Episode 46: Amazed
I had the privilege of hosting Jimmy Blackmon as a featured speaker for some of my coaching clients last year. Jimmy is a US military officer who led high-risk missions all over the world, including serving as the air mission commander on the operation that netted #2 and #3 in the famous Iraqi deck of cards. His credentials are too many to cite, but they include Airborne, Ranger, and Air Assault. Jimmy holds four Bronze Star Medals and received the General Douglas MacArthur Leadership Award. He is a true American hero and authored two books, Cowboys Over Iraq and Pale Horse. These books provide harrowing accounts of his missions in the Middle East and demonstrate what it means to be a leader.
Jimmy generously shared a recent 1:1 video chat with his old boss, General (Ret) David Petraeus. General Petraeus is the epitome of leadership, having served 37 years in the US Army, including command of "The Surge" in Iraq, command of US Central Command, and command of coalition forces in Afghanistan. Following retirement from the military and after Senate confirmation by a vote of 94-0, he served as Director of the Central Intelligence Agency. General Petraeus graduated with distinction from the US Military Academy and holds a Ph.D. from Princeton University's School of Public and International Affairs. He is currently a partner venerable private equity firm, KKR.
The General Petraeus interview is fascinating and worth an hour of your time. My spin on his message is as follows:
Focus on the things that only you can do as a CEO. Early in my CEO tenure, I recall my desire to lead by example and work harder than anyone else in the company. Those aren't bad qualities, and there's no way to get around working hard as a successful leader. A strong work ethic is table stakes for a successful career. However, I focused more on input (vs. output) and packing my schedule (vs prioritization and delegation). In retrospect, I unintentionally neglected some of the critical elements of my job to demonstrate I was willing to do any job. That was a bad trade. I also neglected my health and meaningful relationships, which proved unsustainable. Figure out the responsibilities and tasks that uniquely fall on your plate and make that your priority, and delegate the rest.
Understand how to lead up with your boards, investors, and partners--whomever you are ultimately accountable. It's essential to be clear on what, exactly, you need to provide to the people above you (without them asking for it). Being sensitive to your various constituents' needs and offering proactive and effective communication is an essential task of leadership. It's not sexy and can be time-consuming, but leaders who ignore these responsibilities won't build enduring relationships that are requisite for a successful career.
Keep perspective and strike some form of work-life balance. Being a CEO is stressful and lonely. The acronym that should be a diagnostic on every CEO dashboard is MEDS: meditation, exercise, diet, and sleep. Executives often neglect these four building blocks of good health. There are too many CEOs to count who ignore their physical and mental health. Working tireless is often viewed as a badge of honor (and Boards and investors do little to discourage it), and CEOs find themselves in constant work/entertainment mode with a weekly dose of stress, travel, fattening meals, and alcohol. The allure of T&E fades quickly, and over time these activities take a toll and impede leadership performance. Bottom line, make sure you are getting your MEDS for optimal performance!
Luck is the intersection of preparation and opportunity. I work a lot with small and medium-sized businesses, and I'm always surprised at how many don't have a strategic plan for their company. That's not to say you can't have a successful company without planning. Businesses can exist and even thrive without a plan, whether that's because they operate in a hot market, have some form of competitive advantage, or benefit from good timing. However, great businesses that endure over time plan for success. Make a plan, expect it to change, and be ready to pivot when needed to take advantage of opportunities.
Make time and create space to "think" and work “on your business” vs. “in your business.” The most common leadership mistake I see is the lack of time for executives to think. When I meet an executive whose schedule week after week involves back-to-back engagements with no blocked time for reflection, that's a red flag. How can you offer strategic leadership when you are constantly in reaction mode? You can't. Make time in your calendar to think about your business and explore opportunities to sharpen your leadership skills. Your business will be the beneficiary.
US DEBT
I am amazed about the lack of conversation and concern about our country’s growing debt. The federal budget deficit will hit $2.3 trillion during the 2021 fiscal year, per the nonpartisan Congressional Budget Office. This deficit, which does not include Biden’s recently passed $1.9 trillion “American Rescue Plan,” would come in below fiscal 2020’s deficit of $3.1 trillion but well ahead of anything the US had seen before the pandemic. And this figure also ignores President Biden’s proposed $2.3 trillion “American Job Plan.”
In September 2020, the total federal debt stood at $27 trillion, equating to a debt per capita of $69,000. As I write this newsletter, our national debt is $28 trillion ($85,203 per US citizen) and forecast to swell to $35.3 trillion in 2031. This US Debt Clock shows real-time figures. Don’t click if you have a full stomach. Most concerning, our debt issues are multiplying at an alarming rate. Our public debt will exceed our entire economy’s size for the first time since WWII. (The same holds for the UK where they registered record debt and more than 100% of GDP. Canada is projecting a deficit of 343 billion Canadian dollars, an increase of more than 1,000 percent over the 2019 deficit, and pushing national debt above 1 trillion Canadian dollars for the first time. Japan has the world’s highest debt-to-GDP ratio at more than 200 percent!). In February 2020, Treasury Secretary Janet Yellen said that “the US debt path is completely unsustainable under current tax and spending plans.”
What’s happening? And who is responsible?
Yields on 10-year Treasury notes exceeded 6% for most of the 1990s, as did borrowing costs for even the most creditworthy companies. (The 10-year is 1.66% as of close of business today.) The Clinton administration restrained spending and raised income taxes on wealthy households, balancing the budget in 1998 for the first time since the 1960s. Starting under President George W. Bush, something unexpected happened. Deficits and government debt rose because of increased spending and tax cuts, but interest rates kept falling. In 2007 - 2009, the subprime mortgage market collapsed, leading to the Great Recession of 2007-2009. The government responded with aggressive monetary and fiscal policy, and assets inflated, creating the longest bull market on record. The wealth gap widened. And last year, the pandemic crushed the global economy. The impact was devastating, especially on people who could least afford it. The COVID-19 crisis devastated many small businesses. For example, in the United States, there were 25.3 percent fewer of them open in December 2020 than at the beginning of the year (the bottom was in mid-April when the figure was almost half). US small-business revenue fell more than 30 percent between January and December 2020. The fiscal response to the COVID-19 crisis was unprecedented—and three times bigger than seen for the 2008–09 financial crisis. In the G-20 alone, fiscal packages are estimated at more than $10 trillion. According to the CBO, US debt is on track to double to nearly 200% of GDP by 2050 because of soaring Social Security and Medicare promises.
Proponents of the aggressive monetary and fiscal policy are comforted by years of low inflation. They suggest the government should be borrowing to keep the economy going because the private sector isn’t. With borrowing costs expected to remain low and the pandemic-stricken economy still weak, temporary increases in deficits aren’t only tolerable but desirable if they help strengthen the recovery. The strongest advocates of this view are center-left economists, including former Treasury Secretary Larry Summers. But even in an era of low-interest rates, the reckoning could be painful down the road.
Politically, both Democrats and Republicans have jumped on the debt bandwagon. This chart shows the 10 US Presidents who were in office during periods with the largest debt increase in percentage and dollar figures. New flash: Obama, Trump, G.W. Bush, and now Biden dominate the list when measured by dollars.
Why Should I Care?
The most basic way to explain this situation is a bill will arrive at some point for our spending, and everyone around the table will immediately get alligator arms. There are a few reasons we haven’t felt the pain of higher debt thus far:
We are in a low-interest-rate environment, so servicing the debt has been manageable. Despite a $4 trillion increase in debt last year, a 25% increase, interest payments on that debt declined by 8%. But what happens when interest rates rise? And they will rise at some point.
Central bankers around the world have been pulling fiscal and monetary levers, and, by comparison, the US looks like the prettiest girl at the dance. Our dollar continues to maintain its position of reserve currency; but, while we look good from afar, we are far from good—let’s hope direct sunlight doesn’t show our wrinkles and saggy arms. At some point, higher debt levels will negatively impact our dollar’s attractiveness, and our ability to finance our profligate spending will be gone.
In the end, our debt situation is very much like losing weight. There’s no magic pill or miracle cure. Net calories are all that matters—eat less, exercise more, or both. For our debt, the same holds—raise taxes, cut spending, or both. Certainly, GDP growth can help and would be the preferred path out of this mess. Growth and productivity gains are how the US lowered our debt-to-GDP after WWII. Still, that trend requires favorable demographics, strategic government regulation and investment, and a well-trained workforce. We have none of those things working for us this go around. I realize people like getting the “free” stimulus checks in the mail, but the bill is coming, and it’s not going to be a fun tab to pay.
What Does the Future Hold?
Ray Dalio, the founder of Bridgewater, one of the largest private equity firms globally, shared his thoughts on the topic. He describes the three phases of monetary policy over the last two decades. The first phase was lower interest rates; The second phase quantitative easing (and government buying of financial assets); The third phase is the production of debt (and printing of money). This last phase is where things stand today. The free market plays less of a role in this phase, and the government will determine where funds go (i.e., Stimulus checks, unemployment benefits, etc.). These actions don’t grow the economy or enrich lives; they redistribute wealth. And maybe that’s a good thing. But I’d rather see it come in the form of education and training as opposed to hand-outs. Regardless, it means the government will likely play a more prominent role in our financial markets, and historically that’s a terrible strategy with a bad ending.
The reality is predicting the future is an impossible task, and these are complicated issues. Only time will tell how things play out. However, we must start having the conversation.
I. Below are the articles I found interesting the past week:
A third of COVID survivors suffer ‘brain disease,” study shows
JPMorgan CEO sees ‘goldilocks moment’ for the US economy
What the US can learn from China’s infatuation with infrastructure
Yellen to Make Clear U.S. Doesn’t Seek Weak Dollar
II. Stats that made me go WOW!
- Soon-to-be-public Coinbase reported Q1 earnings. The cryptocurrency exchange made a profit of $730–$800 million on ~$1.8 billion in revenue.
III. Name that Tune!
As I write this email, I am listening to “Amazed” by Lonestar.
Lonestar is an American country music group founded in 1992. Bass guitarist/vocalist John Rich exited the band in 1998 and went on to become one-half of the duo Big & Rich. Lonestar has charted more than 20 singles on the Hot Country Songs chart, including nine that reached No. 1. The song “Amazed” is one of them. Considered a “power ballad,” “Amazed” released in 1999 and would spend eight weeks at the top of the charts. The song has been covered by Bonnie Tyler, Duncan James, and Boys II Men, among others. The sexy temptress in the music video is Sunny Mabrey, wife of Ethan Embry who played “Rusty" on National Lampoon’s Vegas Vacation. The couple married in 2005, divorced in 2012, and remarried in 2015. Go figure!
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