Sunday, 27 October 2013

Big Mac, but no Heinz ketchup

Corporate battles are usually hard fought, but this really is the limit. McDonald's is blacklisting Heinz because they had the temerity to appoint the ex chief of Burger King as their CEO. Sure, some rivalries are legendary - Coke vs Pepsi, P&G vs Unilever, Apple vs Microsoft, Walmart vs every other retailer, and indeed McDonald's vs anybody else who sold burgers. But isn't this a step too far ?

HJ Heinz, the makers of Heinz Ketchup were recently bought out by Warren Buffet's Berkshire Hathway. The new owners appointed Bernando Hees as the CEO. The trouble is that Bernando is the ex CEO of Burger KIng. Apparently McDonald's is finding this objectionable. So the next time you buy a Big Mac they wouldn't give you those sachets of Heinz - one if you buy in in India, two in China and a fistful in the US !  Presumably it would be somebody else's - maybe Hunt's or whatever.

Yes, corporate rivalries are taken seriously. If you work for Pepsi and are seen drinking  Coke, well, let us say your career is not going to zoom. A long time ago, this blogger was invited to a Pepsi dominated party and thoughtlessly asked for a Coke (just as a generic term for cola) . The hush that followed , the incomprehension of what I had done wrong for a minute, the dawning realisation and then the flush of embarrassment - well; 20 years on, it is still fresh ! Equally vivid is the memory of hosting a Coke delegation at work and going to extraordinary lengths to ensure that Coke was the only cola seen for miles; only to discover one bottle of Aquafina - just one - at somebody's desk.

But that is relatively unusual in these days when corporate loyalties are somewhat passe. This blogger is a die hard alumni of one of the aforesaid mentioned companies and would really hesitate to buy the rival's products. But this is not some religious zeal - just habit formed over the years.

Which is why I am surprised at McDonald's move. They are not such hated rivals of Burger King. And ketchup is a small portion of their ingredients- after all there is a lot more to burgers and fries than ketchup. And Heinz is not doing something ridiculous of going to bed with competition. All they did was appoint somebody as a CEO. Does this warrant such an extreme reaction ? McDonald's is behaving like the proverbial school bully. Grow up, you lot.

Competition need not be a war. The other guy is not some hated tyrant who ought to be exterminated. Sure, you want to beat him, but you do not have to be a Genghis Khan. Cooperation, even with competition, is not unheard of. While Apple is slugging it out in a patent war with Samsung, they quietly buy chips from .

So shame on you McDonald's for issuing this press statement - "As a result of recent management changes at Heinz, we have decided to transition our business to other suppliers over time" . Here is my own statement - As a resulted of pig headed behaviour by McDonald's I am hereby declaring that I will not have a Big Mac ever. Anybody hahaing that statement on the grounds that I am a vegetarian will be hit on the head !


PS - Actually this post has taken somewhat extra liberties with journalistic licence. Heinz has been acquired by Berkshire Hathway and 3G Capital. 3G capital are also the owners of Burger King. So there is more to it than pig headedness. But then , a post is a post is a post and a blogger has to survive ....... :)

Tuesday, 22 October 2013

The war of the old on the young

The old have declared war on the young. Few dare say this, but the other day Alan Milburn did just  that. This is an emotive issue and there are bound to be strong and passionate feelings. But this blogger, who is himself more in the old category rather than the young,  is in agreement with this premise.

Alan Milburn,  a former UK government minister and an advisor to the current government,  has said that there is a fairness deficit between generations. He thinks that the elderly should lose some of their benefits to make life easier for the young.  It might sound callous, but if you sit back and reflect, there is much merit in what he is saying.

In the West, much of the budget deficits and the debt problem is because of  disproportionate spending on the elderly. Health care costs which are largely consumed by the elderly, are a huge burden on the economies of most nations. Ditto pensions - promised very liberally a long time ago. Medicare and Social Security are the greatest ticking time bombs in the US - and both mostly concern the elderly. Same is the situation with the NHS in Britain. Pensions are a millstone around the neck in France and Germany. Unionisation  and labour laws in Europe protect and coddle the existing workers (mostly older) and keep out the prospective workers (mostly younger). And where do the cuts come ? On education, on infrastructure, on employment - all directly affecting the young. All this while, the debt burden of countries keeps getting ratcheted up which our children have to pay back some day. We are now a civilisation that cares for the elderly and cares two hoots for the young.

Consider the vexed issue of pensions. We are blessedly able to live longer. We all seem to have appropriated pension schemes long ago, that pay out pensions based on the last drawn salary when in service. This is then adjusted for inflation. None of it is funded from our savings - its all funded out of the contributions of the young who are currently working. Frequently we draw more in pension than we drew when in service. If you think this is a particularly European phenomenon - think again. The pension for government and public sector retirees in India follows the same pattern. And after the person dies, his or her spouse continues to get it. If you retire at 60 and die at 90 and your spouse outlives you by 5 years, then you draw pensions for some 35 years. You didn't even work that long in the first place.

Its not just pensions or medical care. All sorts of boondoggles are given to the elderly. Free bus passes. Subsidised transport. Higher interest on savings, discounts and freebies of all kinds. And if you ask them just to work that bit longer before retiring , there is such a furore that governments are terrified of even thinking so.

The future of any civilisation depends on the investment it makes on its youth. Each succeeding generation must build and improve on the previous generation. For the first time, we are faced with a generation which might actually have a lower quality of life than the earlier one.And why is this so ? Simple. Because there are more older people and they vote. Try even making a small cut in benefits to the old - the government will fall. The young ?? Who cares about them. They don't vote en bloc and bring down governments. Many of them don't even have the right to vote - they are not yet 18 or 21. They are old enough to take a crippling debt to go to college but not old enough to vote.

So, we the elderly, ought to pause and reflect rather than continuing to corner all the money. We should provide for old age ourselves - save and create a nest egg for pensions and health care when the time comes when we are too old to work. Fund our own pension schemes  and  not depend on the government to give handouts. We should politely return all subsidies and ask the government to spend it on the young. We have had our time in the sun - let the youth of today enjoy a better quality of life. And pray that the Good Lord will take us into his lap in a timely fashion, and not let us live till 100. When I go to my grave, I would rather go with the knowledge that I sacrificed to make life better for the children, than with the curse that I appropriated all the goodies and left the children to rot.

I know its harsh. But think about it.

Sunday, 20 October 2013

IPO yourself !



Initial Placement Offer (IPO), is the first sale of shares in a company to the public - remember Facebook's IPO and now coming on, Twitter's IPO. It is when successful entrepreneurs who have built a good business cash their millions, along with those who invested early in their company. We've heard of company IPOs. But have you heard of an individual IPOing himself ! That's is what is about to happen - where else ? in the US of A.

An American Football player (remember this is American football; not soccer), is trying to do just that.  Arian Foster is a running back with the Houston Texans, a NFL team. NFL players are paid a fair few millions - being considered more valuable than surgeons or distinguished professors (Profs J and Khe please note !). Now football players are better known for exercising their brawn and are not necessarily top notch in the brains department. Enter financial advisers, brokers, agents, managers and all sorts  who want to touch and feel all that money. Being very bright, they cook up all sorts of ingenious ideas and schemes. The latest is to IPO yourself !

This is how it works, A company has been formed whose only business is the income streams associated with Arian Foster.  They are issuing 20% of the shares of this company for $10 m. He already has a $23.5 million contract with the Houston Texans. In addition he may get endorsement deals and after he retires, hopefully some broadcasting deals. Investors can get a 20% share of all this. If you believe Foster is a huge star, this will be a nice worthwhile investment. If you believe he is a dud, then well .........

This deal sounds strange, but actually is a fairly straightforward affair. The future income flows of a NFL Player can probably be predicted with greater certainty than those of a company. For starters he has a guaranteed $ 23.5 m contract - so a $4m share at 20% is assured. Knowledgeable sports buffs (like yours truly !) can make informed predictions of the future for players. So, this can be an easier evaluation than many others.

I should admit is that this is not the first instance of somebody doing this. The British rock star David Bowie famously did this a while ago. Some other, less famous people have also attempted it. What is strange is all the "innovation" happening here. Surely the best brains in the land can do more productive things than dreaming of an IPO for a player. But then most of the world's innovation is going into areas such as this and not into what society might consider as more useful areas. 

The person most vulnerable in all this is Arian Foster himself. Once he signs this deal, he has virtually pledged his soul to the financial whiz kids. He cannot make any decision anymore regarding anything. If he wants to switch teams, he has to take the approval of the shareholders. If he wants to retire - then too. If he gets injured, he will be cursed and told to get on to the field even if he hobbles on one leg. They will make him do all sorts of endorsements or whatever to earn more money. They might force him to play off season in Matabeleland. And well, after retirement, he has to keep slogging, finding ways to earn more money. Is all this worth a "mere" $10 m.

 Prof Khe might want to to consider IPOing himself too. He can become an instant millionaire. This blogger is prepared to "invest" 24 million manat for a 10% stake in him  !!

Tuesday, 15 October 2013

T I N A

If there was, the dollar would be kaput. But there is really no alternative. So it has to be the dollar as the world's reserve currency.

It would be useful to go back to basics and understand what a currency really is.  A currency is really nothing more than a piece of paper backed by the promise of  a government. If you believe in the promise of the government , you hold that currency. If not, it is worthless. Remember the promise is only an act of faith - there is no backing of gold or a real asset behind the currency. Take out an Indian rupee note - any rupee note. It will say "I promise to pay the bearer the sum of xxx rupees" under the seal of the government of India. That's what it is - a promise.

Governments have the licence to print money. But if they simply keep printing on, it will lose its value. Beyond a point, the population will simply lose faith in that currency and resort to barter or to some other currency. That is precisely what happened in Zimbabwe sometime back - the Zim $ lost all value and the US $ became the de facto currency.

When it come to international trade and countries holding reserves, the only real currency of faith is the US dollar. Because the world had, and still has, the maximum faith in the US government above all. But that faith has been seriously eroded in the last two years thanks to antics in the US Congress. If there was an alternative, many would have fled the dollar. But there isn't. The Euro is on an even worse footing than the dollar - which country is the backer of the Euro ? Germany ? France ?  for there is no country called Europe. The Japanese Yen inspires very little confidence. The Chinese Yuan ?? - well the world has to go a long way before that happens - is everybody prepared to trust the Chinese government more than any other ?

China has called for a new global reserve currency. It has to, for after all, it is the largest lender to the world. Easy to say. But what will that reserve currency be ? And which government, or governments, will back it . And how can we trust that any more than the US dollar.

So there really is no alternative. But that should give those in the governance of the United States food for thought. The dollar retains its pre eminence only because the others are worse. Trust is hard to earn, but easy to lose. Those doing the antics  in the US for the last few weeks ( actually for the last four years) have done much to erode that trust. But the problem lies deeper. The US has been printing money like there was no tomorrow, for quite some time. It has come to the brink of default once before, and is now engaged in the same brinksmanship again. There is increasing evidence that sound economics is becoming a rare feature of the management of the US economy.

I am no economist and learned academicians ( are you there J !) have to design the future global reserve currency. But whatever that might be, it all boils down to trust. Alas, there is little to trust in today's world. Whose word can you trust when the only economy that is practiced is that with the truth.

The US dollar note says "In God we trust". I'm not sure if the irony strikes the governing class in that country.

Monday, 7 October 2013

The French are, well ...., crazy !

The French have an advanced case of obsession with "culture". At least the French government does - the French people are probably as willing to dance Gangnam style or shop at Walmart as ogle at the impossibly unaffordable haute couture ! The French government doesn't like American soap, doesn't like English words stealing into French, doesn't even like their steel company to be bought by foreigners. Now they are picking up a new fight. They want to protect French book stores against  big bad Amazon.

The fight goes somewhat like this. Apparently small book stores are an integral part of French culture ! As with everywhere else, small bookshops are going out of business. The first threat came some 20 years ago with the arrival of the supermarket chains selling books. Promptly the French parliament passed a law "limiting discounts that can be given on books".  This was to protect the 2000 odd book shops in France so that they can continue to charge high prices and the supermarkets could not go below them. Then came online retailing. Everywhere else in the world books are largely being bought, if at all, online. France is no exception. Enter the chivalrous MPs in the French Parliament. They are now decreeing that online retailers (read Amazon) cannot offer free delivery - they have to charge so that they can be conveniently more expensive than the local book store.

In a mind boggling assertion, Christian Kert, the parliamentarian who sponsored this bill asserted that "The (book pricing) law is part of our cultural heritage" !!! The bill passed unanimously - now anybody who knows France's politics knows that nothing can ever be unanimous - not even free sex. But the "Screw you Amazon" bill passed unanimously. Wow !

Economics is not necessarily the strong point of French law makers as has been amply demonstrated over the years. It is not even their weak point - it simply does not come into thought at all. To protect 2000 geriatric stores, the lawmakers are willing to piss on millions of consumers. Governments are supposed to protect consumers, not mollycoddle long in the tooth producers. 

Notice how the "culture" that the government wants to protect is often what the French people themselves don't care about. French food, French wine, French fashion,  are all conquering the world with no assistance needed from the government, thank you very much. But French pop  music sucks; so mademoiselle dutifully listen to One Direction ! The government is outraged and passes quixotic laws unanimously.

The French deserve better. Their entrepreneurs, businessmen, workers are amongst the best in the world. There are great aspects of French culture (including shutting everything down in August !) that will thrive , not because governments are protecting it, but simply because people like it. There are other aspects of the culture, that should die, because they don't appeal to people anymore. There is no such thing as a static culture. Cultures evolve and so they should.

Thankfully, I never go to  a bookstore in France to buy books. For that matter, I am willing to bet, neither does M Christian Kert. Some smart TV reporter should ask him when he last bought a book and what the title was. His response may put the redoubtable Sarah Palin to shame !

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