Swiss Army Brand Turnaround Benefitted Both Employees and Shareholders, Not Top Management
Swiss Army knives are a pretty good product and you may have noticed the brand has shown up on some other nice things in recent years. Swiss Army brand watches, luggage and fragrances are on the market now too and keeping to the quality, value and style of the knives they have done well.
The parent company, Victorinox, is headquartered in Switzerland, one of the more expensive places in the world in which to do business. In this age of outsourcing and the pressure to lower costs, expensive Switzerland’s economy is still doing very well. Unemployment is only 3.65% and the currency is stronger than either the US dollar or the Euro.
The Financial Times wrote last week that after 911, Victorinox faced a 30% drop in sales of its’ Swiss Army knives due to new strict airport security measures. Since airport security was going to remain strict, the company decided that this was probably a permanent loss of sales and scaled back its' operations and began to develop and invest in new products.
Victorinox has a commitment to its' workforce as well as its' stockholders. During the adjustment period, the company went to great pains to protect the whole workforce and didn't, like many American companies, reward management for firing workers and outsourcing. Cutting costs like extras across the firm and lending unneeded people out to other firms temporarily minimized the job cuts. The payroll policy also came into play. The company has a rule of limiting its' top paid employees to a ratio of 5 to 1 to the wages of the lowest paid employees, a policy that helped control payroll costs at the time.
The expansion into watches, luggage and fragrances was a success and the new products now make up 60% of sales, a track record which makes Victorinox’s turnaround notable. Despite scoring a small triumph, the company’s management team hasn’t been given bonuses worthy of a czar and instead can enjoy a rate of pay five times that of the bottom of the company’s pay scale as well as the job security, esteem and respect such good work merits. Victorinox’s shareholders and employees have also been rewarded and the company’s future seems to have been only enhanced as the quality and value and reach of the Swiss Army image has only benefitted.
By the way, Swiss Army knives are not made in China. They are still made in Switzerland.
Investment Conclusion: Question management teams whose strategy to add value is to outsource jobs without a realistic strategic plan that will make the company succeed in the long run and are paid huge salaries and bonus packages to do so. Hint: There are lots of them out there right now.
Wednesday, December 29, 2010
Friday, December 17, 2010
Tax Bill Finally Passed
Now We Can Make Tax Related Investment Decisions
After weeks of wrangling and a long year of uncertainty, at least we know now what tax rates are going to be over the next two years. The bill extended the tax regime we have been in for a number of years but added an estate tax on estates over $5 million.
There was no estate tax this year so when Yankees owner George Steinbrenner died last summer, it seemed his his heirs were lucky and their Dad's $1.5 billion estate would pass tax free. This bill addressed that loophole, however. His heirs now have a choice whether to pay 35% now or keep the much lower cost basis on the estate and pay capital gains taxes on it sometime in the future. I imagine the Steinbrenners will keep the Yankees for now and pay taxes on it some other day.
Fidelity Investments did a nice summary on the new law's tax rates and investment ramifications. If tax policies are important to you, I recommend giving it a close read.
Fidelity's Take on the Tax Bill
Investment Implication:
This tax law is stock market friendly because it will reduce uncertainty and isn’t going to trigger new year end selling as it taxes long term capital gains and dividend paying investments at the same rates as today.
The big questions about this law in a year or so will be did the low tax rates stimulate the economy and was the benefit enough to increase tax revenues down the road enough to reduce the budget deficit?
First observation this afternoon: Bond yields fell very sharply today which seems to indicate the market felt the tax bill will stimulate the economy substantially to help balance the government’s budget without creating an inflation problem.
After weeks of wrangling and a long year of uncertainty, at least we know now what tax rates are going to be over the next two years. The bill extended the tax regime we have been in for a number of years but added an estate tax on estates over $5 million.
There was no estate tax this year so when Yankees owner George Steinbrenner died last summer, it seemed his his heirs were lucky and their Dad's $1.5 billion estate would pass tax free. This bill addressed that loophole, however. His heirs now have a choice whether to pay 35% now or keep the much lower cost basis on the estate and pay capital gains taxes on it sometime in the future. I imagine the Steinbrenners will keep the Yankees for now and pay taxes on it some other day.
Fidelity Investments did a nice summary on the new law's tax rates and investment ramifications. If tax policies are important to you, I recommend giving it a close read.
Fidelity's Take on the Tax Bill
Investment Implication:
This tax law is stock market friendly because it will reduce uncertainty and isn’t going to trigger new year end selling as it taxes long term capital gains and dividend paying investments at the same rates as today.
The big questions about this law in a year or so will be did the low tax rates stimulate the economy and was the benefit enough to increase tax revenues down the road enough to reduce the budget deficit?
First observation this afternoon: Bond yields fell very sharply today which seems to indicate the market felt the tax bill will stimulate the economy substantially to help balance the government’s budget without creating an inflation problem.
Friday, December 10, 2010
China's Stolen Software a Trojan Horse
China's growth in manufacturing is in large part due to the theft of technology and licenses. As a result of stolen software installed on the majority of China's computers, it is particularly easy for hackers to get into them....
-Investment Conclusion? Some day just maybe, software companies like Oracle and Microsoft will increase their revenues in China. In the meantime, it is the same thing as before. The Chinese are stealing western technology and neither business or government care to do much about it.
One persistent problem is that much of the pre-installed software still consists of pirated copies. While China has released statistics showing that the use of legitimate software in China has increased dramatically, the Business Software Alliance, an international software industry group, estimates that 79 percent of the software sold in China in 2009 was illegally copied, creating a loss to the industry of $7.6 billion in revenue. Even more important to Beijing, these statistics mean the vast majority of Chinese computer systems — government and private alike — remain vulnerable to malware.
China and its Double-edged Cyber-sword | STRATFOR December 2010
-Investment Conclusion? Some day just maybe, software companies like Oracle and Microsoft will increase their revenues in China. In the meantime, it is the same thing as before. The Chinese are stealing western technology and neither business or government care to do much about it.
Monday, November 15, 2010
Uncle Sam’s Government Works Best When on a Deadline.
Fiscal Commission Draft Report
Bipartisan Commission Tries to Deal with Reality
There is a threshold where the total debt* of a nation exceeds its’ ability to service the interest and have a hope of paying off the principal but no one knows exactly where that is. By different accounting, the US government currently has an outstanding debt of between 60% and 90% of our annual economic output (GDP). For comparison sake, the headline problem child in this arena is Greece at 120% of GDP. For the US, current rates of annual deficit spending of nearly 10% of GDP are pushing us too close to Greece’s situation and that is the deadline Uncle Sam faces.
With Federal budget deficits that are now embedded in our economy rather than just part of economic cycles and other stubborn problems like health care costs per capita that are double those of any other nation on earth, it was very good news last week when the President’s bipartisan fiscal commission released their preliminary draft. The 24 page report is gathering attention and support even as many political leaders dismissed it out of hand. It has been patently very easy for an elected official (of either party) to vote to increase spending, but the fiscal condition of the country and mood of the electorate seems to have swung around to wanting to go in the direction of fiscal responsibility and the report has provided sound talking points for the public and policy makers to work with.
To summarize generally the document’s recommendations:
• Rollback the last decade’s growth of government, government waste and military spending
• Freeze the growth of government pay.
• Eliminate earmarks from the budget process
From an investment point of view, sound fiscal policy is overdue and absolutely required to provide the back drop for future investment success. The rock solid credit worthiness of the US is a huge advantage for our economy in terms of the cost of borrowing, buying imported goods like oil and attracting investment. If our national deficits are not addressed, we can expect a downgrade in our credit status sometime in the future that will be detrimental to our children’s financial security, our portfolios and the economy. After all, who emigrates to Greece to find financial opportunities?
* The debt referenced in this discussion is the debt of the US Federal government.
Bipartisan Commission Tries to Deal with Reality
There is a threshold where the total debt* of a nation exceeds its’ ability to service the interest and have a hope of paying off the principal but no one knows exactly where that is. By different accounting, the US government currently has an outstanding debt of between 60% and 90% of our annual economic output (GDP). For comparison sake, the headline problem child in this arena is Greece at 120% of GDP. For the US, current rates of annual deficit spending of nearly 10% of GDP are pushing us too close to Greece’s situation and that is the deadline Uncle Sam faces.
With Federal budget deficits that are now embedded in our economy rather than just part of economic cycles and other stubborn problems like health care costs per capita that are double those of any other nation on earth, it was very good news last week when the President’s bipartisan fiscal commission released their preliminary draft. The 24 page report is gathering attention and support even as many political leaders dismissed it out of hand. It has been patently very easy for an elected official (of either party) to vote to increase spending, but the fiscal condition of the country and mood of the electorate seems to have swung around to wanting to go in the direction of fiscal responsibility and the report has provided sound talking points for the public and policy makers to work with.
To summarize generally the document’s recommendations:
• Rollback the last decade’s growth of government, government waste and military spending
• Freeze the growth of government pay.
• Eliminate earmarks from the budget process
From an investment point of view, sound fiscal policy is overdue and absolutely required to provide the back drop for future investment success. The rock solid credit worthiness of the US is a huge advantage for our economy in terms of the cost of borrowing, buying imported goods like oil and attracting investment. If our national deficits are not addressed, we can expect a downgrade in our credit status sometime in the future that will be detrimental to our children’s financial security, our portfolios and the economy. After all, who emigrates to Greece to find financial opportunities?
* The debt referenced in this discussion is the debt of the US Federal government.
Monday, September 27, 2010
Don't Believe Farmers' Grousing
It was too dry. It was too hot. The economy was bad. A storm took down a lot of corn.
Don't believe any of that this year. The American farmer will produce record corn and soybean crops amidst more exports and higher prices. In addition, Russia's wheat crop has wilted this summer. Russia is the world's third largest wheat exporter, but it has stopped wheat exports until next year's harvest. US wheat farmers are benefiting as a good wheat crop is being met with greatly increased export sales and higher prices.
Usually for farmers, a bad economy and record crops add up to lower prices. In 2010 however, growing world demand for grains and bad crops in places like Russia have more than taken up the extra supply and is actually pushing the price of grains higher. It is good business for US agriculture to have more to sell and also to get a higher price for it.
Business is so good actually, that farm income is projected to be up at least 24% this year. How would you like to get a 24% raise in the midst of this deep recession?
Don't begrudge them, however. The financial fortunes of farmers tend to ebb and flow in big cycles. For instance, you were a lot better off a real estate or stock investor in the 1990's than a farmer. Looks like the farmers will be spending a bit more money this year. Hmmm what do farmers like to buy and from whom and who do they bank with?
Don't believe any of that this year. The American farmer will produce record corn and soybean crops amidst more exports and higher prices. In addition, Russia's wheat crop has wilted this summer. Russia is the world's third largest wheat exporter, but it has stopped wheat exports until next year's harvest. US wheat farmers are benefiting as a good wheat crop is being met with greatly increased export sales and higher prices.
Usually for farmers, a bad economy and record crops add up to lower prices. In 2010 however, growing world demand for grains and bad crops in places like Russia have more than taken up the extra supply and is actually pushing the price of grains higher. It is good business for US agriculture to have more to sell and also to get a higher price for it.
Business is so good actually, that farm income is projected to be up at least 24% this year. How would you like to get a 24% raise in the midst of this deep recession?
Don't begrudge them, however. The financial fortunes of farmers tend to ebb and flow in big cycles. For instance, you were a lot better off a real estate or stock investor in the 1990's than a farmer. Looks like the farmers will be spending a bit more money this year. Hmmm what do farmers like to buy and from whom and who do they bank with?
Wednesday, August 18, 2010
Germany Confronts Rising Healthcare Costs
The August 16 issue of Financial Times reports that the Minister of Health in Germany is issuing new policy guidelines to get control of spiralling health costs. The paper report that as of the end of 2008, the cost of drugs and treatments had risen between 10 and 15% over the previous five years in Germany and that the country is now spending around $3,800 per year per person on healthcare.
Meanwhile, the United States government has stalled in its' attempts to control healthcare costs since it doesn't seem to be a dire issue to policy makers. This year alone, however, insurance premiums are reported to be rising as much as 20% while the US spends a bit more on healthcare per person. Almost twice as much as Germany actually, over $7,200 per person.
Meanwhile, the United States government has stalled in its' attempts to control healthcare costs since it doesn't seem to be a dire issue to policy makers. This year alone, however, insurance premiums are reported to be rising as much as 20% while the US spends a bit more on healthcare per person. Almost twice as much as Germany actually, over $7,200 per person.
Thursday, May 20, 2010
Curing Greece Syndrome
Curing Greece Syndrome
Review: Comeback America, Turning the Country Around and Restoring Fiscal Responsibility, David M. Walker, Random House, 2010
If you feel a distinct disquiet every time you consider the future of our country, you might consider reading David Walker’s new book, Comeback America. In this diagnostic and prescriptive summary of what ails America’s budget from the former head of the Federal Government Accountability Office (GAO), the scope of the fiscal issue, from political pandering, to risky demographics to the complicity of nearly every American in the tax vs. benefit charade is fronted.
Comeback America may be the one book you should read on the fiscal problem. A credible commentator of the first order on the subject, Walker positions himself as both non-partisan and highly placed. He was comptroller of the GAO for 10 years through 2008 and is a political independent. With 10 year experience in of one of the most politically independent positions in the government and near the epicenter of the fiscal issue, Walker brings deep credentials to the debate.
Since this book’s publication earlier this year, events have added color but not overshadowed his point. Lately Greece is on page one as its fiscal wreck now threatens continental Europe’s single currency and banking system. It is thanks to Greece that you don’t have to be a Cassandra anymore to see how the process of a sovereign first world fiscal implosion plays out. It is playing out right before our eyes.
Discovering the truth about a government’s true financial health isn’t really that easy. Up until recently, It would have taken a mystic to foresee Greece’s issues. The politicians had been lying about the true fiscal situation and it didn’t come out until the last government left office. Not collecting taxes while increasing services to get votes isn’t just a Greek politician’s trick, of course. Walker argues it has been done by the majority of our own State and Federal administrations for years. No it isn’t just the Greeks, but since this Greek canary has already died and its fiscal/political paradigm has been laid bare for all to see, the lessons are more easily understood.
Walker’s treatment of the subject is both understandable and substantial in its description of the pathology of the United States’ government finances. He shows how the US is hiding huge future liabilities such as promises to provide services for our retired citizens or public sector pensions which are not paid for, or how the Federal budgeting process that leads to pork barrel spending is the product of our election rules and how we are overspending on legitimate programs such as defense and education and not getting the results we pay for. Finally he takes on the government for chasing delusions such as the most expensive (one we cannot afford even now) but not the best healthcare system in the world and pretending it is otherwise. Judging from the information in recent articles about Greece, we have a lot in common with them.
So how can Comeback America ease your pessimism? It is about our comeback. It has good realistic and non-partisan ideas about how to do this. Walker’s ideas start with putting our own individual financial choices on a sounder footing to restructuring our political system so as to remove the incentives for professional politicians to trade the nation’s financial future for votes in the next election. The information is both valuable and accessible.
Walker portrays America as he understands it; still capable of reforming itself in the process of rediscovering our past fiscal responsibility and thus restoring hope. This is the issue of our time and post the fall elections this year look for the government to begin to address our structural deficits. Understanding the issues and options we face is a good idea. For 2010 this is a timely book and a good read.
Review: Comeback America, Turning the Country Around and Restoring Fiscal Responsibility, David M. Walker, Random House, 2010
If you feel a distinct disquiet every time you consider the future of our country, you might consider reading David Walker’s new book, Comeback America. In this diagnostic and prescriptive summary of what ails America’s budget from the former head of the Federal Government Accountability Office (GAO), the scope of the fiscal issue, from political pandering, to risky demographics to the complicity of nearly every American in the tax vs. benefit charade is fronted.
Comeback America may be the one book you should read on the fiscal problem. A credible commentator of the first order on the subject, Walker positions himself as both non-partisan and highly placed. He was comptroller of the GAO for 10 years through 2008 and is a political independent. With 10 year experience in of one of the most politically independent positions in the government and near the epicenter of the fiscal issue, Walker brings deep credentials to the debate.
Since this book’s publication earlier this year, events have added color but not overshadowed his point. Lately Greece is on page one as its fiscal wreck now threatens continental Europe’s single currency and banking system. It is thanks to Greece that you don’t have to be a Cassandra anymore to see how the process of a sovereign first world fiscal implosion plays out. It is playing out right before our eyes.
Discovering the truth about a government’s true financial health isn’t really that easy. Up until recently, It would have taken a mystic to foresee Greece’s issues. The politicians had been lying about the true fiscal situation and it didn’t come out until the last government left office. Not collecting taxes while increasing services to get votes isn’t just a Greek politician’s trick, of course. Walker argues it has been done by the majority of our own State and Federal administrations for years. No it isn’t just the Greeks, but since this Greek canary has already died and its fiscal/political paradigm has been laid bare for all to see, the lessons are more easily understood.
Walker’s treatment of the subject is both understandable and substantial in its description of the pathology of the United States’ government finances. He shows how the US is hiding huge future liabilities such as promises to provide services for our retired citizens or public sector pensions which are not paid for, or how the Federal budgeting process that leads to pork barrel spending is the product of our election rules and how we are overspending on legitimate programs such as defense and education and not getting the results we pay for. Finally he takes on the government for chasing delusions such as the most expensive (one we cannot afford even now) but not the best healthcare system in the world and pretending it is otherwise. Judging from the information in recent articles about Greece, we have a lot in common with them.
So how can Comeback America ease your pessimism? It is about our comeback. It has good realistic and non-partisan ideas about how to do this. Walker’s ideas start with putting our own individual financial choices on a sounder footing to restructuring our political system so as to remove the incentives for professional politicians to trade the nation’s financial future for votes in the next election. The information is both valuable and accessible.
Walker portrays America as he understands it; still capable of reforming itself in the process of rediscovering our past fiscal responsibility and thus restoring hope. This is the issue of our time and post the fall elections this year look for the government to begin to address our structural deficits. Understanding the issues and options we face is a good idea. For 2010 this is a timely book and a good read.
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