Entrepenuerial Leviathan

So I literally have seen prices dipping in some of the nicest Portland Neighborhoods.  People here, especially the realtors and media have played it off in about every way they seem to know how.

The word is, "Prices aren't dropping in Portland." and our market area is shielded because we're still so much lower priced than California.   There are a host of somewhat wrong notions about why our market is keeping prices the same.  All of these notions are however rooted in the idea that the prices are staying the same.  The cold, hard, brutal truth is that they are NOT.

Even in trendy third area (Also known as 23rd Neighborhood) were prices have been up and up for over 20 years, they're slowly coming down.  I know this not because of some market analysis or media rambling, but because the prices on the sticker sheets of the hours are literally being marked down every few weeks.

...as I Watch the Rising Prices.

Even as housing prices fall, the world market continues to play havoc with ever increasing fuel prices.  A lot of people keep screaming, "It's the end of the world" and other assorted alarmist mantras.  However one can simply take a look at the increased difficulty of fuel coming to market and of course the largest factor of all, China and other growing markets.

Fuel is not decreasing in demand, China, India, and others have just now begun their industrial revolution.  They need fuel too, it is the same way in which our industrial revolution was powered (albeit in slightly different ways).  These fuels power the building, the growing, the food supply, and about every other connection to modern post industrial life that we know.  Of course it will go up.

Were are the Price Points?

But with the falling and with the rising prices there is a point of balance.  I'm not going to say I know were it is, but in each market one can take a wild guess.  In Portland the prices on houses will probably drop slightly, somewhere in the 5-8% range in the next year as the lack of buyers becomes a reality here.  The fuel prices will probably continue toward $5 by the end of 08' and possibly more in the next year or two.  The real price point will be met at the rate in which we, either private or public, find ways in which to add alternatives to the fossil fuel.  This might be electric trains or electric cars, but when these alternatives start becoming available we will start to see the price slowing to around $6.80-$8.50 (in today's dollars).

So hopefully your lifestyle is in line to buy a house at a good price and cut back on your petroleum usage.  If it is, you'll be in line for a comfortable. living over the next few decades.

I can't reiterate this enough.  The over-priced areas, once again, are tearing up the rest of the nation and they account for merely 20-30% of the nation.  Thanks a lot.  (sarcasm intended)  btw - I found the image online, not linked to the original location, so this one is "disconnected" but still shows the points.  If I'm breaching an image copyright or something PLEASE notify me so I can get permission(s) etc if possible.  Thx.

I started yapping about this months ago, actually years ago, but now another right up has surfaced and I figured I would link it.

Fundamental factors in this up turn of productivity, quality, and performance from America's Freight Railroads.  In other words, "Why Warren Buffet is Buying Railroads."

In the last week or so, Bank of America has finished snatching up Countrywide, probably saving them from epic disaster.  Citicorp on the other hand continues their historical losses of massive fail!

I knew Bank of America had a vastly superior corporate culture, and Citicorp had one of the most worker bee, don't ask questions, push forward, whacked corporate culture, but wow does this really break out the points.

Bank of America pushed meritocracy and individualism as points of pride.  If you where good they wanted you to lead, step up, forge ahead.  Citicorp has a socialistic, non-merit based, non-existent individual approach to everything.

Bank of America creates an inherent corporate family, which all members are part of.  Departments and groups build bonds and friendships together across all the disparate cities that the bank has operations.  Bank of America is involved extensively in the community, in help groups and is as much a part of a city as the people of the city.  The employees are encouraged to step up at schools and other establishments to have presence and help the community.  Citicorp has huge sprawling suburban work centers, that are supposedly located in prime places for the workers, that harness no unique attributes, and could be in the middle of a dessert.  Their workers are expected to drive dozens of miles from town centers or communities, away from parents' kids' schools and after school hang outs.  Their workers are pulled away from communities and their presence is rarely felt.

Just these two observations can be seen as direct relations to each respective entity's success in the market place.  Disparate socialism does not strengthen communities, inclusive meritocracy does.  Strong communities build strong banks.

It's that simple.

Citicorp really needs to get its ass together.  Bank of America, hats off to the business and keep kicking ass!  Bank of America knows what life is about, knows what community is about, and the respective leadership brings that to a point in everything from marketing to the actual actions that employees take.

I'm very proud to have worked at Bank of America, and pending I wouldn't have to leave Portland would have no issue in working there again!

So the big banks; Bank of America, Citigroup, and Morgan Stanley have decided that a SIV bailout fund is not needed.  Really?  I thought that was obvious!  It is a freaking market correction.  These doomsayers need to just settle down, people are getting just deserts for overinflating a market with bad investment decisions.  Nobody needs saved, they need a firm spanking.

I'm glad the banks got their collective heads on straight and dropped this can of worms.

On another note, I was just thinking, why would Bank of America want to go in on a fund with those other entities?  They are the only one of those three that haven't been sunk lately and needed non-US investments (re: bailouts of their own)!  Morgan Stanley and Citigroup are practically acquisition targets these days, with the lack of intelligence in their SIV investments so excessive.  Bank of America on the other hand still stand solid and strong, with good position in the market and no credible threat of takeover anywhere on the entire globe!

You gotta be kidding me.  So far, while watching the news what I knew would be the case, CitiGroup has suffered tons of losses from SIVs.  Matter of fact they're a huge part of the problem in the first place.  I believe Bank of America, and maybe some of the other smaller banks and the credit unions in particular have not been nearly as hard hit because of wiser and more spread investments.  What took the cake recently was the front page of CitiGroups site.

Not sure if it is that readable (depends on the screen resolution, click for larger image), but CitiGroup has a news item on the front page about SIVs.  They're going to save us all (after they've made so many bad decisions)!

Hilarious and sad all at once.  Seriously though, the financial institutions will take the brunt of the bad decisions from SIVs, but the faux savior messages are just absurd now.  Of course they'll offer support, because they're so heavily invested, it's nailed the bottom line so badly, that they're now a takeover target!  They're ass is just as much on the line as the dumb individuals that invested in SIVs.  I personally just don't feel much for em' at this point either.  To still be hanging on to those things today, after even the homeless guy on the corner could have told them that the housing market was about to tank, and if it was going to tank obviously the SIVs would be seriously devalued.

Smart.

As it would be said in World of Warcraft lingo, Morgan Stanley has just experienced an EPIC FAILURE with losses reaching $3.56 Billion for the quarter.  In addition to that they just took an investment from none other than the communist state controlled China Investment Corporation (How the US allows this is still beyond me, why do even remotely help a competing and detrimental political system is just insane).

So not only one large EPIC FAILURE but really two EPIC FAILURES for Morgan Stanley.  I'm somewhat embarrassed for them, as they stated themselves, "we're embarrassed".  I would be too, having turned a profit every year since 1986 how would one even think that the housing investment bubble was a good idea to still be in?

Hopefully they get themselves righted and get their "loan" from the China Investment Corporation paid off.  We already have ourselves on the line with China, we're so tightly bonded at this point economically that we couldn't separate ourselves in an emergency.  It's almost as if we're becoming one economic entity.

Scary.

The economy is not zero-sum.  Is it complicated?  Not really.  Let the coyote explain;

"Repeat please:  The economy is not zero-sum.  Never has it been so hard to convince people of a concept that should be so obvious.  I used up bushels of electrons explaining why the economy is not zero sum here, but the short proof is easy:  Look at the world in 1900.  Look at it today.  The world as a whole and most every individual is far richer.  The fact is that economies create wealth every day, and free economies create a LOT of wealth.

At the heart of every argument that the trade deficit is bad is the mercantilist notion that the US economy is a bank vault leaking funds.  But this analogy that seems to be in everyone's head is flawed.  The supply of money or wealth in the US, in the vault, is constantly growing.  If you really have to think of it as a vault, then think of what's inside as rabbits rather than gold bars.  Does anyone doubt that if you start with a hundred rabbits and every year sent a few to China that you might still have more rabbits than you started with in the vault?  A free economy is like a group of rabbits on Viagra.  Even if the Chinese took billions of dollars they got from selling goods to the US each year and burned the money in a big bonfire, the US still would be growing in wealth."

Go read more over at the Coyote's blog.

So I take a nice transit ride out to Washington Square today.  Walked down to PGE Park to get on the MAX, rode out to Beaverton and read up on some patterns and ideas, transferred to the #78 to Washington Square and Lake Oswego and read some more.  It was an absolutely beautiful day, and I wasn't particularly thinking that I'd be motivated to write a blog entry to bash anything, but as things go something that just screams low standards hit me full force today.  I'm all about pay as you go, pay as you use, pay for quality, and other payment models for services and product offerings.  But Starbucks takes the cake with their frustrating and non-standard payment model for their T-mobile service they offer.

First off, every single coffee shop that I have ever been in throws in free wireless with either a purchase of food or drink.  Starbucks hooks a customer up?  Nope, nothing, you get nothing for your overpriced coffee beverage.  A day pass costs a monstrous $9.99.  Absolutely insane I say.  The other bit is that in Portland the wireless offerings around this service is usually available and STILL free!

I don't like it when markets are tossed about by Government subsidy and I absolutely despise the idea of "free Internet wireless" being built by cities and such.  Mainly because I knew it would most likely be the failure that the systems are actually working out to be.  Fortunately they aren't putting private providers out of business.  But I am 100% pro-private reallocation, subsidy, or whatever one may call it, of services or products in order to promote or encourage other sales.

Microsoft's commuter bus, with free wireless service, absolutely awesome!  Far superior to anything the city offers, and they actually try in those parts of the country.  I love coffee shops, such as Stumptown and others in Portland that offer free wireless, and covers the cost as part of operations!  I love how car dealers will wash your car for free during an oil change, covering the cost of labor with the oil and oil changing labor charges.  I am ecstatic when Grocery stores offer tasters for free.  Many of you will say, oh but it is a negligible cost to the company, which I retort, "Oh really, DUH, but it is done out of respect and interest in offering more services and products, it is done to provide enhanced value to the customer!"   In addition to all that it brings a value of not just monetary, but of better choices being made, because one goes where the service is best.

Offering these small fringe features is awesome, and should be standard.  The idea that I would pay $9.99 for a day pass at Starbucks is as bad an idea as the idea of actually buying what I've grown and matured to know, is some over roasted burnt coffee.  Thanks Portland, Stumptown, Beaverton Nissan, and Fred Meyer on 20th and Burnside (I think that is the address, it might be 18th or even 19th, it covers almost 3 blocks) for offering real service, excellent product, and the best coffee on the planet!  You guys rock!

...just to note, none of these businesses have paid me in any way.  This is simply my recognition of good business vs. bad business service.  To whoever reads this, act accordingly and make sure that business is providing good service, if not, go somewhere else.  I might as well say thanks for letting me use a table and loitering in the air conditioner at Starbucks,  because after seeing this charge for Internet service, I'm not buying a day pass nor will I be buying anything else either after this absurdity.

Starbucks, get your act together, you're heading in the direction of McDonalds.  Big, bloated, and a mediocrity among business.

Alan Greenspan said about a decade ago that the tech sector was showing "irrational exuberance".  The same could have been said for the housing market for the last 5 or so years.  With the stupidity of house buyers ranging from statements like, "House prices never go down" to "Even if there is a recession I could always get a loan against the house".  This insanity is now coming to bite these people in the ass.  Clear as day they've brought themselves, and the country as a whole into this quagmire of market correction.

I personally hope it doesn't get too far out of hand, but the correction has needed to start for at least a couple years now.  Since it is here now I hope that the correction doesn't ripple to far across the world.  Striking those that made bad decisions, and reigning in the prices so that those that have saved and diligently strived to purchase a home can do so, is much deserved.  The tools used for these loans, the subprime ones, where built with this corrective idea in mind.  Thus the reason for adjustable rates and other such features, now that these are going to brought to bear, those that can stay in possession of their houses with the subprime will now start covering the losses of the other subprime losses by foreclosures.  The problem will of course blow out of proportion if state or federal control is enacted, a bail out is put in place, or other major bad decision is made.  There is much risk, but America can ride through this without much issue if gradual, calculated steps are made to correct this problem.

We definitely need to stay away from some of the socialist mess I've heard, or even that of the Bretton Woods fanatics like Larouche.  We don't need to push for mandated controls, socialist mandates, or complete manipulations of the lending tools that are available.  The last thing we need is only the US Government and the state/federal reserves left standing, which is exactly what Larouche and some others are suggesting should be enacted into legislation immediately.  To do so would be disastrous, and even if they did reign in the credit issues, to keep the housing market priced so artificially high is insane.  People should be able to buy reasonably priced, "MARKET priced" houses without this bubble boosting prices as it has over the last 4-5 years with artificially maintained low interest rates and such.  Simply put, the rate should have been raised sooner and the financial tools, as Morgan said almost a century ago, should be more responsibly issued.

Even today though there are heroes stepping into the fray, that only a capitalist system of mutual trading partners could do, to invest and re-associate wealth to benefit the economy as a whole.  Ken Lewis of Bank of America stepped in with $2 Billion to acquire a stake in the Countrywide Financial Corporation.  This company has been a major subprime lender and is suffering because of it.  Bank of America is now positioned to put forth more reasonable practice and push the company to repair itself, or to take it over in the near future if need be.  Possibly, Bank of America could even take it over at a great price if the company falls into liquidation.  At this point Ken Lewis could play even a greater role in helping people to maintain their home loans, but also to even grow Bank of America's sway in the world markets.

Ken Lewis could play the modern day Morgan.  In addition to him we have the others; Citigroup, JP Morgan Chase, and Wachovia all going to borrow $500 Million each from the Fed's discount window.  Of course, that bulks up the way our current monetary system works and keeps things going a bit smoother.

All in all though, these are the types of actions that need to be made over the next few months and years to keep things stabilized.  Taxes dropped to a more reasonable level and the Federal Government getting out of the way of these moves, either by tax abatements, regulation removal, or other means is also a prime way in which to keep things running smoothly, and allow the market to return to a beneficial state for all of the world and especially the United States.

While riding the streetcar in Portland recently I started thinking, what exactly makes an economy move in a particular direction?  How does an economy end up building or creating a particular product, a particular service, or even end up failing a great product or service?

The first and quickest to derive answer is that the economy produces whatever the participants demand of it.  But that is only part of the answer.  There are many others that lie just below this primary reason.  We all know really, the demand is met with some type of supply, and that this leads to particular prices, valuations, etc.  After all there has to be some type of demand for anyone to even create or produce a supply right?

Well, his is true, in an unregulated, liberty oriented, individualist economic system.  But those don't particularly exist.  Everywhere there are controls, regulations, limits, forced pricing, arbitrary taxation, and other such things that alter supply, curb or encourage demand, usually with veiled threats of force.

To take a total view of the approach one must also count these forced alterations of an economic system along with the obvious supply and demand that works to meet the economic system participants' desires and needs.

Take for instance two things that provide a service for consumers.  One provides it via market rate at $6.00 per hour and has no regulatory approach to it, and no post taxation or sales tax incurred during purchase.  The other is $4.00 but incurs a sales tax of 6%, a post taxation (not particularly paid by the individual, but by society and the general funds) of 6% per year after purchase and also has a regulatory rule attached to it that negates the use of the service after 3 years, unless one pays a 10% fee per year to continue usage.

One might think, well with all those strings attached who would get that $4.00 item?  Why not just spend the extra money and get use of it forever, no strings attached?  Well people tend to be fickle.  For instance Government often (and I do mean often) attaches very similar rules, taxes, and regulations to items we buy all the time, but we all still buy them because of the immediate "deal".  Sales people are out there to sell you both, but the best way to encourage sales of a particular item is to provide and advertise the lowest price.

So let's do a quick total and see what service really is the lowest price.  Take Item A for $6.00.  Let's just say item A and item B both last for 10 years.  Let's say we need the service for 20 years.  So at the end of 20 years Item A incurs $12.00 total.

Item B is $4.00 + an immediate sales tax of 6%.  That gives us a total of $4.24.  We then pay 25, 27, and 29 cents respectively the following years.  This puts our total at $5.05.  Let's say we're going with the 3 year plan and cease usage at the end of 3 years.  We buy another service Item B for $4.24, and end up, but the end of the next 3 years paying another $5.05.  At this rate, every three years spending $5.05, at the end of 20, we'll have spent $30.30 with 2 years that we haven't covered with service.  At that point we'd still need another $5.05, giving us a grand total of $35.35.

Even Item B with the extended plan, per the Figure below, is more expensive after a period of time.

This provides an arbitrary, yet accurate analogy to laissez faire market efficiency in pricing compared to manipulatively controlled markets.  In the United States most don't even realize how many prices are artificially reduced, yet we end up paying vastly more on the whole of things.  The automobile, air travel, roads, electricity, TV, cell phones, telephones, and many other things are either priced above or below, but often times cost us far more than we realize since the costs aren't always realized at time of purchase.  Most of these things are setup or controlled by a market controlled and often manipulated for political notions by Governmental means.

The two things I've mentioned thus far are major contributors, in order of mention, in effecting the price, demand, and supply of a particular item to the people of the market place.  I strongly think, with the information I have, the third greatest factor, far less important than the other two but still a large factor, is pure, simple, dumb luck - or lack there of!

So the next time one is buying something at the store, think how much you're really paying for that item.  How much is hidden from you?  How much have you truly been manipulated, not including those advertisements you see, to buy the particular item or service you are about to?

So in the end, the prices vary from $23.20, $35.35, and the low price of $12.00.  One can see the differences in the financial tools outlined, and how some people would obviously pay more for something than they really should be.  This is very common among cars, Government Services, and almost anything where the cost is pushed off extensively (more than a year or two).

At a later time I'll elaborate on how price controls force fluctuations and excessive inflation on the price of items in the market.

So it seems I've puttered out on this particular blog.  I started it thinking I was going down the route of starting a particular business.  Well the simple matter is I'm not on that path anymore, at least not at this juncture.

I am however going to start reading some new material that isn't work related (i.e. has nothing to do with the software industry).  Most of this material fits this blog fairly well, the material will closely follow economics, economic history, and the social correlation that is inherent in economics.

So in the near future I hope to begin once again reading for entertainment and education, and blogging my thoughts, ideas, and new education on economics.  Beware, I'm sure I'll connect some of these entries to my politically motivated blog, but I shall see.

So I knocked out a few more chapters.  Chapter 3 covers the basic business plan; the who, what, when, why, and where.  This chapter is full of questions, the type that need answered specifically by the business plan.  At he end of these notes I'm keeping a list of all the questions asked.  It seems to be a good idea to go through and answer all of them before even getting started on the formal business plan.

One tip that is mentioned is, "Money follows management.  Investors typically look first at the people involved in the company.  The experience, education and track record of management and advisors need to be given great emphasis."  The first part of this tip, "Money follows management." is absolutely true.  In a literal and figurative sense it is absolutely true.  The rest of the tip could be true or might not be, depending on if the plan is created mostly as a guideline or if it is created with the mindset of asking for money from investors.

Some other notes are mentioned throughout that I assumed most people already knew about writing a business plan.  From the emphasis on clear communication, watching out for hyped words, and assuring that the plan also outlines the pitfalls (Albeit not "overemphasizng" the pitfalls).

The second tip of this chapter points out something that is not only fundamental to business plan and business operation but also to any successful career.  Make sure to surround one self with an experienced team.  Make sure the advisors and employees are working as a team and do everything you can to make sure the team is successful.

Writing a business plan is an all consuming task along with actually running the business.  A business plan should include enough to really outline the goals that should be followed.  Several key facets of a business plan are;

"A business plan helps to clarify, focus and research your business' devlopment and prospects."  This should cover realistic ideas about acheiving the goals of the business, prospects for the future, and other intangibles.  Even though these items are intangible the guesses, forcasts, and other information provided should be as realistic as possible.  The keyword there being "realistic".  The second keyword(s) being "as possible".

"A business plan provides the framework to create a company's mission, goals, and key strategies."  Thus the framework that one should use to build the components, functions, and processes that the business should evolve around.

"A business plan can serve as a basis for discussion with third parties, such as shareholders, agencies, banks, investors and the like."  This point is rather self explanatory.  The plan acts as the core of knowledge to discuss points off of.

"A business plan is a benchmark against which actual performance can be measured and reviewed.  It allows you to quantitively measure reality against goals."

The Business

The next section of chapter 3 is broken down into business plan elements.  The business plan is made up of several sections, the first section being The Business.

The business section is also referred to as the business strategy or business description.  Often you will see where there are subsections of a business plan under the business description.  Some of these sections include;  business opportunity, organization and operations, legal structure, business model, operating procesdures, operations description, management, personnel, strehgths and weaknesses, location, and core competancies.

Another of Rich Dad's tips is "In the business section, make sure you "sell" the one reason your business will be able to generate excessive cash flow."

The marketing

This section of the business plan includes the market strategy with subsections;  target markets, customers, competition, distribution, relationships, advertising, guerilla marketing, pricing, industry, and market trends.

The Financials

The financials section of the business plan includes;  uses of funds, income statements, cash flow statement, balance sheet, cash flow forecast, profit and loss forecast, income projection, sales revenue forecast, income forecast, capital spending plan, assumptions, budget and break-even analysis.  Simply put, the financials section is all about the numbers.

The Supporting Material

Supporting materials include resumes, letters of reference, credit reports, legal documents, agreements and contracts.

The business plan outline that I'll use in these notes will follow that of the book.  The outline is as follows:

• Cover Sheet
• Table of Contents
• Mission Statement
• Executive Summary
• The Business
  • Strengths and Weaknesses
  • Legal Structure
  • Business Description
  • Product or Service Description
  • Intellectual Property Description
  • Location
  • Management and Personnel
  • Records
  • Insurance
  • Security
  • Litigation
  • Risk Factors
• The Marketing
  • Markets
  • Competition
  • Distribution and Sales
  • Marketing
  • Industry and Market Trends
  • Strategy
• The Financials
  • Use of Funds
  • Income Statement
  • Cash Flow Statement
  • Balance Sheet
  • Income Projection
  • Break-Even Analysis
• The Supporting Documents

Be sure to include all members that need to build ownership of the business plan.  Encourage those most impacted by the plan to take interest in the evolving life of the plan.

Another very good point of advice is to get a private placement memorandum (PPM) prepared by a securities attorney.  The PPM contains all the risks and investor must be aware of and a subscription agreement for shares (investments).

Rich Dad Tips:

• The executive summary is your calling card.
• When intially sending out the business plan, first send it to a small portion of the potential universe so that one can get feedback.
• Money follows Management.
• Keep the plan clear and concise.  i.e. KISS - Keep It Simple Stupid!

Questions to Ask One Self:

• Who are the major players?
• Who are the owners, personnel, advisors, customers, competition, even the target audience for the plan itself?
• What do you want to achieve?
• What is your sustainable advantage?
• What do you offer?
• What do you produce?
• When did (will) the business start?
• When do you want to meet particular goals?
• Why are you in business?
• Why would customers want your product or service?
• Where is the business located?
• Where is the target audience?
• Where do new opportunities lie?
• How do you get from where you are now to where you want to be?