In short, create your own successful strategy aligned to who YOU are as an individual….Instead of following the picks of the “guru” newsletter writer of the month and entering their trades (after they do) at prices they would never pay.
Easier said than done? well, it takes effort, but as explained in Personal Competitive Advantage with the right mental framework guiding your actions, decisions, and thus investment returns, will improve.  This strategy applies to just about anything — competition is dramatically increasing everywhere and it is increasingly difficult to get a competitive advantage.  But it is certainly possible as I explain here.   What exactly is this mental framework and how do you create one of your own?  Here is what it looks like but if you want the methodology to creating one of your own you will have to check out the ebook linked above.

John T. Bardacino, CAIA

The creation (and destruction) of competitive advantage in the Las Vegas Gaming industry

Think back to 1995.… It was the year people just started to become aware of the internet, a huge stock market bubble was in its early stage, cell phones were starting to become less than the size of a brick, and OJ was found not guilty…. And 1995 was also the year that that the Hard Rock Hotel (HRH) first opened its doors, and I was fortunate enough to be a part of the opening staff. It was a VERY different place back then – a very special place, a relatively small place, and an excellent example of the rise and fall of a unique business competitive advantage.

How an entrepreneur created competitive advantage, used it to exploit a market opportunity, and made a fortune in the process:

In the early 1990′s, entrepreneur Peter Morton saw an unexploited opportunity in the Vegas market. What exactly was this unexploited opportunity? Well, it was at the intersection of a few trends – the first was a decline in the level of service, in general, throughout the Vegas market. The second trend was the growing wealth (at that time) of Generation X.  This group of consumers was, totally underserved and ignored by market players in the Las Vegas hotel/casino/entertainment industry.  The third trend was financial –  the US economy was still on the front side of its credit bubble curves (a financial bubble that would eventually become bigger than what preceeded the great depression of the 1930′s).  And fourth, attitudinal trends were very conducive to the success of this kind of a venture: in many ways the late 90′s were sort of like a combination of the roaring 20′s and the 60′s. People had good reasons to party, and the money to do so was readily available….

There are a few skills that, at a high level, enable entrepreneurs like Peter Morton to seize opportunity:

1) The ability to recognize an unexploited opportunity created by trends and current market forces/market players.  2) the ability to create a competitive advantage that is aligned to and utilizes (exploits) the unexploited opportunity created by those trends. And 3) the determination, charisma, vision, and leadership to rally a large group of people to execute an effective strategy.

#1 & #2 are a function of entrepreneurial ability and a keen understanding of market trends/dynamics and consumer preferences, with #2 also a function of entrepreneurial ability, “visionary” leadership, and the ability to create a competitive advantage that is aligned to and optimized for exploiting the opportunity. #3 is a function of individual competitive advantage.

Mr. Morton was also a unique leader….I recall several conversations from the early years with him – he would routinely stroll through the casino to chat with employees or hang out with staff in the employee dining room in order to get a feel for what was happening on the front lines, and keep his thumb on the pulse of the market.

Organizational Culture: The Vital Factor

On the surface, the strategy for creating competitive advantage is simple – create an organizational culture that is aggressively aligned to utilizing the unexploited opportunity that has been ignored by competing firms and creates the then unprovided value proposition that is craved by consumers. This is easier said than done.

The physical aspects of the building design were relatively easy.  The most important ingredient was, of course, organizational culture.  Why? Because organizational culture is really the only source of sustainable competitive advantage in highly competitive markets.  Anyone could build a hotel and make it look however they wanted, but it is the experience and feeling that people get when they interact with an organization that matters over time, and keeps them coming back. No matter how cool looking a hotel/casino is, if the service sucks and the the vibe is negative for customers– it will struggle…. Sure, locational factors matters and branding can help overcome bad culture, but a firm will operate far below its potential in such cases.

What is organizational culture?  I have defined it elsewhere as the “chemistry” that arises between the interactions of the individuals’ and the organizational processes that comprise the operating framework of the firm, all in light of its leadership and interactions with customers.

The birth of an organizational culture…and the (initial) HRH competitive advantage.

In my view, HRH’s initial success was a function of three main variables 1)  “visionary” leadership 2) initial training, and 3) hiring the right people.

As I have previously written:

The author in 1995

“In 1995, the Hard Rock Hotel opened its doors in Las Vegas, and the author was fortunate enough to be a part of its opening staff. Hard Rock Hotel owner & developer, Peter Morton, saw an opportunity to create a competitive advantage over other Las Vegas casinos. He would do this by creating as part of the plan an organizational culture that would, at least for the first couple of years, provide its guests with a new level of customer service.

Young & attractive employees with personality were hired, even if they had no prior casino work experience. Employees were hired based on personality, attitude, ability to learn, and of course, physical appearance. It did not take long for the Hard Rock, despite being located off the Las Vegas Strip, to gain the reputation of having the best service and most personable and attractive staff of any hotel/casino in Las Vegas.

Upper management purposely hired front line staff that would give an experience that was different than the norm. Young, hip, sexy, fun, & positive were the internal values an employee had to have to be hired at Hard Rock. It was these employee values which were aligned with Peter Morton’s vision and the overall marketing and business strategy, that were utilized in creating the organizational culture that initially served as Hard Rock’s competitive advantage.

Up to that point in time, many of the casinos had a reputation for having poor service. In general, Dealers and Pit Bosses had negative personalities. Miserable front line staff that had an attitude of entitlement were the norm. There was an unmet need in the marketplace, and Peter Morton exploited the market by purposely creating and applying an organizational culture that was optimized to exploit that unmet need. As part of pre-opening training, the front line staff at Hard Rock were instilled with Morton’s vision for organization culture. His number one value was “have fun, and make sure the guests have fun too….” Newly hired employees began to ask themselves the question “how can I apply myself to make this a fun place.” The result was a unique guest experience at each blackjack table, each restaurant, and each department as each individual employee brought forth and applied the best of what they as an individual had to offer.

When a player walked up to a table game in the casino they did not see a quiet dealer with his arms folded who didn’t want to be bothered. What they got was a smile and a “welcome to the Hard Rock” greeting. If a customer had a problem, front line staff met them head on with an attitude of empathy to solve the issue.

The design of the building, the organizational culture and employee values oozed into the atmosphere of the place, and it quickly became the coolest place to be. That atmosphere was why people chose the Hard Rock, and organizational culture is what drove the feeling in the atmosphere of the hotel.”

There was an intense initial focus on training, leadership, and setting the organizational culture, and the effects were quickly felt after opening in March, 2005 as the HRH developed a very loyal clientele.  I remember one executive telling me “we could just shut down during the week and survive on our weekend business alone.”  And that was probably a good thing because the place was usually empty during the weekdays, and indeed, aiming a strategy at a narrow target market entails risks such as this (t is, of course, oftentimes ideal to get as targeted as possible in the context of direct marketing).  But of course, issues such as this can always be overcome with some creativity.

The rise and fall of a competitive advantage

But of course, nothing good lasts too long – without discipline and effort that is….  I described the decline in this way:

But Hard Rock’s competitive advantage was not to be sustained. Turnover in management and the front line staff combined with a lack of focus caused the culture and competitive advantage to suffer. New staff was not trained on the importance of sustaining the organizational culture and competitive advantage. Over time, the vision was lost. It was not long before it turned into just another casino. The Hard Rock Hotel became a shadow of its former self, and in the process lost a lot of its business glory to its competitors. Other casinos, such as George Maloof’s Palms Hotel, went on to create competitive advantages of their own and have eaten Hard Rock’s lunch. Hard Rock’s organizational culture grew weak, and this allowed its position in the marketplace to be overtaken. Despite this, Peter Morton profited handsomely from the real estate bubble and resulting increase in Las Vegas commercial property values, but one cannot help but think that the decline in Hard Rock’s competitive advantage played a role in his exit strategy….

Thus, organizational culture is the “personality” of the organization. It is the “chemistry” that arises between the interaction of the individuals and organizational processes that comprise the operating framework of the firm, all in light of its leadership. Through circular feedback, this chemistry influences how individuals act and make decisions. Organizational culture is indeed vital to a firm’s success. It takes effort to sustain or improve organizational culture and the competitive advantage that it creates. It must be actively maintained and not left to chance.

It takes a lot of effort to properly set organizational culture in the initial stages, and it is even more difficult to maintain it over time.  I left HRH in late 1998. I then briefly returned to work there in 2001 and by then the decline was evident – employees would routinely do things that would of gotten them terminated in the intial years and the vibe was much different – the focus was no longer on providing an experience and the highest level of service to the clients.  A lack of discipline, a lack of training over time, and employee turnover eroded the culture. The level of talent was no longer evident.  The initial strategy of preeminence, genuine empathy for guests, the highest level of service and most importantly, FUN, had eroded down to “just another casino” by the mid 2000′s.

Given that organizational culture is a vital driver of competitive advantage in highly competitive markets, executives should thoroughly understand and master what organizational culture is, how to create it, how to maintain it, and how to enhance it.

John T. Bardacino, CAIA

P.S. I recently had some flashbacks to the old days when walking through Vegas’s most recent creation, The Cosmopolitan.  Cosmo, at least right now, has a nice vibe to it, and I found the staff to be outgoing.  Can they continually enhance their organizational culture over time while at the same time deal with financial pressures? Time will tell but I hope they are successful…I miss the old days.

In part one I said that at the level of the business, or organization, the only true source of long term sustainable competitive advantage is organizational culture, or stated otherwise, the personality of the organization.

I defined organizational culture as the “personality” of the organization. Organizational culture is the “chemistry” that arises between the interactions of the individuals’ and the organizational processes that comprise the operating framework of the firm, all in light of its leadership. Through interaction and circular feedback, this chemistry influences how individuals in the organization act and make decisions. This chemistry is difficult, if not impossible, to copy, and is the only true source of long term sustainable competitive advantage in highly competitive markets.

Culture on the level of the individual:

For an individual person, the integration of their personality, unique individual traits & characteristics (idiosyncrasies), values, likes, dislikes, passions, talents, knowledge, etc, and anything else that makes them unique constitutes their “individual culture”. So we will understand an individual’s culture as that which makes them unique. Can your individual culture change over time? Of course it can…. The nature of human beings is that we are constantly learning and changing.

Good researchers understand that because of this, it is very difficult to apply the research methods of the natural sciences to the social sciences. There are no constants when studying human action, in the strict sense of the word. Yes, people do have tendencies to act in certain ways, but human beings are not like a piece of rock in a laboratory setting that can be studied under the exact same test conditions each successive time. Humans continually learn and constantly adjust their Mental Frameworks.

The Importance Of Mental Frameworks:

Human beings have within their consciousness a multitude of Mental Frameworks through which they view the world and make decisions. These mental frameworks are composed of values which are matters of importance that 1. determine what we strive towards (objectives), 2. guide how we make decisions, and 3. take action in the objective world. Values are continually in flux, yet can still be organized into a means-ends structure using qualitative and interpretive research methods. By brainstorming and using creative probing questions, we can uncover and manipulate the values that lie within our mental frameworks.

A mental framework is not what is commonly known as a “mind map.” A mental framework consists of objectives (goals) that are driven by values. Values are matters of importance that determine how we make decisions and take action. The objectives within a mental framework are arranged into a means – ends relationship.

The human mind is goal seeking in nature and the values that guide our decisionmaking and actions are an important part of our individual culture. Obviously, your individual culture can change positively or negatively depending on what you are focusing on and learning, but more on that later….

Understanding your own individual culture is an important part of life in general. The ramifications are many, but in the context of this article, not understanding who you are as a person means that you will not be able to develop a competitive advantage for anything in life, and this can dramatically limit your success and happiness, or at a minimum make it relatively more difficult to achieve your goals.

In mainstream economics, an industry is considered perfectly competitive if no single firm’s actions have an effect on the market price. This definition is focused on the structure of the industry. The idea of perfect competition is perhaps more applicable to the level of the individual. No one may want to admit it, but on an individual level life is even more competitive than on the organizational and business level, just in a different way.

The extent to which we succeed at any task, whether it be a simple everyday social situation or a more complex task such as leading a company as its CEO, depends on the ability to apply ones unique talents and abilities to whatever situation one is in.

As we know, every individual person is different. Even physically identical twins will not have the exact same mental tendencies and skills. We are all unique in our own way and have our own individual culture that is composed of our individual idiosyncrasies, as explained earlier. It is only when that individual culture is synchronized properly with a context that success results.

Competitive Advantage Within A Context

The word “context” is usually defined as “the interrelated conditions in which something exists or occurs.” Here I am using this term to refer to any field, set of skills, or body of knowledge that the individual is trying to apply herself to and be successful at. It is something that you are trying to achieve a goal in. The context could be a sport, a career, a skill, or any body of knowledge that requires learning.

Any context is composed of certain elements or matters of importance. These are the competencies that are universal to the context. These competencies can be broken down and analyzed into a framework. For example, a mixed martial artist needs to know how to punch, kick, wrestle, appropriately apply his aggressiveness, learn how to apply the various martial arts styles, etc. These are all competencies that would lie inside the context of “mixed martial artist.”

In order for a Personal Competitive Advantage to arise, individual culture must be synchronized with the relevant context and leveraged into a proprietary competence. A proprietary competitive advantage is a set of knowledge or skills in a particular context that is exclusive to your individual culture. It is a unique synthesis that arises out of the competencies within a certain context and your individual culture. This is what determines how we act in the objective world. This is what determines success over time and thus, a Personal Competitive Advantage.

The proprietary competitive advantage can be thought of as a “mental framework.” As explained earlier, a mental framework is composed of objectives which are driven by values. The key to competitive advantage lies in becoming aware of the elements that lie inside our mental frameworks. By manipulating these elements in positive ways we improve ourselves in a way that develops competitive advantage. By becoming aware of our mental frameworks, we can understand and improve them.

This means that the unique characteristics of the individual (or organization) need to be utilized in the best way possible in light of the competencies necessary for success. To find the best or optimal way of utilizing one’s abilities requires:

- An understanding of the individual’s innate skills, internal values and all the things that constitute the individual and make them unique. This can be summed up with the phrase “know thyself” and we are referring to this as your “individual culture.”

- An understanding of the knowledge within the context that is being focused on. This refers to the competencies within a certain context that need to be mastered in order to succeed at something. In other words we need to “know thy context.”

- A methodology to combine the above two into a proprietary competitive advantage that will take the form of a mental framework.

A proprietary, or individual competitive advantage arises out of the effort of appropriately combining your individual culture with a knowledge of the contextual competencies. This is the unique skillset that arises when individual talents are synchronized with the knowledge within a context.

What I mean by the appropriate combination lies in the process used to combine individual culture and contextual competencies. Individual culture must be clearly identified, and applied with passion. We all have a unique individual culture, but many people have repressed their identities or have simply ignored who they are as individuals. As a result they have no idea of what they can bring to the table in terms of adding value to the world.

The majority of people have backed themselves into mental prisons of their own making. This is not a surprise when you look at our dogmatic, politically correct, mass media driven society. However, as we know from the discussion earlier, the world is changing and we now must learn to leverage our individual culture to add value to the world.

You must also immerse yourself in the contextual competencies that are necessary for success. When immersion into the contextual competencies that are necessary for success is done properly success comes easier, and a Competitive Advantage is born. You also become better aligned with the world and life in general. The actions you take toward your goals become optimized.

With the proper understanding of your individual culture, you will be able to clearly identify what is important to you. You will not be at the mercy of the obvious limited options in the external objective world. When you become clear on your individual culture, it then becomes possible to align your individual idiosyncrasies to the contextual competencies in an optimal way.

Understanding Individual Culture:

Do you really know yourself? Do you really know who you are as an individual? Do you understand your strengths, your weaknesses, your preferences, your personality, your talents, and all the other things that constitute your individual culture?

Understanding oneself requires effort, sometimes a tremendous amount. It requires asking the right questions and demanding answers. It also requires courage and determination. To truly understand oneself it is necessary to take deep subjective journeys into the mind. Sometimes we don’t like what we find in there. It could be something from our past, or some tendency in our personality that we don’t like, any part of our individual culture that we are unhappy with.

It is important to recognize that just about anything, negative or positive, can be leveraged into an advantage with enough applied creativity. One of the obvious secrets about life is that negatives need to be leveraged into something positive if we are to thrive, develop Competitive Advantage, achieve goals and be happy.

“Events in life are not negative or positive. They are completely neutral. The universe does not care about your fate; it is indifferent to the violence that may hit you or to death itself. Things merely happen to you. It is your mind that chooses to interpret them as negative or positive. And because you have layers of fear that dwell deep within you, your natural tendency is to interpret temporary obstacles in your path as something larger—setbacks and crises.” ~ The 50^th Law

Instead of internally resisting who you are as an individual or being mad at the world because of what your life history has brought you, embrace your uniqueness and focus on how you can apply your individual culture to whatever context you have decided to focus your attention and passion on.

Developing Competitive Advantage:

If someone wants to achieve success, what they normally do is learn as much as they can about a context or skill and then practice. I do in fact believe that learning and practice are vital to becoming competent. But to achieve a good degree of success requires something beyond this—there is a good degree of truth to the old saying that “if you do what everyone else is doing, you will get the same result as everyone else.”

Remember Muhammad Ali? He developed a fighting style that was in alignment with all the things that constituted his individual culture. His personality, his physical skills, his determination, his internal values, etc… all the elements of his internal culture were combined with the competencies in the context of boxing in an optimal way. This created a competitive advantage that only reached its end after a great career.

He believed he was the greatest fighter in the world, as well as one of the most entertaining people in sports. He combined boxing competencies with his unique individual culture into a proprietary competence. This proprietary competence flowed into everything he did. The result was a sustained Personal Competitive Advantage. Whether they are aware of it or not, every person who has achieved consistent success has done this, usually unconsciously.

There are many people who are determined and believe in themselves very strongly, but the vast majority usually wind up disappointed with life. Yes, in certain cases such as sports there can be only one winner, but if more people were to discover their competitive advantages they would be living a life that is at a minimum much happier. This is because their true desires would be more likely to manifest in the external objective world.

Again, I am not suggesting that learning the basics of something are not important. It is very important. But once you get to a level of basic proficiency, if you are going to excel and go beyond average, you must do something unique and create a competitive advantage. You move beyond average by creating your own Competitive Advantage. This individual competitive advantage is the synthesis of individual culture and the contextual competencies. The proprietary competitive advantage is the mental framework through which the energy of your action flows.

The Importance of Internal Alignment

Odds are if someone is determined to succeed, they will develop a level of competence through all the trial and error. Yet many people wind up disappointed with the results they see after all of this work. The reason is that the skills they learned were not individualized to who they are as a unique person. As a result, their strategy and tactics are out of alignment with who they are as a unique individual. This creates a competitive disadvantage instead of a sustainable competitive advantage.

Some will say there is a natural learning curve that must be worked through before the real results come. But the learning curve itself is concerned with learning how to properly apply the body of knowledge to individual culture. That is what goes on inside a person’s head through all the trial & error. When they have finally gotten down that learning curve, what level are they at? Have they just attained an average level of competence or have they really developed a unique sustainable competitive advantage? With the proper methodology we can actually shift the entire learning curve in a favorable direction.

The execution of strategy and tactics need to be aligned to individual culture in order for a Personal Competitive Advantage to arise. The best and most effective teachers understand this. The best coach or mentor is not usually the person that had the most success, has the most gold medals, won the most races, or made the most money. It is usually the person that struggled a lot and understands how to bring out the best in someone as an individual by helping to apply their understanding of a context to the the individual culture. (to be discussed further in part 3)

John T. Bardacino, CAIA

Why apply the concept of competitive advantage to the context of the individual person?

Competitive advantage is vital for a business, but on an individual level it is just as important, if not more so. For the individual, competitive advantage determines success or failure, if an individual achieves his goals in life, and ultimately the satisfaction one gets out of life.

I do not follow golf, but it appeared to me that, until fairly recently Tiger Woods had sustained a strong competitive advantage over just about every other pro – he consistently beat his competitors and set records (prior to self destructing, which is another story…). How did he develop this competitive advantage? From a young age he was immersed in understanding what it took to succeed at playing golf. Certainly, there was a lot of hard work and determination involved, a probable common denominator among competitive golfers. But what was the difference? Through persistence and effort he probably learned how to apply his individual characteristics, talents, and abilities into a unique competitive advantage over the competition.

The need for creating competitive advantage does not arise only out of a desire for success. When an individual or organization is not in tune with their competitive advantage, life becomes a struggle. We feel awkward, out of alignment, and out of tune with our life’s purpose. This leads to unhappiness and misery for the individual. At the business or organizational level it means bankruptcy or death. Please understand that I use the term “competitive advantage” in a positive sense. I do not intend to use it in a sense that would conjure up images of ruthlessly competitive environments or markets where only those who have some kind of “unfair” competitive advantage can survive. In this context, “individual competitive advantage” means leveraging who you are as an individual in order to achieve your goals and add value to the world in the process.

“Understand: you are one of a kind. Your character traits are a kind of chemical mix that will never be repeated in history.  There are ideas unique to you, a specific rhythm and perspective that  are your strengths, not your weaknesses. You must not be afraid of your uniqueness and you must care less and less what people think of you.  This has been the path of the most powerful people in history.” ~ From The 50th Law, by Robert Greene & 50 Cent

Individual (or Personal) Competitive Advantage is what sets you apart, it gives you an edge, it gives you confidence, and it attracts success. It is your style, your way of doing things. It brings out the best in you because it is rooted in who you are as an individual and in a deep understanding of what it takes to succeed. In short, an individual competitive advantage is a result of an optimized synthesis of your individual idiosyncrasies with the competencies that lie within a particular context.

To be successful and create a  competitive advantage you must ask yourself the following question relentlessly: How can I apply my unique individual characteristics in order to be successful? Add some passion and determination to this equation and you get a recipe for success.

Although I am not a follower or practitioner of martial arts, I can not help but admire and respect the late, great, Bruce Lee. Lee created his own style of fighting by immersing himself in training and research and understanding all the different styles of martial arts. He mastered the basics and adapted them to his personality and individual physical abilities.  He then took what he felt were the best parts of each fighting style and combined them with his own unique talents and creativity to create a new style that was aligned to his unique strengths, in an optimal way, and gave him a competitive advantage, and made him a star. Of course, we see similar patterns among the super successful in just about every context, whether it be business, sports, arts, or some other field.

Whether you are a startup internet entrepreneur who is the sole employee of your own business, an athlete looking for an edge in your next competition, an actor, actress, rock star, or a hedge fund manager, in order to achieve success you have to know how to apply your unique talents and passions to the area that you are looking to excel in. No matter what you are trying to be good at, if you want to excel over the long term you need to create your own unique sustainable competitive advantage.

A further explanation of Competitive Advantage:

When one thinks of “competitive advantage” what usually comes to mind is the business world and how a firm can develop a “sustainable competitive advantage” that allows it to consistently gain above average profits within its industry. A business without a competitive advantage is doomed and will eventually fail, as competitors will eat away at its market share. Here I refer to competitive advantage on two different levels. An individual person’s competitive advantage, and the competitive advantage that an organization, business, team, or any group of individuals may have. Before discussing Competitive Advantage at the individual level, lets gain an understanding of Competitive Advantage in business.

Competitive Advantage in business:

We will talk about how you as an individual can develop your own Competitive Advantage and be more successful and happy, but first, let’s discuss it at the level of the business. We can then apply some of these concepts to the individual level and develop a method for creating a competitive advantage at the individual level.

In business, competitive advantage can be boiled down to the reason why customers come to you instead of one of your competitors. In the field of marketing, the USP or unique selling proposition can be seen as a short statement that synthesizes, in a compelling way, a firm’s competitive advantage over its competition.

In general, the business literature has said that a firm has a competitive advantage if it is more profitable than its competitors over time. For example, a firm like Goldman Sachs has a competitive advantage in investment banking because it consistently outperforms its competitors over time. As I am writing this initial draft, in late 2007, Goldman Sachs is preparing to report record profits. This is at a time when most investment banks are struggling and the financial markets are in the throes of a credit crisis.

Was it just because of a few lucky bets their trading desk made in the financial markets? Luck has nothing to do with it. They consistently outperformed the competition over time because they have developed a superior organizational culture (authors note: this is also because there is revolving door between the highest levels of government and GS upper management, which of course could be considered part of the evolution and development of its organizational culture). Within this organizational culture are the values that underlie and drive the decisionmaking of their employees.

In competitive markets the only true source of sustainable competitive advantage for a business is its organizational culture. It is the only thing that cannot be duplicated by a competitor over the long term. The field of economics refers to the long run as the period of time when all inputs, or factors of production to the firm, are variable. In other words, given enough time, a business can enter or exit any industry it chooses, arrange its business processes however it would like, hire whatever employees it wants, and basically have access to anything that any other business would.

The concept of competitive advantage in business is a topic of massive interest and volumes have been written on the subject. This book is not a review of what is already out there, but we will very briefly cover some basic concepts to provide an understanding for the analysis ahead.

For a business, a short and intermediate term competitive advantage can arise from several areas. Maybe it has access to certain resources that other firms do not, or it may have a strong brand name, maybe it was the first to market and established a dominant degree of market share and some sort of monopoly power, or the structure of the industry is such that competing firms are discouraged from trying to enter the market.

It is also possible that a business may have unfairly lobbied the government to pass laws and regulations as a tool to suppress its competition. These kinds of things can certainly provide for competitive advantage in the short and intermediate time frames. But given enough time none of the above competitive advantages are safe from a firm’s competitors.

Even if you have a strong brand in the mind of the consumer, if your product turns to crap and adds no value, your brand and reputation will quickly turn into a competitive disadvantage. You have to ask the question of what determines a great brand beyond the short run? Or what determines the value that is added by my product? If you want to have any degree of success beyond the short run, you need a sustainable competitive advantage. Great marketing can sell a bad product in the short run, but consumers quickly catch on if the hype isn’t backed up by some kind of value.

In recent years, the short run has become increasingly similar to the long run in that businesses can adapt quickly to their competitors actions. Unless you have been living in a cave all your life, you are well aware that the world of business is ruthlessly competitive. Over the last 20 years the pace of competition has picked up considerably with advances in information technology and widespread access to information of all kinds in real time. Take the internet for example. Just about anyone can set up shop on the net for a very small price, sometimes even at no cost, except for one’s time. What is it that causes people to focus their attention on one website and not another? What about a website that attracts a lot of traffic? Great content, right?

If someone has great content on their blog, they have found a way to apply their own competitive advantage in the form of content which then adds value to the lives of those who visit that webpage. I am referring here to original content that adds value and is aligned to the desires and demands of a particular target market.  Anyone can copy and paste text, but through the application of a their own competitive advantage, an individual adds something unique that makes the lives of others better.

Adding value to someone life means that you have made their life better. In return, they have given you attention and a portion of their time. And time is becoming the most highly precious resource there is, if it has not already.

Case Study: How The Hard Rock Hotel raised the bar back in 1995

As an example of competitive advantage in business, let’s take a look at the gaming industry. Although there are some large barriers to entering the casino industry, such as cost, licensing, etc, this can be considered a highly competitive market locally in Las Vegas, because customers have a multitude of choices and they can easily switch from one casino to another by simply walking a short distance if they are unhappy with their current choice.

Over time, any one of the hotel/casinos can design and operate their business any way they want. They can copy someone else’s strategy, or (literally) blow up their old building and start over, and many do in fact do this. But this is no guarantee of long term success. There is, however, one factor that cannot ever be copied, and that is organizational culture.

In 1995, the Hard Rock Hotel opened its doors in Las Vegas, and the author was fortunate enough to be a part of its opening staff. Hard Rock Hotel owner & developer, Peter Morton, saw an opportunity to create a competitive advantage over other Las Vegas casinos. He would do this by creating as part of the plan an organizational culture that would, at least for the first couple of years, provide its guests with a new level of customer service. Young & attractive employees with personality were hired, even if they had no prior casino work experience. Employees were hired based on personality, attitude, ability to learn, and of course, physical appearance. It did not take long for the Hard Rock, despite being located off the Las Vegas Strip, to gain the reputation of having the best service and most personable and attractive staff of any hotel/casino in Las Vegas.

Upper management purposely hired front line staff that would give an experience that was different than the norm. Young, hip, sexy, fun, & positive were the internal values an employee had to have to be hired at Hard Rock. It was these employee values which were aligned with Peter Morton’s vision and the overall marketing and business strategy, that were utilized in creating the organizational culture that initially served as Hard Rock’s competitive advantage.

Up to that point in time, many of the casinos had a reputation for having poor service. In general, Dealers and Pit Bosses had negative personalities. Miserable front line staff that had an attitude of entitlement were the norm. There was an unmet need in the marketplace, and Peter Morton exploited the market by purposely creating and applying an organizational culture that was optimized to exploit that unmet need.

As part of pre-opening training, the front line staff at Hard Rock were instilled with Morton’s vision for organization culture. His number one value was “have fun, and make sure the guests have fun too….” Newly hired employees began to ask themselves the question “how can I apply myself to make this a fun place.” The result was a unique guest experience at each blackjack table, each restaurant, and each department as each individual employee brought forth and applied the best of what they as an individual had to offer.

When a player walked up to a table game in the casino they did not see a quiet dealer with his arms folded who didn’t want to be bothered. What they got was a smile and a “welcome to the Hard Rock” greeting. If a customer had a problem, front line staff met them head on with an attitude of empathy to solve the issue.

The design of the building, the organizational culture and employee values oozed into the atmosphere of the place, and it quickly became the coolest place to be. That atmosphere was why people chose the Hard Rock, and organizational culture is what drove the feeling in the atmosphere of the hotel.

But Hard Rock’s competitive advantage was not to be sustained. Turnover in management and the front line staff combined with a lack of focus caused the culture and competitive advantage to suffer. New staff was not trained on the importance of sustaining the organizational culture and competitive advantage. Over time, the vision was lost. It was not long before it turned into just another casino. The Hard Rock Hotel became a shadow of its former self, and in the process lost a lot of its business glory to its competitors. Other casinos, such as George Maloof’s Palms Hotel, went on to create competitive advantages of their own and have eaten Hard Rock’s lunch. Hard Rock’s organizational culture grew weak, and this allowed its position in the marketplace to be overtaken. Despite this, Peter Morton profited handsomely from the real estate bubble and resulting increase in Las Vegas commercial property values, but one cannot help but think that the decline in Hard Rock’s competitive advantage played a role in his exit strategy….

Thus, organizational culture is the “personality” of the organization. It is the “chemistry” that arises between the interaction of the individuals and organizational processes that comprise the operating framework of the firm, all in light of its leadership. Through circular feedback, this chemistry influences how individuals act and make decisions. Organizational culture is indeed vital to a firm’s success.

It takes effort to sustain or improve organizational culture and the competitive advantage that it creates. It must be actively maintained and not left to chance.

The bar is being raised everywhere, in every way:

Many, if not all, industries are now highly competitive, and it is no different for people on an individual level. Individual people regularly face highly competitive environments in all areas of life. We are constantly asking ourselves how we can be more successful, and achieve our goals, in our careers, our social lives, and anything else we decide to do.

Whether it is on an individual, team, business or organizational level, finding and leveraging a sustainable competitive advantage will become increasingly vital to success as we move into the future. This is especially evident when one considers the trends that are taking place in the world today.

The level of competition, is being raised everywhere, in every way. The effects of information technology, the internet, globalization, and capitalism have left no field untouched. Everything has become more competitive, and as a result standards of living are increasing for those who embrace these trends. However, in this environment you either offer unique value to the marketplace or die. There is no room for you or your business in the marketplace if you cannot add value in some way for consumers in the marketplace.

Becoming a “New Barbarian”

The focus of this book is on the individual micro level. But for the moment let’s zoom out and take a very high level view to help with our understanding of these concepts. It is very important to understand these trends because of the impact they are having, and will continue to have, on our lives.

In his 2000 book, The New Barbarian Manifesto, Professor Ian Angell discusses how we have entered a “new elite cosmopolitan age” where knowledge workers would be the real generators of wealth. “It is now abundantly clear that knowledge workers are the real generators of wealth. They always have been, only now they realize it. For their knowledge is the basis of innovation, and innovation underpins the creation of alternatives – not only alternative products but also alternative procedures. Alternatives deliver new competitive advantages, and destroy the old. …The income of these owners of intellectual wealth will increase substantially. They will be made welcome anywhere in the world, no matter what their age, race, sex, color, or creed.¹ ”

Of course, knowledge, in and of itself, achieves absolutely nothing. Knowledge, in and of itself does not produce competitive advantage. It must be applied by individuals that utilize their talents to add value and create wealth. Personal competitive advantage is what allows us to create value and wealth.

Formerly socialist countries all over the world are now embracing capitalism and seeing their standards of living improve dramatically. But many governments are doing this out of necessity rather than kindness. Governments, being the inherently inefficient, wasteful, and coercive institutions that they are, don’t like the idea of competing against one another to attract knowledge workers, businesses, jobs, and capital. But compete is exactly what they are being forced to do. Businesses are increasingly more virtual. Capital flows more fluidly around the world. Knowledge workers are now mobile, work virtually, and can live anywhere they choose. And they will increasingly choose those places that offer the most favorable environment.

The United States is no longer rated as the most capitalistic or freest country in the world². The US is still a relatively wonderful place to live, and still has a strong competitive advantage over other countries, but the trends that are currently in place suggest that the US is becoming relatively more socialistic while formerly socialistic countries are becoming more capitalistic. Countries as a whole also have competitive advantages that can be enhanced or suppressed. When a country embraces and focuses on its unique strengths and applies them to the global economy in an optimal way they develop competitive advantage, and with it higher standards of living.  If not, the standard of living declines.

So in other words, one could argue that other countries,’ such as China for example, are embracing and strengthening their competitive advantage while the US’s has decreased in strength. Capital is highly mobile and quickly moves to where it will be valued the most. We see this every day in global financial markets. On an individual level the premise is the same — embrace and develop your own Competitive Advantage and you will prosper.

To once again quote from the New Barbarian Manifesto: “(National Economic) growth has been decoupled from employment, it is created from the talent of a few knowledge workers, not from the labor of low grade service and production workers. Growth is delivered by entrepreneurs, but only if they are given the incentives, and otherwise left alone…. Companies and individuals, not countries, generate the wealth. New technology has released these organizations and knowledge workers from any geographical constraint, and they are roaming the world looking for free-thinking countries as partners.”

Understanding how to develop and sustain a competitive advantage at all levels is now more important than ever, and this importance will only increase in the future when you consider the trends discussed above. The old models of narrow minded, dogmatic management and bureaucracy have fallen by the wayside. What matters now is how you as an individual can add value to the world and make someone else’s life better in the process. What can you, as a unique individual apply and leverage through some context to add value to the world? Can you develop a Personal Competitive Advantage that enables you to do this?

This is not a time to fear competitive forces, it is a time to embrace them. The current environment presents opportunity. The opportunity lies in being able to utilize and apply our individual and organizational idiosyncrasies in the global marketplace. We do this by creating competitive advantage.

Goals & Competitive Advantage:

The usual way people try to achieve their goals is similar to banging their head against a wall. It is narrow minded in nature. Trial and error combined with determination is certainly a way to achieve success, but there is generally a lack of focus or a lack of confidence in what someone, as an individual, can bring to the table. People are usually too busy trying to copy exactly what other successful people are doing instead of finding a way to create a unique individual competitive advantage that is aligned to who they are as an individual. Understanding and mastering basic competencies are indeed important, but you must tweak them and make them your own in order to create a competitive edge.

Many people are very determined to succeed. They may spend countless hours studying and practicing the skills needed to be successful at whatever it is they have decided to focus on. However, it is usually not enough to simply learn the skills that are necessary to excel at a certain task. Learning from and modeling someone else’s success or behavior is great for learning the important skills needed to succeed in a particular context, but will only get you so far.

It is when you model successful behavior in a way that works for you and fits your individuality that you excel. Let me emphasize, Individual Competitive Advantage is not about being different just for the sake of being different. It is about leveraging your uniqueness and synchronizing it with what works within a particular context. Skills and competencies must be applied in light of who you are as an individual. To do this requires a methodology that utilizes creativity with an understanding of your unique characteristics and the competencies necessary for success.

To go beyond learning and be great, these competencies must be “individualized.” This means that you must make the skills your own in light of who you are as an individual. There is a need for a methodology that facilitates this process of individualization, and we will cover such a methodology in this book.

Anyone Has The Potential:

To sum up this first section, we are all different and have unique characteristics, qualities, talents, skills, and character traits. The key to creating your own Personal Competitive Advantage is in the appropriate mix of these individual idiosyncrasies with the knowledge of skills and abilities (competencies) that comprise a particular context. This is usually done by trial and error, and a lot of practice. While there is no substitute for effort and experience, there is room to speed up and strengthen the process with a methodology that consciously applies and directs the ingredients that combine to form a sustainable individual competitive advantage at just about anything. In a future post I will explain such a method.

~ John T. Bardacino, CAIA

Since the end of November, resistance has been futile, and the S&P500 and Nasdaq are up well over 14%… and the bull trend has gotten “long in the tooth” so to speak….

If and when market players turn their collective attention to one of several events, or triggers, a meaningful correction in price trends will occur. Will it be:

1  A shutdown of the Federal Gov: “Feb. 19 (Bloomberg) — The Republican-controlled U.S. House of Representatives voted to cut at least $61 billion in federal spending this year, setting up a budget confrontation with Democrats that threatens a government shutdown.” http://noir.bloomberg.com/apps/news?pid=20601087&sid=aPql5PFpgRX4&pos=1

2  Negative geopolitical event/ worsening or negative outcome of a revolution in a middle eastern country (Libya, Saudi, etc…).

3  Ben Shalom Bernanke opening his mouth in front of Ron Paul or Paul Ryan during one of the upcoming hearings.

4  Or any one of a number of economic issues in the USA or Europe, there really are too many to list….

Collective Attention: when it turns, the trend changes….

FED liquidity via POMO debt monetizations is sure to continue for at least a few more months, providing some support to those buying the dips.  But if market players have their collective attention and “awareness” fixated on a new round of QE (quantitative easing), and lose confidence in the reflation theory, that attention is likely to turn to something negative for a period of time longer than it takes to enter an order to “buy the f**ing dip.”  And when that moment comes, a meaningful downside correction will occur.  When do we reach this point?  Obviously no one can predict the specifics of the future, but we can predict its nature…and we can judge when the probability of the occurrence of an event is increasing.

Similar to the small child in the backseat of the car who keeps asking “are we there yet?” bears have been asking “is the top in yet?” and have been predicting the demise of this bull market for quite some time.  At the time of writing this post, price action is still bullish, and dips will continue to be bought until collective attention no longer warrants it.  Technically the price action on the equity indexes is mostly positive, but it is important to note that dramatic trend changes usually occur when least expected, hence the need to utilize a trading strategy that is properly aligned to market conditions and risk levels.

Would you want to buy and hold for the long term at these levels? Perhaps there are some dividend paying large caps stocks that can be considered value plays but in my view the only answer is vigilance and agility, and the ability to exploit price action and the volatility that drives it, and I continue to favor short term trades in both directions utilizing option spreads.

~ John T. Bardacino, CAIA

Tomorrow the Federal Reserve will announce its forthcoming debt monetization schedule, aka Permanent Open Market Operations (POMO). It is estimated that the amounts will range between $100-$130 Billion a month. You can find the schedule here: http://www.newyorkfed.org/markets/tot_operation_schedule.html

As it has in the past, a lot of this newly created money will find its way into stocks and commodities. The US Dollar, which took quite a beating from the last round of monetization is now near long term support, which will be interesting to see if it holds—at least in terms of the USD index. It may, as countries like Japan also crank up their monetary creation and competitive devaluations get even more serious. But, of course, the real value of all fiat currencies will continue their decline against things of real value and the standard of living for 99% of Americans will continue to go down as well.

POMO: Resistance is futile

This situation may very well turn into the mother of all bubbles—even bigger than what was experienced in the late 1990′s. Ben Shalom Bernanke, the FED Chair, and some of his colleagues have pretty much come right out and said that they want higher stock prices. They claim that this will help with the structural problems (such as unemployment) facing the US economy. It will not.  But what it will do is create more financial bubbles and set up the global economy for an even bigger crisis down the road, perhaps in 2012…

In the meantime, stock prices are likely to rise with a very high probability. If the FED is giving money away, you might as well try to get a piece of it. Fundamentally the stock market has no business being where it is today, but it will go much higher. In this context, it may seem like the financial markets have turned into a big casino, and to a good degree they have.
Unfortunately, I do see a lot of similarities in what I experienced during my 8 years working in the casinos of Vegas and what our financial system has become–a casino, with the Federal Reserve as the house…and the house always wins.

I may not like the fact that in the long run the FED and the US Government are making a bad situation worse, but I also know it is foolish to get in their way and become a victim.  So how do you exploit this situation?

It’s pretty simple…to profit from price moves you buy corrections against the dominant trends and use low risk vehicles with high potential rewards (for example: option spreads).

It has been two years since I posted on here, but like the gamblers I used to deal to in the casino, I can no longer resist the action–they (the FED) are giving away free money, and I want a piece of it…but many do not have any choice in the matter– to not play leaves few options (take a look at savings rates).

This is what our financial system has become—a casino…free markets are dead, consumed by a government manipulated casino, and the house is telling you the odds that the stock market will rise are much better than what they otherwise would be.  And sadly, this was Bernanke’s plan all along…besides–you don’t want to bet against the house, do you?

~ John T. Bardacino, CAIA

On March 26, 2008, I posted the following:
“Looking for a few stocks to go short as the bear market continues to run its course? check out these below, as of the morning of Wednesday, March 26th. The usual disclaimers apply, I take absolutely no responsibility and you have to make your own entry/exit calls. If you know how to make good trading decisions, this should be no problem.

Symbol Company Tuesday’s closing price

ARGN Amerigon, Inc 16.15

CSGP Costar Group 43.55

GMCR Green Mtn Cof 31.79

LAMR Lamar Advertising 36.75

WFMI Whole Foods 33.21

TWI Titan Intl 31.97

TOL Toll Brothers 23.95

WGO Winnebago 18.14

And if you want more exposure on the short side, check out the ultrashort S&P 500 reverse ETF, (symbol: SDS). To profit from a decline in the spx you would go LONG this security.”

All of these positions (with the exception of GMCR) are showing a nice gain.  Three of these positions should be closed – ARGN, TWI, and WGO.  ARGN’s closing price yesterday was 2.5, TWI closed at 5.86, and WGO closed at 4.93.  That means the returns on these positions were 84.5%, 81.6%, and 72.8% (using yesterdays close as the exit price).  Not bad….  Also, I suggested to go long SDS on that day when it was at 62.86, it ended the day yesterday somewhere over 120 — over a 90% gain…. -John Bardacino

As many investors (Warren Buffet included) have been attempting to pick a bottom in this bear market over the last few months they are learning that this is a poor risk/reward proposition.

Mainstream and traditional investors have a great fear of missing a bottom in the stock market.  This (among other things) creates bear market rallies that smart traders and investors use to get short on the dominant bear trend. In my view, an investor or trader should exploit the actions of traditional investors, who usually wind up as victims of our inherently flawed economic/political system.

Its good to have a healthy dose of contrarianism in the mental framework that guides your decisionmaking, but it must be done in the right context….  Thus, I offer some advice:

Maximize caution at market turning points – Just because stocks are cheap and have fallen a great deal does not mean they can’t fall farther and get cheaper.  Price action must always be your guide.  Weak market should be sold, stong markets should be bought.

Align tactics to strategy and expections – If you buy something because you feel it is cheap, it may take a long time for the value to be realized.  Warren Buffet can hold onto something for 10 or 20 years, and oftentimes never sells… are you prepared to do the same? If you buy something just because it has fallen 80% in price and you feel it is a good “value” do not be surprised if it falls another 50% from where it currently is – if you expected the price to rise short term you may wind up very disappointed.  THis is usually what happens with companies that are not true “value” plays.

Minimize contrarianism at at support, resistance, and market extremes -Are you contemplating taking a contrarian position just because market prices are at some support or resistance level or some extreme price level.  This is contrarianism just for the sake of contrarianism.  Is there any real justification for being contrarian – are there any fundamental reasons outside of prices being low that would make you want to own stocks – the economy continues to fall apart and so are earnings so why be contrarian?

Minimize the need to be first on a new trend – this is just a poor risk/reward proposition.  Let the others be guinea pigs, you can always enter a trend early after it is clear that is has been established.  This is a much lower risk/higher reward proposition.

Never attempt to pick tops or bottoms – In a bear market, attempting to pick a bottom is known as “catching a falling knife.”  It usually ends in tears.  As a bear trend becomes more mature and prices work their way lower the risk reward does indeed change, and hedging should be adjusted to reflect that fact.  With the Dow at 11,000 I would be far more aggressive shorting that I would be with the Dow at 8,000.  But I would still be short and not long in this bear market.  I would be more careful and hedge differently as the bear market became more mature, but I would never go predominantly long until I was convinced the trend had changed.  In short, trying to pick a bottom is a poor risk/reward proposition, to do so is to fight against the dominant trend, and fighting a dominant trend most often leads to failure. -John Bardacino

Here they are – Obama’s biggest promises from his “blueprint for change” campaign speeches and advertisements…. I wonder how many he will keep?  Actually, we would be better off if he made no promises and did less.  That would mean less damage to the economy.  How I miss the days of political gridlock back in the 1990′s, it was great for financial markets….

A Checklist Of Obama’s Many Promises:

Taxes
Give a tax break to 95% of Americans.
Restore Clinton-era tax rates on top income earners. “If you make under $250,000, you will not see your taxes increase by a single dime. Not your income taxes, not your payroll taxes, not your capital gains taxes. Nothing.”
Dramatically simplify tax filings so that millions of Americans will be able to do their taxes in less than five minutes.
Give American businesses a $3,000 tax credit for every job they create in the U.S.
Eliminate capital gains taxes for small business and startup companies.
Eliminate income taxes for seniors making under $50,000.
Expand the child and dependent care tax credit.
Expand the earned income tax credit.
Create a universal mortgage credit.
Create a small business health tax credit.
Provide a $500 “make work pay” tax credit to small businesses.
Provide a $1,000 emergency energy rebate to families.

Energy
Spend $15 billion a year on renewable sources of energy.
Eliminate oil imports from the Middle East in 10 years.
Increase fuel economy standards by 4% a year.
Weatherize 1 million homes annually.
Ensure that 10% of our electricity comes from renew- able sources by 2012.

Environment
Create 5 million green jobs.
Implement a cap-and-trade program to reduce green- house gas emissions.
Get 1 million plug-in hybrids on the road by 2015.

Labor
Sign a fair pay restoration act, which would overturn the Supreme Court’s pay discrimination ruling.
Sign into law an employee free choice act — aka card check — to make it easier for unions to organize.
Make employers offer seven paid sick days per year.
Increase the minimum wage to $9.50 an hour by 2009.

National security
Remove troops from Iraq by the summer of 2010.
Cut spending on unproven missile defense systems.
No more homeless veterans.
Stop spending $10 billion a month in Iraq.
Finish the fight against Osama bin Laden and the al- Qaida terrorists.

Social Security
Work in a “bipartisan way to preserve Social Security for future generations.”
Impose a Social Security payroll tax on incomes above $250,000.
Match 50% of retirement savings up to $1,000 for families earning less than $75,000.

Education
Demand higher standards and more accountability from our teachers.

Spending
Go through the budget, line by line, ending programs we don’t need and making the ones we do need work better and cost less.
Slash earmarks.

Health care
Lower health care costs for the typical family by $2,500 a year.
Let the uninsured get the same kind of health insurance that members of Congress get.
Stop insurance companies from discriminating against those who are sick and need care the most.
Spend $10 billion over five years on health care information technology.

Source: Investors Business Daily, Page A11, Tuesday, November 11, 2008

Many people have been telling me “we’ve hit bottom.”  My usual reply is “well, were getting there but were not there yet….”  Rallies will continue to be sold, they are just short term rallies against the dominant bear trend.  The rest of October will continue to be down for equities, generally speaking, but there is a high probability that we get an election rally that could last into December as the so-called January effect takes hold for a month or so….

Then the reality will set in that Obama is not much different from the other politicians and the Obama rally will fail.  Even if the Dow rallies back to 10,000 it would not hurt the dominant downtrend one bit, it would just provide a new entry point for the next leg down.  In percentage terms this bear market is already up there with the best of them, but in terms of the length of time, it could easily run another 6 months to a year.  Like I said, it all depends on how much damage the next administration does – Bush will be tough to beat in that department as he and his neo-conservative pals have done a huge amount of long term damage to the country – government spending, wars, loss of liberties, etc.

Whether or not an Obama administration could help the financial markets remains to be seen. All he would really have to do is scale back the wars, limit the size of government, stop the bailouts and let the malinvestments work themselves out of the economy and we would probably be out of trouble and back to a bull market by mid 2010.

But I am not optimistic, he is basically a socialist (and not much different from McCain). There is an opportunity but in typical bureaucratic fashion they will squander it.  Government will continue to increase in size, become a bigger parasite on the private sector and continue to screw up the economy, and given that the democrats will likely control congress as well, they will have ample opportunity to increase government interventionism (of course the republicans would do the same!).

Currently,  we are suffering the negative effects of government regulation, government sponsored entities, and the Federal Reserves monopoly on interest rate setting.  Contrary to what the mainstream press is saying, Laizzez-Faire capitalism did not create this mess, a lack of it did, this mess was caused because we do not have free markets that can properly judge risk.

Bailouts waste money and prevent malinvestments from being worked out of the system.  The governments actions are putting us at risk of a Japanese style decade long recession.  At the moment there is no inflation as credit destruction is greater than credit creation, but that will only last so long as the Central Banks of the world are creating money out of thin air at an alarming rate and desperately trying to reinflate the global economy.  The likely longer term scenario then becomes an inflationary one.

To a degree, this could be mitigated by a strong dollar, and that is why politicians are hoping the current rally in the dollar will continue.  Having the world’s “reserve currency” allows you to get away with a lot of things that you normally would not be able to., and as I previously wrote, the EURO will eventually completely collapse, as it is a horribly flawed currency, and that will help the USD rally.  Over the long run, currency markets are a simply a game of which country is relatively the least miserable.

So, in sum, this bear market in equities has been quite severe in percentage terms, but temporally speaking it has not been severe relative to past bear markets.  The economy continues to weaken and the government continues to make matters worse with more intervention.  There is likely a bear market rally right around the corner say beginning after the election and lasting into January that could take the indexes up as high as 15-20% but that would not hurt the dominant downtrend.  Beyone the next rally (after January) the dominant trend will likely take us lower over the next 6 to 12 months to new lows on the major equity indexes. -John Bardacino