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Fed Caught Again in Reactive Stance waiting for ‘Good’ News

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Fed Caught Again in Reactive Stance waiting for 'Good' News

Let’s recall that about two and a half years ago the U.S Federal Reserve was still calling inflation transitory and claiming that price pressures would subside quickly as the onslaught of coronavirus decreased. Nearly all financial institutions could see the Fed was merely being stubborn, and that is a polite way of putting it, instead of being realistic.

It would be nice to give the Fed the benefit of the doubt now, and say the Fed have better information and know how to quantify the outlook of the U.S economy in a more dynamic fashion. However, being skeptical of the U.S Federal Reserve and its ability to miss signs plainly in front of them is a full time job for many analysts and it pays well.

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As said by many before, many members of the U.S Federal Reserve have the profound disadvantage of not having the experience of ‘skin in the game’. Many Fed officials have worked as paid bureaucrats their entire lives and have literally ‘studied’ their way to the top of the central banking world, without having firsthand knowledge regarding the daily chore of running businesses. Most Fed officials have no dirt under their fingernails.

The Fed is clamoring now to return the U.S inflation level to 2.0%, and there is a large amount of disagreement about how this number is interpreted via different economic gauges. The Federal Reserve has a poor track record as stated above for being able to know what is actually ahead. They have been very aggressive regarding raising interest rates the past year and a half, and now they are finding it difficult to say they are done. This tough talk could be an attempt by the Fed to create headwinds for those considering proclaiming the U.S central bank should become ‘dovish’ by speaking tough about potential pitfalls to come, this even though the Fed plainly missed dangerous road signs a few years ago which helped agitate the problems being dealt with at this moment.

What could go wrong you ask? A credit crunch for banks and consumers.

However, business people know all about potential crisis if they have enough experience. Paying employees wages, finding additional good employees, landing a space that charges a reasonable amount for rent, hoping taxes remain sane, and hoping your shop is not shoplifted into poverty are some obstacles business owners face nowadays in the U.S. The rising costs of wholesale prices has not completely disappeared, but things may be getting better via economic data. Maybe this will be proven wishful thinking, but outlook is important and should be considered.

The rising costs of doing business is then passed along to consumers. The Federal Reserve seemingly doesn’t understand that it has made it more expensive to accomplish positive business results for small owners of enterprise in the U.S, and the Fed seems to forget that over 44% of the American economy is powered by what can be called family owned companies. The Fed certainly doesn’t mention that it is hard enough for small U.S business to survive over the long haul, with a number of nearly 65% becoming failures after ten years statistically.

So while the Federal Reserve talks a great game about managing interest rates via their monetary policy and the Federal Funds Rate, they often forget about the problem small business owners face. Having said that, the higher interest rates the Fed has sparked because of its slow reaction to what they perceived as transitory inflation two years ago – is having a bad effect on bigger businesses too. This because big corporations no longer enjoy ‘free money’ from their banks. Money has become harder to attain.

Once again it has been proven that everyone looks like a genius when the U.S economy is sailing smoothly, but when obstacles develop and people have to quantify solutions to real problems, suddenly it is harder to produce profitable results. The U.S government has created massive deficits by using huge amounts of cash stimulus to protect economic growth in the U.S over the past five years. In fact because of the quantitative easing after the financial crisis of 2007, it can be argued the U.S has used stimulus for more than 15 years to make sure the U.S economy is ‘stable’. Politicians like to keep their jobs because there is little else they can do in the real world.

The Federal Reserve by increasing the Federal Funds Rate has made U.S Treasuries a feeding frenzy and yields have increased substantially. The higher rates of interest the U.S government will have to pay down the road on existing U.S Treasuries is not a small problem mathematically. However, for the time being the Federal Reserve and U.S government seem to be less concerned about what they are potentially putting on the shoulders of future generations of U.S citizens, and trying to keep the U.S population tranquil. Luckily for many American homeowners, U.S mortgages are still mostly being paid out via the lower interest rate amounts agreed upon a couple of years ago and beyond. New home sales and existing home sales are sputtering in the U.S, because many people do not want to pay the higher interest rates that now need to be signed upon for mortgages and paid.

What the U.S Federal Reserve needs to do is to state publicly that it is not going to raise interest rates over the mid-term, and that it is going to allow the free market to work itself out via enterprise with supply and demand ratios taking center stage and being allowed to work. And lastly, that if inflation conditions as expected continue to improve by decreasing, that the Federal Reserve will consider lowering interest rates in the first part of 2024.

However, the Federal Reserve is worried that if it does sound too positive, businesses will start to gamble on a better outlook and this will raise existing inflation which has been stubborn. But again, the Federal Reserve often doesn’t understand how smaller U.S businesses work. To get out of the current economic mess the U.S Federal Reserve needs to be pro-active and not reactive. Also, the ‘ruling’ U.S government has to cut back on stimulus programs with promises of a ‘free lunch’ for all and return to looking at numbers realistically. Fiscal responsibility is an idea that can actually be practiced.

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Profits: Business Ethics in an Age of Subjective Expediency

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Profits: Business Ethics in an Age of Subjective Expediency

This article was originally written in the summer of 2006, Jeremy Blatch suggests current business governance remains shadowed by the same concerns.

Most of us in business today, be we entrepreneurs, professionals or key employees, recognize that our customers, clients and staff require us to act in their best interests and that our actions should reflect this.

A code of practice or some kind of ethical standard or guideline will be needed to ensure some degree of accountability and consistency. In this we encounter the first hurdle, as the degree to which corporate and governmental governance is superimposed by regulatory bodies on business, varies between industries, businesses, professional sectors and political divides.

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The effectiveness to which this is policed in reality depends on the will of those in supervision, and the willingness of those in business to conform to requirements. Many areas are of course not covered by statutory regulation and getting on with the daily running of a business requires constant decisions which often involve a degree of ethical consideration. In reality any ethical stance is at best subjective and open to subversion and expediency in the quest for profitability, which after all is the main reason for being in business in the first place.

Service providers that fail to make a profit irrespective of the quality of service that they offer will inevitably cease to be able to provide that service. But at what cost do we surrender integrity for the expediency of justifying a decision on the grounds of corporate strategy or profitability. And at what point does adopting a rigid ethical stance become a statement of moral judgment? Moralizing about the world and the problems faced by modern society has never been wise. Morality is also a subjective term, often influenced by personal experience and strongly held beliefs, but not necessarily shared.

When some of the world’s most successful entrepreneurs met recently in Monaco at the invitation of the BBC World Service and the international accountants, Ernst Young, to debate how to ‘feed the starving and save the planet’, there was broad agreement that amongst most people there is a distrust of corporate motives and skepticism of Corporate Social Responsibility, currently a trendy buzz word amongst the business elite.

Is not the sole responsibility of companies to make money, but at what costs? Does it really matter how they make money, after all is a woman with a starving child going to refuse a plate of food because it has been purchased with money from the sale of narcotics? If we have a view against investing in armaments, are we prepared therefore to open our borders to anyone who wishes to attack us for any reason, or do we wish for a society in which the strongest take all and those with weapons will be strongest?

Someone receiving a pension has strong views on the tobacco or gambling or arms production or certain drugs, and whilst they are quite happy to receive the pension income and rejoice at the level of payment, are they also prepared to self-select how the investment is managed? Business is fraught with hypocrisy in this area.

Google have weakened their ethical case by caving in to the demands of China for expediency. Brands like Nike and Gap are having their reputations challenged by allegations of sweat shop labor despite spending millions on marketing a different image. Yet people still keep buying their trendy brands. Walmart the most successful US retailer attracts more shoppers than any other store despite allegations of a poor record of employee relations. Does anyone care? Shoppers go where they can find the best quality at the keenest price.

One can make a difference in society without trying to gain the ethical high ground or slipping into moral judgment by simply giving away something you don’t need, to those who most need it. We have witnessed this last week two instances of philanthropist ‘walking the walk’ not just ‘talking the talk’ with Warren Buffet, one of the most successful investors of this century, donating much of his personal wealth to the Bill and Melina Gates Family Foundation. This injection of cash now gives the Gates Foundation around USD 30 billion, more than three times the total amount of charitable donations in the U.K, putting them with Andrew Carnegie, Henry Ford and John D Rockefeller, as the hitherto best known philanthropists of modern times.

A few days after the very public announcement of Warren Buffet’s donation, a U.K hedge fund has emerged as one of the U.K’s most generous philanthropists with a donation of around GBP 50m to charity assisting children in poverty. The Investors Forum, registered in Gibraltar, was created to give a highly professional service to investors covering the wider investment process. It comprises of an association of firms and banks committed to acting professionally, whilst giving something back to those most in need.

A unique investment concept called the “Solidarity Fund” will hopefully be launched from Gibraltar, which will give both corporate and individual investors the opportunity to make money whilst directly helping those in need. In today’s business world making a profit is essential for survival, but how we make it and what we do with it will determine what sort of people we are, and ultimately what legacy we will leave behind.

Jeremy Blatch is the Founder and Consultant of Ein Harod Family Office. You can find more of his articles at www.ehh.gi

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Returning to the Roots of Commerce and Positive Contribution

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Returning to the Roots of Commerce and Positive Contribution

This article was originally written in September of 2009 when the U.S national debt was 3 trillion , as of June 2023 it is above 32 trillion USD. Mr. Jeremy Blatch suggests current economic conditions warrant further reflection.

As the bloodletting continues in an attempt to cure the banking disease, we are no closer to resolving the root cause of the problem of the financial crisis. Unlike the proletariat in France before the revolution, the masses have not been offered cake to chew on, but a diet of more indebtedness. The chosen elite have distributed billions of other people’s money leaving the silent majority to choke in anger and incredulity.

The Chairman of the U.S Federal Reserve, when challenged by Congress as to the authority which allowed him to give away billions of tax payer’s dollars, nervously sighted the Federal Reserve Act of 1913. The total capitalization of the USA at that time was perhaps USD 500b. The current Public Account Deficit of the USA is around 3 trillion USD (3,000,000,000,000). Where is the money coming from to repay this?

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The Dominance of Central Bank Policy and Government Mismanagement

For the first time in history, we have witnessed central banks and governments acting in unison to give away huge sums, seemingly daily to banks and the capital markets. In the press and media, figures in billions and even trillions have become common place. Governments are not companies. They cannot manufacture anything except perhaps lies. Or misspeak if you prefer to be politically correct. What they can do is print money, as they own and control the printing presses. They can then distribute the paper. In this case swallowed up by a banking system, drowning in its own sea of corruption, deception, mismanagement and greed.

We are told that the banking system is now stable again. But for how long and at what cost? The Damocles sword for failure in times of plenty, has yet to fall and will do so as a crippling tax burden on future generations. This at a time when Western governments are unable to guarantee their own elderly a life of dignity in their final years. The great champion of freedom and equality – the USA, cannot even guarantee its people a basic level of free health care at point of need.

The last decade has ended on a sad but predictable note, proving that we have sown the wind of increasing wealth at any cost, and have reaped the whirlwind. In the process we have singularly failed to distribute that wealth and resources equitably to where it’s needed.

Ironically one if the trends to emerge over the past decade of plenty are the development of socially responsible funds. The concept is to allow investors to direct their money into companies whose activities and ‘modus operandi’ are contributing positively to society. This is of course is selective, but at least the investor knows what their money is buying.

The Rise of Sovereign Wealth Funds as a ‘Caretaker’

Governments, especially with oil revenues have joined the band wagon creating Sovereign Wealth Funds. Norway the third largest oil producer, has formed a fund aimed at being socially responsible. In a global economy, ownership of companies is the most important way to have influence claims the Norwegian Foreign Minister. More humanitarian than an oil baron, the Norwegian government was key in gaining the International Land Mines Treaty, and also hosted the historic meeting in Oslo between Israel and Palestine. With the wisdom of Joseph they established a Petroleum Fund, in 1996, now renamed the Pension Fund to take care of the future generations. What a comparison to the arrogant ineptness of the USA, UK and Europe, who have burdened their future generations. The Norwegian government pension fund excludes companies that it believes are failing ethically. Interestingly, there are as many companies who are blacklisted abusing their employees as there are failings in other areas.

Whilst Norway has unambiguously laid out its outline addressing the needs of its own people before the needs of society at large, not the same can be said of Sovereign Wealth Funds which in general are about gaining political and strategic power by buying into the economy and owning strategic assets in the western industrialised nations. As we witness a shift in the balance of world economic power, ownership of strategic assets and the ability to guard and maintain trade routes will dominate the next decade’s macro economic strategy.

The concept of allowing investors choices consistent with their ethical beliefs is nothing new. But is it possible to combine successful business practices while looking after the disadvantaged.

The Impact of the Quakers in the Business World

The first funds to allow investors to direct their money into companies whose activities they approved of were pioneered by the Life Assurance Group Friends Provident in the 1980’s. This pioneering move was typical of the Quakers who were the founders of the Life Assurance Company. The Religious Society of Friends was a Christian movement founded in England in the 17th Century by George Fox. Puritans and non-conformist, they were given the name Quakers’ a term of derision, as they would often quake in the presence of God. They gained a reputation for social activism and were instrumental in the campaign against the transatlantic slave trade of the 18th and 19th centuries. Many were imprisoned for their faith and beliefs.

The Quakers flourished in business and due to both their success and religious beliefs made more enemies than friends. Persecuted and unable to gain insurance, they formed their own company. One of the overriding concerns of the Friendly Society, was to care for the poor and disadvantaged in their own communities.

Many captains of commerce and industry, in the 1800’s were Quakers, who founded and managed their businesses on biblical principals. Joseph Fry who started the famous Fry’s chocolates built a small town for his employees of his factories, with all amenities, schools, hospitals and recreation facilities. Work was scare, and many had to leave their home towns to find employment. Fry’s were bought by the Cadbury company. John Cadbury, himself, also being a Quaker. Edward Pease, owner and pioneer of the first railway in England from Stockton to Darlington housed his own employees, and Joseph Rowntree founder of the famous Rowntree Chocolates was the first person to develop low cost housing for the poor.

Barclays Bank had its roots in the Quaker movement. Unable to obtain loans the Quakers decided to form their own bank. True to their faith and beliefs employees were well housed and looked after.

In spite of being persecuted for their beliefs, through their success in business they were able to alleviate much poverty in serve the wider community. They didn’t need to wait for governments to bankrupt their future generations, they used what they had wisely, and gave something back. The bottom line in any business must be to make money. But as we have seen with the banking and financial crisis of today at what cost?

Originally published in www.ehh.gi in September 2009. Jeremy Blatch is the Founder and Consultant of Ein Harod Family Office.

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The Despair of Ice and Ability to Lead People through Storms.

by with No Comment BooksCultureFeatured Highlights

The Despair of Ice and Ability to Lead People through Storms.

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Book Corner: Shackleton’s Way: Leadership Lessons from the Great Antarctic Explorer, written by Margot Morrell and Stephanie Capparel

There is a vast library on offer for readers who want to study leadership books from historical figures. Shackleton’s Way adds to the fray and our knowledge by analyzing the famous 1915 Antarctic Endurance expedition of legendary explorer Sir Ernest Shackleton (1874-1922) for his leadership skills.

A word about Shackleton. Born in Ireland and raised in London, he cut his teeth on the Discovery expedition with Captain Robert Falcon Scott that explored the Antarctic regions in 1901 – 1904, one of the most brutal and inhospitable places on the planet. Later while leading on his own, he garnered international fame for a further series of Antarctic expeditions where he set distance records. Although in his lifetime he was considered a key figure in what is today known as the Heroic Age of Antarctic Exploration, he died in debt and fell out of the public eye for many years.

In the late 1950s, a series of books began to appear around Shackleton’s exploits, and his achievements began to be celebrated by a whole new generation of enthusiasts, leading to documentaries plus biographical TV miniseries (1983 and again in 2002, the latter featuring Kenneth Branagh). He has been acknowledged by the US Navy, and major universities have given management courses where his unique leadership style has been analyzed and promoted.

Shackleton’s Way tells the story of the Endurance expedition with an odd, but interesting, spin. For some background, the ship got stuck in ice and Shackleton was forced to abort and then lead his men to safety, with dwindling supplies, in the frigid wilderness. Morrell and Capparel analyze the expedition not as a success – which it wasn’t – but how Shackleton’s excellent leadership abilities saved his men and brought them all back alive and relatively unharmed (one man, however, lost his foot).

The Endurance story is told chronologically through eight sections, each highlighting a different leadership skill and how Shackleton embodied it, such as Creating a Spirit of Camaraderie and Leading Effectively in a Crisis. Each section concludes by focusing on a modern leader – from such diverse fields as business, education, and government – and how they in turn have been influenced by Shackleton and embody his style in their respective fields.

Shackleton was calm under pressure, led from the front, broke down the rigid hierarchies that were the norm on these expeditions, created cohesive and bonded teams, and was a master motivator. His crew respected and worked hard for him, and had full faith in his abilities. He had uncanny interviewing skills, creating a tight, professional team out of thousands of applicants with seemingly unconventional questions.

Shackleton was a fascinating man, and the lessons contained within this book are pure wisdom. The story itself is really an exciting adventure and you’ll get hooked after a few pages.

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The Ten Commandments of Business and How to Break Them

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The Ten Commandments of Business and How to Break Them

Book Corner: Ten Commandments of Business and How to Break Them, written by Bill Fromm

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When Fromm wrote this book in the early 1990s, he was the president of Barkley and Evergreen (now Barkley), a Kansas City-based advertising agency and was a known and respected veteran in the advertising field. The book describes his personal philosophy of managing employees and dealing with customers, which, according to this book, breaks the mold of standard – and sometimes stodgy – corporate culture. Fromm provides a quick and interesting read, (the book clocks in at a tight 170 pages) with each “commandment”, or rather lesson, backed up with snippets from his personal experience.

Fromm writes about eliminating the tendency to hide behind memos and reports, calling it the “CYO” (cover your ass) culture. He states that the most effective form of communication is face-to-face. Same for suggestion boxes – he says to get rid of them. If your employees cannot comfortably speak their minds, then your company has a serious communication problem that must be dealt with on its own before you start taking suggestions. Fromm also tackles the modern management culture: when you separate the company into “officers” and “enlisted men” with layers of bureaucracy, perks, privileges (such as reserved parking for management) and physical barriers, you end up instead with an “us vs. them” attitude where the company is two teams, not one. And, as Fromm says, the company must be one team, not two.

Overall, Fromm places a heavy emphasis on treating employees with respect and class, resulting in what he says are happier and more productive workers. The most memorable example is his insistence that business cards be given to everyone, regardless of position – even the custodian. It makes the employees feel special and provides great advertising for the company. He gives the example of summer interns who were given business cards, and when polled later about their experience at the company, all the interns listed the cards as one of the most memorable experiences there. Fromm also stresses the importance of company events and fun meetings as enjoyable means to build and maintain morale.

In addition to culture and morale, Fromm writes about profits, marketing, customers, and more. Not every one of Fromm’s commandments is applicable to every company, and not every company needs to adhere to every commandment to be successful. But in a world where the successful reach their achievements by putting radical spins on standard thinking, Fromm’s book has much food for thought.