beyondthemba

When a CEO says, "We are Doing Everything Right", I say, "Run for the Hills"

Recently on Mad Money, Mel Karmazin, the CEO of Sirius radio was discussing the merger / acquisition of XM radio. In this he was quoted as saying, "We are doing everything right". That type of arrogance should cause any and all investors to run for the hills. 

Arrogance leads to complacency and that leads to horrible customer service. Right now, both XM and Sirius are a disaster and they need to get their act together quickly. After having to take on huge debt to finish the merger (due to a precipitous drop in the stock price), Karmazin is now saying it will be after labor day before he provides any direction to the market. Do you think he may need to "adjust the books" and is spending August doing such a thing?

Further, he freely admits that deals will be coming which should cause any consumer to stop any purchase of Sirius and/or XM until we find out what the deals will be like. I personally tried to call XM to get a new XM activation (new OEM car installation) and they said they had "no guidance on what to do with long term Sirius customers). 

This, along with the Karmazin arrogance can only spell disaster for this company. My recommendation: Keep your powder dry and wait this one out. Don't buy the stock or buy the product until they figure out just what the heck they are doing. 

Companies Which Go Out of Their Way to Piss Their Customers Off

Bad customer service due to an inept customer service employee or computer glitch is one thing but when a company's policy is to rip their customers off, that is when I get upset. Why do companies do this? They must know they are killing any return customer. 

An example of this is a high priced resort which, after charging you $300 per night to sleep there, charges you another $15 per day for high speed Internet. A service which any Motel 6 charging you $35 per night to sleep there gives you for free. Does the $15 really matter to someone paying $300 for the room? Probably not and yes, I have paid it. However, what it does is really sour my experience at that hotel. The last thing on my mind as I leave is how they ripped me off for something as simple as Internet service. I vow never to return. 

Today, I experienced this with Wells Fargo Bank. I like to pay additional principal on my mortgage periodically and so I went to the site to see if I could do it electronically. Seems like in this day of "Go green" and convenience, this only made sense. Also, it has to reduce their costs as I basically become their data entry clerk for them. Behold! There was a way on their site to do this. However, as I came to the end of the input screen I noticed a nice little "$10 convenience fee" for this service. I figured it must be just for an immediate payment so I looked where I could delay the payment a bit. Alas, no way to do that. So, they want me to pay $10 for the "convenience" of paying additional principal in an electronic, low cost, low environmental impact way. 

Well, what did I do? I did what any rational person would do. I wrote them a check and mailed it. We now have paper flying around, they will have to employ a processor to process the paper and they will then have to enter the check themselves to get payment. 

This is an example where a company, if they were thinking, would realize this is a huge opportunity for a "win-win" relationship. I could get things done efficiently, they could lower cost, and I could be "delighted" with my bank. Instead, they have set up a "Win-Lose" scenario. They are trying to nickel and dime me and the result is additional cost for Wells Fargo, a customer who feels like he is being ripped off and a relationship that will sour over time. 

Was it really worth the potential of scrapping an additional $10 out of me? This is what companies have to ask themselves especially in this era where they are trying to reduce costs dramatically. Will the cost reduction really work or will it just tick your customer off so much you lose the sale all together. One way to reduce costs, I suppose, is to get your customers so mad at you that they leave you and you have no cost since you aren't selling anything. 

Think before you shoot. 

Global Supply Chains: Are They Dead?

I think the answer is, of course not. However, global supply chains are built off of the assumption of low fuel costs and low transportation costs. Neither of these are the case anymore and we have to ask ourselves if we ever will see low enough fuel costs to justify the wild supply chains we have seen in the last quarter century. 

Further, global supply chains assume relative political stability and even that is in question moving forward. Imagine a company finding itself in the position of being cost non-competitive due to a complex global supply chain built up over years of assuming low cost fuel and transportation. Further, while being cost non-competitive, they also find their supply chain disrupted due to some global geo-political event. That is the double whammy creating the perfect storm that could shut down a company. 

Read more at the New York Times: Shipping Costs Start to Crimp Globalization

Note: I am not making, nor do I want to engage in, a political argument about globalization. That is for a different audience and a different blog. This discussion is purely about the business case for globalization in the new world of high fuel costs. 

HR 3221 Housing and Economic Recovery Act of 2008

Well, the Federal Government swoops down again to give out dollars to those who need it and to those who don't. This bill needs to be read and digested in its entirety but a few things:

1. It increases the statutory limit on the Deficit by $800bl!!  This money seems to "poof" come from thin air and now our sons and daughters get to pay for our excesses.
   
2. The CBO estimates this adds $25bl net to the deficit next year alone.
   
3. It provides interesting "give aways" to people who have nothing to do with the mortgage mess. For example, if you have already paid off your mortgage and do not itemize they are going to give you a $1,000 tax credit for "property tax". So, what does this have to do with the ARM adjustments and foreclosures?

I cannot wait for the next few weeks when people pour over this bill and find the pork deep inside of it. If you want to see the CBO (Congressional Budget office) estimates you can go the Congressional Budget Office website and download the bill HR3221 report. You can also see the CBO letter concerning how much the bail out of Freddie May and Fanny Mac will cost you at the Congressional Budget Office Director's blog.

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Tags: CBO, FannyMay, Freddie Mac, HR 3221, housing

Treasury Inflation Protected Securities (TIPS) - A Good Buy Still?

Was wondering if anyone is buying TIPS (Treasury Inflation Protected Securities)?  I have always kept some and some i-bonds (until recently when they went to crap with a 0% inflation payment and limit to $5K purchase).  Turns out with the inflation kicking in these have become "portfolio savers" and have really balanced my portfolio nicely (TIPS Vanguard Fund has returned 15% in the last year). I chose to use the Vanguard Fund due to all the tax consequences and nuances of holding the TIPs as actual bonds.

So, it was and is good to have in the overall portfolio. Business Week called it in 2005 , and MSNBC called it back in 2002 when inflation was but a whisper (I like what he says, "The best time to buy flood insurance is during a drought) but my question now is, do you buy more? I guess you do if you believe we are on the front end of the inflationary spiral (as I do) or do you think, with oil prices recently receding, we are on the back end of the inflationary spiral?

Blogged with the Flock Browser

Tags: TIPS, TreasuryInflation Protected Bonds, Investing, IBond

Economic Roundup For The Week of July 21

I like to read the Vanguard Economic Round up news every Saturday morning and this one was especially interesting. While all "current" indicators are down (i.e., unemployment is worse, housing down etc. etc.) one bit of good news did pop out. Durable goods orders were actually up (see table below; read link above).

I watch things like durable goods, capital investments, trucking volumes etc. to identify when we are starting to come out of the recession. My guess is we are far closer to the bottom than we may think. Companies have to be very careful right now as they cut capacity. If they cut too much, they may be far less able to take advantage of the uptick when it happens.

Another interesting factoid: They say we have a 10 month inventory of houses and I had thought it was a lot more.

With all the bad news coming our way on the newscasts, it is tough to identify the uptick but it is possible we are seeing signs of life.

Blogged with the Flock Browser

Tags: economy, business, finance, vanguard

What is Innovation at Your Company?

I am listening to a podcast from the Harvard Business Review with A.G. Lafley. He is the CEO of of P&G and recently wrote a book about innovation. He is discussing innovation at P&G and how it permeates all the way through the business. It is far beyond just innovating product and extends to shopping experience, cost and supply chain. Of course, for anyone who has worked with P&G, this is very believable. I have dealt with their transportation people before and it showed clearly they were trying to innovate even in a "back office" function.

In talking about how to review innovation, he discusses the following:

1. Develop with the consumer. Develop products with people who most likely will buy the product.
2. Use posters not briefing books. He discusses how their innovation process is actually fairly low tech and simplified. Think of the "high school science fair" where you walk around the poster and talk / discuss and not brief.
3. Use of an "innovation team leader".
4. Are we dealing with the "killer issues". Don't go to the easy solution first. Go to the one or two issues which will either make the project win or kill it.

The leader's involvement is critical. The leader needs to attend all meetings and needs to be actively involved. Not involved like most where the leader is getting "briefed" and is there to act like a king but actively involved from the perspective of helping, coaching and mentoring. The CEO became the CEO presumably because they know a lot. They need to impart that wisdom.

I have always been amazed by the P&G culture and how they continue to be a great company. This is one way they have shown their strengths.

Blogged with the Flock Browser

Tags: Proctorand Gamble, Lafely, innovation

Investors' anxiety builds as retirement nest eggs show cracks - The Boston Globe

An interesting article showing the strain on the "do it on your own" retirement system we have in the United States. The key question now is do you "take advantage" of this huge dip and continue buying or do you pull back? It appears, in the aggregate, the US Investor is pulling back in a big way (Net flows were actually negative in April and far less in May than January / February).

Of course this flies in the face of the "buy low / sell high" basic Mantra of investing. In my mind, unless you think you need the money right now, this is precisely the time to be investing in a big way; of course, only through good Total Stock Index funds.

Read: Investors' anxiety builds as retirement nest eggs show cracks - The Boston Globe.

Oil's biggest day yet drags down stocks

The impact of oil prices will be stunning and swift. I believe companies will finally (many already have) that either they have to get price in the marketplace or they will scale back operations.

As we see the issues develop in the airline industry where they are effectively shutting down capacity saying it is cheaper to park the planes than fly them, so will you see this with trucking. Soon, I predict, moving your products at any price will be next to impossible. Trucking companies will raise prices, take out capacity and refuse to drive "unpaid" out of route miles.

All this means an incredible strain on the economy overall. 

Oil's biggest day yet drags down stocks

Blogged with the Flock Browser

Tags: oil, inflation, economy, transportation

The Invisible Hand at Work - Americans Driving Dramatically Less Miles

Isn't this how capitalism is supposed to work? Price of oil goes through the roof and Americans are driving a lot less. What will be interesting is as Americans drive less governments will be taking in far less gas taxes.

Adam Smith was on to something many years ago!

Inflation Spiking in latin America

Price of Oil Tied to U.S. Dollar

Interested in people's thoughts on the above topic. I saw a study last week saying that in $ value adjusted terms, oil is hovering around $70 to $80 per barrel right now.

While we say our policy is a strong dollar, have we done anything to strengthen it? What can we do? With an economy either sliding into recession or in one now, the Fed has to keep interest rates low which, in turn, weakens the dollar.

The Kevin O'Meara Blog "Family" Grows

I am announcing today a major growth spurt in the Kevin O'Meara "Blogsphere". The purpose of adding multiple blogs is really two fold:

1. I just like to blog about things that I care about. I really am not overly interested about "Hits" or "Links" (Although they do feed the ego), but rather these are on line diaries about things that impact my life. So, there.. it is far more about me writing than tons of people reading. Although, I hope you do read and interact.

2. Because my interests are fairly diverse, I do not want people who are only interested in one topic to have to read through a bunch of stuff they may not care about to get to that topic. Clearly, the flagship of the Kevin O'Meara Blog Family will continue to be The Command T.O.C. dedicated to ending the war in Iraq and keeping our soldiers safe. But now you will get to read (and I will get to write) separate blogs dedicated to electing Barack Obama, educating and discussion business topics such as innovation, product design, and supply chain issues, and, my favorite hobby, Gardening.

So, here is the family as it currently sits:

1. The Command T.O.C. - A blog dedicated to ending the war in Iraq and keeping our soldiers safe.

2. Beyond The MBA - A blog dedicated to all issues concerning business, finance and investing. Product development, innovation and global supply chain issues are but just some of the topics.

3. Veterans for Barack Obama - A blog dedicated to getting the best candidate elected to the White House. Barack Obama is the hope for the future in this Country and is the "clean break" we need from the divisive and destructive policies of President Bush.

4The Gardener's Edge - A blog dedicated to all things Gardening. I am very much an amateur gardener but I love doing it and experimenting with many items in the yard. Look here for more items as I grow things and slowly do away with my lawn, plant a lot of perennials and enjoy the view!

So, enjoy Kevin O'Meara's Family of Blogs and please, any CONSTRUCTIVE comments would be greatly appreciated!

Deposit "At Home" With My Bank

Does anyone else have this feature with your bank? I merely scan a check at home and that deposits it into my account. I then just shred the check. That is, I think, an incredible use of technology.

Yahoo CEO on hot seat after rebuffing Microsoft's $47.5B bid - Yahoo! News

Link: Yahoo CEO on hot seat after rebuffing Microsoft's $47.5B bid - Yahoo! News.

This was precisely my reaction when I first read about this early this morning and I posted as such here. I think Yang's Ego got far ahead of him and he is going to pay for it dearly with shareholder lawsuits and dumping of stock.

Further, I was not aware of the major impact to employees. Between the wealth they will lose and the retention bonuses they will no longer get from Microsoft, many will lose a lot. There are now a lot of "1 month millionaires" at Yahoo thanks to Yang.

Warren Buffett at annual Berkshire meeting: Think small - May. 3, 2008

Link: Warren Buffett at annual Berkshire meeting: Think small - May. 3, 2008.

Warren Buffet asks investors to lower their expectations which I agree with. This idea of 10% returns lasting forever is a pipe dream, and I believe, very few people ever see. Most people who claim this do two things:  1) They conveniently "forget" the losers and... 2) They selectively choose their "start" and "stop" dates to make the number look great.

I think the other piece of advice Buffet has is the best one for the average individual investor:  Buy very low cost index funds, own the market and "get back to work and not worry about it".

Microsoft says it is ending bid for Yahoo - May. 3, 2008

Link: Microsoft says it is ending bid for Yahoo - May. 3, 2008.

I wonder what the history books will say about this one? It could be the biggest mistake of Yahoo's life or it may have saved Yahoo from the Microsoft crushing bureaucracy. Either way, I think it will turn out to be a major disservice to the Yahoo shareholders.

When will the Yahoo shares fetch the type of premium Microsoft was willing to offer? Yahoo's board should be looking out for the best interest of the shareholders and, while I have not done the math, my guess is when figuring in time value of money, this offer was higher than any return any shareholder in Yahoo could possibly get now.

Yahoo Corporation Public Press Release on the ending of the talks.

I Bond Fixed Rate Down to 0.0% - Why Would You Buy?

The I Bond Savings Bond is composed of a Fixed Rate (The rate the bond will pay over the inflation rate for the duration of the bond) and a variable component (The inflation rate adjusted every 6 months). A while ago on the great Diehards Bulletin Board, a lot of people were recommending to buy these bonds prior to the adjustment on May 1. The feeling was the fixed rate would get lowered. And, oh boy did it ever!

The fixed rate is now 0.0% (Source: Treasury Direct). So, if you buy a new I Bond now you will only get the inflation rate as the payback yet you will take on liquidity and interest rate risk due to the fact you have to hold them for 1 year and to cash penalty free, you have to hold for 5 years.

These were a great retirement investment and an education investment. They really made a lot of sense and allowed people to invest well, conservatively and help finance the Government debt at the same time. Well, no more.

Forget it. They are not worth buying any new but oh, those 2% and 3% fixed rates purchased several years ago look like a gold mine right now!

A Truism to Live By...

Here is a truism I just read from the Winter edition of "In The Vanguard" (published by Vanguard funds):

"If China makes it, the price goes down. If China wants it, the price goes up"

Oh how true especially as it relates to commodities.

Microsoft Buying Yahoo Raises Bigger Questions for Investors

The fact that Microsoft has decided to take $42Bln (Roughly) and spend it on Yahoo is a BAD decision for shareholders. There are two main reasons I say this. First, almost always, this type of merger is decretive to corporate value not accretive. Over 80% end up in failure and rather than 1+1=3, 1+1 actually equals 1.5 at best. My prediction is that out of this merger at least $20bl will evaporate into thin air.

Second, and to me the the most troubling, is why does Microsoft think they can spend MY (the investor's) money buy buying Yahoo? This is the big problem with companies hoarding cash (by the way, the cash is MINE not MSFT management's). If I want to buy Yahoo, they can return all the excess cash to the shareholders and let the shareholders decide if they want to invest their money in Yahoo or not. In essence, what is happening here, is that you took some of your money, invested in a company called Microsoft. Their management took that money and said, "Thank you, we are going to use it to buy Yahoo". That is not a good thing. You were forced to buy a company you did not want to buy (presumably or you would not have bought MSFT to begin with).

The arrogance of corporate management and the lack of action by neutered boards is astounding. Meanwhile, it is the investor who suffers. My guess is that while the deal will cause value to evaporate, senior managers will make out pretty good.

And that, alas, is the problem.