Last week’s most inescapable story involved New Jersey Governor Chris Christie and the unfolding scandal dubbed ‘Bridgegate’.
How could anyone miss it? Christie hosted a 108-minute press conference to answer and exhaust a hungry press corps. That was likely the longest press conference anyone could remember dating back at least a half-century. Hell, America had a shorter press conference to announce the end of World War II.
Bridgegate will ensure that the rotund governor from the State of New Jersey will never see the inside of the Oval Office, that is, unless a sitting president invites him over for a drink or a meeting.
Some believe that Christie will survive this disaster and after all, 2016 is a lifetime away. NBC’s Chuck Todd almost put his finger on the answer. The left-leaning Todd said that Christie’s press conference made him look like “just another politician.” Before going further, I want to note that Todd’s statement about what constitutes “business as usual” is a terrible truth about the reality of what passes for “politics” inside the Washington Beltway these days. But there are bigger truths that Christie can never overcome.
And that is this: Christie is the leader of one of the largest states in the country—one that sits right next to New York City and is considered to be very strategic for a host of reasons. Christie is finished because he is stuck in a Catch-22 that will bury him no matter what happens from here.
What Catch 22? One of the following has to be true, and either way, it spells doom for the New Jersey Governor:
1. Everything he said in his press conference was the truth. He had no knowledge of anything before he saw it on cable television the morning before his press conference [right after he had his workout].
2. Christie is lying: He knew something that we will eventually find out. Nixon showed us four decades ago that the truth always comes out, no matter what. You can’t erase the truth like some tape. There are now permanent paper trails, thanks to today’s technology. Even without a smoking gun, we have yet to hear from all of the people who surround Christie—-particularly the insiders he fired.
Which of the above is more likely? #2, but even if he knew nothing until the day before his press conference, it is difficult to believe that he knew absolutely nothing about the Bridge-related events—and this excuse does not pass the smell test. Christie—prior to this crisis—has been a no-nonsense, rude, but very strong leader (Hurricane Sandy showed us that). This is a guy who runs a ship as tight as any in the country which explains, at least in part, why he just won re-election in a landslide. His culture is “do it my way or I will cut you to pieces” (or stop traffic so that it backs up into your town). That was the culture he fostered over months and years. I have always asserted in all of the books I have authored, especially the Jack Welch books, that culture is something that takes months and years to build, not days or weeks. It is almost impossible to fathom that people under Christie’s leadership would do something that is not in accordance with the thinking and method-of-operation of this hard-charging leader.
And that is why Christie is finished.
Because both #1 and #2 above are career-ending realities. Either he was a clueless putz or he promoted this type of petty, dangerous politics. Think about it for a moment: If you are working for a boss who has a tight reign over his or her department, chances are you spend your day thinking how to “please the boss.” I have had tough, but good bosses and that was the way I always viewed my job. As long as I was never asked to compromise my values then the boss’s goals came first— Even before my own. So that means that the people under Chris Christie felt like they had a green light (pardon the pun) in doing what they did. And that is why Christie deserves to be finished. Bridgegate wreaked havoc on thousands and thousands of people each day lanes were closed on the George Washington Bridge, ostensibly due to some mythical traffic study. People were late for work, kids never got to school, and most important, first responders could not get to the people who needed them.
There is the story of the 91-year-old woman who died before the ambulance could ever get to her. The woman’s daughter said that it was her time to go. But what about the stories we have yet to hear? I believe that this will eventually lead to criminal prosecution and the end of any chance Christie had to become the 45th president of the United States. [His chances were never that good, in any event: his bullying-antics would play poorly in states like Iowa and South Carolina.]
Perhaps history will show this to be a watershed moment that revealed the feet of clay of someone who had a chance to be leader of the free world. Better to know now, while stuck in traffic, before the same person responsible for that traffic practices his dangerous tactics on a worldwide scale.
—Jeffrey Krames, January 12/13, 2014
Here, on the 8th of October, 2013, we are about 200 hours from defaulting on the full faith and credit of the United States, an incredibly perilous place to be. And not only for America, but for every country that holds any significant amount of U.S. debt. And that is many, many countries around the globe, as the U.S. dollar is the world’s currency and our Treasuries are the most important paper in the world. Oh, and let’s not forget developing nations, which are too many to name here, that also rely on a stable global economy and a stable U.S. currency, lest they crash and burn with the rest of the world’s developed economies.
And if that is not enough on our political plate, we have entered Week 2 of a government shutdown, with no off-ramp in site. In fact, both of these dangerous situations are beginning to merge into a single incoherent argument—another potentially disastrous scenario as the possibility that neither situation gets settled by the doomsday deadline of October 17th (now nine days away and counting). If the Dow drops a couple thousand points before the 16th, then I predict that the House will put a Resolution on the floor that will kick the proverbial can down the road for a few weeks. But, that would only add new uncertainty and delay the crisis for a few weeks, hardly a desirable outcome given how much markets hate uncertainty.
Let’s back up and take these crises one at a time, because while both are bad, one is just terrible (the shutdown), and the other is calamitous (reneging on our bills—which means not raising the Debt Ceiling). However, if you listen to certain GOP members, some do not think a default on our debt as a crises—in fact, some seem fine with it. People like Ted Cruz and Rand Paul have gone on the record saying that a default is no big deal.
Having closely observed the financial market meltdown and the debt ceiling debate in 2011, I can tell you without equivocation that the defaulting on our debt has incredibly horrendous implications. We lost 2,000 Dow points—a 16% haircut—-when we almost went over the deadline in August of 2011. Let me put it another way: financial markets—which serve as an external scorecard for what goes on inside the beltway—basically crashed when we did not go over the deadline. And that was when there were far fewer schmucks in both chambers of congress. More on that later.
Back to the government shutdown: with one week already behind us, given the vitriol of the Beltway rhetoric, I think it is safe to assume that the shutdown will last at least one more week and join its twin disaster without settlement until October the 16th at the earliest. No one knows for sure, and I am no economist, but I feel that the financial consequences of a continued shutdown have been under-estimated. We could easily shave most of a full percentage point off of our GNP (Gross National Product) if things go south, and at the worst possible moment—when our recovery is weak and the Fed is about to decrease its monthly bond buying purchases.
However we got here, this is the key: it doesn’t matter who got us here (e.g. Cruz & company), it’s who will get us out that counts.
And pondering that outcome is what makes this an incendiary situation that burns hotter by the day. It is not only that there is no adult in the room, it is that there is no room (and no adults). As Speaker Boehner said on Sunday, “there may be a backroom somewhere, but no one is in it.” Let’s call it the empty room scenario—and that is what is causing me to lose sleep and rethink so much of what I hoped for the American economy in the 4th quarter and the early part of 2014 (remember, I see much of the world through the lens of the financial markets since I manage several of my family’s stock market portfolios–and right now, I am adding to my “shorts” every day).
Now, let’s get to the all-important leadership question. Because when you speak of huge enterprises, whether a multinational corporation or the U.S. government, everything ultimately comes down to leadership. Or more aptly, anti-leadership. The fact is there are no leaders in the House of Representatives. That’s right—none. And the most important—well, the one that at least has the title—John Boehner, is the greatest “mis-leader” (a Drucker term) of all. Why? Because he has completely lost control of both the debate and the control of his caucus. Let’s look at how this happened.
First, we recently learned that in the first week of September, Speaker Boehner shook hands on a backroom deal with his counterpart in the Senate, another mis-leader, Harry Reid, majority leader in the Senate. Boehner admitted that if Reid agreed to a $988 billion “sequester level” budget, Boehner agreed to put a clean bill (CR—Continuing Resolution) on the House floor. That means that there was a deal in place that if the Democrats backed off of their number of $1.058 trillion and gave in to the Republican number of $988 billion, there would be no default. All would be settled, even though the Democrats thought the $988 billion number too low: “We didn’t like the 988 number. We didn’t like it but we negotiated. That was our compromise,” Reid said. “The exact bill that he now refuses to let the House vote on. That was our negotiation.”
When asked about that deal, Boehner did not deny it. He said on Sunday that “his” caucus (although I do not think it is his anymore) basically changed their minds. Leaders—particularly in times of crisis—do not have the luxury of changing their minds. The cost of doing so is simply too high, as we are seeing today. Effective leadership depends on keeping one’s word and displaying “ruthless consistency.” Boehner has shown us the opposite. First he gave the keys to the House to Ted Cruz by doing something he said he wouldn’t by allowing the government to shut down, even though he said he would not permit a shutdown. But the Wall Street Journal, recently reported that the Tea Party executed this shutdown with precision. That’s right—this was a Tea Party/Ted Cruz plan all along. Many Democrats wanted to set the funding level in the continuing resolution at $1.058 trillion, rather than at the sequester level of $988 billion. But Boehner reneged, and he did it by delegating leadership to the Tea Party.
I know I have said this before, but it is the key: leadership cannot be bargained away or delegated. That is a ruinous path and Boehner walked straight into it with eyes wide open. Now he has no exit plan. At least no good ones and none that he has talked about since he refuses to put a clean CR (Continuing Resolution) on the floor.
So what happens now? Especially if you are like me—a stock market trader? First, do not count on any resolution to either the shutdown or the Debt ceiling crisis until October 16th, at the earliest, and not even then. There is only one thing that can end the stalemate sooner, and that is a disaster in the financial markets as discussed earlier. I do not see anything else that will end this stalemate without some huge external event like a stock market mini-crash.
History shows this time and time again. When a leader delegates his responsibilities, the unintended consequences are severe. Boehner has lost control of his conference and he has no one to blame but himself. If you give the keys to the car to a freshman idiot who cares only about his own political ambitions, you should not be surprised when the car ends up totaled—wrapped around some telephone pole in the middle of nowhere. That is where we might be heading unless someone blinks. And right now that seems like
more wish than a reality. So fasten your seatbelts, protect your stock portfolios, and hope that some form of leadership returns to our nation’s capital. And stay tuned by coming right back here for frequent updates.
—Jeffrey A. Krames, October 8, 2013
We certainly do live in interesting times, especially if you are like me—a stock market junkie who also follows world events with equal measures of interest and cynicism. Before I continue, I should point out that I started writing this blog a month ago, but I could have just as easily written it three or four months ago. That’s how long these major market headwinds have been around–and most much longer (e.g. Greece). Given how fast things move in the financial markets, and more importantly in the world at large, the enduring nature of our most pressing problems is worth noting.
This is a piece about the stock market, and how long the U.S.—and most other global markets—have behaved in such an insular, illogical fashion for so long. It is as if the outside world did not exist, which is what has traders so frustrated for so long—and why I have agonized over this market for months. In fact, I have hated this market since June.
Like so many other investors and money managers, I have been awaiting some financial disaster—a “Black Swan” event or a “Lehman moment”—that would simply crush U.S. markets. That’s why I have been largely short the market since June, with Facebook at the top of my short list (and Apple a close second since before the troubled iPhone 5 release. But I closed that winning position quite recently). In other words I made a major bet that the markets would fall since early summer, and that just didn’t happen. However, with terrible earnings thus far in Q3, all of that looks like it might finally change—and change fast. Either way, until quite recently, the last months have been nothing short of stock market torture.
I am not alone in calling this “the most hated market rally of all time.” Many money managers have not participated in this market “melt-up.” Research reveals that in 2012 well over 90 percent of portfolio managers have failed to keep pace with the returns of the S&P 500 (which is up 15% through three quarters, its best performance in years). That means that there are literally tens of thousands of traders and money managers who were judging the market on macro events, and as a result, like me, were under-invested. But when the central bankers—first Mario Draghi in Europe and then Ben Bernanke in the U.S.—promised to do “whatever it takes” to prop up respective economies, that artificially propped up most global markets by more than ten percent since late July. I say artificially because that sort of open-ended monetary policy seldom leads to the kind of authentic growth that can lift economies for the long-run, and not just financial markets for the short-term.
The reasons for my continued market pessimism should surprise no one. There is the horror-zone that is Europe with negative-growth countries needing to be bailed out by at least one other country in which its citizens don’t want any part of any additional bailouts (hint: they invented the blitzkrieg). Then there is the much talked-about “fiscal cliff,” which reveals the absolute inanity of the U.S. government. It is a travesty that they cannot get a thing done. Give congress a lamp and a light bulb, and you will still be sitting in the dark a month later. Congress won’t budge an inch on the “fiscal cliff” with its automatic spending cuts and expiration of the Bush tax cuts. The GOP won’t risk making Obama look competent a few short weeks before the election. As a result, businesses are frozen in place. Since they don’t know what the tax situation will be next year, they are loathe to hire new workers, which only adds to uncertainty—and markets detest uncertainty.
Then there is the China slow-down, which is a huge factor sparking another huge problem: the slowing of growth in the U.S., as evidenced by a multi-year high of corporations missing their top line numbers (in the current quarter only four of ten companies have made their top line revenue targets thus far—despite the fact that these numbers have already taken a haircut or two. That’s down by more than 30 percent from an average earnings report). Also, China gives us reports year-over-year without any quarterly adjustments, which obscures the meaning of their numbers even more.
You can stop reading here, or get more detail on the key headwinds described above. If you are still with me, let’s get back to Europe.
Most of Europe is in either recession or depression or heading in that direction—with things getting worse with each passing week (although many talking heads on financial networks will talk of declining Spanish bond yields as evidence of an improving economy. Spoiler alert: they’re wrong). The most beleaguered country—Greece—is experiencing a full-blown depression. With overall unemployment rates of 25%, and a jaw-dropping 55% for young people of working age, Greece is sadly an unmitigated disaster in which things will get worse before they get better. European leaders are finally learning that austerity measures are the enemy of growth, a lesson they should have learned long ago (but are still not changing their stance much on austerity measures). Instead of an accurate representation of the state of these broken economies, what we usually get are platitudes on “progress being made” and “more time should be given” [to Greece]. It appears that Europe’s politicians will say most anything to kick the can down the road to preserve the euro—and the 17-country euro zone—for as long as possible. However, that can only work for a a finite amount of time as the truth of Greece’s inability to pay off their debilitating debts become apparent to everyone [Citigroup puts the chances of a Greek exit from the euro zone at 60%, down from 90% a month earlier].
However, Greece is not lonely at the bottom, nor is it Europe’s most severe problem.
That honor goes to Spain, Europe’s 4th largest economy. This proud nation is in crisis. They accepted $100 billion euros to bail out their banks, but that was just to prop up failing financial institutions. The rest of the country is mired in a double-dip recession, and the country needs to be capitalized or risk running out of money. Unlike Greece, Spain cannot be swept under the euro zone rug for months to come. The country is too big, and its problems much bigger; yet their leader, Prime Minister Mariano Rajoy, stubbornly refuses to request a bailout for the country. And in the “new” Europe, a country must officially request a bailout, and all the growth-killing austerity measures that goes with it—to get any funds from the European Central Bank. But who can blame Rajoy? Every other leader who received bailouts have been voted out of office. It does not help that Rajoy is a serial procrastinator, and is not likely to request a bailout anytime soon, despite weekly press reports to the contrary. He may simply follow Europe’s lead and kick that same can down a different road—a road that leads to additional pain, more debilitating austerity, and ultimate insolvency.
Next up—China. According to numbers coming out of that country, growth is slowing quickly, with growth expected to come in at about 7%-8% for all of 2012. That would be amazing for the U.S. or Europe, but not for China (the U.S.is growing at a rate between one and two percent). In many ways, China poses a far more vexing problem than Europe. Another important aspect of the China problem is that their numbers are likely a canard. China is of course not a democracy, which makes any numbers emanating from that country suspect. That’s why, for example, anchors on CNBC use things like Chinese electricity consumption numbers as a more accurate guide to measure Chinese economic growth. I believe that when the real numbers are finally revealed in 2013, it is far more likely that China had grown by perhaps by four to six percentage points in 2012. We know that dozens of countries in the U.S. have missed their top line revenue targets in the second and third quarters because of slowing growth in China and the euro zone, but more CEO’s have pointed to China as the biggest problem, especially technology companies. This is true with the best U.S. tech names like IBM and Intel. Some large company CEO’s have said that China “feels” like it is growing at two to three percent rather than the seven or eight percent sworn to by China. There is also a monumental change in leadership coming soon in China, which only adds to anxiety in a way that the fiscal cliff has added to fear and anxiety in the U.S.
One city in China—Wenzhou—gives a more accurate picture about what is really going on inside world’s second largest economy. Quite recently the Washington Post ran an article entitled: “Some see China’s in Debt-Ridden City of Wenzhou.” The article made the point that the debt issues of this city bears some resemblance to the Bear Stearns of 2008, which was the first shoe to drop in the debilitating liquidity debt crisis of 2008-2009. The piece also mentioned that a prominent professor from Beijing saw Wenzhou as a “signal that high-interest private lending might trigger a debt crisis.” China’s total debt is estimated to be somewhere from 10 trillion to 14 trillion renminbi (about $1.6 trillion to $2.2 trillion). That pales in comparison to the U.S. with more than $16.1 trillion debt, which comes out $51,472 per American citizen. Hence the title of this posting.
If we are not far more prudent with our fiscal and monetary policy going forward, is it possible that the U.S. becomes the next Spain? It is surely possible, especially since congress is such a dysfunctional organ of our government. Since the stock market is forward looking, I would expect the market to be weak (meaning down) over the next few weeks as uncertainty rules the day. We will know more after the U.S. elections and the ringing in of the new year. Until then, consider buying some protection for your portfolio (e.g. buy some SPXU which is the inverse of the S&P 500), stay tuned and fasten your seat belts.
This trusim is something I alluded to in my last blog posting, and for me, this is a fascinating reality: “If it isn’t a book, it isn’t a stock.” Having just celebrated my 30-year anniversary in the business book industry, I certainly have seen my share of “phenomena” books. Electronic day trading was a phenomenon in 1998 before dying a quick death by late 2001. In the early 1980s, in the wake of the stunning success of In Search of Excellence, every publisher and their mother brought a book out with excellence in the title. That worked for a few weeks before that market died.
Unlike a hot topic like electronic day trading, most social media books have been spectacular failures from the start. I don’t even need the Nielsen Bookscan numbers to know that, for I know intuitively that this genre of business book would die on the vine. How did I know? Because social media books are the classic case of publishers barking up the wrong tree. Publishers have an incredible penchant of publishing the hell out of the wrong topic at the wrong time. Sure, a few social media books did well, but they are the exception, not the rule. While social media is still growing by double-digits in developing nations across the globe, few top tier publishers are bringing out any new books on this topic. Why? Because people who are active on Facebook and Twitter spend hours on these platforms—and no time reading books on the topic. They don’t have to. They know how to access and use these sites so why do they need a book telling them how important it is or how it will influence their lives or society as a whole?
There is also great competition entering the Facebook space: for example, Pinterest, the “online billboard,” is quickly emerging as the next big thing in social media.
This brings us back to the stock market. As I have mentioned before, I have been short Facebook (that is, betting it to go down) since the end of May. I have always believed that there is a dearth of leadership at the $60 billion company, especially in the chief executive’s office. I knew that if publishers could not make a go of social media books, then the biggest company on the block would have a hard time making it as a publicly traded company. The problem isn’t that the customers aren’t there. With nearly a billion users, they have the eyeballs that would make 99 percent of companies salivate. The problem is that they haven’t found a way to monetize their hundreds of millions of users. And when sales can’t keep up with users you have a problem. And when the entire industry is shifting to mobile, a much smaller platform for advertisements, you have an even bigger problem. While I think there is a good chance Facebook will figure it out eventually, it will require time and a kings ransom to get it right. While the firm has money, they don’t have much time. In late 2012 there are far fewer investors out there and more traders than ever. Fewer and fewer people are buying and holding stocks. That means that companies have less time than ever to right the ship. If Facebook can’t get mobile revenues into the multi-billions by say, Q1 2013, I could see the stock sinking into the high single-digits. Single digits? That’s impossible right? Ask Zynga, a firm that, at the time of this writing is trading at $3 per share after hitting a high of just under $16 per share in April of 2012. Or the discount coupon company Groupon (another company I am shorting), which is down almost 80 percent since it went public last November.
The truth is that no one knows what will happen to Facebook stock. But one thing is for sure: as a book category, social media books are likely to go the way of Friendster and MySpace.
Sunday, July 22nd, 2012: We certainly live in interesting times. Especially if you follow the stock market as closely as I do. I have loved the market since I was 13, and that is a very long time. In all of those years, I have never witnessed a time in which seen so many factors could move the market as I see now. There is everything from the fall of Europe, the weakening of China to the very real possibility that the U.S. will actually fall off the “fiscal cliff.” (That is, the raising of taxes for hundreds of millions of Americans come December 31st unless Congress and the president acts—and how often does Congress actually “act” in a way that helps financial markets?).
In this new tumultuous environment, things can—and do—change very quickly. For example, news came this morning that the IMF (International Monetary Fund) has made the decision to discontinue payments to Greece. While the cable news channels have not picked up on this story at all, this could be a huge event that leads to Greece leaving the Eurozone. No one knows exactly how that will play out, but the chances are that it would be a huge mess as Euros get converted to Drachmas, the value of which would have to be determined. Greece is already in a “depression,” says the newly elected Prime Minister Antonis Samaras (and Spain, Europe’s fourth largest economy, is following in the footsteps of Greece. We know this because their bond yields have risen to the “insolvent” level of 7.2 percent, meaning no one will lend them money).
All of this turmoil has turned me into a different type of investor in two key ways. One, I am now more trader than investor. No more “buy and hold.” Now its buy and watch closely. Also, for the first time, I now short stocks. That is, I bet on certain stocks to go down. Which stocks am I shorting? The first stock I shorted was Facebook. That’s because I live by a rule that lies at the intersection of my work life and investing life: “if it isn’t a book, it isn’t a stock.” What does that mean? Although social media is huge and getting even more popular, people tend NOT to buy books on the topic. They don’t need to. They know how to “friend” someone on Facebook or send a tweet without a book. Sure, a couple of social media books did well, but 90 percent of them were dead on arrival. When Facebook’s IPO came out, I went short on the stock about a week later and have held that position ever since.
But the more interesting stock I shorted next was JP Morgan Chase with its “fortress” balance sheet (that’s how CEO Jamie Dimon characterized his company). After the huge “London Whale” loss was announced a couple of months back, I shorted the stock because of the “cockroach” theory. What’s that? If you see one cockroach in the kitchen you know there has to be more (meaning JP Morgan has more problems than the one bad trade). However, I didn’t stop at JP Morgan. Because of the recession sweeping across Europe (and on to our shores next, I predict), I shorted most of the big banks including Bank of America, Morgan Stanley, Citigroup, and Credit Suisse. I figured that the banks would be hit the hardest if the bottom fell out of our economy. I have only added to those positions since.
But it is important to put things in perspective. Perhaps 75% of our savings are in stocks (in long positions), bonds and cash. Only a quarter of the whole are in short positions, and even in that account I am long my favorite stock, which are eBay and Pfizer (among others). I think of my short portfolio as a hedge against an “end-of-the-world” scenario.
But back to JP Morgan Chase. Last Friday it was announced that CEO Jamie Dimon and his wife purchased 500,000 shares of JP Morgan stock on Thursday and Friday. That means that I was adding to my short position while the executive—who supposedly knows the company better than anyone on the planet—was betting the other way. I was shorting 1,200 shares while he was buying 500,000 (talk about David versus Goliath). However, not only am I not deterred I plan to increase my short position today. Why? Well, for a few reasons. I can’t help but recall the time that Jeff Immelt, CEO of General Electric, went on TV telling investors that someday they will look back and see how lucky they were to purchase GE stock at $30-something per share. Since then—and one huge financial crisis in 2008—the stock traded at $5 and change. Today GE trades at $19 and change. That means CEOs are not as infallible as we would be led to believe. In fact, the opposite could be true. Dimon is a very smart CEO (as evidenced by his expert testimony in front of both houses of Congress). However, he is not exactly objective about his firm. Besides, macro events like Europe will move his stock and there is nothing he can do about it.
Only time will tell who was right. For the record, as a long term investment I agree with Dimon. His company will do well; that is, as long as an investor has a 3-5 year time horizon. But in the short term? I didn’t even mention the Libor investigation hanging over most of the banks. That’s too inside baseball and this blog posting has gone on long enough.
If you are involved in the business world, you know that things have gotten a lot tougher in recent years. The housing crisis, which persists to this day, along with the great recession that began in late 2008, have conspired against the business book world in a big way. In today’s challenging economy, sans Border’s, it is harder than ever to get a business book published. Many authors, particularly first time authors, ask me this key question: what do publishers look for in a business book author? Here are some answers, not necessarily in the correct order. Publishers look for:
* Super smart authors with great and original ideas
* Authors that have a great on line presence. This could mean an email list of say, 100,000 names, or a very big following on Twitter, Facebook, and other social media
* Authors with a superb Website and blog with tens of thousands of users
* Authors that give dozens and dozens of speeches per year, or host a similar number of seminars
* Authors whose last book was an unmitigated success (and conversely, publishers avoid failed authors—that is—authors whose last book has failed)
You get the idea. When you get right down to it, publishers look for authors that have the ability to sell thousands of copies of their own book. That’s because the author platform, which is determined by the answers to the aforementioned questions, often means the difference between success and failure for a book project.
Some authors then ask the next logical question: if I am going to do all of the marketing and selling, what do I need a publisher for? That’s a fair question. Publishers actually bring a great deal to the table, but of course, not all publishers are created equal (I will save that thought for another blog posting). But in the meantime, consider this: a good publisher can lend great prestige to a book, helping you to build your brand in a way that would be impossible any other way. A good publisher will also help you to develop and shape your manuscript, and come up with the right package for your book (e.g. title, cover, subtitle, chapter titles, subheads within chapters, etc.). They also do much to market and distribute your book to brick and mortar bookstores as well as online resellers like Amazon. This is true in the U.S. and around the globe. With the most popular business books, they pay for special bookstore placement in airports stores and other national chains (e.g. table placement for your book with Barnes and Noble). They also have publicists on staff that attempt to get as many mentions for your book in the print and other media, as well as book reviews, and when appropriate, radio and television interviews. Lastly, their rights departments attempt to sell your book to as many international publishers as possible, which often means additional streams of income (this is especially true with management and leadership books, as well as books on global topics).
So to sum up: publishers look for authors with great platforms that can sell tons of books. In return, however, publishers bring their considerable resources to bear to maximize your book’s potential. It is fair to say that publishing is a two-way street: however, the traffic on the road has never been more treacherous.
Permit me to add a postscript to this piece: if it occurred to you that I spent little time discussing the quality of the content of your book idea, you are not alone. After writing this posting I was struck by the fact that there was only one mention of the actual book idea. The truth is that many business publishers examine an author’s platform before closely reviewing the content of the manuscript. I think it is a sad commentary on how the business book industry has evolved. But it is also reality. It doesn’t make me love what I do any less, it just means that I have grown to be a bit more cynical than I would have hoped.
If you follow the stock market closely enough you know that today’s market is a study in volatility. But that wasn’t always the case. When I bought my first stock in 1974—Gulf Resources at 14 1/4—only about 15 percent of American households were invested in the market, and trading volumes were anemic. Markets were sleepy. That changed a decade later. By the late 1980’s, despite the crash of ’87, stocks became all the rage. Everyone seemed to get in the market, volumes ballooned, and stock market investing became a global phenomenon. The great bull market, which started in 1982, continued with a vengeance in the 1990s. In fact, the great bull market that commenced in 1982 did not end until the dot com crash of 2001-2002. So how is the stock market like the business book market?
The great bull market in business books also started in 1982 with the publication of Peters’ and Waterman’s In Search of Excellence and Ken Blanchard’s The One Minute Manager. From that point on business books became a booming industry, with many of them, including the two aforementioned titles, gracing The New York Times Bestseller List. However, like the stock market, business books were not new. The father of modern management, Peter Drucker—who I devoted an entire book to in 2009—had been writing a whole genre of business titles since 1946. However, there was a vast difference between Peter Drucker and Tom Peters, co-author of In Search of Excellence. Peters was considered cool, a by-product of a new era in which CEOs were the new American heroes (think Lee Iacocca and Jack Welch). Business books, like stocks, were no longer considered to be something for only a slim slice of the population. Business books were now considered hip, and they seemed to be everywhere. They even became fodder for cocktail party conversation.
Fast forward to today: in 2012, volatility in the stock market—as measured by something called the VIX index—has become the norm. The financial markets are characterized by turbulence. The same is true for business book publishing. The demise of bookstore chain Border’s has been a great loss for the publishing industry. There are now fewer places to “place” books, which has had a chilling effect on the book business (in all genres, not just business books). In addition, the proliferation of free information on the Internet and the fragile state of the U.S. economy has made business book publishing a very tumultuous industry. Layoffs have become the norm in book publishing (and on Wall Street). Perhaps the greatest comparison between the two industries is its unpredictability. No one knows what tomorrow will bring. Who could have known that Border’s would fold and Amazon would emerge as a major book publisher? Who could have known that eBooks would become such a major force in the industry after starting out in the 1990s as a major flop? The stock market and the business book market have one more important link: they tend to move together. Business book sales rise when the stock market goes up. It’s a case of rising tides lifting all boats.
I could go on, but you get the idea. One thing is for sure: both turbulent industries will bring us plenty of surprises in the months and years ahead.
Continuing with the tennis analogy employed in THE UNFORCED ERROR, as in tennis, people in business need to be sure they have a clear view of the court at all times.
When I say the whole court, I mean the entire playing field that serves as the backdrop to our jobs and careers. When I go out and speak to groups, I warn them about getting tunnel vision or “cubicle vision.” I tell them that it is not enough just to see what is going on in their own departments. They need to see what is going on with their unit, different parts of the company, competitors, the operating environment, etc. Only then can you get a clear picture of how well you and your company are doing, and more important, only then can you take meaningful steps to make things better. In these very tough times, with a national unemployment rate hovering at about ten percent, few of us can ill-afford to be caught off guard by a situation that we simply did not know about because we were too lazy to do our due diligence.
For example, say you work in the marketing department of a food and beverage company. You get good performance reviews, and morale in your department is fine. However, what you are not aware of is that parts of the sales department is in ruins. The company laid off 20 percent of the department because sales for the Eastern region fell off a cliff. As a result, the company is going to have to make job cuts across the board, which includes your department. Had you known, you might have stepped up your game knowing what was at stake; and you could have been better prepared to search for a new job knowing that yours was on the line. In this extreme scenario, you would have to be a real ostrich to get caught this much off guard. But this stuff happens every day in organizations.
Most other situations are a bit more subtle. For example, you may be a salesperson in that same company and not know that your biggest customer is in real trouble, endangering the business that you do with them. Their sales make up more than 15 percent of your [individual] total sales budget, so not knowing that they may shut down their doors could also cost you your job. That example isn’t all that subtle either, but you get the idea.
When things are as tough as they are now, with unemployment rates so high, you must constantly work without blinders. The risk for failing to do so is simply too high.
In the last post I talked about people you should not hire. Here we will do a 180 and talk about the people you should. Herb Kelleher, the founder of Southwest Airlines, was all about attitude and creating an organization that fostered a positive, upbeat atmosphere. He felt strongly that people could be trained, and urged managers to “hire good attitudes even when the people with bad attitudes have superior degrees, experience and expertise.” He also felt that people should be allowed to be themselves at work. No employee should ever have to put on a “work mask,” he once told me in a written interview.
Research and experience shows that Kelleher is right. Choosing someone because of an impressive resume over an individual with a winning attitude can be a huge unforced error.
How do you know how to spot someone with the right stuff?
I have always looked for people with character—individuals with the DNA that allows them to put the company above themselves. That’s often the difference between a good hire and a bad hire. People with personal goals often go the extra mile when the company needs them most.
There are other ways to discern the out-performers from the laggards. Trusting your gut is usually a good idea, especially if your gut has served you well in the past. Or, perhaps you have heard from multiple constituencies (e.g. customers, colleagues) that this individual is not a team player. If you need a formula to identify top notch people, consider one of my favorite Jack Welch management models. People with good attitudes are also more likely to have his “4E’s of Leadership.” What are the 4E’s?
Energy—people who go at 75 miles an hour all the time. Energize—are those managers that fire people up. Edge—managers with edge know how to make the tough decisions and avoid the maybes, and Execute—those managers who deliver results. Hire the people with the right attitude, people who score high on the E to the 4th scale, and you are far more likely to reap the benefits of a great manager or employee. Hire on the basis of resume—which reveals little about someone’s “E” quotient, and you may find yourself having to clean up a huge mess somewhere down the line.
Want to know more on what to do and what to avoid in the workplace? The Unforced Error, my new book, is now available at Amazon and at all good bookstores.
In the last post I introduced my upcoming book, The Unforced Error. The book is intended to pin-point those landmines which often blow up people’s careers. In the weeks ahead I will be including examples of unforced errors in business addition to the postings I write about business book publishing. As in the book, the majority of stories will be based on actual scenarios I witnessed firsthand.
One of the things I learned early on is that big corporations hate to fire anyone. That’s because every firing is a potential lawsuit and big companies hate lawsuits more than anything. Organizations often go out of their ways to keep the truth from the employees they ask to leave. In fact, in most organizations, the Director of Human Resources (HR) is not there to help you, the employee, but to protect the company from that next potential lawsuit. That’s why, if you are fired from your company, it is more likely that HR and your manager will present a united front and tell you “we have eliminated your position” rather than tell you the truth (e.g. you are a greater liability than an asset and you are not worth the salary we pay you anymore).
If you are told the truth, and fired for cause, then it is because the company has a thick file of transgressions which clearly shows how you have not measured up to a certain minimum level of performance. Big companies love big files because these contain the “proof” that you deserve to be fired (which of course mitigates the chances for a successful lawsuit against the company).
Conversely, strong, loyal performers almost never get laid off. In Darwinian fashion, companies almost always find a way to keep their best, most effective people. To reduce the chances that you and your job will be eliminated, find ways to make yourself indispensable (although no one is truly indispensable). If possible, get a job in which the revenue you produce can be measured. Or help your boss to achieve his or her goals; if the person up the food chain makes her goals, then the need to eliminate someone decreases proportionally. Also, never be a lone ranger. It is much easier to fire someone who does not get along with colleagues than it is to eliminate an authentic team player.
And don’t make it easy for your company to fire you. If you are one of the company’s most productive people then management will have little incentive to get rid of you. And keep your pulse on your unit or department. You want to make sure that you know how well you are regarded. Otherwise, you may be blindsided. And getting blindsided in a tough economy is a situation you want to avoid at all costs. At least if you know what is coming you can take some proactive measures that might help you find that next job before you actually need it.