Still traveling through Europe…

I had an interesting conversation at lunch today. I sat next to a guy from Holland visiting Verona for a big meeting, he works for a standards group that sets up the communication standards between boilers, air conditioning systems and the controllers. This is big building type of air conditioning systems. Obviously with me the conversation turned to the economy and the various attempts to solve the financial crisis. He gave me one piece of information that was interesting. He told me that yesterday, in preparing for the meeting, he pulled numbers for all the boiler manufacturers in the world and found that they were all up year to date compared to last year; and in Europe they are up over 20% from last year.

My first reaction was that I had found a bit of hope, since there is a construction related business that is still growing in the global economy. This is very good news since construction in Spain, I was told, was at almost a dead stop. The more we talked the more I realized that Boilers are a long lead time item and is probably lagging the economy for at least a couple of months, so we’ll see in two months.

I got to my room and turned on CNN and that was a mistake. All the news cycle stories are about the economy and all they have to say about it doom. Earlier I wrote on this blog that if you tell a lie (maybe not a lie, but in this case repeat a mantra) long enough, by enough people, then people begin to believe it. It becomes a self fulfilling prophesy.

Let me give you an idea of what I subjected to here in Europe:
1) Iceland is going bankrupt, the small nation should not have been involved in global banking system.

2) Hong Kong families are protesting because they were misled into buying Leaman Brothers stock and financial instruments, and they lost all their savings. My heart truly goes out to them.

3) Germany, a family had all their savings wiped out and are now afraid that they will lose their house.

4) London Cabbies are to the economy as the canary to is to the miners. The cabbie interviewed lost a lot of money and is angry but very professional with an MBA, but likes to drive a cab because he’s his own boss.

5) Hong Kong, China and several other Asian countries have cut their lending rate in concert with the EU and the US, and it has done nothing to stabilize the economy.

Do you get the point? I can go on for another 5 pages and there is nothing good in the news. I’m going to bet that every newscast from Argentina to the Zimbabwe are telling billions of people that the world is hopeless. We are all being told that there is a lot of work, but nothing is actually working.

Right now they are showing how “HISTORIC” these times are, and I have to think if it is not hysterics. The energy is spent on the negative and the governments feel more and more empowered to do things that only three (3) weeks ago would not have been done. Everyone is openly questioning whether or not Free Market Capitalism works or not.

I remember the lessons I learned in Manufacturing back in the 80’s. A little known guy by the name of W. Edwards Deming taught us about the effect of “natural variation” in a system. To demonstrate the point he pulled some of us up to be what he called his willing workers. In the experiment he put a number of red, green, blue and yellow beads in a large container of beads. We mixed it thoroughly and we were asked to put a special paddle into the bucket with the color and white beads. We all got a few and I did not get any. I was crushed.

Deming then told us, and the people around that the colored beads were actually defects and that the bucket was a production line that made nothing but white beads. I was ecstatic! I was the only perfect worker in the group. Another poor guy had about 8 or 10 of them in the 50 piece paddle. He was FIRED! Unceremoniously terminated for cause and sent, head down, to the table where he sat. Deathly quiet moment for all of us. Many people, including me had a difficult time pushing the paddles back in to grab our production run.

I had 7 colored beads but I quickly looked around and found one other who had 8 beads and I felt safe. He was unceremoniously fired, and I was put on the warning list. My name, in Red Letters, where it had been in bold Green letters just a moment ago: I was crushed. I kept looking at the red line through my old name on the GOOD list. We continued to fight through and eventually I too was unceremoniously fired. I remember to this day, over 20 years later, the long walk back to my table and the thoughts that I should have tried harder. Do you understand the idiocy of how I was feeling?

The system had natural variability and the average colored beads was set at 5% and if you look at the numbers we saw, the average was actually 5% and the variation was natural. And, if you take the time to look at a years set of numbers, or ten years worth of numbers on the financial markets, you’ll find that there is natural variation in the market too.

Then Deming made the statement that has stayed with me ever since: When you interfere with a system in statistical control (call it balance if you’re not used to statistical terms), you cause wild oscillations. Think about it. We’ve had a fair number of recessions since the great depression, and we can go further back and say we’ve had a number of recessions of varying sizes since 1800 and the markets, when tracked over a long period of time, tend to grow in a relatively predictable way. Since nothing grows all the time, there are a few corrections. The financial systems, over the long term, is relatively speaking approaching the statistical control or balance. If some go crazy, they fail and other’s better managed move in: we all suffer for a while, and then enjoy the benefits.

I am beginning to truly fear that government is moving too close to taking a system that works, with pain but works and destabilize it the same way that one can do in a manufacturing operation.

— Paulson is thinking of buying banks. Is that the right thing to do?

— England nationalized some or part of some of their banks.

— Iceland has stepped in and took over their major banks.

— Russia stops financial trading.

— The IMF who preached Free Market Capitalism is focused on government intervention.

Do we trust the guys who did not take the hard decision to stop Fannie Mae and Freddie Mac because it wasn’t popular to tell people they had made wrong choices in life and could not afford that mortgage? Do we trust people who are reacting to fear?

Franklin Delano Roosevelt’s famous inaugural speech comes to mind, “…So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance… ” We are not fed powerful positive images like the on CNN and all other news channels. What we’re fed is fear and fear itself, with no strong leadership.

We are told that these are “confusing” times and that’s far from it. We all understand what happened. Fannie Mae and Freddie Mac caused the deep fall we have. It is fixable and people need to start hearing that it will be allowed to fix itself and that the government will give it some cover; not take it over.

We are watching fear and Government profit taking in political capital. We must focus on the positive, to think clearly and to stop watching the news and focus on the things we can all control. Panic is a bad thing, and News stations make money on viewership so they are interested in pushing the panic and get us to watch News channels.

Take a chill pill…

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