flowing to safety. They are the earlier birds and main street is always late. This is a downward spiral, the more people move to safety the more people have to move to safety. It is only a matter of time. At this point what change could possibly occur to make the markets safer or more valuable than treasuries? Until that change happens we will continue to see the shift to safety accelerate.
4) Unemployment is down.
When everyone has a job companies must compete for workers by raising wages. As wages rise profits fall, forecasts fall, and hiring slows. We are currently at full employment which will begin the downward spiral of shrinking corporate profits. Additionally, unemployment is nearly crossing the 3 month average of unemployment which is a reliable indicator of a recession.
5) Temp agencies are experiencing a slowdown.
Temp agencies see demand when companies are expanding. It's easy to hire temps for uncertain growth when businesses are expanding. When demand for temporary workers drops, it means that companies are cutting their expansion projects. That indicates their forecasts are weakening and executives are nervous about adding costs and risks within their companies. (Perhaps due to diminishing demand. See the class 8 trucking argument above.) Anyway, nobody wants to jump into the water right now. It's only a matter of time before companies begin to cut losing projects, which is when hiring stalls and unemployment will begin to rise. We're already seeing hiring slow a bit.
6) An election is near.
People get nervous around elections. There has been a recession within 12 months of almost every presidential election in the 20th and 21st centuries. Just speculation here, but elections cause uncertainty and that causes people to move to safety. It's just part of the spiral to safety (reflexivity is the formal term) you see in gold and treasuries.
7) Billionaires are betting on a recession.
See George Soros, Jeffrey Gundlach and Stan Druckenmiller. They are all betting on a recession. These guys are early birds that can take the pain of short term losses to be right on the big move. Soros is long gold, short the S&P and short Deutsche Bank. Gundlach is long gold too. They have access to far more resources than just about anyone. The decisions they make risk billions of dollars so they aren't playing around when they bet big. Plus, they play the numbers game using probabilities. Bearish bets by these guys indicate that the probabilities are in favor of a shift to safety. That's how they play the game and why they are billionaires. They take high probability trades.
8) Talking heads are pitching safety.
Talking heads lag reality. They always do. I don't have any data, just experience to verify this but if you watch over the next few months you'll see their recommendations are always behind and therefore cause main street to lose money. They only say 'buy' when the market is topping. They say start to say 'buy' the dips when the market is tanking. The say it can fall another 30% when it is at the bottom. They say it's at the bottom long after it starts to rise. Given this trend, when the talking heads pitch safety. It's too late. We are long past the time to move to safety which puts us in a risky place.
9) Totality of the above 8 points.
So, let's review. The country is buying less goods as evidenced by trucking. Therefore, company's reduce their forecasts and are not pursuing growth projects as evidenced by fewer temp workers and slowing hiring. This makes Wall Street nervous so they being shifting money away from stocks to safer positions such as gold and treasuries. The more Wall Street shifts money to safety, the less dollars companies have to expand which reduces hiring and reduces consumers discretionary income. A reduction in discretionary income reduces demand for goods which reduces trucking...and we're back to the beginning.
Now, just in case you think this is all doom and gloom and I'm just looking for the bad...you're right, there is no good. I've looked. Where is a bright spot? Russia, Venezuela, and the Middle East are broke because oil prices are down. Europe is in question due to Brexit and hefty debt and demographic challenges. China is in a slowdown. Japan is...well...Japan. Where can a guy put his money with confidence and an expectation of growth?
Right now the only question is where can a guy put his money that he won't lose it.
The answer is gold and treasuries. As more people discover this it will lead to an acceleration in the movement towards a recession. The exception to that is if Ray Dalio is correct in his estimation that we are headed for stagnation. Either way, safety looks good.
5.02.2016
Poor People: It Starts Inside
I have customers come into my shop all the time that start their conversations with, "I'm poor. I'm on a fixed income..." Why do they do this? Is it a negotiation tactic? Is it a pity party?
If I was poor I sure as heck wouldn't admit it. I'd be ashamed...ashamed that I didn't have a job, or that I couldn't hack it as a...well...bag boy, cashier or car salesman. Yet these people seem proud of their poverty. What is that?
On top of it, a few of them have declared their "fixed income" from being on disability. Funny how one guy had a truck loaded with drywall for his remodeling project and a second one offered to clean my shop once a week. So, why not get a job at a drywall company? Is it the disability or the laws for getting on disability that causes this?
What's weird is that multiple people who generally have no relationship to each other all behave the same way. The same statements, nearly word for word, about being poor and on a fixed income with no prompting from me. The same statements about remodeling or cleaning. It seems there is a pattern here. It's a pattern of drawing pity and emotion from someone.
It's sad. What happened to the bootstrap mentality? What happened to the attitude of our ancestors who packed up everything to move across an ocean with only pennies in their pocket? Where did that toughness go? How did the pride of endurance and strength morph into a pity party?
Sure we need to care for the poor. However, I think poor needs to be better defined. You see, poor is not financial. It is mental. We should have no obligation fund the finances of able-bodied people. It is the sick, and wounded who require our assistance and even many of those ailments can be overcome.
Believe me, I've overcome them.
If I was poor I sure as heck wouldn't admit it. I'd be ashamed...ashamed that I didn't have a job, or that I couldn't hack it as a...well...bag boy, cashier or car salesman. Yet these people seem proud of their poverty. What is that?
On top of it, a few of them have declared their "fixed income" from being on disability. Funny how one guy had a truck loaded with drywall for his remodeling project and a second one offered to clean my shop once a week. So, why not get a job at a drywall company? Is it the disability or the laws for getting on disability that causes this?
What's weird is that multiple people who generally have no relationship to each other all behave the same way. The same statements, nearly word for word, about being poor and on a fixed income with no prompting from me. The same statements about remodeling or cleaning. It seems there is a pattern here. It's a pattern of drawing pity and emotion from someone.
It's sad. What happened to the bootstrap mentality? What happened to the attitude of our ancestors who packed up everything to move across an ocean with only pennies in their pocket? Where did that toughness go? How did the pride of endurance and strength morph into a pity party?
Sure we need to care for the poor. However, I think poor needs to be better defined. You see, poor is not financial. It is mental. We should have no obligation fund the finances of able-bodied people. It is the sick, and wounded who require our assistance and even many of those ailments can be overcome.
Believe me, I've overcome them.
4.11.2016
Don't Let the Ball Control You
Today my shop closed at 5:30. I didn't leave until 6:30. No good reason either. I chatted with my manager for awhile, answered the phone and let a good customer come in and use my tire machine because his broke. Then I chatted with him for awhile.
Then my wife called. Uh-oh!
I let my business control me. That is not good for me, my marriage or my family. It certainly isn't a recipe for growth.
This is a head trash thing that starts with fear. Fear that a customer will leave because I'm not "nice." Or fear of a mutiny from my employees because I'm not "carrying my weight."
In high school my basketball coach always said, "Control the ball. Don't let it control you." To do that you need to practice dribbling, shooting and rebounding. Then you can control the ball and that's how you win. But you can't do that without deliberate, repetitive practice. Same goes for business.
Practice is boring and hard. It is also effective. I think we all need to practice controlling our business (or job) so that it doesn't control us. Anything other than that is unhealthy physically and emotionally.
Then my wife called. Uh-oh!
I let my business control me. That is not good for me, my marriage or my family. It certainly isn't a recipe for growth.
This is a head trash thing that starts with fear. Fear that a customer will leave because I'm not "nice." Or fear of a mutiny from my employees because I'm not "carrying my weight."
In high school my basketball coach always said, "Control the ball. Don't let it control you." To do that you need to practice dribbling, shooting and rebounding. Then you can control the ball and that's how you win. But you can't do that without deliberate, repetitive practice. Same goes for business.
Practice is boring and hard. It is also effective. I think we all need to practice controlling our business (or job) so that it doesn't control us. Anything other than that is unhealthy physically and emotionally.
The Secrets of Gross Margin
Margin is everything in business. It is what you have left over after you've paid for your final product but before you pay for phone bills, rent and yourself. It is more helpful to think of margin as sales than as margin.
For example, if you sell a widget for $100 and it cost you $95 to make it then your margin is $5. That is 5% margin. If you are able to lower your cost to $94 and raise your price to $101 then you would make $7 and your profit would increase to 6.9%...an increase of almost 40%.
Would a 40% increase in profit make your business better? If your business nets you 100k per year you are now making 140k per year. Now your problems are more along the lines of naming your new boat.
Do you see why margin is so important?
It is also helpful to think about it this way:
If you work for 20 weekdays per month and your margin is 10%, then you only get paid on the sales from the last 2 weekdays in the month. So you will spend 18 of those weekdays hoping/worrying if you have customers on the last 2 days so you can take some bacon home.
On the other hand if your margin is 25% that means that all of the sales from the last week of the month are available to take home. That is a much safer and more pleasant way to operate. In a low margin business one day of bad weather, or a holiday, or a broken machine could steal your profits for the month.
When thinking about businesses think in terms of margin. Think about how you can expand it by selling more higher margin products and services, or think of how you can negotiate better costs. Remember the example from above? If you are in a low margin business a 1% decrease in costs goes a long way towards the bottom line. So does a 1% increase in prices.
For example, if you sell a widget for $100 and it cost you $95 to make it then your margin is $5. That is 5% margin. If you are able to lower your cost to $94 and raise your price to $101 then you would make $7 and your profit would increase to 6.9%...an increase of almost 40%.
Would a 40% increase in profit make your business better? If your business nets you 100k per year you are now making 140k per year. Now your problems are more along the lines of naming your new boat.
Do you see why margin is so important?
It is also helpful to think about it this way:
If you work for 20 weekdays per month and your margin is 10%, then you only get paid on the sales from the last 2 weekdays in the month. So you will spend 18 of those weekdays hoping/worrying if you have customers on the last 2 days so you can take some bacon home.
On the other hand if your margin is 25% that means that all of the sales from the last week of the month are available to take home. That is a much safer and more pleasant way to operate. In a low margin business one day of bad weather, or a holiday, or a broken machine could steal your profits for the month.
When thinking about businesses think in terms of margin. Think about how you can expand it by selling more higher margin products and services, or think of how you can negotiate better costs. Remember the example from above? If you are in a low margin business a 1% decrease in costs goes a long way towards the bottom line. So does a 1% increase in prices.
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