Month: August 2009

A forecast “On the Record and For the Record.”

Many will look at the above headline and say..What do you mean by that?

So I’ll explain, and state why I think this may be one of the more important columns I’ll write for at least the immediate to near future. So here goes!….

I’m at my desk just after dinner on Saturday, August 22, 2009 writing this column. I ‘m stating the date on purpose so that whether I’m correct or I’m wrong in my forecasts or assumptions, I can be judged on empirical evidence. Most people who want to be taken seriously or have people make decisions based on their recommendations always seem to leave themselves a way out, or a way to spin the results if they’re wrong. I don’t. I say what I mean based on my experiences, and what I know from previous decisions or circumstances I’ve had to deal with in the real world. Not the hypothetical world of the so called “Experts” ..who leave things so vague they can appear right, no matter where the chips may land.

The Stock Market has just put in a new year record high across all the major blue chip indexes.  Nasdaq, S&P, Dow Jones, and Russell 2000. To date not only has the market been skyrocketing up since the lows from March of this year, but now Everywhere You Turn, someone is trying to tell us that The Recession is Over…The New Bull Market is Here….Dow 15,000 Here We Come!…and that just covers the Friday night talking heads. ( And most of these are the fill ins because most are on vacation this week!)

On Thursday it was announced that jobless claims once again rose more than expected. The weekly number was just over 585,000 New Claims. The continuing claims were also higher than expected…just over 6.2 Million. But once again…The experts all touted…” A sure sign you’re in a new Bull Market is when it can shake off bad news.”…..I say…Oh Really?…I heard others stating…” Well the stock market is a forward looking indicator”….again I say ” Oh Really?’….When the market was falling at a rate not seen since the Great Depression, what was it predicting then Hmmmmmm? I guess I’m suppose to not believe the account statements, and 401k statements my friends were howling about because…The market didn’t understand then…It’s sorry now, and wants to make amends….I say Rubbish!..I know you want to ask so I’ll state it so you don’t have to……No. I didn’t lose ANY money, and I actually made money, by taking it out of someones hands ( A Fund Manager), and placing it where it belonged…In Mine! I was scared and nervous at the time that I did it…I was not a so called Trader..or so called  Stock type guy, but I had recently retired, and moved to another part of the country.( I was 45 at the time!) when I thought the so called Stock Market which was at its all time high in the Dow Jones over 14,000 that things were looking and feeling very shaky. I had an uneasy feeling about what I was watching in the economy..( Though Every single talking head was talking about Dow 20,000 that year!)  I decided if I couldn’t tell why I should be in, or why I should be out at that moment…I needed to get schooled, and get schooled Fast, and the only way to force that decision was to put ALL, yes, ALL my monetary stock decisions of any size or shape directly under MY CONTROL! If I couldn’t defend any of my decisions right, wrong, or indifferent, then I needed to not be involved, or at risk. No Matter How Much Money I could miss out on making! Thank God my decision worked out, but it’s not intended to impress…It’s to try and show I actually live by what I say, which is what more of the so called “Experts” need to be doing. I’m alarmed by the cavalier attitude in which they are all  shouting the “All Clear!” signal.

In 2004 I was invited to speak at a major conference for some of this nations largest food companies for their National Marketing Campaign. I found many of the so called “Industry Experts” and others patting themselves and anyone else who would listen on their backs stating  “How Great” everything was….How profit’s were at an all time high, and going to continue for years. I heard them state this source…give this example…and on, and on. When I was called to speak I decided to shoot from the hip, No written, or prepared text, just straight from the gut on what I felt and truly believed. I stated the exact opposite of everything they were believing to be true. I stated that if the things that all were ignoring were not dealt with immediately, there would be a shake out that would bring many near bankruptcy. I stated and tried to remind the attendees that it was only a short 18 months prior when most were wondering if their business would even be around for the conference that was taking place at this time. ( The  average company size attending were $500 Million to $10 Billion and above annually.) When I was finished you could hear a pin drop, I was given a complimentary applause, and could feel the heat of the stares as I  left the conference. ( A couple of attendees later came and thanked me for speaking so direct and agreed with me, but for other reasons felt they could not say it.)

Within weeks of my speech and forecasts the market not only tumbled, but it crashed. The value of most of the products that we sold fell 50% in 2 weeks, then another 50%, then another, ending in approximately a 80% DROP in value for the industry. It wasn’t millions…It was Tens of Billions of dollars, and to this day has never recovered. 4 of the larger companies in attendance no longer exist in the same capacity that they were in. They are less than 1/2 the size the were in 2004…2 more of the companies in attendance that day made National Headlines when they called for Bankruptcy protection in a press release that ” Shocked the Experts”….I bet it did.

By now if you’ve read this far your probably saying to yourself…OK..So what now?

I feel the same way now as I did then…..I’ve written time and time again on things that I see as not looking right. ( See archives..Party 1999…On TV Right…The world has changed…and others posted on this Blog.) But now…It’s becoming more pronounced to me than ever. Since retired I still speak, and write with  CEO’s and business leaders on what I think is relevant to their future. But if you want to be taken seriously, and be paid the big bucks…You had better be willing and able to make a call, and live by, and be judged on that call. That’s what you expect from a professional, anything else is left for rookies, and wanna bees….Period!

So am I saying the world is going to end tomorrow?..No!….However, what I am saying that a day of reckoning is not far off the horizon, and I mean weeks to months, ( so not to be confused of playing of Nostradamus.) that can fundamentally change the business landscape for decades, and if you read my post with the headline…“The problems not the pendulum” you’ll understand why I’m so concerned, and why this may be a critical point.

If I’m wrong…Well I can handle that….But if I’m right…I want too at least be on the record as trying to warn of the perils that may be near. Life is tough already both in business and in family. This is one time I hope I’m wrong.

Mark

P.S. The federal government announced late Friday afternoon that they underestimated the Federal Deficit over the next 10 years…They projected $ 7 Trillion In DEBT!…….Oooops ….It’s going to be $ 9 Trillion!

Or to make it a little easier to digest.That’s $ 1.00  x 2,000,000,000,000

Want to visualize it better OK…..The experts, and analysts only missed by  a stack of……. $ 1000.00 bills..Ready?…..135.8 Miles High!

Close enough for government work I guess.

Also reported Friday, the value of US equities  ( Source Bloomberg) lost     $ 7 Trillion dollars of value since 2007.

But whats a few Trillion Dollars amongst friends, Right?

A level playing field is great…..As long as the players aren’t crooked.

We have heard time and time again from business leaders, government officials, economists, pundits, and on and on tell everyone who’ll  listen that government intervention into the private system was ” the only way to avert disaster.” Some chase down every microphone or television camera to scream the virtues of their decisions. They mouth platitudes and pat themselves on the back, all the while the consequences of their meddling are coming to bear for anyone who truly wants to see.

I have written in past columns along with others that the so-called “Yellow Brick Road” to recovery is not gold at all. It’s more like some phony imitation prop on a third-rate Off Broadway production. True theater goers (business leaders) can’t help noticing that every time the actors step on the “Yellow Brick Road”…it creeks from being made of plywood and gold paint. While everyone may seemingly be enjoying the show, some theater patrons are overlooking the serious flaws and enjoying the moment….But experienced patrons will not pay “On Broadway” prices for anything that’s not up to the caliber demanded at that level…period!

Investment capital, real money, real businesses, all have real rules and expectations. When Uncle Sam became involved in the private sector with all of its alphabet soup programs e.g.; TARP, TALF, SMAF, RALF, ( yes some pun intended.)  I stated that if you’re in business of any size…How do you know what the rules will be going forward? Who will be your competition? Will they have the same accounting standards as you? Will your product still be legal…1 year, 5 years, 10 years from now? If you own or start the business…Is your salary going to be capped if you employ more than 1 worker? How can one answer these questions based on history?….All these questions are prominent in a new era of business rules, and a new government philosophy of what it believes your business responsibilities should be regardless of what you think. Another big question that seemingly no one is thinking about…Will businesses, and or talent that have the ability to move out of the US and avoid these trappings move?…Or will they just sell, close, retire or something else. And are any of them your customers, employees, bankers, or suppliers? All very visceral questions, all very serious, all very real in today’s “New World of Business.”

Ok your saying to yourself….Give me an example ….You can always find answers if you look…That’s what business leaders do right?…That’s why we get paid the big bucks, because we can forecast, and deal with changes, that’s where opportunities are. Right?

Well, you would be correct 24 months ago, but today, it’s a very different landscape.  I’ll give one example and you be the judge. Let’s say hypothetically you need the answer to this question because you have to invest real money in a project that demands you knowing the answer. Your personal, and or business fortune would depend on your decision. Then after contemplating you must be truthful in stating …“You know the answer…not assume…you know! But if you’re like me…You’ll find that very hard to do.

So here’s the question…JP Morgan Chase is lending the State of California…1.5 Billion Dollars today so it can end the states IOU program early. That means that the State can continue paying who ever, or what ever person or business that it owes in real dollars once again. OK, good for that, but what if your competitor was one having to accept the IOU’s….Your competition just caught a life line Per Se. Good for them, not so good for you, especially if you just invested considerable capital for the additional business you thought you could gain from a beleaguered competitor. But why would JP Morgan do that?…Wasn’t the bank having the problem accepting the IOU’s…. Bank of America? BofA had stated it was no longer going to accept them as cash for payments on their loans. That would have put a world of hurt on BofA in more ways than one, both financially, and publicly. Why would a competitor bank step in and seemingly stop the bleeding of a rival? Also it does this at a time that saves the State of California from issuing more IOU’s…early!…before it had needed to. And last but not least..Why would JP Morgan want the prospects of loaning money to a borrower who has shown that it can’t repay the loans (it already has) in the traditional sense therefore opening its shareholders to possible catastrophic losses?

Hmmmmm….State Government needs money, one of the banks it deals with is already in a financial hurt, news about other things are dominating the headlines,  and it’s summer so most of the scrutiny is gone. What’s one to do?….Maybe..just maybe….They get the Healthy bank to loan the State the money, They own the banks through TARP…so they can give a wink and a nod to the healthy bank that the loan is good. Saves the State, Saves the face of one bank, makes the other bank look like a hero. They’ll be very little press coverage if any.(Bloomberg was the only one I seen report it.) and Congress along with others needn’t be involved because it can be done by fiat, and no ones the wiser. Sounds like they have a plan! OK, now your turn, where to invest next, or should I say, what’s your next business plan?

Like I said before, things just don’t seem as straight lined as they once were, but hey, we’re only talking your money, and your future as a CEO. Welcome to Business 101.2a I guess.

Mark

Party like it’s 1999 only a decade later? I think not!

This post also appears in Forbes.com………CEOnetwork (R)

Here we are in August of 2009, if you went by what is being said in TV and elsewhere, you would think there was never a 2008. Airwaves crackle with the pops , and pings of the stock market hitting record highs!…..Yes….I said record highs..( but I mean you can only account for this year )..Last week the stock market had its best performing month in over 2 decades…( The source were commentators on both CNBC and Bloomberg, and a few others.) Statistically all were true, but do you really believe the worst is behind us? I personally think not, and here’s why……..

The rise in the stock market is dramatic because of the sheer size of the near collapse it undertook just a brief 12 to 18 months ago. Both the S&P, and Dow were racing to new highs…BUT..not anywhere near this rate, and that was when if you didn’t have a job, didn’t have any savings, and a few other so called trifle things, guess what? You could buy a New Home, a New Car, and probably one or two credit cards with 10K spending limits. ( 10K at first, but after you made your first minimum payment, you might get raised to 20K but I digress.) Some  commentators on the financial talk shows have now declared ” We have entered a New Bull Market!”. I heard one state… “Dow 15000 here we come!” and on, and on. So now you’re asking, but didn’t I see on the cover of a national magazine that they declared the recession over?….Yes you did!…and that’s why I feel the worst is yet to come.

If you really pay attention to all this so called great news, all you have to understand are the terms, Not as Bad…Is the New …..Beating the Street. Here’s an example to illustrate my point.   If you were broke, but I said the computer you were reading this column on right now was worth 5 times more than what you paid for it originally, are you Richer Now? What if I said it’s worth 10 times, a 100 times, a thousand times, what then? Most would say, of course!….Sorry, not so fast. It’s worth that value as an accounting option, or change in a loop hole. You can’t go out and sell it for that, of course No One would pay that, but as a Tax Loop hole go right ahead. Of course that is, if you have made any profits to declare it against, if you don’t have any profits, well it’s all just a fools errand. But right now, this is exactly how most banks, and other entities are so called…Beating Wall Street Analyst’s Expectations!…you know, the same people who never saw the great debacle that was unfolding in their so called area of expertise.

The velocity of the most recent rise of the stock market is from managers, and large portfolio funds who must put money to work in the market at certain levels. For many, their bylaws state they Can Not remain in Cash positions for extended periods of time. They MUST be in the market. This means for many, holding their nose and buying on speculation, or as others would say…Pure Hope!…..But expectations will have to be met, or there will be a very, very dear price to be paid.

Unemployment is currently at 9.5% and most are calling for it to go higher in the very near future. Some are calling for much higher. The so called saving legislation that every politician wants to proclaim has saved us, is showing month after month, that less than 12 to 15 percent of it has even been put to work. ( That includes mortgage refi’s, and other programs also.) The Fed is holding together the financial system the best it can at the present time with the equivalent of Duct Tape. It has to keep interest rates at ZERO regardless of what it can cause in the future, because right now….No Ones Lending!…Think I’m wrong?….Try getting a loan for operating expenses from a bank?…I don’t think so….Also…If you already have a revolving line of credit..you’re doing everything in your power with the exception of cutting your bankers grass yourself to keep it open, or not being reduced. ( Some people might even cut the grass if it meant they could get the loan!)

Don’t get me wrong, I’m not a doom and gloomer. Far from it, I’m an optimist. However, optimists that can take advantage of staying in business by not falling into the traps that the competition seems to be falling all over itself to embrace, just might be the cure for the financial blues that I feel are sure to come. If it’s inevitably going to rain on someones parade…..I want an umbrella in case it rains purple.

Mark