Archive for November, 2008

Nov202008

Bailout’s Galore: The Pols and Their Wonderful Money Machine

Uh oh.

I couldn’t bite my tongue.  Last night, I briefly watched (God forbid) a clip on CNN about the Big 3Detroit auto CEO’s who had marched, hat in hand, to capitol hill to lay claim to their piece of the bailout pie.  The segment I watched was showing various clips of the senators speaking to these nutty Big 3 CEOs. During the middle of the segment I leapt out of my chair and launched on a tirade that would have been better saved for rallying a bunch of guys to throw tea into Boston Harbor.

Now, the content of CNN segment will soon (if it is not already) be famous. Can you guess what it is? Actually, you can read the whole story here.   The gist is this: the Big 3 CEO’s traveled to Washington D.C in private jets to ask for federal bailout money for their companies.  Of course, the symbolism of this is that the executives of the auto companies still have their heads in outer space, are out of touch with reality and, therefore, giving their companies money would be putting good money after bad.

This doesn’t seem like such an illogical conclusion, does it?  Oh, the hipocracy of it all!

Wait for it…YES, ELIZABETH, THIS IS THE BIG ONE!!

Now, Politicians completely divorced from reality is not something new.  But, in this case, they may be even more “Cuckhoo for Cocoa Puffs” than the Big 3 CEO’s.

How about the fact that we, as American taxpayers essentially gave the pols in Washington a multi-trillion dollar checkbook that they have effectively messed up beyond belief and comprehension (can anyone figure out the tax code or the medicare thing?)  The senators on the panel yesterday essentially screamed and railed against the audacity of the CEO’s to arrive on private jets and ask for federal bailout money for their companies.

Uh, excuse me Senators, but how well do you travel?  How many perks do you enjoy on the taxpayer dollar?  How much are you feeling the recent economic downturn your constituents are dealing with?

My guess is, Senators, that you travel well.  Since the median net worth of a U.S. Senator is $1.7 million (read more here at OpenSecrets.org, I am guessing that you aren’t feeling the ‘recession’ as much as your constituents.   I have to hand it to you, though, Senators, for it was a fine performance for the cameras.  You are “fighting for responsibility” and don’t want “these auto companies to come back here in 6 months again asking for more money so you can just fly your private jet home to your palace of gold!”

Never mind, Senators,  the $700 or so billion that will need to be printed like monopoly money to “fix” the financial system that teetered on the brink a few short weeks ago.  I think there is enough pork in that bill to cost you the vote of the animal rights lobby.

Senators, you act like the trade and budget decisions you have collectively made have had no impact on U.S. industry or jobs.  Yes, I guess you are free to choose when to use “fuzzy logic” and when no to.  Just as long as it fits.

Let me make sure I understand you, Senators:  it is OK to have an insane farm subsidy program for decades and light fire under Government Sponsored Entities Fannie Mae and Freddie Mac to fuel a housing boom (and, by the way none of these industries have rich CEOs that travel on their own planes- wink).   But, these auto companies, hey “we’ve got to be responsible here.”  Uh-huh.

So, who wins in all of this you might be asking?  Many things are zero sum - somebody wins, somebody loses, so…drumroll please….

And the award for the biggest sucker holding the bag goes to…The American Taxpayer!

Tell them what they’ve won, Johhny!  

We’ll Ted, The American Taxpayer has won an all expenses paid trip into the bondage of debt for the better part of eternity! **Applause**  That’s right.  Not only will working men and women be in indentured servitude for their existence on earth, but future generations will also be eligible for the same lifetime benefit!  It’s a total prize package value of over $100,000,000,000,000.00!!!  **Applause**

applause

Published
by
Adam Davis
on November 20, 2008
in Bailout and Politics
. 13 Comments
Nov132008

Polar Opposites and Nothing to Lose: The Life of an Entrepreneur

Present value cash flow and long term business value creation are often at strongest odds when it comes to  entrepreneurs and small business owners.

There is a need to make a solid and decent living from the business, while at the same time smart small business owners know that they need an exit.  To have a successful exit (e.g. selling their company or passing it down to future generations or employees) small business owners must have a ‘saleable’ business.

Unfortunately, building a “saleable” business means making the decisions and choices along the way that lead to long-term value creation (branding, systems, processes) and making the business able to function independent of its owner is the key variable here - this necessarily impedes the money the owner can take out of the business in the short-term.

In order to build a saleable business, the small business owner must not rob the business of the re-investment of cash necessary to build sustainability.  Few small business get over this hurdle.

In his famous book: The E-myth, author Michael Gerber captures this issue quite saliently.  I highly recommend reading this book if you want to know more about overcoming the business sustainability and saleability hurdle.

Many a small business owner is faced with decisions such as: “I can invest $5,000 into a new marketing campaign or little Johnny can get braces.”

Thus, we are faced with one of the biggest quandaries for small business owners.  Present vs. Future.

The most successful small business are those where the owners are in “nothing to lose” scenarios.  For example, the young factory worker who decides he wants to start a business, moves in with his parents, saves his paycheck, buys and small pizza franchise, works 70 hours per week , reinvests nearly all the profit for the first few years to pay down debt and develop a name brand and then, bang!  Five years later the now slightly older former factory owner owns two pizza franchises netting him $200,000 per year and build a net worth of over $1,000,000.

Main principle: those with nothing to lose are more difficult to defeat than those who have something to lose.

Plain and simple, if you have nothing to lose you will take more risks and have asymmetries of motivation that yield an edge.

The ‘nothing to lose attitude’ is paramount to success as an entrepreneur.

For illustration of this point, read on…

I once had a job as a bouncer at one of largest bars in my home state of Wisconsin.   We would routinely have 300-400 people in on a Friday or Saturday night.  When you throw a couple hundred gallons of alcohol consumption in, this made for a rowdy crowd.

Being the young “tough guy” that I was , I had the idea that any drunk bar patron who looked at me cross-eyed was going to get an arm-bar and an express ticket to the back-alley.

After a few tussles in my first few weeks on the job, one of the restaurant managers, Jim, came up to me one night and pulled me off to the side.

“Adam, you are doing a decent job here.  John (bar manager) likes you, I like you, the bartenders like you.  But, I want to warn you about something.”

He put his arm around me and walked me to the back of the bar and continued.

“One day you are going to get rough with the wrong person.  There are people out there that you just don’t know about.  They can and will do anything.   For instance, take a look at that guy over there,” he pointed a rough looking middle aged guy sitting at a high table having a beer, “I saw that guy in a fight here a few years back.  He got hit so hard his eyeball popped out of the socket.  He still kept swinging and put the other guy into intensive care.  Unless you are willing to have your eyeball knocked out, or worse, don’t mess with him.”

Of course, I ended up NOT messing with the eye-ball guy.  However, I DID take a very important lesson from that night that I am reminded of often, particularly as I survey the competitive landscape in my real estate and consulting businesses:  “those with nothing to lose are tough to beat.”

This also reminds me of a scene in one of my favorite movies: American Beauty.  In the scene, Lestor Burnham (main character) is in a meeting with a guy his company has hired to help with downsizing.  After Lestor shrewdly blackmails the hatchet-man for $50,000 + benefits, the guy makes the comment that Lestor is “one twisted f#@&,” to which Lestor responds: “Nope.  I’m just an ordinary guy with nothing to lose.” Thus begins Lestors empowering journey through his self-indulgent mid-life crisis.

The ‘nothing to lose’ mindset is, indeed, tough to beat.

Published
by
Adam Davis
on November 13, 2008
in Business and Entrepreneurship
. 0 Comments
Nov72008

Why Banking Sucks…and What You Can Do About It

I am a money laundering fool.

Well, not really, but I might as well be considering the treatment I get at banks.

Yesterday I needed to do some personal banking.  However, even before I walked into the branch I was on edge.  Why?  Just the day before, I had tried and failed to find a National City Bank (recently purchased by PNC) near my office that was open later than 4 PM.  That’s right.  And I live in a Metropolitan area of over 4 million people.  Irritating to say the least.

Ok. So, I can deal with looking like an after-hours bank stalker (passers by probably thought I was casing the joint for a robbery), roaming from bank to bank trying to find a branch that operates in the real world where normal people work throughout the day and past 4:00 pm.  What I can’t deal with is what ensued when I actually cleared an hour out of my day and went into a branch.

Read on…

We’re back to yesterday and I walked up to the teller window, handed her my deposit ticket with two checks and a smile.  After a minute or two of clicking away on her computer, she scrunches her face, pauses for a few seconds, and tells me that she will have to place two different holds on the funds deposited from the checks.  Out of a total of roughly a $7,000 deposit, $4,000 won’t be available until 5 business days later and the remaining $3,000 will be available in 10 business days.

Having dealt with holds on checks before (successfully, I might add), I was curious this time as to why they would place a hold, since I have had an account at the bank for over 4 years, routinely make deposits of this size (drawn from the same accounts - from my business and have never bounced a check.

Upon inquiring with the branch  manager, I was informed that this was “policy.”  Admittedly, I got a bit belligerent; “so, your policy is to upset your depositors?” I asked.  I submitted my argument (that these check amounts and drawn-on banks were consistent - for over 14 months, etc.).  After getting some more corporate drone propaganda babble, I simply smiled, grabbed my receipt and left.

Not once during this trip, or other trips to the bank did anyone at any branch do anything to provide any level of customer service.  Apparently, customers aren’t important anymore to these institutions.  They are getting away from the basics of business - which is never a good idea.

The management of these big banks either: A. have a really good, dynamic growth strategy or, B. are really screwed up.

I’m guessing, since the business model the brilliant managers of these big banks pursued was loaning money to hoards of people with hardly a pulse (called subprime and alt-A) and buy all kinds of super risky credit derivatives and then pay themselves insane bonuses that would make even the 19th century robber barons turn over in their graves.

It seems to me that when any business gets away from the basics, like taking care of customers, things get dicey.  When companies get delusional and think they can be all things to all people, or pursue things way outside of what they are good at/able to, unpleasant results (e.g. lower profits) ensue in due course.

Maybe retail banking is just being geared to be taken over by robots in the future or it will be entirely self-service.  All in the name of efficiency.  Well, when you force customers to conform (as all banks can, because our society is built around electronic money blips that mandate institutions at virtually all levels) it can appear that they are accepting it, when in reality they are resentful and looking for other options.

My solution(s).

  1. Start my own bank
  2. Switch banks
  3. The old capitalist way

The old capitalist way would have you purchase a share or two of your bank’s stock (assuming publicly traded) and show up to the shareholder meeting.  In rare Gordon Gekko form, you would make a compelling speech to management, in which you would inform them that they are making costly mistakes at a grass roots level.  Of course, this approach is probably moot at this point in time, because the federal government is nationalizing banks (effectively) at such an alarming rate that, instead of lobbying the managers of the banks for real change to make you a happier customer (and, hence, more profitable for the bank) you will have to write impassioned letters to your congressmen and congresswomen.  What a strange world we live in now.

For now, I am going to opt for switching banks.  I’m longing for the old days..you know, a bank like Cheers, where everybody knows my name.   This may be like searching for the lost city of gold, but I’ll find one.

As far as opening a bank, I always have an eye on opportunities to capitalize where others are screwing it up royally.  Give it some time, though.  You never know what could happen.  Crazier things have…

Published
by
Adam Davis
on November 7, 2008
in Opinion
. 2 Comments
Nov42008

Tuesday Top 5: 5 Options in Our Wild and Crazy Times

These are indeed some wild and crazy times we are living in - especially if you are in the real estate or financial fields. Utter chaos and turmoil rule the day.  Part of me wishes John Wayne would ride in on horseback, just for effect.

As I keep my ear to the ground, this is what I am hearing:

Should I buy stocks or go into cash?

Should we buy a house or keep renting?

Will I have my job next week/month/quarter?

Will I ever be able to retire?

Add to these a heavy dose of uncertainty and you have a perfect recipe for mass amounts of people looking for their next move.

In the spirit of fun and learning, I thought that I would offer up a few nuggets of what I think five clear cut options you have as an entrepreneur/investor are right now.

1. Run for the hills

You could hole up in a cave, mount some machine gun nests and wait for the rioting and looting to ensue.  Usually, if you want to make money this is not the best idea.

2. Yearn for the past

Most of the other people that aren’t running for this hills or participating in the ostrich look-alike contest are fondly reminiscing about the days of yore.  Things were good for a long time for people in many different industries.  Mortgage brokers used to be able to almost literally print money.  Blank checks were handed out to financial planners and stock brokers (in the forms of commissions and fees).   Auto companies used to be able to piston SUV’s and pickup trucks off of assembly lines and watch their wallets expand.

While this was all well and good, it is now part of the past.  Evolution and change are the rule of the day in business.  Well, they always were, it was just a matter of it being practiced.

3. Learn a lesson or two

There  are plenty of things we can learn from what has happened in the credit, stock and real estate markets in recent months and the events that are currently taking place.

“Those that cannot remember the past are condemned to repeat it.”  - George Santayana

For the entrepreneurs and investors still standing, this quote should burn into our mind that we should never get so far ahead of ourselves as to think that we are invincible.  I knew more than a few companies and individuals who thought the music was never going to stop (just like in 2000, when dot-coms became dot-bombs).

Life is a constant shakeup of learning and doing.

4. Tackle New Opportunities

Since the apocalypse is not yet upon us (despite Sports Illustrated magazine’s lobbying), there are no doubt new opportunities to make money in industries that are currently decimated.  Think: housing, auto’s, mortgage.  What shape this will take I don’t yet know.  Could new, niche focused portfolio lenders pop up to fill gaping holes in the mortgage market?  Will the upstart auto companies popping up like weeds in Silicon Valley usurp the global auto powers that be?  (I mean..come on, can GM hold out that much longer?  Glad I dumped my shares a few years ago).

When the tide finally retreats back to the sea, we will all look around and realize that not everyone has been swimming naked.

5. Vote

Since election day is upon us, it would be very patriotic of me to neglect to mention that the polls are open and you (well, those citizens of the U.S. who enjoy the privilege of voting) might be well served to pull the lever for the future you want to see.  I encourage you to get down and dirty and learn what I call the ‘micro-politics’ of your municipal and state governments.  Find out who your local judges, prosecutors, city council members and other elected officials are.  These people will impact your life more than the newly income president and vice president will.

Think about: keeping criminals off your neighborhood streets, approving new businesses into your city or town, changing the tax code to make it more/less favorable to businesses or homeowners.

—————-

Alright, now for a shameless self-plug.

My business partner, Dylan Tanaka and I will be resuming our real estate video blog at MiRealEstate.tv.

Keep your eyes open tomorrow for brand new episodes.

Published
by
Adam Davis
on November 4, 2008
in Finance and economics
. 0 Comments