Coppock Curve Update 9.30.11

Coppock Curve Update 9.30.11

As expected the Coppock Curve readings continued its lower level reading based on the month end closing Dow. There is a large divergence from the Dow readings and the Coppock Curve readings which have portended lower moves in the Dow. We will have to wait and see if this will be another of those scenarios. Protect profits and mitigate losses.


It’s Time to Fire Some of Your Customers

It’s Time to Fire Some of Your Customers – Anthony Tjan – Harvard Business Review.

Challenging times call for challenging decisions. What could be a more challenging decision than firing some customers/clients! There is a saying “In the absence of information, rumor and speculation will fill the void.” It is in this truth that lies the obstacle to making a good decision. Decision makers do not always have the data to know from where the profits emerge amongst their customer/client list, segment or even business units.

Regardless of the size of the business or business unit, there remains a lack of data identifying which customers/clients or segments are generating profits and which ones are soaking up resources. Without this data decision makers would need to rely on heuristics or some simple analytics such as the 80/20 Principle. And who could blame them for not wanting to fire customers using either of those techniques?

There are situations where a customer/client is in the 20% that generates 80% of the revenue and the company may be losing money serving them (or the relationship is less profitable than it should be). Each dollar of revenue must pass through the entire income statement. From that dollar take out the cost of goods/services sold (Costs of Doing Business) generating that specific dollar of revenue. After this subtraction remains the Gross Margin. The challenging part comes next, how to allocate the fixed/SG&A/overhead expenses (Costs of Being in Business). If this is done at all it is usually defined around some proportional relationship to revenues, a key driver such as machine hours. Either of those are superior to ‘not done at all.’ Yet they remain short of clearly identifying the level of profitability of customers/clients or segments. The client may on the basis of gross margin be profitable, yet by not measuring time consumed throughout the value chain the decision makers are missing the opportunity to make a better decision. And that decision may be to not fire the customer/client yet may be to renegotiate terms suitable to all involved.

A Wall Street firm was looking at their branches across the country and asking themselves this same question “Is it time to fire some branches (meaning to sell them)?” Without a process or methodology to allocate the firm’s overhead to those branches based on how much home office resources (time) was spent serving those branches they used another key driver Advisor Productivity. The result, 55 small branches where Productivity was lower than the firm average. Using their key driver, Advisor Productivity, to allocate home office expenses resulted in larger branches looking more profitable than they really are. The large branches with very high productivity are mostly in the Northeast, and due to the proximity they consume inordinately more of the home office resources. Unfortunately without better data the footprint was reduced and branches that consumed relatively small amounts of home office resources (read more profitable) were sold.

Is there a way to more accurately record the resources consumed through the entire value chain on a product, customer/client, segment basis? Yes. Using the practices outlined in Time Driven Activity Based Costing by Kaplan and Anderson a company or business unit can learn to measure the cost and profitability. With this data, decision makers will be able to make better decisions. This approach will work for service providers and manufacturers.

Market Rout Claims New Victim: Precious Metals –

Market Rout Claims New Victim: Precious Metals –

If central governments are now shifting to being net buyers of gold….the next shift they will make is to be the net sellers of gold. It may take months, or even years, but it will happen. Please read (World’s Dumbest Buyers and Sellers).

The World’s Dumbest Buyers and Sellers

Question: Who are the World’s Absolute Dumbest Buyers and Sellers?

Answer: Governments.

The proof lies in actions taken by central governments I have observed in my lifetime. Specifically, the Resolution Trust Company (RTC) selling commercial real estate following the S&L debacle, U.S. Government Contracts (defense and non-defense), Eastern European central governments selling gold reserves following the disintegration of the U.S.S.R.

Remember the RTC blowing out the commercial real estate the S&L’s were holding following their demise in the late 80’s early 90’s? One of a line of product failures for individual investors was private placements. The demand for these exotic investments became so intense that branch offices drew client names from a hat. Fights among the brokers were common because the purchase of a unit meant an 8% commission on investments of tens of thousands of dollars. Then came the proverbial nail in the coffin, the ’86 Tax Reform Act. Many of these private placements were invested in commercial real estate. Fast forward several years, the RTC is forced to be the government agent for selling the assets. The goal was to sell, not optimize recovery of losses. A big distinction! Then I remember reading a headline in the WSJ along the lines of “The RTC Announces the Completion of the Real Estate Liquidation.” All of the market was flushed with inveontory. In my hometown several investors bought strip malls for $5,000 to $10,000. By this time the private placements were sitting in the client’s accounts with next to zero value. It became so ludicrous that they and the brokers ignored them completely. Then slowly there were notices coming from the reorganization departments at the brokerages that an offer was being made to buy the units. Looking back the offering prices were so ridiculously low, but nevertheless it was a simple decision to remove the embarrassment from the client’s statement. I’ll leave it to you to research the change in values of commercial real estate following that time period.

I’m not even going to add bytes to the fact the U.S. Government contracting system is an absolute exercise in ‘he who has the lowest IQ gets to make the decisions.”

Following the disintegration of the U.S.S.R the eastern European central banks learned they needed hard currency (U.S. Dollars) to operate in their new economic reality. The liquid asset at their disposal to convert to dollars? Gold. Thus became the impetus for the decline of the precious metal to it’s mid to low 200 dollar per ounce low. Since then gold has become so popular we can not escape an advertisement for gold.

As I sit on the plane catching up on emails between Hartford and Chicago, I read in my Seeking Alpha email, the following blurb:
Central banks load up on gold. European central banks have become net buyers of gold for the first time in more than two decades, while central banks globally are set to buy more gold this year than they have since the Bretton Woods system collapsed forty years ago. The shift towards gold has helped push the price of the metal up more than 25% this year. Gold futures +0.5% to $1,824 (2:45 ET).

Is this a reason to panic, absolutely not! But I would be a seller on spikes and rallies with a game plan. The Dumbest Buyers in the World have no concept why signaling is not an investment virtue. And one day, the World’s Dumbest Buyer becomes the World’s Dumbest Seller. And they are as dangerous as falling trees.

Top Line Growth? There’s an App for That – Robert Plant – Harvard Business Review

Top Line Growth? There’s an App for That – Robert Plant – Harvard Business Review.

Reading this HBR Blog by Dr. Robert Plant (one of my MBA professors) reiterates the question posted in my earlier post (Jobs! Jobs! Jobs!) where I ask if small and medium sized business owners are doing all they can to improve their business success and thus maintaining jobs (A National Priority!).

Are the vast majority of business owners in reaction mode or would you say they are in proactive mode? Proactivity to me indicates some level of innovation (product, service, technology etc) leading to increased margins. Reaction means they are not looking at the horizon for the opportunities and complaining the margins on the current revenue streams are decreasing too low.

Without this very important segment of the economy functioning in a healthy mode, the unemployment picture will remain murky. There may not be an easy solution such as an app to use to ameliorate the issue, it will require figuring a way to solve small and medium sized business problems to be solved one at a time.

Jobs! Jobs! Jobs!

My daughter has a part time job in Savannah where she is attending college. The owner announced he was closing the store this quarter. Skype’ing with her this weekend and I asked “What would you do differently if you owned the store?” Her response was “The location is terrible, clear out inventory that has been sitting for a year or more, bring in offerings that tourists will buy and don’t let family members come in and take the top-selling products home.”

What makes this so notable to me is that she is an art history major never having expressed a business idea in her life! You don’t have to have an MBA or a business degree to offer some good insight. The point is there are now five jobs that will be eliminated soon unnecessarily!

Right now the National Debate is how to stimulate the economy to create jobs. Can the Nation afford it? If small and medium sized business owners and managers can not make better decisions than the ones my art history daughter identified, then maybe we are focused on the wrong question.Is it possible that the economy and easy credit policy prior to the recession allowed business owners to operate longer than they would otherwise? Are we seeing an unwinding of the excess of marginal businesses that will exacerbate the employment trends in the U.S.?

If there was a job plan today creating 100,000 jobs per month, yet 20,000 businesses go under with an average of 5 employees, then we have made no progress. Twenty thousand businesses going under each month sounds unbelievable. Think about it this way. That means 400 businesses per State going under each month. In the State of Florida, that is an average of a little more than 6 per county each month. Does that sound so unbelievable now?

Should we be focused more on creating opportunities for new and existing businesses, educating business owners and providing credit to those who will seize the opportunities? And less on the current debate?

As Middle Class Shrinks, P&G Marketing Aims High and Low –

As Middle Class Shrinks, P&G Marketing Aims High and Low –

This is a story recently run in the Wall Street Journal. At first, I almost dismissed it. But the first four words were so compelling to me, “As middle class shrinks…” Born in the mid 60’s the concept that the middle class would be shrinking is just something that that is so alien to me and my cohort. Reading the article, I was even more shocked to learn the income disparity in this country is as wide as the Phillipines and Mexico. Read up on the Gini Index. It is a measure of income disparities within countries. Citigroup has given this phenomena a name, the “Consumer Hourglass Theory.”

P&G has been monitoring this Gini Index and reconciling the data to their internal trends. The middle class is indeed shrinking. P&G has adjusted their marketing strategy toward these trends. And it is safe to say the trends will be in place for a while to come. When comparing the returns in stock prices for Dollar General and WalMart over the last two years, you will see the stock returns from DG outpace the stock returns from WMT by more than a 6 to 1 ratio. The other evening I saw a retailer running an ad touting their lay-a-way plan. When was the last time anyone bragged about a lay-a-way plan?

What do these trends indicate will be emerging trends business managers need to watch. Businesses whose strategy depends on the middle class consumer (defined as those consumers in households with annual incomes between $50,000 and $140,000) should reconsider their business level strategy.