Alchanati Campbell & Associates
Imagine having your beliefs and safe comforts destroyed. You relied on truth and security, and you put your full faith into a system that was supposed to compensate you for your commitment and hard work. You believed in something with your full heart. You made yourself vulnerable and weak, but with a strong foundation backing you, you didn’t really care, and you didn’t have a reason to care. And then it tricked you and made your life almost impossible to live. You had to adapt. To make the bare minimum just to survive. Taking up odd jobs that humiliated you, but you didn’t have a choice. It was either that or work for free. Starvation, homelessness, and poverty might be incomparable to this, but who knows. Maybe these are the unknown byproducts of this shutdown. Day 35… the end is here.
“I am very proud to announce today that we have reached a deal to end the shutdown and reopen the federal government.” President Trump finally agreed to reopen the government for about three weeks until February 15th after a crazy day of airport closures due to a shortage of air traffic controllers. For the past 35 days, 800,000 government employees had their paychecks halted. These furloughed workers and their families would line up in lines as long as a couple city blocks just to collect donated groceries. This president-engineered shutdown ended today when President Trump and Congress reached an agreement.
The Market. Was the US stock market a bubble in 2018? Should you own as little US equity as possible? Speculators dominated the market in 2018. They chased fads and fashion, and they tended to follow the herd. Cannabis and cryptocurrency. The top feared global risks for 2019 are extreme weather events and natural disasters, cyber-attacks, data fraud and theft, weapons of mass destruction and a water crisis. China reported its slowest growth rate (6.6%) in nearly 30 years. Venezuela cut diplomatic relations with the US after President Trump recognized the interim president Juan Guaido as the official president. Without more babies and immigrants, the US won’t be able to support its aging population. Two new economic theories: the longer the expansion, the larger the pool of “at-risk” relationships and the size of the downturn predicts the size of the subsequent expansion, but the size of the expansion does not necessarily predict the subsequent recession.
China’s slowdown. China released its GDP numbers this week, and it’s a little concerning. China recognized the economic growth of 6.6% in 2018. For most countries, this would be a great growth figure to hit. For China, however, it represents its slowest growth in almost 30 years. A few possible reasons exist. Obviously, there is the other side of the trade war that we've been witnessing for the past year. However, while the impact was felt, Chinese officials said it was "manageable". Perhaps the slowing of economic growth is due to the Chinese government trying to manage debt-levels. Less reliance on debt, in the long run, is healthy for the economy. Right now, however, it would mean that the chances of China sustaining superb growth is slim. Interestingly enough, at the World Economic Forum in Davos, China has told the world that its growth is healthy and focused on the long run. If China, one of the world's largest economies, were to significantly slow down, it could trigger global ramifications on the scale of 2008.
The Innovator’s Dilemma. There are two types of technologies, “sustaining” and “disrupting”. The way a company handles these technologies is what sets companies such as Apple apart from companies like Xerox. Clayton Christensen writes in The Innovators Dilemma that the best way to handle disruptive technologies is to, “find or acquire a subsidiary company with the right values and processes, equip it with the necessary resources, and let it do its thing.” During the 1980s, Xerox was well on its way in establishing itself as the world leader in printing solutions, and one of the most valuable companies in the world. Xerox was known to have the strongest sales force in the world, and near full market domination to the point where people even today still refer to printing as “Xeroxing”.
So, what happened? During this same time period, some of the world’s leading computer scientists and engineers were working at Xerox PARC on a few groundbreaking technologies. Just one of the many innovations they came across was a GUI (Graphical User Interface), which is what every personal computer in the world uses today! Before the GUI, computers had that bland green text with the black background you see in old movies. So why do Apple and Microsoft have market caps approaching $1 Trillion dollars while Xerox barely maintains a market cap of $5 billion? Back in the 80s, the brass at Xerox headquarters didn’t see a market for the disruptive technology and instead allowed Apple, and later Microsoft, to have some rights to the disruptive technology that would go on to revolutionize the home computer. In the following years, Xerox would try to release their own personal computer, but would ultimately fail miserably. Xerox had a chance to be what Apple or Microsoft are today, but instead, they focused on their sustaining tech and gave away their edge on one of the most disruptive technologies in history. Xerox is not alone; Kodak, IBM, Yahoo!, Sears, Polaroid, AOL, are just a few examples of companies that held a vast market share, developed innovative technologies first, and still failed to innovate. These companies failed because they chose to focus on their sustaining technologies that offered higher profit margins and satisfied current consumers while leaving disruptive technologies with little or no developmental or marketing resources. Make sure to keep an eye out for companies developing disruptive start-ups, because that is how you beat The Innovator’s Dilemma.
The Alchanati Campbell and Associates Team
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.