Tuesday, December 16, 2008

Down is Up and the Sun Now Rises in the West....

The news this morning continues to be bleak - Best Buy slashed their capital expenditure plans, saw income fall 77% and their CEO said

"The historic slowdown in the economy and its effect on our business over the past 90 days have been the most challenging consumer environment our company has ever faced,” Chief Executive Officer Brad Anderson said in the statement. “We believe that there has been a dramatic and potentially long-lasting change in consumer behavior as people adjust to the new realities of the marketplace.”

And the stock is going to be up 10% at the open.

Goldman Sachs saw their net income fall from a $10+ billion profit in 2007 to a $2 billion loss in 2008.

And their stock is going to be up 3-5% at the open.

The markets still want to wind a little higher and there are still thousands of traders that hang on the old "Fed cuts rates, we must rally" mantra. Today should be relatively uneventful until the Fed announcement comes out at 2:15. Keep in mind however, that the Fed has slashed rates all year and it has done practically nothing to improve the economy.

One parts supplier said today that they expect 2009 US auto sales of 9.3 million units. That's the lowest estimate that I have seen to date. Again, the auto industry in the US is built on the assumption that all car makers (foreign and domestic) will sell 14 to 16 million units annually. The cost structure of the industry makes it very hard to operate if the industry sells just 9.3 million units. Some supply will have to go away in order to improve the health of the industry if these forecasts prove to be correct.
A business parable.... I find this sadly accurate, but hysterical at the same time.

A Japanese company and an American company decided to have a canoe race on the St. Lawrence River. Both teams practiced long and hard to reach their peak performance before the race.

On the big day, the Japanese won by a mile.

The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action.

Their conclusion was the Japanese had 8 people rowing and 1 person steering, while the American team had 8 people steering and 1 person rowing.

Feeling a deeper study was in order, the American management hired a consulting company and paid them a large amount of money for a second opinion.

They advised, of course, that too many people were steering the boat, while not enough people were rowing.

Not sure of how to utilize that information, but wanting to prevent another loss to the Japanese, the rowing team’s management structure was totally reorganized to 4 steering supervisors, 3 area steering superintendents and 1 assistant superintendent steering manager.

They also implemented a new performance system that would give the 1 person rowing the boat greater incentive to work harder. It was called the ‘Rowing Team Quality First Program’ with meetings, dinners and free pens for the rower. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses.

The next year the Japanese won by two miles.

Humiliated, the American management laid off the rower for poor performance, halted development of a new canoe, sold the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses and the next year’s racing team was out-sourced to India.

Sadly, The End.

1 comment:

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