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Some Stuff is Going On

By Kevin Meyer

I've been collecting a variety of articles I found interesting with the intention to bloviate about them.  Unfortunately time has flown by and I haven't gotten around to it yet.  So to clear things out, here are a few quick words on all of them.

First off, a couple days ago SpaceX launched the first private rocket intended to do something really useful like resupply the space station.  Really an incredible achievement.  But what made me think a bit was when I realized it has barely been 100 years since the Wright brothers achieved the first sustained heavier than air human flight.  Now for those of us turning a bit grey, 100 years no longer seems like that long ago.  In fact, I have memories from over 40 years ago... almost halfway.  And that includes a memory of a commercial jet plane.

Think about how long the interval was between a flight of a couple hundred yards to planes all over the place... just a couple decades to WWI.  Then to jet power in the late 1940s to routine commercial aviation in the 1960s.  The pace of technological development, aided by computers that can design things a bit faster than slide rules, continues to accelerate.

The first private rocket achieved space travel this week.  Does Virgin Galactic or the private mining of asteroids really seem that far-fetched anymore?

Secondly, and not really based on an article, we had Facebook's disastrous IPO.  What a cluster that has turned out to be, for many more reasons than just valuation insanity.  Bill wrote about it - actually predicted it - last week, and I completely agree.  I was dismayed when many of my friends were excited about the IPO and bought shares.  Now since they were individuals, they probably got in right after the mad rush when the price briefly hit 40 or so.  Well there went 25% of that investment really fast, just a couple days later.  Crazy I tell you.  And any of us that lived through the first dot-com bomb of 2000 should have known better.  Back then everyone was saying "it's a different business model - no longer based on real cash created by real profit."  Funny - they are now saying the same about companies like Instagram.  $1 billion dollars.  No profit.  Yep, that's going to end well.  Not.  History my friend.  And basic business economics - not even the GAAP distorted view.

There were some good stories, like 3M tackling its crazy supply chain.  Would you believe that to make those great Command stick-on/removable wall hangers the process went through four different plants with over 1,300 miles of transportation?  For about four pieces of the same color plastic, some foam, and a strip of double sided tape.  Oh and a standard package.  Now they are consolidating it into one factory.  Oh the brilliance!  Now to tackle 3M's 65,000 other products...  But hats off to them for at least realizing that lengthy convoluted supply chains add to the total cost of the product - something a bunch of companies with factories in China still haven't figured out.

But some have figured it out... including a Chinese company who is now outsourcing to the U.S.  Yes, you read that right.  A Chinese television manufacturer has set up a factory in Michigan to assemble TVs and sell them in the U.S.  Labor is still a bit more costly - though less than you'd think - but there are supply chain and especially distribution advantages.  So those of you still crazy enough to be traveling across the Pacific to set up factories in China to supply the U.S. market should wave at the Chinese coming over here to set up factories in the U.S. to supply the U.S. market.  Uh oh... same market, about 10,000 fewer miles in the distribution chain... I wonder who will win.

Ford is another good story.  No bailout, no takeover of the company leading to plants being closed and jobs shed... oh wait, for a minute I thought we were talking about Bain.  Nope, that's the federal government... and isn't the (ahem!) head of that organization now critizing a former Bain exec for taking over companies and closing plants and laying off people?  Nevermind, my head is spinning with the hypocrisy.  Anyway, our friends at Ford got their debt upgraded to investment grade this week, which meant they no longer have to secure the debt with things like their oval logo asset.  Good job Ford!

Regular readers know I'm particularly hung up on the value of humans - especially when compared to non-idea-generating robots and crazy complex software systems like ERP.  Humans have the ability to understand context and nuance - and create ideas from disparate sets of data.  Perhaps someday computers will be able to, but apparently not yet in the financial arena.  One Wall Street guy, previously a "quant" or someone who promoted the ability of computers to crank out the quantitative analysis to execute stock trades, has decided that the human factor needs to be added back in.  Now it's a little crazy how he's doing it - teams of people in India pouring over the data and adding their analysis to the computer models - but at least someone is recognizing the value of brains.  Fleshy brains, not silicon.

And finally, we'll touch on one of our favorite subjects: innovation.  Or the lack thereof.  Which is why this article discusses how the term has become so watered down that it is basically meaningless.  As Scott Berkun says in the article, "what most people call innovation is really just a very good product."  Exactomundo.  Real innovation is something different, and it's rare.  But you wouldn't guess that by how many times the term was used in annual reports filed with the SEC: over 33,000 times last year alone, a 64% increase over just a few years prior.

Maybe Facebook should try some real innovation, rather than being a scoop gathering up personal info to sell to their customer: advertisers.  And you thought you were Facebook's customer?  Silly you.

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