Partners - Stock market, economic and political commentary by Patricia Chadwick

Archive for January, 2011

Apple Computer Without Steve Jobs?

Tuesday, January 18th, 2011

A great CEO has two conspicuous attributes of which he is acutely aware, a history of leadership, vision and success and a legacy sufficient to generate future success.
By every standard of CEO greatness, Steve Jobs has measured up to both parts of that definition, as demonstrated by his astonishing achievements. Apple Computer has been in existence for thirty-five short years, and for all but a disastrous mid-life dip of twelve years, Steve Jobs has been at its helm.
There are few CEOs who have the ability to successfully nurture a company from its embryonic stage to full maturity. Inventive genius rarely includes the skills necessary to lead the company as it becomes large enough to go public, much less to drive the firm on to become a global giant that can maintain its position at the forefront of communications technology. But that is precisely what Steve Jobs has done.
Steve Jobs created the legendary success that is Apple Computer when he was twenty years old. Five years later, he was at the helm when the company became a publicly traded stock on the NASDAQ. And only five years after that momentous event, he resigned under pressure from his board of directors who replaced him with John Sculley, a marketing man. The next twelve years were disastrous for the company as it racked up billions of dollars of losses. A humbled board of directors reached out to Steve Jobs to resuscitate his own company. Convinced of his own ability to breathe new life into the struggling firm, he agreed to come back without a salary, being paid solely in stock. That was in 1987.
Apple Computer today is a stunningly powerful behemoth. Despite its size, it is a strikingly nimble engine of inventiveness, producing a string of successful new products at an amazing rate. It is the envy of its competitors.
And now for the third time in seven years, Steve Jobs is taking a medical leave of absence. Tim Cook, the Chief Operating Officer since 2003, will run the company day-to-day as he did during those prior absences, in 2009 and 2004.
Conjecture and anxiety on the part of investors and the media are rampant which is not surprising. But it is important to remember that during Steve Jobs’ two previous absences the company continued to flourish. That was no fluke.
Steve Jobs is fifty-five years old and his passionate devotion to his company as its CEO is as evident today as ever. His own comments leave little doubt that he would love to lead the company he founded for many more years. That may or may not be an option.
A highly charismatic CEO can sometimes create the impression that without him his team possesses relatively little bench strength. Steve Jobs, like Warren Buffet, is a case in point. But that image can belie the truth. While Steve Jobs is the face of Apple, he is backstopped by impressive ranks of experienced business professionals whose ability has been proven during his earlier absences. It is inconceivable that the prescient and committed CEO who conceived, nurtured and took to full and robust adulthood the marvel that is Apple has been less insightful or thorough in assuring the future of his company. Twice before Apple’s rivals naively hoped the company would be left to wither away without his leadership. He knows from his experience in resurrecting Apple before how easily a great company can falter if it is not well positioned for its competitive future,
The market may be spooked by the loss, temporary or otherwise, of Steve Jobs. But he has already shown he knows that the legacy of a great CEO is forever tarnished if the enterprise fails without him for lack of comparably talented management. Steve Jobs is too much a visionary and too much in love with Apple to make that mistake.

A Look at the Job Picture

Monday, January 10th, 2011

The U.S. economy is steadily improving. So where are all the jobs? That question has become headline news on a nearly daily basis. Unfortunately the answers are not simple.

Jobs are actually being created – over one million in fact in 2010, but compared to the more than eight million jobs that were lost during the recession, the recovery in jobs lags the growth in profits and the recovery in the stock market.

So what is going on? Why are companies unwilling or unable to hire? Where will the new jobs come from?

There are multiple forces at work muzzling the demand for new jobs. Two sectors of the economy are unlikely to contribute to much employment growth for several years – they are finance and real estate. In the financial industry, the lay-offs in 2008 and 2009 in the face of the industry’s collapse were huge. Last year, as the industry started recovering, it added employees, particularly in the northeast. However, many of the products it developed during the boom years of the last decade are no longer in demand, and the industry will likely employ fewer people over the next several years than it did in its heyday. In the real estate industry, the supply of housing in many parts of this country still far outstrips the demand and it will take years for that excess inventory to be worked off.

Another factor which I think is deterring employment growth is more complex. With all the credit in the world to Fed Chairman Ben Bernanke, who has been unfairly criticized (I believe) for his action to reliquify the banking system, there is a corollary to the low interest rate environment which is impeding the demand for workers. With interest rates at historic lows, the cost of capital (money) is cheap, making it advantageous for companies to borrow and invest in labor-saving technology and capital equipment rather than hire new workers.

At the same time, despite the currently elevated unemployment rate, the cost of labor (which includes both wages and ancillary benefits) remains high, particularly when compared to the low cost of money. The result is that companies are more likely to continue to replace labor with capital, at least on the margin. This will change as interest rates rise, reducing the productivity of capital.

Despite that economic reality, I believe we will see a pickup in demand for jobs from the private sector in this country as the year unfolds, but it will be slower than in the past. The good news is that the consumer appears to be more willing and more able to spend, and while not all consumers have straightened out their finances, the numbers show that consumers’ balance sheets are improving.

But there is one more hindrance to employment in this country. The Federal Government as well as many State and local governments are facing severe budget deficits which they will be forced to remedy through cutbacks in spending. Of necessity, this will involve lay-offs just as the private sector is starting to gain some momentum. It appears that even the U.S. military will not be spared the need to make personnel cuts.

While in the short run, public sector lay-offs will hinder both economic growth and improvement in the unemployment statistics, in the long run it is more economically advantageous for growth to come from the private sector of the economy. This is not meant to disparage the benefits of government and its services; rather it is admitting the economic reality that income and profits from the private sector are largely what generate the taxes necessary to fund the public sector.

Lest people despair that “all the high wage manufacturing jobs are going overseas, and we in the U.S. are left with low paying mindless service jobs”, I encourage you to go into an Apple Computer store at any time of the day. It is teeming with Apple employees (you can tell them by their blue shirts). I must have counted at least twenty of them on a recent trip to my local Apple store. Those are service sector jobs and they are anything but mindless. The employees are highly skilled technicians; they are the most cheerful people in the world and their numbers are growing, as Apple opens more retail stores.

What we need is more American companies like Apple Computer!!!

Patricia W Chadwick


Ravengate Partners LLC

A New Year’s Resolution

Monday, January 3rd, 2011

On January 1, 2011 a small percentage of American households (under 2%) became the beneficiaries of a windfall they could not have anticipated two years ago. And a subset of that small 2% – those whose taxable income exceeds $500,000 did not know as late as the beginning of December that they would have such good fortune.

The extension of “the Bush tax cuts” as they are called had bipartisan support and its stated purpose was to stimulate economic growth by keeping money in the private sector of the economy. That sounds like and in fact is perfectly logical economic theory. If that money is spent, it acts as an immediate stimulus to growth; if it is invested or saved, it will produce the same result over a longer period of time.

The greatest economic concern in the U.S. at the moment is the high rate of unemployment. We all know that the “official” rate of 9.8% understates significantly the numbers of those who can and want to work. We are not used to high unemployment; it has always been the problem of other countries and now we are in its grip.

For those in the very highest income bracket in this country, the extended tax cuts truly are a windfall. They would not have been any less affluent had the tax breaks expired on December 31; their lifestyles would have been unaffected.

Meanwhile across the country there are hundreds and even thousands of not-for-profit organizations which serve a broad array of needs and interests of the population at large. They look after the homeless; they visit the homebound elderly; they make and serve food in soup kitchens; they provide joy and entertainment through music, dance and art. The economic stress of the last two years has reduced the funding they count on from both the private and the public sector. Many of them have already shut their doors and many more are barely clinging to life. If they cannot survive, not only will their needed services be lost, but their employees will join the ranks of the unemployed. For them the extension of the tax cuts does not provide any direct benefit – except through the largesse of the beneficiaries of the tax cuts.

And with that in mind, I propose a New Year’s resolution for those who find themselves in the enviable position of receiving money they don’t need:

Take your newfound income – that 3.5% of every thousand dollars over whatever level of income you need, and put it immediately and directly into the economy by donating it to charities that assist others with acute needs. In that way it will reach those who will spend it now; it will keep others from becoming unemployed; it will indeed stimulate the economy directly, rather than through the slow trickle down which is of marginal or no benefit to them. The benefit is immediate and three-fold: to you the donor as a deduction, to the organization which can survive to another month or year helping those in need and to the needy themselves whose desperation is relieved by your thoughtfulness.

Happy New Year!