What makes New Years different from other holidays? Going to parties to celebrate with friends and family, eating tasty food with a great bottle of wine, having a good laugh are all part of any special celebration, but reflection is what differentiates New Years for me. It could be any day of the year, but there is something retrospective and prospective about December 31st in combination with January 1st…its a powerful combination. Linda, the Kids and I spent Christmas in Rhode Island with her Mom. In a moment of Christmas magic, it started to snow at 11pm on Christmas Eve…for a clan from Southern California, it was a true thrill. Staying with Linda’s Mom is like living in a high-end bakery, nothing “store-bought” in sight and all wonderful. Combine that with her famous Mac & Cheese (anybody who has had it will completely validate the “famous” moniker!), visits with friends and family and it was truly the perfect way to celebrate Christmas. We then headed to New York City, where my three girls shopped until I dropped (I was lovingly referred to as the “bagman” and believe me, I lived up to the designation). While the entire trip was fantastic, I had three highlights that will be top of mind for quite some time. At the top of the list was the one hour walk that I took everyday while in Rhode Island. Beyond the obvious (the aforementioned bakery), our oldest daughter Niki joined Linda and I everyday. Niki is 17 going on (fill in the blank) and we just don’t get much time with her. Between her passion for horse riding and her boyfriend, just having a simple conversation is rare…so Linda and I had that one hour walk to talk, laugh, reflect (that word again) with her and it was totally special to us and I believe Niki too. She graduates this year and will be heading to Los Angeles and then London for beauty school. We are going to miss our family spark plug and having some special time with her was a Christmas gift you can never ask for but treasure when it happens. Chris Botti at the Blue Note Jazz Club was simply amazing. I go to the Blue Note every time I go to New York and this was probably the best show we have seen yet. Finally, a bucket list item was crossed off the list: Dinner at the Four Seasons Restaurants. It was everything I hoped for and more…it doesnt get any better than being all zuited up with your girls and having a wonderful dining experience!
I had two very different perspectives on the economy while travelling. Simple observation suggested the economy is booming. In New York everywhere we went it was PACKED. We walked through Times Square a few times and the only way to describe it was an ocean of humanity…it was simply amazing. Lots of shopping bags, full to capacity dining and sell outs at the Blue Note and the play Wicked. The buzz was palpable. One of the joys of having kids is you can actually stay in touch with what is “new” and in my daughter Carli’s case that would be the UK band sensation called One Direction. They had a temporary store at Madison Square Garden and to say it was busy doesn’t begin to explain the phenomenon that was taking place. The first attempt we made to visit, there was about a 300 yard line waiting to get inside and the temperature outside was a windy 25 degrees (give or take, but mostly take in my opinion). We got there first thing the next morning and only had to wait about 30 minutes. So all in all, New York looked very busy. Rhode Island was not quite as frenetic, but it seemed to be doing okay. Where the other perspective came in was talking to actual business people…they were not quite as optimistic and more on the cautious side than the optimistic one. So if you blend to the two together, I would say we are somewhere in the middle…it’s not great out there, but its not terrible either. Speaking for myself, I am cautiously optimistic on the next year, but not in any frame of mind to push the “risk” part of the equation further than I already have (having started a business in the middle of the Great Recession is quite enough).
So, as we enter 2013, what can we take from 2012 and project forward? The election and the “fiscal cliff” combine into a powerful prism in my opinion. As I shared in my last piece, the central message from the election is the citizens of the US want more government. You can agree or disagree on if that is a good thing or a bad thing, but I don’t think there is much debate to be had on the increasing role expected from both the Federal and State governments (By the way, if you see it differently, please send me your thoughts). Combine this with fiscal cliff negotiations and the deal that will be reached supports more (and more, and more) government. The Senate voted last night on a package and the House is debating as I type. Based on what I have read, at this moment taxes will go up 600 billion and expenses will be cut by 12 billion. The rhetoric goes something like this: The “rich” will pay the bill, the middle class will be saved and the poor can continue to count on federal and state support. The average citizen will have no problem with this because from their viewpoint, someone else is paying the bill and it wont directly affect them. This could not be less true. The misconception is lifestyle versus available capital for the private sector. It is true that if you are one of the “super rich” (I wont try to put a number on it, but you know it when you see it), higher taxes will not change your lifestyle. So what is the big deal? The pool of capital that can be invested into our economy is shifted from the private sector to the public one. I have had the benefit of observing this first hand: If you are super wealthy, once your living expenses are provided for, what is left over is capital in an endless search for investment opportunity. Very few, if anyone just let’s their money sit and do nothing, especially in our zero interest rate enviroment. Contrary to what our politicians claim (and its all of them), America was built on private enterprize, not the government. As I stated in my last note, one hundred years ago the Federal government absorbed a bit less than 5% of our economy (GDP for you economist out there). Today, it’s over 25% and with the “resolution” of the fiscal cliff, it will go higher.
Unintended Consequences: If you run a business, you know very well what this means. Every decision you make will have a material impact on your results. You learn that you can never anticipate the full impact of a decision until it has flowed through into your customer, supplier and employee base. A real world example was shared by a long time friend of mine who I called yesterday. The company he works with is fighting hard to stay profitable. Around Thanksgiving, the CEO announced that there would be zero bonuses for anyone in the company for 2012. So what do you think the sales people have been doing? Nothing…they are keeping their powder dry for 2013. Not good for business. In the beauty industry, those companies that are run with short-term perspective will offer sizeable discounts for orders placed prior to the end of the year. Oooops, first quarter isn’t going to be so good. Oh, and our profit margin for the 4th quarter just wasnt what we thought it would be.
Well, welcome to the land of perpetual short-term thinking: Washington DC. Our elected representatives have a very identifiable time frame for the actions they take: The time between now and their next election. Further, if they make bad decisions, they can just move back into the private sector, collect their lifetime pensions and custom healthcare plan. Oh, and if they really mess up, guess what they can do? Print money…lots of it. After all, they must give those who elected them what was promised: More. More government, more taxes, more regulations and more social support programs. Besides, in addition to creating more money, you can also ask the “wealthy” to do more of their fair share. Imagine you walk into work tomorrow morning and in scanning your emails, you see an important notice from the CEO (His name is Sam, Uncle Sam) letting you know that there was an employee vote and it was decided your take home pay will be lowered as it was just not fair you earn more than the average employee, never mind your results are far above average. Now, in making this decision, Sam wants you to continue putting out the same effort and the same good results you have in the past. What is your reaction? Well, you cant quit this company and look for a new job (actually, you can, but for most not an option). Are you going to work as hard? With same passion? Will your creative drive be as great? Where will you cut back on your expenses if you are not “super wealthy” (which is about one in a hundred). All variables that live in the land of unintended consequences. Yet, those brilliant minds in DC actually think they can predict how these thought processes will play out (or even worse, they really don’t care…if they are wrong, they can rely on the printing presses and the “rich” to do even more of their fair share). I have news for you: They cant. We will all react and act based on what we believe is best for us and our families.
So, where will all of this lead to? We live in a very competitive world…if I am correct that our pool of investable capital for the private sector will be reduced (again, if you disagree I want to hear your thinking), it will be more difficult for us to compete and stay ahead. The lifestyle that will be affected the most will be that of the middle class…less capital, more competition, fewer good paying jobs. Oh, and more government… My hope is that the private sector can somehow come through once again and take over leadership of our country. It is possible…the US has the opportunity to be completely energy independent in less than ten years. Lets hope we do it without the obstruction of the DC bunch. From that, opportunity will abound. We can only hope….
Okay, I am just about done, but need to do a “shameless plug” for my brother Tom Nordstrom. Tom is my best friend (other than Linda of course!) and a MASTER woodworker…its a bit like Mom’s Mac & Cheese. If you have seen his work, you will be astounded at the craftsmanship, the detail and the absolute beauty of what he does. If you or anyone you know is looking to have a piece of woodworking done that also is art, Tom is your man. Even you aren’t looking, check his work out at http://nordstromwoodworking.com/, you wont be disappointed! Also, I would like to thank all of you who have supported Famous Names in 2012. Starting a new company in a labor of love (and the check book)…trust me when I say we appreciate EVERY customer we had the pleasure to service this past year. Great companies are not built without great people, and Linda and I would like to give special acknowledgement to our partners Lisa and Ken Cooper. There would be no Famous Names without my wife and partner Linda Nordstrom…she brings a smile to all she touches. If you don’t know what Famous Names is, here is our link: http://www.famousnamesproducts.com Finally, I would like to wish all those who read this some great reflections on the year ahead, perfect health and the creation of some great memories…
Until next time….