May 2011

The Leyendecker View

May 2011

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Welcome to May 2011 issue of The Leyendecker View from Leyendecker & Associates. To show our appreciation for your relationship, we want this newsletter to provide you with unique, insightful and valuable perspectives on the economy, the job market, and leadership and management. We welcome your thoughts and feedback. Many thanks for your relationship.  

General Economic Perspectives
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Given the economic challenges presented by stirring inflation, OECD sovereign debt, Middle East social unrest, and weather related calamity, it's pretty amazing to see the stock market hold up so well. Wall Street seems to be in fine shape, corporate profits are rising, and employment demand has been growing.


With first quarter 2011 GDP coming in at 1.8%, all eyes should be on what the economy can do once QE2 ends in June and Washington starts tightening its budget belt. Of course, reducing our budget might be a significant challenge, and serious reductions are unlikely to happen in the near term.


Can organic economic growth take over for the stimulus-supported growth of the last year or so? This is the most important question to keep in mind over the summer. It will likely take a few months before we know the answer.


What might be the engine that drives future economic growth? Could it be supporting growth in China and other Emerging Markets? Certainly numerous U.S. companies are benefiting from these growing economies, but profitability expansion has yet to produce material capital expenditures or hiring domestically. We seem to live in odd times, when companies can be knocking the cover off the ball while the country is challenged by the cost of government and the public balance sheet.

Managing the Modern Day
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One of my favorite sayings has long been...No one is going to take the word "cycle" out of the dictionary any time soon.


Over the 30 years since founding Leyendecker & Associates, we have experienced several full business cycles that included euphoric expansions and daunting contractions. We've seen regulation that enables additional economic growth, and regulation that stands in its way. Sometimes the same legislation produces one effect right after the other. In the 1980s and 1990s, we saw innovations like the PC and the Internet spawn massive organic growth. Today, we see what might arguably be viewed as synthetic economic growth, a result of Washington's dramatic management of monetary and fiscal policy.


The economic roller coaster constantly challenges leaders and managers by reducing stability and precluding the ability to plan for the long-term. Rapid expansions tend to put everyone behind; we can't seem to grow our staff, systems or infrastructure fast enough to keep up during euphoric times. But then in contractions, we can't seem to reduce our fixed costs quickly enough to adjust to falling or stagnant revenue.  


Successfully leading and managing through the "cycle" would seem to require a delicate touch. But in reality, survival and prosperity are often less associated with our skills than with our fortune. This notion has come to inspire my belief that...


Life is part what you make of it and part what it makes out of you. Free will and chance don't often share the same agenda.


When looking back, it sure seems success can often come from being in the right place at right time, while disappointment can result from being in the wrong place at the wrong time. Perhaps the best strategy is to maintain a more balanced view, minding the role that the business cycle can play on our successes and disappointments.


Communication has always been the most effective management and leadership tool. And communication is most productive when the troops feel their commander has a good grasp on the big picture. That grasp manifests as a more confident message, making the troops more secure in their roles. Keep troops secure and they stay loyal.

Chart of the Month: Historical Dow Jones Industrial Close Data
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Born of a curiosity if there was any correlation between unemployment and Dow Jones Industrial closing numbers, we arrived at this chart. There is no discernible correlation between unemployment and the DJI closing numbers. But we were fascinated to see the Dow charted from 1960. It is interesting to see that in the 1990s, wealth creation dramatically changed and spiked. Possible factors seem to be an influx of private citizen investment, the advent of the Internet and all corresponding technology proliferation and investment, and the 1999 repeal of Glass-Steagall. What had historically been a relatively stable metric, more recent DJI data shows that we have unquestionably been entrenched in a consistent boom-bust cycle for 20+ years. (Source: Yahoo Finance.)

Perspectives You Can Use
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From the Fed

Charles I. Plosser: Strengthening Our Monetary Policy Framework 

Charles I. Plosser, President and CEO of the Federal Reserve Bank of Philadelphia, doesn't believe we are on an accelerated inflation track. He thinks that the significance of inflation fears is revealed when we consider that less than a year ago, people feared deflation. He sees this rapid swing from deflation to inflation anxiety as a lack of confidence in the Fed's ability to maintain price stability. This is problematic for monetary policymakers, he argues, as this confidence is essential to a central bank's ability to ensure price stability. Plosser's solution includes using a "numerical inflation objective" (or inflation target) as a tactic to anchor inflation expectations, enhance transparency, and increase Fed accountability.


Not Your Father's Factory Job: Manufacturing and Economic Development 

In this economic podcast highlighted on the Federal Bank of Atlanta's website, Jay Moon, president and CEO of the Mississippi Manufacturers Association, discusses the dramatic decline of manufacturing jobs in the U.S. in recent decades. Specifically, he speaks about the way that technology and globalization have changed the skills needed for successful domestic manufacturers and the ways we can adapt and adjust to the changing industry landscape - which is crucial to remaining competitive.

The Economy

The Daily Beast: Bond King Bill Gross: America Won't Default 

In this interview, PIMCO founder Bill Gross says he believes that real progress in Washington over America's "God-awful" financial situation is unlikely to happen until we finally arrive at the precipice of an actual crisis. Regardless, he does not foresee the country defaulting on its debt.


The Business Journals: Recovery gains steam as 77 of top 100 markets add jobs 

Recently released data from the Bureau of Labor Statistics show that north of 75% of the nation's major markets have seen economic recovery. And 77 of the 100 largest metropolitan areas have gained jobs in the past year, with Dallas-Ft. Worth and Houston leading the pack. The South and West continue to face slow growth.


Hayek vs Keynes: Round 2 Rap Video 

Some clever people re-imagine the debate between Hayek and Keynesian economic theory as a rap.


HBR Ideacast: How Great CEOs Cope with Constant Stress 

Justin Menkes, author of a new book called Better Under Pressure, discusses what separates those leaders who are better under pressure from those who are not. He argues it's all in preparation, and discusses those key components that allow great leaders to get prepared.


McKinsey Quarterly: Growing through deals: A reality check 

McKinsey analyzed mergers and acquisitions of the world's top 1,000 companies and found that the size and the frequency of deals had little bearing on corporate finance and excess total returns. Rather, it is the soundness of the deals and the ways they are managed that are most significant to value creation.


Management & Hiring

Harvard Business Review: The Most Important Question a Manager Can Ask 

This HBR article reminds us that the focus of management isn't just about those we manage; it's just as much about us. The thought leaders on management writing this piece suggest that the most important question a manager can ask is "What can I do to help you be more effective?" They also outline a plan for optimizing this approach to enhance performance.


The CBS Interactive Business Network: "I Can Do Anything" and Other Career-Destroying Myths 

Who we hire matters. Using the infamous appointment and departure of Cathie Black as New York Schools Chancellor as an example, this author asserts that the most successful leaders understand the mechanics and minutia of their industry - an aptitude that can only be gained with time and experience. Proving oneself to be exceptional in one industry does not grant exceptional status in any industry.

Thanks for reading The Leyendecker View. We hope you find these perspectives unique, insightful and valuable.

We at Leyendecker & Associates are committed to the highest standards of value creation. 
Doug Leyendecker Jim Ford David Prodoehl Kelly Griego