June 26, 2017


Footnote #

1. A "secular market" is a very long term or secular trend for the stock market as originally identified and described by Charles Dow, the founder of the Wall Street Journal. A good summation entitled, "Secular Market Trends" can be found at www.safehaven.com/editorials/editorial03601.htm by Michael Alexander who also recently wrote a terrific book entitled "Stock Cycles: Why Stocks Won't Beat Money Markets Over the Next 20 Years." I personally believe that stock market averages could under perform for 5 to 8 years, but 20 seems a bit of a stretch to me. I still believe that the US economy, our leading edge technology and entrepreneurial culture will revive our economic prospects more quickly than 20 years. The book is, however, well researched and written.

2. For more on America's total $32 trillion in growing debt go to http://mwhodges.home.att.net/nat-debt/debt-nat.htm. I must warn you that it is not a happy story; the graphical truth is shocking. It is also not much comfort to know that all other G7 democracies are also self-liquidating themselves in a similar, albeit less intense fashion.

As for "credit crunches", they happen at the end of boom times when lenders figure out that either or both the assets that collateralize their loans or the borrowers' earning power to service debts are falling and "non-performing loans" are rising. The lenders then take the following corrective actions: call loans in violation of covenants; demand more collateral; and, raise interest rates and fees. The targeted borrowers can't afford the changes and at some point even the most aggressive lenders can not afford themselves to step in to refinance the problem. The borrower then must dump assets at fire-sale prices and go bankrupt. The fire-sale prices for assets, "bad deflation", can then hurt other competitors' profits as well as drop the perceived value of other marginal borrowers' similar assets. The economy then slows, because the bankrupt can't keep consuming. Other borrowers sometimes feel poor due to their eroding asset wealth and save more and spend less. A slowing economy then hits the next layer of least creditworthy borrowers or causes layoffs and lost income to finance existing debt. The cycle repeats working up the spectrum from the least creditworthy and first fired towards the most creditworthy and most employable.

3. Dollar crisis on the horizon? One of many documents on the web that addresses the following related factors: import deficit, government spending deficit, the over-valued dollar, dependence on foreign investors to finance our over-consumption and manufacturing America's problems with the high dollar is at this URL: http://www.tradealert.org/view_art.asp?Prod_ID=518. Another good one is at: www.safehaven.com/editorials/sennholz092502.htm

4. Because the US has been the economic growth engine that has pulled the rest of the world along, it doesn't look like any other region can provide the economic demand growth stimulation that either the US or the planet needs. Euroland is currently stagnant and declining as is Japan. The Asian exporting countries have rigged their tax and banking policies to force their consumers to save and invest instead of borrowing and spending, and they can't make tax policy changes quick enough. Latin American countries, along with other third world countries, are all over-indebted basket cases with little potential demand possibilities. Brazil, moreover, looks like it will elect a socialist President on October 6th and there is no way that they will be able to make their debt payments in November. If you read some of Stephen Roach's commentary at www.morganstanley.com, then you will get a better feel for the possibility that the global economy could enter a "deflation, liquidity trap" economy. See more on Dr. Roach in note 6 below.

5. For a wonderful summary of the inter-related economic bubbles that have grown up feeding upon one another since '94 go to http://www.cornerstoneri.com/bubble_flowchart.htm. These bubbles now unfortunately have to unwind. How big was the stock market bubble? The average P/E ratio of the stock market in '29 was 21x. In March 2000, the S and P index was at 33+. The biggest bubble ever!

6. One of the best, most articulate and honest economists who tagged this on-going, low-growth, post bubble economy is Stephen Roach of Morgan Stanley. For his earliest description of what has come to pass go to "The Shape of the US Recovery" dated 5-15-01 at www.internetional.se/toft/roach01.htm. He also writes a weekly contribution at Morgan Stanley's web site. If you find your way to the "archives" at the Morgan Stanley site, Roach usually posts on Mondays. Here are the URLs for his latest two postings on the US's incipient deflation, liquidity trap problem: http://www.morganstanley.com/GEFdata/digests/20020916-mon.html http://www.morganstanley.com/GEFdata/digests/20020923-mon.html

7. As long as the 10-year treasury bond continues to appreciate and its' interest rate drops, mortgage rates will continue to drop and the housing bubble will stay inflated. How long will the rates drop? It depends on: a) how much more money leaves stock and money market funds for higher yields in t-bond funds; b) how much longer money from around the planet will stay in dollars as a safe haven during the slow motion Japanese banking crisis, the upcoming Brazilian default in November and prospects for an Iraq war perhaps in January. c) how fast foreigners will then start to withdraw or stop buying US dollar denominated investments because of the exploding US money supply and import deficits that are causing the supply of dollars globally to vastly exceed demand and good investment prospects within the US. A big run on the dollar in global currency markets would force the Fed to raise rates to sell US bonds to finance our federal deficit and mortgage backed securities would also have to have higher interest rates in the mortgages to entice foreigners to continue buying them.(See note # 3 above.)

When might rates bottom and go back up? If I really knew, I would be a rich man and not bothering to type this note. Perhaps mortgage rates might get to 5% by year-end before they start to climb in the Q1 '03. One more wave of re-fi's might happen by year end.

Is there really a bubble and if so when and how will it pop? I firmly believe so and think that consumers will go back to saving money out of their paychecks which will then cause our consumer driven economy to continue to poke along for the next three years. I could write a few pages on why I think these things, but I won't for time purposes. I do worry about the building material channels, especially the building material dealers who have been living off of the small, independent builder who tends to do higher-end homes. These guys and their wholesalers could get crunched on credit collection problems and anemic sales over the next few years. What should they do now? I have a few pages of thoughts on that topic too.

8. Because the global economy is now facing an asset-deflation problem, we would do best not to look at all of the traditional data that economists have focused on for normal consumer price-inflation driven cycles, but look at the credit markets where risk insurance premiums and interest rate spreads are taking off. Fixed income investors don't like what they are seeing. Their views are expressed by widening interest rate spreads for the more risky bonds, the current negative trend in these spreads has usually been followed by negative earnings and then stock market declines by 2 to 4 months. By example, Fannie Mae's stock has tanked a bit in the last month because of credit risk problems in its' portfolio of mortgage-backed securities. Junk bonds are now trading at a record high interest rate spreads over treasuries because investors perceive more default risk in of the issuers in the future. Japan's government bond ratings were knocked down two notches last May, then in early September the Japanese government had to raise the interest rates, for the first time ever, to sell out the latest wave of 10 year bonds. Expect a lot of volatility in the financial markets for the foreseeable future. For a best review of the on-going credit bubble read the "Credit Bubble Bulletin" at www.prudentbear.com.

9. A few economists who were the most prescient regarding global deflation trends from 1990 are Gary Shilling, Ed Yardeni and Stehphen Roach (note #6). Shilling was the earliest and most thorough on the subject. I have done very well with zero coupon bonds in my IRA since 1983, but I was continually re-encouraged by his advice in his Forbes Magazine column since the early '90s. In his book Deflation, he differentiates between "good and bad" deflation and he is now predicting that we will get both for the next few years and that stocks still have a long decline to go. A good article/interview with Shilling that takes a small business perspective and defines the two types of deflation is at: http://www.smallbusinessadvocate.com/articles/showarticle.cfm?articlenum=67

10. For understanding the why's and how to's of "downsizing and upgrading your customer portfolio based on PBIT per customer", you really need to request a 30 page e-mail document from karen@merrifield.com. We have entitled this "booklet" of 13 recent articles and exhibits: "NEW SOLUTIONS FOR A DIFFERENT KIND OF DOWNTURN." In the booklet you should specifically read the last three articles that take different angles on measuring customer profitability and acting.

The "7 different profit improvement plays" are all in how-to detail in different modules of our videotape entitled: HIGH PERFORMANCE DISTRIBUTION IDEAS FOR ALL. There are some ad pages on the video that follow this one. The plays and the respective module numbers are:

1. Target top 5+ most profitable customers and team sell them for protective and further penetration purposes (M# 3.7)
2. Define your historic #1 niche (M# 3.3)
3. Re-tune, define and measure your total service offering for the #1 niche (M# 3.2)
4. Shape-up or out the biggest loser accounts; most can be turned from lead into gold (M#3.8-11
) 5. Proactively measure, shrink and manage the small order challenge (M# 3.8-11)
6. Segment customers within each niche and serve them differently (M# 3.6)
7. Get the Sales Force on board and re-directed (M# 3.11)

11. Part of engaging all employees to be part of the high performance solutions is to start sharing all of the general numbers with them on a regular, educational basis. The aforementioned video teaches the ABC's of: corporate finance, labor market wages and premium wages for even higher productivity. Because going open-book is such a big deal, we encourage you to read the article in the booklet described in note 10 that is entitled, " Business Stinks: Time to Share the Numbers and .?" In fact, you should really skim through the entire booklet to get excited and oriented towards taking the high performance plunge.


- 53 (10 minute on average) modules that come in 6 VHS tapes in an attractive storage case that fits on any bookshelf. 11.5+ hours of elapsed educational programming.
- 285 page Implementation Guide that includes lesson plans, study and discussion questions for every module.
- Retails for $995, but is available through numerous resellers at prices from $595 and lower!


Who can be a reseller? A reseller can be any entity that will promote the video to constituents or forum members. There are already a number of different types of resellers that have different primary objectives. Buying Groups and some Associations see the video as a curriculum/discussion tool around which to organize round-table/forum discussion group sessions at regularly scheduled meetings. Manufacturers that are quite inter-dependent with their distributors see it as a training tool to help their "good distributors become great ones" so that they will grow faster and more profitably than the industry and in turn grow the manufacturer's market share. Some software firms are re-tuning their business intelligence packages to support the local, real-time information needs for the productivity plays within the video. They all see the video as a valuable educational tool for their constituents.

Don't see your affiliation group below? Have them contact us for the story.

RESELLERS As of January 30, 2003:

Software vendors: NxTrend Technologies, Inc.,
Enterprise Computer Systems,
System Designs, Inc.

Manufacturers: ExxonMobil (industrial oil products distributors)


Buying groups: EMBASSY, IMARK'S INET Group 9, Johnstone Supply, OMNI, (many others are considering)