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Three birds of summer:
Why shysters, politicians, and carpetbaggers bode well for the U.S. economy in 2001
by J. Christoph Amberger
One benefit of tightened belts and dire economic outlooks is that people go back to basics. Stop playing around. Do what they do best. And that’s why I, for one, remain cautiously bullish on the markets of 2001.
After all, in the first weeks of January there were three prominent examples of celebrity dilettantes returning to their core competencies.
The way they were
Take Maryland’s number-one ambulance chaser, Peter Angelos. After spending untold millions running the most expensive and least impressive baseball franchise in the U.S., he’s back to what he does best: extorting money from corporations.
Sure, neither the National Cancer Institute nor the American Health Foundation has found any evidence of increased risk of brain cancer in mobile phone users.
But the guy who helped win US$4.2 billion in damages from the tobacco industry is apparently planning to launch a number of claims against handset manufacturers, mobile network operators and fixed-line phone companies. Angelos is now on the team of a Maryland neurologist who filed a US$800 million lawsuit against handset maker Motorola Inc., claiming that his use of cell phones caused a malignant brain tumor.
(Unfortunately, the suit didn’t mention if the time he spent frying his brain was accumulated driving his wife’s SUV at 48 mph in the fast lane of the Jones Falls Expressway while yakking with his golf buddy...)
Public servants
But Angelos is not alone in returning to his roots. Rainbow warrior Jesse Jackson reminded us that some of the core competencies of populist politicos — like impregnating female staff members — have been neglected since the Monica Mambo in 1999.
And the Clintons departing from a vandalized and cleaned out White House reaffirmed something every motel manager in the greater Little Rock metropolitan area knows: when the carpetbaggers leave, count the towels and replace the ashtrays and the TV remote.
Out in the real world, back to basics means coming down from those flights of fancy you’ve allowed yourself be talked into against your better judgment. Like adding an Internet educational division to a company dealing in fat-free candy bars. (My colleague Adam Lass has the AMBI story for you on 247profits.com.)
Back to basics means reassessing your business strategy in light of the changed market... and cutting down on cost, staff, even entire sectors of your business. Which is what companies as diverse as Amazon and DaimlerChrysler are doing as we speak. Business plans that depended on online "community building" for profitability in the distant future are finally being redrawn to reflect the prime mandate of entrepreneurship in the here and now: You can only operate at a level "once-removed" from the direct generation of revenues.
Over the rainbow
Luckily, most U.S. companies are probably in the best shape ever to deal with rationalization. That’s because of technology.
You see, the recent spate of lamentations, contrition and wailing about the Bubble Market of yesteryear is obscuring a critical fact: at the foundations of the high-flying Net stocks was an unprecedented amount of real investment and real technology spending.
Just wrap your mind around this: of the US$200 billion spent worldwide over the last few years on immunizing technology against Y2K bugs, more than US$100 billion was spent in the United States alone. That’s roughly Finland’s total 1999 GDP! And that’s US$365 per American spent on repairs and preparations — not counting consumer spending on "replacing" that non-compliant VCR and toaster oven.
(Sure, experts can’t agree if US$10 or US$41 billion — including US$2.1 billion on extra staff — is the amount that businesses and governments may have wasted on needless upgrades or replacements since 1995. But who’s counting...)
The U.S. government alone spent US$8.5 billion to update and repair its computers, while setting up an elaborate monitoring system for each major "at risk" industry, from nuclear power plants to hospitals. One in every five government computer systems was found to be outdated or redundant. Others were replaced ahead of schedule with faster, more productive ones. Which left both the government and the corporate sector at the highest technological efficiency levels ever.
(The result: the Social Security Administration, prematurely declared dead-on-arrival at the year 2000, was able to send out concise compilations of every working American’s gross lifetime Social Security wages by last September! The IRS is shaking 50% of taxpayers down via electronic filings. And even my local Motor Vehicles Administration now allows me to renew my tags online... without having to deal with a surly nincompoop skulking behind a 286 desktop computer. )
Software makers flooded the market with programs that promised to catch hidden problems and fix them. The phone industry spent a whopping US$3.6 billion to make sure systems were compliant.
The gift that keeps on giving
But technology has a tendency to create its own demand. Remember that first VCR you bought? The five-pack of blank tapes you reserved for taping the last episode of Cheers and used again and again for about two years? Today, you can buy a prerecorded video of this season’s blockbuster movie at your local supermarket... and it’s cheaper than a bucket of artificially "butter flavored" popcorn at the multiplex! (Looking at the tapes piling up in my den, I think we have more movies at home now than our favorite rental place did back in ’89...)
That’s because new technology sparks additional spending... on software, upgrades, peripherals... and entertainment! (There’s a reason AOL nabbed Time Warner!)
Hair of the dog
And there’s another positive indicator: while the Consumer Confidence Index dropped to 1996 levels in January...indicating growing pessimism about business and employment conditions... another phenomenon points out that American consumers will be getting over their New Year’s resolution of curbed spending and frugal living just about the same time they ditch Jenny Craig for Betty Crocker:
More than half the mortgage loans generated in January of 2001 were refinancings, America’s favorite form of domestic financial engineering. This number is up from 34% in December... and only 12.7% a year ago. And given the possibility of further rate cuts ahead, the percentage may climb precipitously.
And here’s the good news (at least for the short term): The core competency of the average American consumer is spending more money than he has. A percentage-point drop in interest rates translates into a savings of about US$50 dollars a month on a US$100,000, 20-year mortgage, or US$600 per home owner per year. And that’s money that in all probability will not be used to pay off credit card debt!
In the months ahead, companies with nothing but promises of future profits will be purged by the rigors of the market. They will be replaced by the ones with profits now... and thus, the ones with a future. Companies that understand and have mastered the laws of supply and demand... focus on revenue generation rather than image marketing... and have a lock on goods and services of which they control the supply. In short, companies you’ll read about in this month’s Taipan!
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