Tag Archives: economy

Will You Lose Your Job Because of Facebook?

This is not about your indiscretions which might show up in human resources. Yes, those are important, but this is about the very existence of the company you work for.

“But I work for a huge, stable company.” If you believe that you are safe then you do not understand how the stock market works.

Several years ago when politicians attempted to buy stock with social security funds, liberal cried, “risky scheme.” The current Social Security has no risk factor at all. Politicians spend the money as fast as it is collected. It guarantees that the money will not be there when it is needed.

The United States is in a desperate financial condition. If you do not understand that, the rest of this blog will make little sense to you. The federal government has borrowed more money than it can possibly repay. Private funds have nothing valuable to invest in. Unemployment is far higher than the government will admit. The government has to cook the books to hide the reality of the situation. The same is true for inflation.

Desperate to make a profit, large Wall Street investment firms are taking immoral risks and getting caught. With the failures of the Federal Government and traditional Wall Street investment firms, investors turned to a non-traditional source of income to seek profits in Facebook.

Investing means taking some of your money and saving it. You can do one of two things with your savings; hide it (put it in a mattress, safe deposit box, buy gold, etc.) or attempt to make more money. This attempt to make more money is known as investing. You can put your money in a traditional savings account with lower returns but relatively safe investments. You can also buy bonds, another traditionally safe investment with low rates of return.

But the largest and most common long-term investment instrument is a stock certificate. Both Albert Einstein and Stephen Hawking were told by their publishers that they would lose half their audience every time they used a formula. Following that sound advice, there will be no accounting here.

A stock certificate is legal ownership of a company. While there is a lot of hoopla surrounding an IPO (Initial Public Offering), you must realize that an IPO is selling the company. Most people understand selling a car or house. When the deed or title is transferred, they have the money but not the car or house. A stock certificate, however, is only part ownership. Since stocks can be structured so many different ways, something simple might help us understand.

A man gets married. He has lived at home and worked on a farm his entire life. He wants to move out of the house and start his own farm. He convinces ten people with money to invest in a very small, completely equipped farm. They are not just giving him money. They are lending him their retirement funds. They need the money back but not for a few years. Each of these ten people gets a single stock certificate. To make the illustration very simple, whatever profits the farm makes when it harvests and sells it crops will be split 50/50. The farmer will keep 50% and the ten investors will each get 5%. So in this example, if the farm made $200,000 the first year, the farmer would keep $100,000 and each investor would get $10,000. This is similar to the way the real world works. The capital equipment, such as the land and tractors, would be purchased with original investment funds. Ongoing expenses, such as tractor repairs and diesel fuel, would be paid for out of the farmer’s share of the profits. As long as the investors keep their stock, they will continue to get 5% of the profits.

The risk is that if the farm does not make money the investors do not get paid. Every day companies fail and the investors lose their investment. Most people invest in some type of mutual fund where they buy shares in a lot of different companies. If most of the companies you invest in are profitable, it does not matter if one or even a hundred companies fail. If those profits more than offset the failing companies, you still come out ahead.

This is where Facebook comes in. We have a failing economy, a failing federal government, and failures on Wall Street. Facebook was the largest IPO ever. Though the IPO took place 5 days ago, there is still disagreement as to exactly how many billion dollars Facebook raised. The price per share was based on the number of shares issued and the amount of income Facebook is expected to generate. Unlike a farm, which harvests and sells a tangible product, the only income Facebook has is advertising revenue. It makes estimating income very difficult.

The billions of dollars invested and lost in Facebook were taken from other companies. Where did the money go? On a farm, money is spent on tractors, land and seeds. In a tech company, the buildings and equipment often have little value to anyone else. The capital investments are often in salaries of tech savvy employees and highly specialized equipment. However, in Facebook’s case, the money the original investors lost is not gone until the investors sell their stock. Facebook as a company has spent some of the initial investment. If Facebook uses that money wisely and eventually pays large dividends, then everyone who invested in Facebook will be paid back. The only people who lose money are the ones who sell while the stock price is low.

Facebook is pointing out Amazon.com as an example. Amazon’s IPO opened at $18 per share and fell to around $1.50 per share. Amazon went public in 1997 and failed make a profit until 2001. It is now up to $217 per share. However, Amazon sells stuff. It is easier to evaluate how well Amazon is doing by looking at what and how much Amazon sells. Facebook has a huge audience, but how much of that audience buys products Facebook advertises?

Our little business advertised on Facebook. Our tracking showed zero results from our Facebook advertising. GMC just canceled Facebook advertising last week for similar reasons. Facebook advertising does not work. Of course, Facebook can turn things around. But at this time, Facebook stock is worth less than half of its IPO opening price.

Most people are realizing that Facebook was oversold. The IPO price was inflated. No one can explain how the price came to be what it was. This is still being analyzed, but whispers of impropriety, dishonesty, and serious misconduct are becoming shouts.

At this time, Facebook is looking more like Netscape. The browser with more than a 90% market share in the mid 1990s now has less than a 1% market share. Netscape was sold and investors lost almost everything.

The difference between Facebook and Netscape is that Netscape failed in a strong economy. The money invested in Facebook was pulled from other businesses. If Facebook fails, or even just loses a lot of money, other companies will not have the money to meet their payrolls.

Combined with the other problems the US has, it just might be the perfect storm to bring down the US economy.

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Graduate Macroeconomics of Trucking 501

We have posted around 125 blogs and the only thing I have mentioned about trucking is the places we go and occasionally something unusual like a breakdown or weather. One issue that comes up several times a week and is really the basis for how America works is the finances of the trucking industry. Both the mainstream media and politicians have vested interests in deceiving people. This is a small attempt to shed a little light on a very important subject.

Ever since the dawn of large corporations, these corporations want to use logistics to move their product from point A to point B. Logistics goes back to Ancient Greece, Rome and China. In the most basic view, logistics is the flow of control. It began as a military term and emphasizes having the right equipment and manpower at the right place and at the right time. The real control is financial. While logistics includes the people involved, the security along the way, the warehouses where the goods are stored and equipment to move the product, such as a ship, truck, train or airplane, the real issue in the flow of control. The real flow of control is money.

Sears/Kmart, Walmart, Lowes, Target, Home Depot, JC Penney and anyone else with a “big company” mentality use large contracts to ship their products. They demand large shipping companies such as JB Hunt, Schneider, Swift, Werner, etc. These large shipping companies do not bid on individual assignments or “loads.” They fight for huge multimillion-dollar contracts over a period of time, usually between 6 months and 2 years. With a signed contract in hand, they borrow money to buy the trucks, buy new trailers, hire drivers to make the runs, expand or purchase terminals and hire support staff such as planners, dispatchers and mechanics. They make this sound so good. The truth is that new contracts, unless they are for a new plant just opening, undercut someone else already doing the work. Wages are lower for the people actually doing the work. There are also more people to pay and more overhead. The people doing the actual work, that is the drivers and mechanics, are usually paid substantially less.

Not all loads in these jumbo contracts pay the same. Some are easy and pay well. Other loads are very difficult, some are dangerous and some pay very poorly. Companies working on contracts talk about “covering” loads, That means making certain that all loads are delivered, no matter what the conditions or circumstances. This is where the dangerous push to deliver “no matter what” comes from. It isn’t that a $500 load might be an hour late. It’s that the company might loss a $5 million dollar contract.

Often these difficult and dangerous loads are JIT (just-in-time) loads. That is, companies are using the US road system as their warehouse. They finish a subassembly at one plant then load it onto a truck with just enough time to make a delivery in perfect weather to another plant just as it is needed at the second plant. Any problems with weather, breakdowns or construction are not considered and become “the driver’s fault.” This kind of extreme time pressure causes an enormous increase in accidents.

To avoid most of these accidents caused by this time pressure, simply allow the driver to choose the load instead just assigning loads to the driver. This is the system now in place by Landstar.

Not only would the big companies lose control, many intermediate level jobs will no longer be needed. There is no more need for dispatchers or even terminals. Existing noncompany mechanics and drivers will make more money, creating a greater demand for waitresses, video games and whatever else drivers and mechanics want to buy. Individual “bad” loads will have to pay more, increase safety or both. Otherwise they will not be delivered. If there are not enough drivers, then competition for the existing drivers with cause rates to go up. Once rates have gone up enough, more people will want to become drivers.

Once again, the free market, if it is allowed to truly be free, will triumph over central planning. Everyone will win. Everyone, that is, except the central planners.

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Sexual Harassment Not That Important???

“We all have stuff in our past that we do that we regret,” says OU senior Alexandra Hedden. “You move on.” She referred to the sexual harassment charges against Herman Cain.

Alexandra Hedden is a student of Oakland University, Michigan, with a student body of 40.000, which hosted the latest Republican debate. According to NetNet with John Carney in a CNBC blog dated Nov 9, 2011 this is the overwhelming majority opinion on not only this campus, but also all across the country. These students wish that none of this had happened, “But we should be looking at other things,” said Dana Hapanowicz, also a senior.

Their major concern they have include whether they will have jobs when they graduate. There seems to be little or no concern about whether these women are telling the truth. To most students on campus, the charges are not very serious.

“Yeah, sexual harassment is very serious,” freshman Koryne McKean says. “I don’t know if I would believe the women.”

The information in this blog is from the Jeff Cox CNBC blog “Debate Big on Campus, But Cain Charges Aren’t.” http://www.cnbc.com/id/45228628

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