Posted on 10/31/2009 11:07:34 AM PDT by Blue Collar Muse
Not even the NYT can avoid reporting that on the last trading day in October, the Dow Jones dropped like it was pole-axed, completely erasing yesterday's 2% gain, while other financial indexes posted a monthly loss for the first time in 7 months. Consumers still seem skittish despite news the Economy grew by 3.5% in the 3rd quarter. How can we grow like that and still have major issues with the Economy?
(Excerpt) Read more at conservablogs.com ...
The “economy” didn’t “grow” by 3.5%, GOVERNMENT SPENDING DID!!!!!.........
Slim Sady promised no more BUBBLE AND BUST, and all we have now is burst balloons and the rubble of unemployment. Is this the quiet before the massive thunderstorm?
“How is it that we can read all this stuff in the media but never think about or comment on what it means?”
Because it means nothing, more or less. On this forum we know all too well that “the media” is unreliable in terms of accurate reporting of political events, and most don’t pay anything more than passing attention, if that, to mainstream news sources. To think that this spurious and in-the-tank media will schizophrenically become imparters of valuable, timely *financial* information when reporting same is...naive.
That is not to say there are some, maybe even plenty of discussions in these parts of what’s going on in the economy...whatever “the economy” may mean to you. After all, “the economy” might mean employment to some; to others, corporate profits. To others, stock prices; to others, bond rates; to others, productivity figures; to others, capacity utilization. To others, freight loadings; to others, commodity prices. To others, existing home sales.
In the very short term, stock prices are very reactive to liquidity, which the Fed is monkeying around with with all the finesse of a 30 lb sledge hammer. In the longer term, stock prices react to corporate profits and earnings.
Without defining what “the economy” means, without defining what we believe the market reflects and several other factors, all we can really say of substance is that “the market went up today” (or “down” today), which is obvious, thus that particular snippet of information is of little or no value.
My own beliefs are: I see essentially no evidence of an economic recovery in any tangible or sustainable sense; IMO, the stock market is fiendishly overvalued; it has run arguably the greatest percentage in the shortest time in history, could give back 15% and STILL be a record-setting rally. I believe business is in general in a state of suspended everything, not knowing what kind of onerous taxes and mandates might be passed under this goon and his regime.
And still, all of my opinion is equally meaningless.
**Only price pays.**
EVERYONE is in hunker down mode, just trying to ride this storm out.
I can tell you from an anecdotal point of view that sales at the collection of businesses I own started going straight north at the beginning of October. It happened virtually overnight and was substantial.
You also have to realize that places like Houston, Kansas City, etc., didn't experience the boom and bust like the coasts did so these places not only have jobs, but in some neighborhoods, housing values are rising along with employment. If you are only surrounded by blue collar workers that are in old industry (steel mills, auto manufacturing, etc.) and your friends are in the same group, you aren't likely to see that there are entire occupational groups that are doing just fine right now. I know of one hospital that is offering to pay for the entire college program for nurses if they work for two full years on contract, plus offers 50% matching on up to $14,000 in 401(k) contributions. For someone who hopes to make $40,000 to $80,000 a year, that is a huge bonus.
It all comes down to vantage point. When you are on the street level, you can only see the people around you. When you are in the skyscraper, you can see several miles in each direction and see which streets are busy and which are packed. Those sitting at the top of the companies were saying it was a recession before the average worker, and now we're telling you that it's ending from the sales reports we're getting every day.
For someone, such as myself, who is not an economist, it is difficult to make sense of the market and the economy. I know that if the government prints more money the buying power of the dollar goes down. I know that the government is spending money that it does not have, and that it is borrowing from future generations. I do not understand why this economy is not tanking. We should be experiencing a deep depression, but we do not seem to be. I do not understand why we are not in a steep inflation. We are certainly in a jobless “recovery.” Is our economy all smoke and mirrors?
I can appreciate that perspective and perhaps even agree with parts of it. However, as a small business owner in an urban Tennessee area which has not been hit with the unemployment challenges that other areas of the state have (we have a couple of counties with 25+% unemployment), I’m also not seeing a huge surge in business.
I supply the shipping industry. If orders, especially of small to medium-large items, are up then there should be an increase in demand for my products but I haven’t seen it yet. Or not in a meaningful way.
The hit that I took was not so much on business volume but on price paid for my product. For the last several months I’ve been operating on a “Same biz volume as last year but at a 70% reduction in income on said volume” basis.
That hasn’t changed at all. I don’t know if your biz routinely has a spike beginning in Oct or not. The decline in consumer spending data I referenced only goes through the end of Sept. I expect to see increases in orders and shipping in the 4th quarter. That might account for your spike.
What is going to be revelatory is not goods shipped but items actually purchased at the retail level. That data doesn’t look so good but then, as I mentioned, the numbers are only in through September.
We’ll see in a week or so when the Oct numbers are made available. I don’t think consumer confidence is going to do a 180 in 30 days so I expect to see early, deep discounts by retailers and a slow 4th quarter.
Understand - I’d LOVE to be wrong. But I don’t see anything to indicate that the Economy has bottomed out and is rebounding.
I can appreciate that perspective and perhaps even agree with parts of it. However, as a small business owner in an urban Tennessee area which has not been hit with the unemployment challenges that other areas of the state have (we have a couple of counties with 25+% unemployment), I’m also not seeing a huge surge in business.
I supply the shipping industry. If orders, especially of small to medium-large items, are up then there should be an increase in demand for my products but I haven’t seen it yet. Or not in a meaningful way.
The hit that I took was not so much on business volume but on price paid for my product. For the last several months I’ve been operating on a “Same biz volume as last year but at a 70% reduction in income on said volume” basis.
That hasn’t changed at all. I don’t know if your biz routinely has a spike beginning in Oct or not. The decline in consumer spending data I referenced only goes through the end of Sept. I expect to see increases in orders and shipping in the 4th quarter. That might account for your spike.
What is going to be revelatory is not goods shipped but items actually purchased at the retail level. That data doesn’t look so good but then, as I mentioned, the numbers are only in through September.
We’ll see in a week or so when the Oct numbers are made available. I don’t think consumer confidence is going to do a 180 in 30 days so I expect to see early, deep discounts by retailers and a slow 4th quarter.
Understand - I’d LOVE to be wrong. But I don’t see anything to indicate that the Economy has bottomed out and is rebounding.
This is largely because that money has not yet gotten into the system. It is sitting in the bailed out banks vaults or the yet to be spent checking accounts of the various government entities. When it gets out you will see your INFLATION a la Germany 1933.
Business is down 22-28%, pretty much across the board. Beyond sales, which have ticked up slightly in the past 60 days, another barometer is inventory levels. I have been through three recessions in the past 30-35 years, and I can always measure real recovery by increases in inventory.
That said, I can tell you that virtually every significant distributor I sell is taking a cautious, wait-and-see attitude when it comes to increasing inventory levels. None of them want to miss a sale, but it's pretty much ordering as needed.
I'll let you know the minute I see this trending differently, but for now ...the recession is still very much in place.
“Consumers still seem skittish despite news the Economy grew by 3.5% in the 3rd quarter”
That’s because ‘news the economy grew by 3.5% in the 3rd quarter’ doesn’t put dollars in your bank account.
Well done!
” ... and now we’re telling you ... “
Well hello Mr. Fancy Pants! You’re not telling me jack.
What could be happening in our case is that most of our businesses are Internet-based (one division has a chain of retail stores but for the most part, I like to own low-cost, high-margin businesses that don't require a lot of overhead). I get the sales data in real-time as orders are placed on the servers, so I can login and the software program actually shows me a map of the world and every time a customer makes a purchase, I can see where they are, use Google Maps to see a satellite image of their house or office, know their operating system, average purchase history, shipping choices, etc. Right now, we're seeing big pickups in volume in Texas, some parts of California, and the Midwest (the plains area - not places like Detroit).
If this is primarily a region-by-region recovery, that would make sense. Given that our market is the world, and not a specific trade area, we would see that (the specific business that has the most increase in a sporting goods company that provides team uniforms, athletic apparel, etc.)
Your point about unit volumes maintaining their level but profitability getting hit really could be the key. That would make perfect sense as to why some businesses are suffering and others aren't. (When I started my companies, I focused on what is known as a negative cash conversion cycle business model because I had seen them work beautifully as an investor. We partner with a few, big vendors, build sales vehicles to deliver to the end customer, and make the sale before we have to buy the goods. This means we never have any of our own money tied up in the business and with costs entirely variable other than a small, very well paid staff, we can routinely run operating margins of 30% to 50%, plus we get 30+ days of holding the cash and earning interest on it. In our case, margins are almost always equal to operating costs because there's no fixed expense base over which it all falls to the bottom line; in other words, if our unit volume is constant, so are our profits. I understand how that would not be the case with a traditional factory or supplier).
As a shipping supplier, I imagine you'd have a unique opportunity to see any broad based recovery happening, especially in terms of unit volume.
P.S. The analytics company we use just came out of Beta and it's called Woopra. If you have any sort of online business activity at all, the monitoring capabilities it provides are unbelievable. We've moved most of our online businesses to it (we were lucky enough to get in on the beta test a year or two ago), and I think the subscription rates are extremely affordable. It lets you see what pages are driven the most traffic and, when combined with Google Analytics, revenue and profits. Be careful, though: They say it's like crack cocaine. I got so used to seeing the world map pop with dozens of customers every few seconds that I had to have a 60" display put in my office that runs it constantly so I can watch the activity as I work. It makes you feel good knowing all of those people are on your site at that moment, generating sales. By letting us know the orders in real-time, I know exactly how much cash is available for expansion or redeployment at any moment.
I posted this back in June:
I think things may be sustainable this summer but the coming winter is going to be rough I suspect. I fully expected temporary summer jobs to stall the unemployment trend but that will end before Christmas and we’ll back on track for meltdown. and, like you said, who knows what’s really going on with housing especially considering the millions of newly unemployed Americans created this spring? I see a stock market doing “OK” but I see it being manipulated and it becomes more and more evident that the stock market is pretty well disconnected from Main Street, USA realities.
http://www.freerepublic.com/focus/f-chat/2267819/posts
“we” = people who own or run businesses
“you” = people who don’t (so don’t have access to that data)
Astronomers can tell “us” non-astronomers all about the sky and what they can see that we can’t. Doesn’t mean we have to listen. But you’re correct in one sense: I, as in myself, am not telling you, as in *you*, anything. I’m merely sharing the things that I, and some of my colleagues who are also in the same position I am, have been discussing.
I have no doubt that what you said is true. I also think it's a function of your industry. Case in point: Believe it or not, the most successful business we own? High-end luxury gifts. You would think it would have been hurt the hardest because people can't afford $1,300 etoile diamond-tipped Montblanc pens. Yet, it was the first to show signs of life back in September.
If I had to bet money on it, I think you're going to see specific areas recover first instead of a broad based resurgence. You have certain demographics doing just fine (have you seen the revenue growth at the video game development houses lately?) and others who are really, really hurting (factory workers who need to replace the washing machine and the car but don't want to add payments right now).
My guess is that the broader economy is going to be much more tolerable when you see white-collar professional workers (lawyers, accountants, brokers, etc.) begin to spend money again because they are often the first to recover and the last to be hit when things go south.
Just curious: How'd you get in to that business? (I'm always interested in people's business stories).
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