| Friday, 2 July, 2003 | |||
| JUST TOO LATE | |||
| Anyone who knows me will think that they understand the title of this letter. After all I have never been known for my time keeping. Life is just too full to be driven by a clock or so it seemed..... | |||
| This morning I had a conversation with my hairdresser. It was an innocent enough beginning. Her relaying some symptoms of a cold/allergy and lamenting that they were preceded by an eye infection on Monday. | |||
| That started me off. One word triggered an entire episode that epitomised my life at a certain time. My wedding. Yes, on the day of my wedding, I had an eye infection. My mother in law diagnosed it as conjunctivitis, which my Mother phoned in to her doctor. He prescribed eye drops. So far so good. | |||
| But the entire scene of my wedding and everything that preceded it was an unbelievable event. February 14, 42 days before my wedding, and my dress wasn’t made. I’d selected everything, paid extortionate prices for the most beautiful fabrics, laces and beads. Alas, I was on my way to a whale watching expedition in the Canaries and my schedule had just changed so that three days every week over the next month had to be spent in Paris. My home was Duesseldorf. The wedding was in Ohio. My husband to be was in England. Lamentations! Instant solution. My designer friend Wendy. | |||
| Wendy came over to help me cut out my dress, something I didn’t trust myself with but soon wasn’t sure I trusted her. I wanted it short (relatively) in front with a long train in the back and miles of tulle falling out of the skirt – made to be seen (my husband was amazed that I tried this in the Valentino shop where they altered a dress for the opera). Wendy cut it by eye – no measures, nothing precise, exactly the opposite of anything I would have done. A lesson here for future use! | |||
| Wendy and I travailed together on shifts where we each got time on my dress. I paid her each day and as for that tulle skirt, kept buying miles more tulle and thread by the bushel. | |||
| The day I am to leave for the wedding I can’t get out of the office. Questions, conferences, more meetings – last minute instructions. Finally I am at wits end. I have 1.5 hours before my flight. I have not packed. A desperate woman, I arrive home, throw my wedding dress in one suitcase, and take the other case and pack everything fine that I have been saving for this day. In a panic, I call for a cab, which pulls up exactly 30 minutes before my flight. Praise God this is the old Duesseldorf airport. Up to the quick lane check-in. Don’t worry, you still have 20 minutes, not to worry says the attendant. | |||
| I arrive in London to meet up with Howard. The next thing I remember about this trip is that on arrival in Chicago, I was one bag short. Of course, the most important bag with the wedding dress is there, but I am none too thrilled that all my wonderful clothes have not arrived at all. No need to worry. This is Chicago. We met up with Howard’s best man, were toasted to strawberries and cream and champagne and then took off for Michigan Avenue. True luck to have hit this spot. I purchased my shoes (a most important purchase) and other delights that I didn’t know later how I would have lived without. The suitcase finally arrived exactly on the day of my flight to Ohio. | |||
| Next scene opens at my house in Columbus. My PA flew over from the UK and is staying with a neighbour until my arrival. My sister-in-law and mother-in-law arrived and were staying at a nearby hotel. Howard is creating some of the music for our wedding – Salif Keita just before Entrance of the Queen of Sheba at the end of the wedding and the Hallelujah Chorus just after my cousin playing the piano and before I march down the aisle. | |||
| Somehow in the confusion, we dubbed the blank tape onto the music we’d created. It would have to be done again. My father only had a reel to reel. Howard dashed off for my parent's house in Findlay with the wrong tape and my Mother-in-Law, I was left to pack up my stereo into a trunk which was now full of cases of wine which we were supplying, my two suitcases, and my Matron of Honour's things. | |||
| Next scene opens to the wedding day. Howard is still painting the mural for our wedding. We wanted an Italian scene and he was creating it. The tiara he made for me on our engagement needs fitted to my head and the lace it will be attached to. My Aunt Janie comes to the rescue. I attend a luncheon where my Mother-in-law diagnoses my eye problem (you were wondering when that would come in again weren’t you?). Somehow I think the day will last forever and end up rushing to the church, hair a complete disaster (thankfully my mother had organised a hairdresser), only half-dressed and now my PA earns her keep. Out comes the long train of lace from my headdress. Eleanor, with shaking hand, is delegated the task, twenty minutes before I walk down the aisle, of cutting the lace in a perfect semi-circle at the bottom. Notice through all this, I was not phased. I was not ready. But this was simply normal for me. I had totally and completely failed to notice that my life was a disaster of monumental proportions with everything in it being just too late. | |||
| I won’t tell the rest of the tale with my allergic reaction to the eye medication and my husband, my parents and I sitting together in the Doctor’s office the day after my wedding and the day when we are taking off for Morocco, probably the worst destination in the world for a woman with an eye infection. Ha! | |||
| Well, this story was worth a discount from my hairdresser this morning, for which I am most grateful! But what revelations have come about through it? | |||
| Yesterday, I took the hard decision to prune my life of many of the voluntary commitments on committees et al which have heretofore been my way of achieving a so-called balanced portfolio life. The problem is that I am unable to do anything without thinking and thinking produces more activity and pretty soon I do not know which end is up as I am totally driven by outside commitments and completely out of time. | |||
| To those who have borne the brunt of this decision, you must know that I genuinely believe in your cause and hope to return to you when I have gotten a bit of space. And why the space? My hero and phantom mentor for The Slipper . Com is Salvatore Ferragamo. The man was relentless and single minded for his cause. He was driven by a belief that shoes could heal and a desire to create the most perfect, beautiful custom-made shoes. He looked at shoe-making machinery of the day and was not impressed. He created and re-created his business several times in spite of overwhelming obstacles. Today when you see his shoes you see beauty and luxury. The real story is the fact that had he not been of such exceptional character, responding in a positive way to every challenge, his business never would have happened. | |||
| The Slipper . Com is currently in the business of creating the perfect last. Soon we will also be creating the perfect shoe. Shoes that are hand lasted, though technology plays a big role in getting to that stage. And the price point? Upper middle range of the spectrum. Everyone who desires beautiful, perfect fitting shoes should have them. To make this happen will take intense time and concentration. If I sign-off, you’ll now know what I am up to. | |||
| And this has just gotten me to thinking that the real problem with our society is that just in time means just too late. Since just in time is premised on exacting timing, we are now all driven by outside commitments to perform to a schedule. A schedule that if changed, will impact everyone and everything else down the line. No wonder there is no time to think, no time to pause, no time to make sense out of what is going on around us and no time to live. | |||
| My advice is to simplify everything down to the very basics. Be cautious about adding back. Make sure that you are focusing on the important life giving activities and not the life sapping distractions. | |||
| Tuesday, 2 December, 2003 | |||
| INVESTMENT VS. CONSUMPTION | |||
| Use it or lose it goes the saying. In the parable of the talents, the master gives talents of money for safekeeping to his servants before departing on a journey. After a long time, the master returns to his servants. The man given 5 talents gained five more. "Well done, good and faithful servant, because you have been faithful with a few things, I will put you in charge of many more. " The servant given two talents has gained two more. Once again, the master is pleased and welcomes the servant to share in his happiness. But alas, the servant given one talent comes forth with only the one having buried it for safekeeping. The servant is condemned for not even putting the money in an interest bearing account. "Take the talent from this man and give it to the man who has ten," proclaims the master. "But he already has ten," exclaims the servant. "Yes, to him who has much, more will be given. But he who has little, even that will be taken away." (Matthew 25:14-29) | |||
| Much commentary has been made of the fact that consumers continue to spend in spite of whatever woes befall the market. The only difference is in the way that they spend. Capital is constantly reallocated. Interest rates are low, so property has been the preferred vehicle. During the last decline in rates, bonds rose to new highs. The dollar is now tumbling so the price of gold is rising. The market has experienced a significant bounce during 2003 and capital has poured in from money funds, which are yielding record low returns. | |||
| So far, so good. The herd is behaving according to plan. Why then, is there so much focus on consumer behaviour? The main worry is whether or not debt has been used for investment or for consumption. The difference is important. Debt incurred for investment, for purchasing a house which is an appreciating asset for instance, is of a higher quality than debt in the form of credit cards, which is unsecured, and fuels only consumption. Debt fueling only consumption particularly in the form of holidays, food and drink is a monkey on the backs of consumers. Clothing, furniture and automobiles may be less expendable, but even these more tangible products can quickly lose their lustre, depreciate rapidly and have limited salvage value. It is therefore the nature of debt that is the problem with the current boom. | |||
| If the current spending wave were born on the back of an increase in household equity in the form of savings, property appreciation, and investment returns, it would have a firm foundation. There would be cause for unbridled optimism. The problem with this ‘recovery’ is that the house that George and the Federal Reserve have built has wobbly legs. If interest rates increase, a distinct possibility given the fact that the dollar has tumbled so radically, increasing the cost of imported goods and services, house prices, the preferred vehicle of choice over the last several years, could fall and generate a new era of defaults. Whilst this could happen in any environment, the lack of household equity to survive any temporary glitch in demand for housing, would make any downturn more severe. Borrowing on home equity has been one of the drivers of consumption. | |||
| Interest rates have been held at an artificially low level now for the last two years. One reason was to fuel an increase in consumption. The more the consumer spends the higher the level of production and theoretically the more jobs will be created or saved. At the same time, the national debt has risen substantially. If the fed keeps rates artificially low, the debt service burden will be lower on the taxpayer, thus keeping those promises which Bush 1 failed to deliver. For the time being, we are fortunate that China and Japan are actively buying U.S. treasuries thereby helping to keep the current account deficit from hemorrhaging. It is also the only defence of China for keeping its currency from appreciating against the dollar, which would otherwise reduce its ability to compete as the world’s centre of manufacturing. | |||
| So we are living in a world of artificially inflated assets, artificially low interest rates, artificially low prices in the form of the Chinese currency and artifically high optimism. | |||
| Use it or lose it. Investors beware. | |||
| Do you have something to say about this subject? Please send your comments and opinions to investment@h2associates.com . | |||
| Thursday, 16 October, 2003 | |||
| ISSUES OF VALUE | |||
| Last night my husband and I were discussing the silly prices charged for services here in the UK. A quote came in for cleaning an extra room at Brantwood. For one room, an additional �200 had been lopped onto the quote. Believing this to be exorbitant, he asked around and found a supplier with an excellent reputation and obtained a new quote. For only �250, they would do the entire house, slightly more than the other firm quoted for just one additional room. | |||
| Then there is the gas contractor. There are no gas lines on the east side of the lake so the estate uses propane. Our supplier always took the opportunity to gouge us for any increase in prices. During a particularly cold winter, a surcharge was added to the already doubled price of the fuel. Then we looked elsewhere. When we advised the current supplier of our plans to leave, the firm quickly matched the new quote at half their original price. | |||
| Of course this is the way our system works. We are free to go elsewhere when the price doesn’t suit. This ensures that the consumer is able to purchase at the most competitive price. | |||
| Enter the global world. I’ve just been reading a report on the Vietnamese footwear industry. 430,000 employees are producing over 418.7 million units of leather product in the form of footwear, handbags and finished leather, the majority of which is exported in the form of shoes at an average price of $5.54 per pair. The difference between this price and our purchase price is passed along the chain feeding everyone who participates in the transaction and leaving shareholders richer on the other end. | |||
| Like the west, employees work hard for their money. In Vietnam they work six days a week, and ten hours per day for the sum of $50 a month. With 67% of the work force engaged in agriculture, there will soon be even more individuals pouring out of their rural nests ready to replace burnt-out souls in the shoe factories. The west invests by transferring technology to the east. Without the low wages, there would be no incentive. Without continuous increases in volume, the market in Vietnam would dry up. Investment would cease and individuals who left farms for urban pastures would be left with useless skills. | |||
| Alternatively, once the technology is planted in the country, what happens when they are able to purchase for themselves? Currently only 26.9 million pairs produced in Vietnam are consumed in the home market and everyone wants to produce for the U.S. market, the world’s biggest consumers of footwear at a rate of 6.5 pairs per capita. If everyone in Vietnam were to purchase 6.5 pairs of shoes per year, a production level of over 527 million pairs or 146% of the current level would be required just to sustain the local population. | |||
| There are other factors. One of the reasons consumption is high in the U.S. is that the price is so low. Shoes are throw away items. Then there is the question of what the world would look like if everyone consumed at the same level as the U.S. Some reports suggest that the equivalent of space on three earths would be required to support life at that level. | |||
| Talk of the jobless recovery in the U.S. suggests that fundamental changes are taking place in the economy. Standards of living in the west may be high but so are the costs. Costs are high because wages are high. Wages are high because that is the market price for a given service or skill. Many of these levels are now out of balance. They are high simply due to annual increases built into everyone’s wage packet. They do not necessarily reflect what that skill is worth in the marketplace. And when wages are out of step with what the skill is worth, jobs are lost. | |||
| So if anyone is upset about their loss of a job in footwear manufacturing, they can always go over to Vietnam and work for 19 cents an hour. That’s what the going rate is for this job. Lest anyone get too self assured about the skills they have, don’t forget that India is the new market for skilled labor in the form of computer programmers, analysts and engineers. These individuals are increasingly setting the wage rates for the future. | |||
| The industrial revolution allowed individuals to leverage their skills to produce more product for the same effort. This led to specialisation, the idea that if everyone supplied a specific skill, similar to the machines that were already transforming the world, productivity would increase, goods and services would be more plentiful and everyone and everything was turned into a commodity. If you don't like physical labour, even horse trading is a way of making money in western markets. Place your bets and let your money work for you. With leverage and good choices, an individual can make even more. | |||
| Economies and markets are constantly seeking the lowest cost producer but they are also self serving. If everyone were suddenly made redundant in the west for a lower paying job in the east, the market for those low cost goods would evaporate. A major factor behind the growth of export markets around the world is the customer. Right now, the only major customers for the world’s production, the only ones willing and able to pay a higher price, are those in the west. | |||
| If we continue to go elsewhere, continue to find the lowest cost producer, continue to milk every opportunity to satisfy our voracious appetites in the west, there will be no market left for any of the goods which are being produced around the world. Is it realistic for an individual to work for 19 cents an hour? | |||
| If we were really self serving in the west, we would insist on better wages and conditions for everyone. This would begin to shift the burden of consumption from the west to other global markets. We would continue to reap the advantages of lower costs, the relatively lower wages in developing countries would keep ours in balance and we would actively contribute to a better quality of life for everyone, not just ourselves. Perhaps this is just another example of Cooperation versus Competition. | |||
| Monday, 3 March, 2003 | |||
| COMPETITION VS. CO-OPERATION | |||
| Most of us take for granted the concept of competition. In the free world, competition has served the consumer well. It has lowered the cost of goods and services while improving quality. The result has been a tremendous rise in the standard of living. Everyone has benefited. But there are also drawbacks. The constant cycle of growth at any cost, rather than creating wealth, tends to destroy everything in its path. The only measure recognised by this system is that of monetary gain. Strip the competition, corner the market, and reap the rewards of the plunder until the cycle repeats itself again. Is there an alternative? | |||
| I am fascinated by a tale of John Ruskin’s in Modern Painters Volume V, Part VIII, Chapter 1. (You can read the whole text here.) | |||
| First Ruskin states, "Government and co-operation are in all things and eternally the laws of life. Anarchy and competition, eternally, and in all things, the laws of death." He then tells the wonderful story of what happens to an ounce or two of the blackest slime of a beaten footpath on a rainy day near a large manufacturing town. The slime represents the effect of the elements at constant war with each other and destroying reciprocally each other’s nature and power, competing and fighting for place at every tread of your foot. | |||
| Leave them to rest, however, and the clay will gradually become a white earth... With help of a congealing fire, it can be made into the finest porcelain... But such artificial consistency is not its best. Leave it quiet to follow its own instinct of unity and it becomes not only white but clear; not only clear but hard; ...able to deal with light in a wonderful way, and gather out of it the loveliest blue rays only, refusing the rest. We call it then a sapphire. | |||
| Such being the consummation of clay, we give similar permission of quiet to the sand. It also becomes, first a white earth, then proceeds to grow clear and hard. ..Arranging itself in mysterious, infinitely fine, parallel lines,... the light reflects not merely blue rays, but the blue, green, purple and red rays in the greatest beauty in which they can be seen through any hard material. We call it then an opal. | |||
| Now the soot sets to work. It cannot make itself white at first, but instead of being discouraged, tries harder and harder and comes out clear at last, ..the hardest thing in the world. ...for the blackness it had, obtains in exchange the power of reflecting all the rays of the sun at once in the vividest blaze that any solid thing can shoot. We call it then a diamond. | |||
| Last of all the water purifies or unites itself, contented enough if it only reach the form of a dew-drop, but if we insist on its proceeding to a more perfect consistence, it crystallizes into the shape of a star. | |||
| And for the ounce of slime which we had by political economy of competition, we have by political economy of co-operation, a sapphire, an opal, and a diamond, set in the midst of a star of snow. | |||
| I have been familiar with this story since coming to Brantwood and hearing one of my husband’s lectures on the subject. Yet I’ve not always known what to make of it. Being an American and having rather strong views on ‘the way the world works’, I came from a position of scepticism. Last month, however, I finally saw a real live example of this theory in practice. If I hadn’t seen it for myself, I would never have believed it possible. | |||
| First, some background. We are seeking technology that allows for the customisation of footwear while dramatically reducing the time and cost of design and production. Customisation is the mantra in manufacturing today and a lot of companies pretend to be on the bandwagon. Few, however, are able to achieve this result because their businesses have been built around a completely different model. Anyone who has been in the business of change management knows how much easier it is to start fresh with a new concept than to turn an old dinosaur around. | |||
| I was invited to visit a production facility in France to see a demonstration of specialist equipment actually being used to customise footwear. This facility was in the middle of no-where. It was so difficult to get to, I couldn’t even find it on a map. The thought of going to this place was excruciating. How to make the journey, which would take an entire day of travel, worthwhile. | |||
| Somehow everything fell into place. I found a direct flight to an airport some 350 kilometers from the location. The drive was much easier than expected. The journey, rather than being full of traffic, became more and more beautiful. The road, emptied of cars, appeared more like the M6 at 4 in the morning rather than a major highway in the middle of the afternoon. And then paradise. Off the exit, determined by piecing several faxes and automotive guides together, was an exquisite view, over 1,000 meters in altitude, pine trees on both sides of a tiny winding road and snow dotting the landscape. Further on, past two small villages, a shoe factory in the middle of no-where. Population 50. A beautiful building. Windows all around. Workers happily buzzing away inside. Heaven on earth. And that was only the outside perspective. Inside was a total inspiration. | |||
| If you were asked to build a footwear business today from the ground up you would do only that which would ensure a ‘sure’ thing. Factors influencing your choices would include proximity to your targeted customer, a strong knowledge base and low cost labour. Most of these variables are deemed incompatible in a western country today and so we see different kinds of knowledge housed in different geographical areas within the same company. Not so with this lovely example in France. | |||
| The building was erected 15 years ago, the employees were trained from the ground up and contrary to every manual of mass production, every single pair of shoes is made on a different last and due to the nature of the specialised product, it is lasted by hand. However all of the technology up to that point is the very latest. | |||
| Foot scanners ensure a perfect 3-D picture of the foot; cad-cam systems produce a customised fit for a customised last, which is produced immediately on-site. Patterns are digitised and custom fitted. Every technology is being utilised which can ensure a custom fit and a customised shoe. The information technology systems are first rate and at the push of a button, every customer can be told at what stage of production their customised footwear is in. Everything is built around the product and the customer. | |||
| As for competition, there are over 120 specialists in this market in France, each with their own particular strengths. However, rather than trying to knock each other out of the market, they concentrate on the end product and the end user. The specialist product has a price point which is pretty much the same for the entire market. There is plenty of business for everyone to not only survive but thrive. They are selling their own brand of knowledge and expertise. The employees I saw were totally and completely dedicated to their craft. Their main occupation was in producing a perfect shoe. They worked consistently hard. Each individual in the chain is important. Since every shoe is different and hand crafted there is no boredom which manifests itself in petty disagreements and misunderstandings. Everyone worked together in perfect co-operation to create an exquisite product. | |||
| What I didn’t see was layer after layer of management. The production facility is not only set in a beautiful location but it is exquisitely maintained. There is no profligate spend and everyone is sharing in the success of the enterprise. | |||
| So maybe there is a wider message to be found in the words of John Ruskin. Perhaps now our only quibble is in the definition of government. Let’s hope it well and truly can be said that Government and co-operation are indeed in all things and eternally the laws of life. | |||
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