MONEY 74 - RIGHT/LEFT BRAIN

THIS IS MY 74^TH BLOG ON UNDERSTANDING MONEY TOOLS

In this blog we are going to explore the very important topic of “right and left brain” thinking and how it will affect us in choosing a partner, partners or growing a company. I have been fairly heavily involved with this topic since 1981-82.

We have heard the term right-brain or left-brain type of person for years. How do we define these terms? Very concisely a left-brain dominant person is associated with logic, numbers, analytics and reasoning. A right-brain person is associated with music, creativity, emotion and seeing the big picture in things.

These psychological differences were first presented by Roger Sperry in 1981. Since then, there has been considerable dispute on any accuracy between psychological and physical aspects of the brain.  For this blog I am going to separate the psychological from the physical matter, and only deal with psychological consistencies I have witnessed through the years.

What got me onto this topic? A couple weeks ago I had coffee with a new acquaintance who promoted himself as a successful individual consulting for very small start-up companies, helping them grow and throw the initial public offering stages (becoming a publicly traded stock company). My intrigue in meeting was to see who this individual was, his capabilities, his background, and his thinking process. A little background on this individual; one major employer all his life, quite intelligent, retired, and self-contained. As we left our coffee meeting I did my usual thing; summarize, generalize, further analyze. With these observations I thought I could compliment this individual with my background, however he would never permit me into his world, and how different our thinking process was/is. This brought me to this topic for discussion and blog.

Okay, let’s really start the basis for this blog. When choosing partners, hiring employees or interviewing for a job position, it is wise to know the people who you will be associating with from a psychological standpoint. Above I mentioned the given traits for right and left-brain thinkers. It is “very important” to be balanced, and I will give examples to this below. Many companies, even large companies have gone through bankruptcies because of these imbalances. It is so tempting to interview for a partner, see his academic or professional strengths and say “yes” because you both think alike. “Birds of a feather flock together.”  Perhaps this is not good. You need a “compliment” to your thinking process, not a “clone”. 

Statistically it has been proven the best CEO’s are right brain thinkers. These are individuals who can envision the “big picture”, where the company should be going, and leave the details to the “rest of us”. Many companies have an accountant running their companies, detailed people who put bottom line first, not the big picture including marketing/sales or human beings. Many of these companies end in failure. There is one individual, whose name I won’t mention but you could Google him, who has/had an accounting background and was hired as president or CEO for three or four airlines 20 years ago and bankrupted all of them.  He departed each airlines with hefty, gold plated retirement packages. Amazing, the “good old boys” club exists!

Left-brain thinkers, which include myself, are analytics. We have a tough time coming up with the initial ideas, but have no problem taking the topic and evolving it into something meaningful. This type of person sees the details, issues, problems that can exist or currently exist.

Many companies hire corporate psychologists. When I was helping grow the oil/gas company Energetics, Inc. we hired an outside consultant who was a psychologist who specialized in corporate work. We had a wonderful company, great employees who would help one another at any needed moment, and wanted the company to continue on that path. At that point we were at approximately 200 employees. The psychologist would interview each individual with the objective of finding problems, strengths, weaknesses, work objectives, etc. This person also worked along with our human resource department on the type of person we wanted in each department as a compliment, left-brain/right-brain.  The psychologist was very acquainted with the term “Peter Principle”, and we wanted to know the levels we could comfortably advance an employee. (We have covered this terminology in past blogs.)

Friends of my wife and I in the late mid-1980s, were quite successful. The wife happened to be a well-respected psychologist who specialized in working with companies. She was the psychologist who worked with Braniff Airlines, which failed. After it filed for bankruptcy she had mentioned to me that one prime reason for failure was that they did not follow her recommendations, and hired the same type of person over and over.  You need to have balance in thinking; right-brain, left-brain.

Now, here is the difficult part of this. Sometimes you don’t see the value in different thinking processes, and it may be somewhat uncomfortable. Best to give you an actual illustration. The wife who I mentioned in the last paragraph asked if I would want to participate in one of her all day, interactive seminars, at no charge to me. I accepted. It was a wonderful experience and very informative.  If you are growing a company or thinking of taking a partner on, I strongly recommend finding something similar for yourself.

The first step was a very comprehensive and long questionnaire I had to fill out at home prior to the seminar. The seminar was in a comfortable but large hotel room with about 100 people in attendance. The top three right and left brained people were separated out for an illustrative work project. Unsuspecting, I was pointed out to be one of the top three left brained thinkers out of 100 people in the room and a close friend who was the CEO of a fairly large company was selected as one of the three right brained thinkers.  In this part of the seminar each group of us was given a large “marker board” with the same topic to work through and identify steps to resolutions. First, our two groups were asked to leave the room and go to separate areas. We had 20-30 minutes to outline how we were going to solve the problem/topic. Our group, the left-brain analytics, had it outlined and defined in 10 minutes, and we were all in agreement. Then, we had to come back into the seminar room and make our presentation to the audience. The right-brained group, including my friend, never had agreement on the topic, and their outline consisted of about 3 items; the audience laughed. Not that ours was better, but different. Our presentation was over-kill, detailed and long. The right-brain people could see the big picture, but didn’t know how to go from A to Z.

One more illustration from this seminar and then we will close this blog. In the same seminar we separated working with only one other person, but of the opposite “type of brain thinking”. We were each given a large piece of white paper, marker pens and the task was to draw a house in conjunction with partner.  We had 15 minutes to do this. The stipulations were that one person could draw only one line, then the other person would draw the next line to construct the house. Sounds easy, yes? Wrong. Almost every person in the room had a difficult time working with their given partner. These people were all smart, the seminar was quite expensive, why did they have problems, what happened? In my situation, the first line I drew for the house was the base/floor or foundation. The next line should be the walls, yes? Then, perhaps comes the roof, then windows, doors, chimney and so on….logical to me. However, to my partner and frustrating to me they put the roof on the paper before the walls, then something else but not in order of my thought process and expectations.  This was typical of everyone in the room with some people getting so frustrated through this process they actually quit working with their partners.

Wow, so simple and yet so complex; we can’t work together.  We think so differently, but perhaps compliment each other if given the right work environment and freedom. We need to learn to listen to others, and understand their thought process.

I hope this blog gives you something to think about.

MONEY 73 - DEPARTMENT OF ENERGY

THIS IS MY 73^RD BLOG ON UNDERSTANDING MONEY TOOLS

Last week I got hit with an email from friends, it joked about the Department of Energy. To synopsize, it quickly went from President Carter hiring one person for the Department, to quickly adding more employees; checks/balances, accounting departments, etc.  Today, the Department employs about 13,000 people, which isn’t necessarily large, and has an annual budget of approximately $30 billion.

The Department of Energy is responsible for regulating an industry I was involved in over a ten year period, the oil and gas industry. Because I both made and then lost a lot of money in the business I thought I would write a brief blog on the Department, what it does and some of the major historical points surrounding it. Unless you are older, like me, you probably missed out on much of this history. I will concentrate on the time period that affected me most, 1973 until the late 1980s.

What does the Department manage today?

-       Oil/gas/oil shale

-       Geothermal energies

-       Solar energy

-       Wind energies and turbines

-       Renewable energies

-       Nuclear facilities and energies

-       Naval reactors

-       Weapons that have been activated

-       Environmental matters

-       Grid systems for energy transmission

-       Science for future energy

-       And….employee pension plans

The initial department was started in1942 under Franklin D. Roosevelt’s administration. It was then known as the Energy Commission to oversee the Manhattan Project that created the first atomic bomb.

Now, let’s fast forward from 1942 and the Manhattan Project to President Jimmy Carter when he created the Department of Energy Organization Act and Congress passed it in 1977. There is a lot of interesting history leading up to this Act.

You have heard the term OPEC? What does it stand for?… Organization of Petroleum Exporting Countries.  There are 12 countries in OPEC, not all from the Middle East. OPEC was started in September, 1960 in Baghdad, Iraq, and the headquarters currently are in Vienna, Austria. OPEC was initially created to stabilize the price per barrel of oil, as there is a finite amount of oil in the world, although with modern technology we keep finding more fields. Currently, OPEC approximates they have enough oil to supply the world for 113 years. Someone has an exacting calculator!

Oil prices were very low until the early 1970s. The first disturbance to OPEC was the United States going off the gold standard on August 15, 1971 under President Nixon. (I have covered this topic pretty thoroughly in previous blogs and the association with the Bretton Woods Agreement.) OPEC, like many countries, trades with US dollars and the US going from a “gold standard” currency to a “Fiat” based currency rocked the boat a bit.

Then, several things happened in close proximity around 1973. At that time our exportations of food staples like wheat and sugar along with cement for construction tripled in price; OPEC was not happy as they paid in “petro-dollars” and they had held oil pricing stable and low for many years. Compounding this in the same time frame, Syria and Egypt attacked Israeli positions, and the US aided Israel.

In retribution, OPEC set up what was known as the October 1973 OPEC oil embargo.  We couldn’t get enough oil, gasoline was rationed and long lines appeared at every gas station around the US.  The OPEC embargo lasted until March, 1974, and with that conclusion the price of oil went up 400% in one and a half years.

There was very little domestic drilling by United States independent oil/gas producers. Besides low oil pricing producers had to contend with taxes like the “Windfall Profits Tax”. The cost of producing a barrel of oil in countries like Saudi Arabia was next to nothing. They drilled shallow wells through sand with enormous results. At that time, their cost per barrel was about $4-6 per barrel.

Okay, now we are back to 1977 and the Department of Energy. Many people find fault with the presidency of Jimmy Carter, but frankly I, and many US independent oil producers, made a lot of money during his presidency. What did the Department of Energy do? At that point in time only about 1/3 of all oil used in the US came from American producers.  Since 1973 and the embargo it was recognized that we were at the mercy of OPEC. The government knew we needed oil and gas independence for our own national security. They looked at other industries in the US like farming and dairy and many were government subsidized.  The Energy Department along with the government took similar measures subsidizing the US oil and gas producers.  Also, in 1978 they assisted in passing the “Gas Guzzler” Bill to push for better environmental standards and more efficient engines.

These subsidized regulations considered many variables.  Amongst these regulations were sets of “standards” for the difficulty of drilling, depth of drilling etc, and  were defined as Sections; for instance, Sections 102, 103, 104, 107. These included tight gas sand drilling and depths below 10,000 feet that are long-lived wells but very expensive to drill and operate.

Then, in 1979-1980 more things occurred. Oil prices started escalating to a high of $39 per barrel and that was very inflationary to most goods and services, especially transportation. Paul Voelker, head of the Federal Reserve, decided to deter the further rise of inflation using Keynesian Economics. The Federal Reserve raised interest rates to a high of 20%, and the prime rate reached 21.5%. This tactic essentially shut down spending except for essentials. (In previous blogs I have discussed a few economists and their theories. The Federal Reserve has greatly used Keynesian economics since 2008.)

In November 1979 the Shah of Iran was overthrown and a new regime entered, and has continued ever since. Along with this displacement of a dictator who worked well with the United States about 50 hostages were taken. The tensions brought oil prices to highs. Soon after President Reagan was elected Iran released the hostages, and internationally things calmed down.

President Reagan had different economic views from Jimmy Carter, quite big business and free market. The controlled subsidized oil business under the Department of Energy was done away with. Large oil companies joint ventured and supplied foreign countries with technology and engineers. By the mid 1980s the independent oil and gas producer was for the most part gone and bankrupt.  I personally felt the attitude was to use other countries oil assets and save ours here in the US. Oil plummeted from the $39 high and natural gas $5.75 an average contract down to a respective $8.50/barrel for oil and $.87 for natural gas. As the proud owner of many interests in various US oil and gas wells and fields it was not a happy time to be producing energy at far greater costs than what we could sell the product for at market. The independent US producer walked from their mineral rights and wells or shut them in. The problem with shut in wells is that a Pew Clause was standard. That means that you need to drill a new development well every so many days based upon contract with the mineral owner, (many times the same party as the land owner), or you forfeited your mineral rights.

In 2000, with the election of President George W. Bush most Americans knew we would have a resurgence of oil interest in the USA. The Bush family has been in the industry for generations, including strong business alliances and partnering with the Royal Saudi Family. Resurgence in drilling and higher oil prices were expected. With higher oil prices and better technology in oil and gas drilling it made the economics once again viable for US independents, making the Department of Energy even more necessary.

Since the late 1980s my interest in the Department has waned. With technology advancements and new sources for energy both available today and on the horizon the responsibilities of the Department of Energy are significantly greater.

I hope you have found this brief recap on the Department of Energy and time in history of interest and value.

MONEY 72 - BASELINES

THIS IS MY 72^ND BLOG ON UNDERSTANDING MONEY TOOLS

A week ago a wonderful young man and his wife were introduced to me for business reasons. In our discussions outside our main business purpose, it became obvious that our opinions on the economy and business were quite different. It intrigued me enough to write this blog on the subject. I will call it “baselines”.

The gentleman I refer to above has just received his master’s degree and is starting his employment as a stockbroker with one of the national firms. No dummy.

Many of the variances of opinion come from baselines developed because of age differences, and perceptions on business derived from environments and school teachings; there is no right or wrong on the matter. At the heart of the talks were valuations of companies. Now, in my generation (old), to have value that related to a company’s dollar value it needed to produce tangible goods or services that many people needed. So, right there we had a differing of opinions. I look at companies like Proctor and Gamble, Nestles, toss in the computer companies of IBM, Dell, Apple. To me these companies create something of value, hire many thousands of people at higher than average wages and contribute to the societies of the world.  This is my baseline.

My new acquaintance brought up the various companies that he could relate to in today’s world of finance, some of these being Facebook, Twitter and Google. This is his baseline. (By the way, I love Google and think it has great value and a real future.) The question was posed by me, “where is the true value and how are returns on investment created?” Both the gentleman and his wife simultaneously stated, “through advertising and media”.  Yes, social media. When Facebook came out I didn’t give the company a chance in hell of survival and here as of July 24, 2015 it stands with a capitalization of $246 billion dollars. If you are a bit remiss on how many zeros that is it is 9, and equates to a quarter of a trillion dollars. Facebook only employs 6300 people which is very few for a company of that magnitude.

Now, I don’t want to hit too hard on magic, smoke and mirrors, but the values placed on some of today’s stocks, pushed by stockbrokers and Wall Street seem a bit high (I will lay off the term ‘ludicrous’.) Someone has trained the “millennials” well or should I say “brainwashed” them.  These tech companies of today have relatively few assets, employ relatively few employees, and produce relatively nothing in my eyes. Do I use Facebook? Periodically, only if someone sends something out to me, and then a quick look. I, and many of my friends, are tiring of it. Also, someone already stole my contact list in Facebook which has not made me very happy.

Here is the question I posed in our discussion, and it has been a mystery for years with big companies; “how do you monitor the effectiveness of the billions of dollars spent on advertising?” The most important thing to companies is the conversion rate.  How many sales do you make for the dollars spent on advertising? So we just keep spending billions of dollars on advertising and these high tech companies make a few cents on each click. As you get billions of clicks that adds up to a lot of dollars. Sort of like the slot machines at the casinos!

So, these companies have astronomical capitalizations for little true value added. How did we get here the past few years?  This is important. The answer is too much available money for Wall Street and venture capitalists.  The Federal Reserve printed about $4.5 trillion. This went to big banks and Wall Street. Next enters “Uber Keynesian Economics”. That is correct, manipulate everything so there is no such thing as Milty Freidman’s Free Market Theory.  Everything is totally manipulated the way the government wants. Is the stock market 30-35% overpriced?  Yes, to historical values, but the world has never experienced what we are experiencing now. ( I have written about both Milton Friedman and John Maynard Keynes in previous blogs.)

Our stock markets have held quite well this past month even though the European markets over the Greece fiasco have gone down and China’s market has crumbled over the past 4 weeks with investors losing billions to trillions of dollars. Normally, this should have an effect on us, but we play the game with financial controls. There is no free market of buying and selling using rational decision-making. “If you hype it, they will come”.

Okay, let’s address a couple more things and then end this blog. First, there are only a few cities holding this country together with strong economic strength; these being New York City, Washington DC, Dallas, Houston, Minneapolis, San Francisco and Los Angeles.  California can thank it’s lucky stars for all the Asian people with money moving in, and technology in the northern part.  The next tier of successful cities include Seattle, Denver and Boston.

One industry sector to avoid buying for the next year should be transportations. With China trying to buoy it’s economy and markets, it still won’t be like the good old days for a long time and therefore shipping and transportations will slow. The big trading markets with China like Europe for goods and Brazil for minerals will slow. With the world slowing economically there is no way transportations in the USA can remain unaffected. GDP will be flat, with no growth to speak of.

So, we have looked at two different baselines of values in this blog; two or more generations apart.  All we can do is see if today’s paradigms for investment and value hold true.

MONEY 71 - REAL LIFE

THIS IS MY 71^ST BLOG ON UNDERSTANDING MONEY TOOLS

It has been some time since I have applied myself to writing a blog; so needed to create something. Let’s talk about “real life”.

In this blog we are going to try to address a few things about life that I think may help in the long run, or I wouldn’t be wasting my time.  Some of this may be repetitive but that is good, and re-enforcing. And, of course, it is subjective to my thinking.

To be successful you need to work on yourself, your image, your usage of time and more.  Probably the most important skill you can develop is good communication. Life tempo is important. Recently, I thought of a good analogy to life tempo. Imagine yourself driving on the expressway.  You are driving slowly at 50 miles per hour and the speed limit is 65 miles per hour. Cars are whizzing by, you don’t feel in control at all, and you aren’t. It is scary. Let’s speed the car up to 70 miles per hour in the speed limit of 65 miles per hour. You feel better, more in control, perhaps navigating traffic comfortably. Life and work is the same. Best not to be the tortoise or the hare, but take control when you can.  If you are taking the “backseat” on most things and being pushed around, stop, reflect, do something about what is happening in your life.  Take control over your life, as difficult as it may seem.

Next, let’s talk about working for big corporations. If large corporations were human beings they’d have IQ’s of 40!  First, these companies are managed mostly by people who should never manage people, and you will find out many of these managers have the position because of a situation by chance or luck. If you are a nice, good person you must realize most companies could care less about you. Everyone is doing a functional job for bottom line and stockholders. You are expendable! In light of this moral and ethical conflict, use the company to serve your purposes, as they are going to use you. Few people ever make it up the corporate ladder or to top management. What can you do to circumvent this at a younger work age?  Well, let’s draw parallels again. When I was young someone wisely told me it was okay to go out for one or two team sports, however concentrate on individual sports like skiing, tennis, golf, fishing, and many more. Once you graduate from high school or college the team sport goes away unless you are one of the lucky few who can become a professional athlete. Relating this illustration to the corporate world, try to specialize like an accountant,  lawyer or technician being trained beyond schooling in the practical world knowing that you probably will stay for “x” number of years and then go out independently on your own. If you stay you will become a corporate slave and that is exactly where the company wants you. Who has the “controls”?

Another reason to remain as individually independent as possible is that Americans are comatose in regard to the health of the US economy, corporate America and world economy. We are doing everything we can to stay out of deflation and resultant recessions. In 2015 our first quarter was negative GDP as most know, then miraculously numbers occurred in second quarter that we were positive GDP. Most of this growth came from public sector spending our tax dollars, not private sector spending. Two quarters in a row of negative GDP equates to recession. When you have the health of this country held together with advertising from websites and social sites like Facebook, we are in trouble! That produces nothing meaningful for this country.  It is a social service, not a tangible product that we can export. There is an expression used by some of the popular novelists that comes to mind, “hope for the best, prepare for the worst”! Words of wisdom.

Here is another lesson in life to be aware of.  Let’s say you take a long-term approach working for a major corporation and the company promises you health care and a nice pension. Most companies don’t offer pensions these days, but they may contribute to stock plans. They most likely will offer a 401-K Plan.  Here is a reality check. If you work for the US government your retirement plan may be fairly solid.  The next level is county or city. Let’s look at facts. We could pick cities in California, Midwest or East Coast. Let’s take Chicago. You hear Chicago has about 8 million in population. The actual City of Chicago has about 2.5 million people. Their pension plans per capita are in worse financial shape than the City of Detroit was when it declared bankruptcy! The City sales tax is 10.25%, real estate taxes are some of the highest in the country. Where are they going to get the money to fund current pensions?  They aren’t; default, bankruptcy, restructure. There are few options. No so easy an out, the courts may not permit bankruptcy.

The managers of pension plans have not been realistic in recent years. Pension plans run approximately a 40-60% balance between bonds and stocks. For years they expected an 8% return. Well, bond yields have dropped to next to nothing and the managers are not realizing returns of 8%, big problem.

Let’s take the corporate world. I have mentioned in past blogs that at one time in my work life I was senior vice-president of a trust company that had accounts in all 50 states. In my little domain of corporate pensions, we analyzed company pensions, and then managed money. We weren’t after the big fish, the big banks got those pensions, but we wanted numbers on a lot of small companies, we were after the perch and bluegills.  This was back in the late 1980’s and we found time and time again that pensions were under-funded or the company had taken the money from the pension trusts and re-placed the money with an IOU or company stock. Now, if you work for any of the above, do you think you will see money for your pension or promised health benefits?  No one knows for sure. Prime example is from my home city of Milwaukee; yes the beer city. Big beer companies like Schlitz, Miller and Pabst.  Pabst Brewery was purchased by a private family many years ago.  After a few years of ownership they declared the company bankrupt. Bottom line here is that the family stripped the assets from the company including the money in pension trusts.  The trusts are to have certain “non-alienation” language so that the robber barons can’t steal from the trusts, however most pension trusts are set up with the language that the trusts and payments to retired workers shall remain in place as long as the company is financially solvent. No one ever told the retired employees, many in poor health, about this little caveat. Well, class action lawsuits were brought forth by employees and they lost in court. Don’t end up in a similar situation! Be independent as you can and create your own future.

If you have been reading my blogs you know how much I love and trust banks and Wall Street. They are both extractors of money from society. They will name it as service providers, but the expression that comes to mind is “get real”!

All the la la ads on TV about planning for your wonderful retirement are in the same category. The name of this blog is “real life” so here goes on planning. Yes, you need to plan financially the best you can. Sometimes the “tail wags the dog”. You think you have the controls and then whamo! Let’s see some of the disruptions to those beautiful plans. For me it was buying my first home when I was about 24 years old, there goes the savings and stock accounts.  Then, you most likely will marry, have children, and children are expensive. If you have children they probably will want to go to college and that is very expensive. Then, you are lucky if you don’t have any health issues or have employment set-backs. How about a divorce tossed in? About 50% of the people who marry go through at least one divorce.

Even with national health many drugs and health issues are not covered, or to a minimal degree. There is a reason that the US ranks about 37^th in the world in health care according to the World Health Organization.  Profits go to the health and drug industry with insurance companies coming in third. The most expensive in the world.

How about the investments we make?  Every 5 years or so there should be a correction in the bond and stock markets. Regarding bonds remember that if interest rates go down the market value of bonds goes up, however if interest rates go up, the market value of bonds will go down.  There goes your planned investment strategy. Will the Federal Reserve Raise interest rates this year or 2016?

You better have a comfortable nest egg by the time you are 45 years old. It is pretty tough saving money when salaries haven’t risen now in over 15 years.  If you are with a major corporation at age 45-50 human resource’s department will look at increased liabilities because of your age and level of salary. It is discrimination, it is against the law, but all companies do it and try to get you to leave the company. Some define it as early retirement. I’ve seen some really dirty tricks to get people to leave. They don’t want to pay unemployment compensation, of course! They don’t want to be sued.  Also, fairness depends on the state you reside in, some are better than others.  Some are “right to work” states and employers can do pretty much what they want, the employee is second tier.  I would say most people have at least three financially stressing, difficult times in their lives, many lose all their money and need to start over. You are not worse as a person for this! Bottom line, stay as independent as you can and not rely on government or corporate America.  Let’s hope America wakes up and things get better. Remember “hope for the best, but prepare for the worst”!