| Tuesday, October 29, 2002 | |||
| CALIFORNIA DREAMIN | |||
| The Saturday Financial Times reported that R. Griggs, the manufacturer of Doc Marten shoes, would be moving all of its production to south-east Asia from the UK. Footwear production in the UK has already been decimated in recent years, declining 63.8% to 35 million pairs between 1996 and 2000. Doc Marten’s volume has participated in this trend from peak sales of 10 million pairs in 1998 to the current level of 5 million pairs. At this level, R. Griggs is losing four pounds sterling on every pair of shoes sold. | |||
| While UK production has fallen, production in China has increased from 4.5 billion pairs to 6.4 billion pairs of shoes. In the year 2000, the latest year for which statistics are available, total world production was just over 12 billion pairs and China is producing more than half. With a world population of just over 6 billion for the same period, total production now equates to per capita consumption of two pairs of shoes per year, exactly even with China’s consumption figures. If everyone consumed on the same level as the U.S. at 6.5 pairs per capita, world production would have to increase by 225% to 39 billion pairs per year. With Chinese consumption increasing 11% between 1997 and 2000, it would take 32 years for China to catch up with the U.S. There is no question that consumption in the west has been positively influenced by declining prices born out of the bottomless pool of low wage labour in China. | |||
| So far this allocation of manufacturing to low wage countries has had a positive effect on the standard of living in the west. As production capacity goes up and wages go down, the consumer expects to be able to get more value out of a greater number of purchases. While volumes have increased in the footwear and fashion sectors, prices have continuously declined due to the deflationary pressure from this huge engine in the east. As long as more people are gaining than losing due to competition from low wage countries, the effect is positive on the western economy. Theoretically the west can dedicate resources to innovation, niche products and the service sector, areas where they can achieve the highest return for their own labour. | |||
| So why would anyone want to produce in a western market? Is there any point? There are two significant trends worth noting here. First, as western consumers become more affluent, they increasingly seek out something more personalised and distinctive. This results in a move away from big brands in favour of the unique or commissioned product. Second, as affluence increases in new markets, the consumer will increasingly seek luxury in the west. An example of this perception of quality can be seen in the Chinese government’s decision in the late 80’s to buy Boeing even when McDonnell Douglas was on its doorstep. This failed international expansion caused the demise of McDonnell Douglas, which was later integrated with Boeing. | |||
| The problem lies with scale. What is the right scale for a business based on 21st century craft merged with 21st century technology? In the 19th century John Ruskin lamented the advent of mechanization as degrading to the soul. This has often been interpreted by purists as a complete rejection of technology in favour of the hand-made tag. But that’s not what he was saying at all. It was the process of people working as machines rather than applying the right tools to the trade so that craft skills could flourish. | |||
| Today we still make a distinction between hand-made processes and machine made items. But where is the real skill? Is it in the design of the product or the construction? If it is also in the construction, how can technology assist? If there is an element of craft, how can the process be designed to combine unique elements with standard features? This is already happening in the west through processes like agile manufacturing utilising some of the principles of mass customisation. Strong elements of customer interface can help reduce the drudgery of mechanised processes. A warm, soft plant designed to maximise teamwork and innovation revolving around a designer incubator would put the workplace in balance between man and machine. | |||
| At H� we call this Meet the Feet. Taking the vision further is the Retail Park surrounding the plant putting the consumer in touch with other craftsmen and women, as well as other unique suppliers. A mini-city maximising the utilisation of technology while putting the customer and producer together to achieve a world more in balance than anything previously achieved in western markets. An ideal that I believe even John Ruskin would approve. | |||
| So on this 73rd anniversary of the Great Crash of 1929, we persist with our vision saying, "He who dares wins." Or is this just California Dreamin? | |||
| Tuesday, September 10, 2002 | |||
| BACK TO FUNDAMENTALS | |||
| But Paul said to the officers: "They beat us publicly without a trial, even though we are Roman citzens, ...And now they want to get rid of us quietly?" ...The officers reported this to the magistrates, and when they heard that Paul and Silas were Roman citizens, they were alarmed." Acts 16:37-38. | |||
| This experience of the apostle Paul in Macedonia reminds me of what it means to be a U.S. citizen today. The further east one travels, the less secure one feels. And security, the protection of its people, the right of every man, woman, and child to liberty, justice and freedom is fundamental to the U.S. constitution. Tomorrow, a reading of Lincoln's Gettysburg address will highlight the basic fundamentals on which America was established. William Safire in yesterday's New York Times likens this to "A Spirit Reborn." The original speech brought together a nation after the horrors of the Civil War. In dedicating the final resting place of the dead, Lincoln also reaffirmed the ideals for which the dead being honored fought: "to the unfinished work" and "to the great tasks remaining before us" of securing freedom and equality. | |||
| When Jesus was asked by one of the teachers of the law, what was the greatest commandment, he gave two answers, the second being, "Love your neighbor as yourself." Mark 12:31. What does this mean? First of all, it means that to love one's neighbor, one has to love oneself. Ruskin said this better than anyone else in his great work, Unto this Last. In his statement, "There is no wealth but life," life is defined as the vitality that has enough abundance to share itself with others. So here we once again go back to fundamentals. For America to be able to share itself with others, it must first of all ensure the security, the liberty, the freedom and equality of its citizens. It must first love its own before it can give back to the world the fruits of its labours. | |||
| And so America will stop at nothing to protect the interests of its citizens around the world. Whatever it takes, time and again over history, Americans have had the courage to fight for the ideals which they hold dear. In the final note of Lincoln's Gettysburg address, "a government of the people, by the people and for the people," he reminds Americans that the government's legitimacy springs from America's citizens alone. | |||
| Tomorrow as we hear these words again, another hot topic will be in the headlines. Iraq. What are the implications for world peace, for future terrorist attacks, for relations with the outside world if America goes in? But if America fails to act, will we find out too late in some distant future that the opportunity lost results in an even greater annihilation to come? | |||
| I know of only one answer to this question. The first answer that Christ responded to the teacher of the law is this, to "Love the Lord your God with all your heart and with all your soul and with all your mind and with all your strength. Hear, O Israel, the Lord our God, the Lord is one." So let us lift our hearts and minds to the Lord and pray for divine guidance. There is no other way. | |||
| Wednesday, July 24, 2002 | |||
| CASH IS KING | |||
| World stock markets have been sinking over the last month in a dramatic meltdown of sympathy with the Dow in the U.S. How far will they fall and what can you do about your dwindling investments? What happens next and your strategy, in particular, will be determined by your current perspective. To ensure that you have enough information to make a decision you are comfortable with, I would like to give you some additional facts. | |||
| First, why is the market falling? The simple answer is that valuations are too high. Great new theories abounded about the new economy and the hidden value of knowledge within an organisation to justify astronomical PE's at the market's peak. Reality has prevailed and the associated run on the market is a necessary consequence of our over exuberance during the 90's. | |||
| OK, so PE's are too high and the market is adjusting. Doesn't this mean I can hold onto my portfolio and just wait for things to get better? Let me answer this question with a question. Do you think that future PE's will reach the dizzying heights of the last boom which peaked at 41 for the S & P? If you go back to 1970, the Dow barely moved for almost the entire decade. More normal PE's of between 10 and 12 would be associated with a period such as this. Between 1980 and 1990, the market moved by 190%, or an 11% compounded annual return. Your stock broker will probably tell you that the market averages a 10% return per year in trying to induce you to get back into or stay in the market. From 1990 to 2000 we experienced the incredible moves during the bubble when the market increased by 297% or 14.7% per year. I believe that it is pretty clear from the available data that we are in a period of consolidation which will continue for some time. | |||
| If earnings were bearing up in the current uncertain market, one would be more compelled to wait this one out. However, earnings are on the decline, confidence is crumbling and even with the liquidity being poured into the market by low interest rates and lower taxes, demand is depressed. Simply put, there is a glut in capacity and serious adjustments are required. Forget buying the dips for the moment. Just look back at the last major market bubble which precipitated the crash of 1929. Then, people saw the market falling, got back in on the dips, and ended up losing everything in the panic which followed. I'm not going to say that things will get this bad, but be wise enough to stand back before betting everything on the next game. | |||
| Unfortunately the current low interest rate climate is putting another sector on the hop. There is no return for cash and a negative return for stocks so everyone is going for broke in the property market. Just like I believe that rates should have gone up much sooner during the stock market boom years (they actutally did temporarily until the Russian crisis and the LTCM crash required another drastic infusion of liquidity), I believe that rates have to be increased now to prevent the housing market from becoming overheated. | |||
| Knowing that the Federal Reserve and other central bankers will probably be overly cautious on this front, what is your best play for the future? First, be prepared for the market to fall further. Instead of thinking what you've already lost, opt for capital preservation. If you've lost a large chunk in shares but are flush with large gains in property, sell up and sit on the cash. There is currently an oversupply of rental property so you can easily rent at low prices. Meanwhile, sit on the sidelines with cash invested in gilts or T-Bills and wait. If the property market heats up to a bust, the slump could take years to heal. It may take some time to fall, but later in the cycle, you'll be able to pick up at 30 cents on the dollar that property you sold at its peak. | |||
| Once you've decided on your strategy and put checks and balances in place to ensure that you pay attention to the signals, you will be able to sleep again and know that you are prepared for whatever hits you next. You will be able to work hard, enjoy the fruits of your labor and praise God for the beauty which surrounds you each and every day. Lastly, remember that there is always someone who has lost more than you and there will always be someone who has earned more than you. Don't even think about it. | |||
| Saturday, May 11, 2002 | |||
| EUROPE'S USP HANGING IN THE BALANCE | |||
| What is Europe's USP? The simple answer is its culture. Think of heritage and you think of Italy and Greece. Think of luxury brands and you think of France and Italy. Think of engineering and you think of Germany and Britain. Think of culinary delights and you think of Italy and France. Within each of these categories is a rich mix of tradition and craft which has been passed on from generation to generation. Like the rest of the world, Europe has responded to the relentless drive for volume and profit by moving away from this base of core values. Culture is what it has in spades but is it an endangered species? | |||
| I have just returned from Bologna. For the first time I detected what can only be described as Euro malaise. There was a different attitude on the streets. Normally strident Italians were less confident. The quality image that I have come to associate with Italian products, particularly footwear, was shattered when I came upon window after window of poorly lasted shoes on Italian designs. Think footwear and you think Italy. It may be that Spain and Portugal produce quality footwear, but when thinking of design, style and quality, Italy is the icon. Bologna may not be known as shoe paradise, but it still has an image to uphold and sadly that image is now hanging precariously in the balance. | |||
| I had a chance encounter with a couple utilising European technology for a visionary footwear project in the U.S. The leather? Imported from Britain. Of all the footwear manufacturing companies still operating in the U.K. (and the number is declining rapidly) very few would say that they are using leather from the U.K. This U.S. upstart is using a quality supplier and the price is high. Those who should know better in the U.K. madly follow the crowd to produce at a lower cost a higher quantity of more mediocre footwear rather than utilising the core skills and core traditions that gave them their earlier edge. | |||
| Getting specific about footwear, it is true that technology can allow humans to interact at higher intellectual levels to produce a quality product with less sweat than previous high volume operations. Unfortunately in the process, the craft element is being left behind. Without the core underlying skill of knowing how to carve a last, one can never modify a machine version to resemble the top quality product. Do last makers contribute to this technology? The answer is too often not. Young last makers begin with the technology completely bypassing the craft. Traditional last makers hold onto their craft refusing to even look at the technology. Without a blend and balance of the two, the latter will surely be lost, while the former will never even remotely resemble the optimum design. | |||
| For those of you who know nothing of footwear, I hope this has not been too technical. The bottom line is that the core skills and traditions which have resulted in the finest products and most civilised way of looking at the world must be saved. Europe's cultural USP? Build upon it, nurture it, celebrate it. Above all, use it or lose it. | |||
| Thursday, April 11, 2002 | |||
| U.S. ACCOUNTING UNCOVERED | |||
| Today in the Financial Times, yet another article depicting U.S. accountants as nothing more than robots ticking off boxes, feeble minded plodders who follow rules but do not make judgements. This article written by Robert Bruce, former editor of Accountancy Age, is full of inaccuracies as is the image depicted in countless other articles on the demise of Andersen. | |||
| First let me explain my position. I am a C.P.A. and am qualified to perform audits on U.S. public companies. I do not have a degree in accounting, one of the requirements that Mr. Bruce suggests is necessary for the qualification in the U.S. Yes, I have studied accounting, law, finance and auditing but my degree is in psychology with a business administration minor. So, Mr. Bruce, you don't really know it all do you? | |||
| The second area of disagreement is in the area of judgement. Well Mr. Bruce, accounting is all about judgement and anyone who says otherwise is trying to hide behind a leaf to save their bare behind. Every new transaction can be handled any number of ways. Just because a rule exists doesn't mean it is right for a particular transaction. Implications need to be considered. This is where effective risk management is necessary and in the case of Enron, the opinions of the Andersen Global Risk Manager were ignored. This surely could not be construed as anything other than bad judgement. So the real issue is not whether or not judgement is used, but how it is applied. In the case of Enron a good case of conflict of interest combined with greed to create a distorted picture of reality which ultimately manifest itself in the wreckless application of misjudgement. | |||
| The third area of disagreement is the implication that U.S. accountants simply follow the rule books. Indeed, U.S. accounting standards are the highest in the world. I have been appalled at the shoddy reporting I see in UK annual reports versus the level of disclosure required in the U.S. Whilst you seem to think that classics and english majors make great accountants, I have been amazed at the lack of knowledge of some of the UK auditors who have audited U.S. companies I have been associated with here in the U.K. Accountants in the U.K. learn on the job. That means if they haven't been exposed to it on the job, they probably don't know it exists. I would much rather have a U.S. accountant who understands the complete range of complexity which each issue brings to the table, rather than simply apply the most used technique they have been taught somewhere in the past. | |||
| Forgive me for casting a less than favourable glance over your mighty perch Mr. Bruce but in the case of Enron it's not the system, it's not the rules, it's not even the conflicts. It's a clear and simple case of bad judgement. And bad judgement can exist anywhere, even in the U.K. That it had to bring down so many people, a great firm and a once good company is the tragedy. | |||
| Monday, March 11, 2002 | |||
| HOW BIG IS YOUR WORLD? | |||
| Chance encounters with a Space Mission Specialist, the Shoals of Capricorn and a new interpretation of the Torah called Etz Hayim vividly portray how different ways of thinking can influence the shape of the world we live in. | |||
| I attended a lecture which simply blew my mind last week by the Rev. Ken Clapham, a man who bills himself as a Space Mission Specialist to Nasa. From failing math, to the Inland Revenue in Bootle (near Liverpool, England), to Chaplain is an amazing enough tale. Now imagine a school governor who observes children building a space station. Add to this observation a spark of revelation that inspired this school governor, the Rev. Ken Clapham, to write to astronaut James Irwin and ask him to "stop by if he is ever in the area." | |||
| Well astronaut James Irwin not only stopped by but has returned several times since. This relationship has spawned several visits by Ken to the U.S. where he's spent months on Nasa programs talking, listening and missioning to astronauts from America and even Russia. He has attained a wealth of knowledge and beautiful slides of space, training, and real live astronauts which he uses to spread knowledge of the Christian faith to the world at large and children in particular. All this from one spark of inspiration. One spark which totally changed his life and the life of everyone he's encountered since. Forget naysayers, forget committees, what network? What a story! | |||
| The Shoals of Capricorn is a program of incredible achievement launched by the Royal Geographical Society. On the island of Rodrigues the Society has not only acquired a wealth of knowledge, but by eliciting the help of the local population, it has opened up a new world. The RGS trained the people of Rodrigues in new ways of working, utilising environmentally sound techniques to ensure survival of the rich species in the area, and even set up a local youth club which provided young people with a positive environment to meet, hang out, and obtain training. | |||
| People on the island are now actively participating in research and have taken up where RGS volunteers left off. All buildings and centres established by the RGS have been spun-off into a new entity run by locals. This is a first for an RGS project and hopefully the model for many more to come. The epitome of leaving them better than you found them in establishing such a thriving community. If only we in the western world could have locally focused programs to give young people an active role in maintaining a balance between our commercial and environmental influences so important for sustaining life as we know it on this planet. | |||
| Then we have the example of 'conservative' Judaism represented by the new Torah and commentary in Etz Hayim as reported this week-end in the New York Times. Here we have another part of the world tearing down what it has only taken some 5,000 years to build up by disputing the existence of Abraham and Moses while denying that the Exodus ever happened. Why? Because there is no archaeological evidence for their existence. How a sacred event like the Passover ever got onto the calendar is no doubt a mystery. Of course it is not surprising that almost 2000 years after the death of Jesus the Christ, a man also rejected by the people he came to save first, that the entire jewish history is now written off as nothing more than a series of stories with a moral purpose. Everyone it seems wants to have a code to live by, just leave anything bigger than ourselves out of it in this rational scientific world we live in. | |||
| I think the above examples demonstrate clearly what happens in life depending on how you view the world around you. In an infinite world, a simple spark can change your life. A man who previously had gone no further than a small village outside of Liverpool has spent a significant amount of time with astronauts who have travelled in space and worked himself for Nasa. Natives of Rodrigues have discovered a new universe just by working together with people who landed on their doorstep from research institutions throughout the world. And then we have our elite intellectuals who have nothing greater than themselves to fight for. Without faith, there is nothing. You make your choice. As for me and my house, we choose the infinite. | |||
| Friday, January 25, 2002 | |||
| THREE GOOD MEN | |||
| Three events have come together this week. First, an editorial appeared in The Wall Street Journal entitled 'The Job-Eating Asbestos Blob'. Second, I learned that a minister in my home town had been fired. Third, the previous Vice Chair of Enron committed suicide. On the surface each case is unique. In fact, had it not been for a conversation with my Mother in law today, I might never have made the connection. All it takes is for three good men to stand up. | |||
| Owning stock in a company not widely known to have asbestos exposure but run down all the same over the last few weeks following the fatal Halliburton judgement last month, I have been concerned about the continued quest for deeper pockets through the U.S. legal system. This company actually sold the division with asbestos exposure four years ago along with all potential liabilities. However, the new owner is now bankrupt, and there seems to be no end to how far people are willing to go for the sake of greed, particularly when it is without apparent cost to themselves through the zealous work of their litigation happy attorneys. As pointed out in Monday's editorial, there has been ample opportunity for change along the way, but since just a few companies could previously be named as the problem, no-one was interested in stopping this practice. Others that could have helped to stem the tide were too busy making money from it. Most just said, "It's not my problem. " Soon everyone will be paying the price. | |||
| Several years ago, Ben, the minister in my home town church, began changing the services and its mission. The church was flooded with newcomers, most from a couple of 'holy roller' churches which had lost their charismatic leaders by somewhat questionable means. This tide did not go unnoticed by the original members of the congregation. In fact, you might even say it was a constant topic of conversation. They continued to attend but increasingly dropped out of the ongoing management of the church. Then the church embarked on an even bigger building program, first constructing a sanctuary as originally envisaged and then building a massive gym for team sports. The sanctuary was state of the art with brilliant light, sound and furnishings but the gym was a project that many of the 'old timers' washed their hands of. "I don't know how they're going to pay for it," and "It's not my problem," are two of the phrases I heard many times. | |||
| In a dispute over theology, Ben decided to take the church out of the denomination. In a vote conducted by less than above board tactics, 90% of the congregation agreed. A face off with the ruling body which actually owns the church resulted in Ben's dismissal on Monday. Whatever happens now, there's no going back to the beginning. Now those 'old timers' who thought they could just sit back and watch are faced with an even bigger problem. A tragic case, particularly as many of them are founding families. | |||
| Today the apparent suicide of Clifford Baxter, the former Vice Chairman of Enron was announced. Our hearts go out for Mr Baxter and his family. He was evidently the lone ranger in his questioning of the appropriateness of transactions at LJM, one of the partnerships founded in 1999 by then-Chief Financial Officer Andrew Fastow. In fact, he was so disgruntled that he resigned early last year. Here was a man who understood the substance of the transactions, fought a battle and walked away. Were there not two other good men who could have stood up to fight with him? | |||
| So how many times do you do a quick evaluation of whether or not it is worth sticking your neck out? Not everything moves everyone at the same time. But if your conscience is tugging at your heart, if logic says this is unreasonable, and if a job worth doing really is a job worth doing right, can you afford not to? Will Three good men please stand up! |
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