The Rollicking Economy

Looking For Rays of Sunshine From the World’s Young Entrepreneurial Lights

I’m off to attend the YPO Global Leadership Conference in Miami Beach this week.  YPO – the Young Presidents Organization - is a global network of young chief executives and entrepreneurs that connects 17,000 peers and their families in 100 countries to learn, exchange ideas and address the challenges leaders face today. Its mission: “Better Leaders Through Education and Idea Exchange.”  Members must be under 50 and run a company with at least $8 million in annual revenue and 50 employees.  It’s a dynamic, wealth- and job-creating group of international business leaders, about half of whom are American.

So far, as I’ve previously intimated, I find that the world’s entrepreneurial class is spending more time thinking about the opportunities the global financial crisis is creating than they are worrying about how to solve it.  It’s a response I find incredibly encouraging, and perhaps somewhat instructive: While major institutions are flailing and failing, the more nimble, more informed risk-taking of smaller entrepreneurs seems less stuck in the toxic securities mud and more oriented toward the future.  They’re thinking about how to take the broken and marked-down assets lying on the sidewalk of our economy, and combining them with great ideas and great people to create new wealth, new jobs, and new prosperity.

I don’t hide the fact that I’m an optimist -- and I’m still an optimist in the face of the most pessimistic, sour presidential administration in a generation.  So I’ll be reporting in all week on how the globe’s most aggressive and creative entrepreneurs are working to emerge Phoenix-like from the ashes of the crashes.

Stay tuned – it’s going to be a rollicking ride.

Entrepreneurial Class Warfare

“For all those whose cares have been our concern, the work goes on, the cause endures, the hope still lives, and the dream shall never die.”

Funny I’d remember that line – the closing stanza of Teddy Kennedy’s 1980 Democratic National Convention speech.  It came to me as I was thinking about how I’m feeling right now about America’s economy and America’s entrepreneurs, especially after reading another Peggy Noonan Alzheimer-ish Wall Street Journal column in which she ramblingly concludes that we’ve somehow entered a period of permanent economic decline.

I thought of Ted Kennedy’s speech because I sense good things in the works in our economy.  Peggy Noonan doesn’t, the American business press doesn’t, a consensus of economists doesn’t, and the President thinks we’re teetering on the edge of catastrophe…but in this cold, dark February morning of our economic retreat, I feel the reassuring turning-over of the economic starter, and the slow, low, strained rumbling of the engine as it prepares to warm up and hit the road again.

Why do I say that? 

Not because we haven’t had a terrible ear-boxing from the Crash of ’08.  We have.  Not because people aren’t hurting and businesses haven’t been suffering.  They have.  I say it because it seems to me that the emotional depression brought on by economic hard times that’s being reported ad nauseam in the nation’s press seems to have somehow eluded America’s entrepreneurial class. 

Far from being sidelined with heads in hands, my travels and conversations with entrepreneurs around our country over the last few weeks suggest that the work goes on, the cause endures, the hope still lives, and the dream shall never die.   

I’m very active in a non-profit group for entrepreneurs under 50 called the Young Presidents Organization.  It’s a nearly 60 year old international organization with almost 15,000 members worldwide.  Its motto: “Better presidents through education and idea exchange.”  I spoke to YPO’s Construction Industry Network the week before last, and then spoke to its Food Industry Network three days ago, then attended a dinner for Denver YPOers two nights ago. 

What I found in the 150 or so YPO members assembled in the three groups, as war stories from the economic front were shared, were tales of heavy fire taken and wounds sustained over the past six months – bank lines pulled, revenues dramatically decreased, layoffs ordered, customers folded, investment portfolios whacked. 

But I heard no self-pity.  None.  I heard no suggestions of folding up tents and quitting.  None.  I heard no nailbiting over the viability of the future, no Noonan-esque sense of the end of an era, no diminution of a sense of potential future abundance, and no signs anywhere of a loss of the American entrepreneurial spirit. 

I heard about plans to consolidate industries to reduce costs and gain efficiencies.  I heard stories of capital being raised to ride out the storm and take advantage of once-in-a-lifetime opportunities.  I heard strategies for hunkering down and reports of business models being changed to better position companies for the future. 

In summary, I heard Main Street Entrepreneurial America responding to its Pearl Harbor.  An unexpected sneak attack launched against it by a distant enemy – in this case, the financial markets – clearly has caused casualties and rocked it back on its heels.  But I can report, first-hand, that its spirit is intact.  That its determination is undiminished.  That it is readying its forces to march, workmanlike and with quiet confidence, against the Noonanesque nailbiting and the socialist Krugmania that has temporarily seized control of our government.

I work with and talk with these entrepreneurs, these do-ers, every day.  They, like many Americans, are some of the best we have to offer.  I watch with pride and nervousness for them, feeling the same mix of exhilaration and fear as a parent with a child playing goalie in a field hockey or soccer game. I know they’re going to mix it up.  I know they’re going to have a combination of failure and success every time out.  And I know that ultimately the love of the game combines with risks well considered and abilities honed through practice to make for a winning combination.

We’re not going down in flames, friends.  We’re just getting started.  All great economic successes are built on the ashes of a previous conflagration. 

The work goes on, the cause endures, the hope still lives, and the dream shall never die, Peggy.

P.O.'d at P.O.

A Republican friend of mine was saying today that she was feeling sorry for President Obama – that it appeared that being President was hard.   She has a nicely sardonic sense of humor, so I got the joke, but President Obama (or “P.O.”) is really starting to make me P.O.’d.

This morning he’s turned Cassandra on us.  In Greek mythology, the resident snakes at the temple of the gods licked her ears clean so she could hear the future.  Apparently the White House snakes are licking P.O.’s ears at night, as he can now foresee a dire future that virtually no other economists can.  This morning he said we face “catastrophe” if his Stimulator bill isn’t passed.

Catastrophe, P.O.?  Really?

This isn’t the Domestic Marshall Plan you’ve got here.  This is Nancy Pelosi’s shopping list.  The audacity of it – to use scare tactics for such a ridiculously flawed proposal.  The audacity of fear, in fact.

Now that being President has turned “hard,” Obama has decided to use economic McCarthyism (a "Red Ink" scare) to try to get his ridiculous Pork Platter passed.  In P.O.’s world, there is no such thing as hyperbole.  No need to worry about what effects you might have on consumer and investor confidence from using such terms to run down your own economy.  You’re the President.  You can do whatever you want.

All you know as President is that your particular version of The Truth must be correct, and if you're not with us, you're against us. 

Isn't that approach exactly what Obama ran against?

Is that Roger Daltrey or Napoleon the Pig I hear ringing in my ears?

Just a Big Sluggo Stimulus

Here’s the problem...well, wait…here’s ONE OF the problems with the gigantic stimulator bill. 

(I like the sound of “Stimulator” better than “Stimulus.”  It sounds a little less Latin and a little more 1970’s Times Square.)

The problem with the Stimulator is that we all know the money is not exactly headed to society’s best and brightest.

It’s going to be handed to a bunch of hack ward politicians in state capitals and cities around the country.  It’s going to be handed to homebuyers who didn’t know how much was too much to spend on their house payment.  It’s going to be handed to porkbarreling contractors like the whiz kids that built the leaking, wildly over-budget Big Dig in Boston and the local transportation geniuses who created the always-bankrupt toll road around the Eastern half of Denver that charges $7 for a short drive to the airport.

And they’re going to blow it.  They’re going to take a trillion dollars and they’re going to blow it.  You know it.  I know it.  They’re going to be about as discriminating as Wilt Chamberlain at a Hedonism II resort.

If we really were serious about creating jobs, why wouldn’t we give the money to Warren Buffett and Michael Eisner and Meg Whitman and Jack Welch and ask them to go create some jobs with it?  I kind of think Buffet with a trillion dollar war chest could outduel indicted Baltimore Mayor Sheila Dixon any day of the week.  Job creation smackdown: Nancy Pelosi versus Jack Welch.  Who wants the Nancy side of that? 

Hell -- I’d bet on that roundheaded Nancy from the Nancy & Sluggo comic strip before I’d bet on Nancy Pelosi to do something economically productive.

None of that’s going to happen, though, is it?  Instead, we’re going to see something that looks like Plaxico Burress at a gun convention – all excitement and desire and stupidity and dangerous outcomes.

The Stimulator.  Ridiculous.

Please don’t hurt me, please don’t hurt me

With a Fall financial meltdown averted by emergency action, it appears to me that the most serious problem we’ve got is not a Depression-style collapse, but instead a sharp and by now nagging recession that is causing, by historical standards, some moderate economic pain and dislocation.

So why are we planning a massive government spending shell game that suckers in our own children and piles our massive debt on their shoulders?  Whatever happened to the notions of stewardship, of steadfastness?  Why the panic?

When financial markets threatened to go into a full-on meltdown in September, the danger of economic collapse seemed grave enough to spur the government to heretofore unknown measures to prevent it.  We created a shocking $700 billion backstop, because our representatives judged that if the beating heart of the capitalist system seized up, the damage could unleash something close to anarchy on our society.

Anarchy is a pretty big threat, I think.

Still, by one reckoning I just listened to on Friday, that really was more of an investment than an expenditure.  The pundit I heard said that in his opinion, the great majority of the Hank Paulson and Ben Bernanke-led investments from TARP and the Fed were in the black.  I didn’t fact-check that, but it sounds right: investing, as the U.S. government did, when there’s no liquidity has to be a pretty good contrarian move.

But now we’re facing something different.  What’s being proposed now is just a gigantic, raw pork barrel spend-a-thon of gargantuan proportions.  Not a single person in this country believes this spending program will be “carefully monitored” or “spent where the needs are the greatest.”  It’s going to be a money grab, pure and simple.  We’ve already seen automakers, cities, everyone, showin’ up with their hands out.

So why?  Why would we do it?

Well, unemployment is a shocking 7.2%.  Oh wait – that’s not that shocking.  And the economy may shrink by a terrifying couple of percent this year.  Oh wait – that’s not that terrifying.

But that’s not going to stop us – we’re going to unleash our full governmental fury on this economy come hell or high water.  We’re going to go spend three quarters of a trillion dollars to make sure that we never feel any pain.  We’re going to debt-spend ourselves silly, so that we don’t feel the pain of all the debt spending we did.  We’re going to go on a bender, because we’re hung over from the night before.

Right.

This is what hope is about?  Spending an almost inconceivable amount of money so we can feel better, like we did when we were all hopped up on easy credit?

What if, with a working financial system as we now seem to once again have, we got there on our own?  What if we thought a little bit about future generations, instead of just our own momentary pain?  What if we once again thought of government as something that steps in when markets systemically fail, instead of anytime the GDP growth numbers are weaker than what we’d like?

Pooh Poohing Good News

I’m disclosing a clear personal bias: I’m an optimist.  Read with caution.

Nonetheless, I have to take strong issue with the tenor of economic coverage coming out of our nation’s large media outlets.  This morning, we get fairly positive news about unemployment and jobless claims.  First-time jobless claims dropped last week to a seasonally adjusted 467,000, down from a peak of 589,000 two weeks ago. 

That’s nothing but good.  The consensus Wall Street forecast was for 540,000 claims.  That’s a big upside surprise, a potential first dawning of the end of widespread job cutting across America.

But for major media outlets, there’s no reason to let good news stand in the way of some robust despondency.  “Still,” sniffed the AP report, “the number of people continuing to claim unemployment benefits jumped by 101,000 to 4.61 million, a 26-year high.”

Well, of course it did.  The 589,000 number from two weeks ago was the 26 year peak.  Seems pretty much in the “Duh” category to know that two weeks after a layoff peak is reached, the number of people looking for a job would be peaking. 

So what the AP is doing is reporting a mathematical obviousness, while ignoring some actual news: That the rate of new unemployment claims is unexpectedly down rather sharply.  For the second week in a row, I might add.  New jobless claims in real estate-devastated markets like California and Florida were down sharply.  The housing market, which clearly helped lead us here, is apparently starting to clear in those locales through dramatic price reductions.  That’s all good too.

I think this recession is at or very near its bottom.

Panic Government Spending to Get Panicked Consumers Spending Again

With Democrats tossing around trillion dollar deficits as if they’re dollar chips at a Biloxi casino, it might be worth moving from the unfathomable aggregate to the kitchen table level individual.

What’s going on in the average American household, and why does it have our new administration and the left-wing pundit class in a mood to dish out the big T?  (As in trillion.)

Well, let’s see.  I talk to lots of people from across lots of economic strata.  What I hear is consistent: “We’re cutting back.  We’re monitoring every dollar.  We’ve looked at our cellphone plan.  We’re not taking the family out to dinner on Friday nights.  We decided to fix the car up instead of buying a new one.  We’re taking an in-state vacation this year.  I’m buying the kids hockey equipment at the swap this year instead of new.  I turn the heat down to 50 when I go to work in the morning.”

And so on.  OK, great.  What is that, in percentage terms?

Let’s think about a hundred thousand dollar, two income household.  Here’s some rough numbers:  35 - 40% of income goes to housing costs.  Just under 20% goes to transportation.  15% goes for food.  5% goes for clothing.  5 – 10% goes for insurance and health care out of pocket costs.  That’s about 85%, and that’s before things like cell phones, restaurants, vacations, kids’ sports, utilities, etc. 

So let’s take that 85% of that $100,000 (actually, $80 - 85,000 after federal, state, and local taxes).  That means about $73,000 is spoken for.  That leaves about, oh, $12,000 or so – a thousand bucks a month – for all the other discretionary stuff. 

Now let’s say one of those households gets really aggressive and cuts out 50% of its discretionary spend. That seems really high to me, but let’s go with it.  That’s $6,000. 

Six percent.  It’s six percent of the GROSS household income coming out of consumption and going into savings. 

And this has the tea leaf readers wetting themselves.  We’ve got politicians creating a national economic panic over consumers not spending. 

We’re cutting back three, four, five, six percent overall.   It’s all we CAN cut back, without uprooting our families, selling our homes in a crap market, trading in our Toyotas for…what?  A Dodge? 

Look around you.  The world has not ended.  We have not retreated to our underground bomb shelters, with our canned potatoes and our distilled water.  Overall retail sales were off by low single digits for the holidays.  The bottom’s not falling out of consumer spending.  The sky, last time I checked, remains firmly…in the sky.   

And so it will stay, unless we decide deficits have no meaning, and that we can spend any and everything we want to bail out any and every company, government unit, socioeconomic class, family, everything and everyone, to prevent anyone from feeling any pain or cutting back in any way whatsoever in this country. 

Families are feeling the pain.  They’re cutting back modestly to adjust.  How about if every whining California state government official, UAW member, and Congressman does the same?  “Man up,” as the saying goes, and take a little medicine.

I thought our new President and his team were all about change and the future.  But what part of panic-spending my four teenaged daughters into a lifelong mountain of debt to stave off trumped-up depression fears is showing concern for the future?

Simplisticism

I was part of the “Market All Stars” panel on Larry Kudlow’s CNBC Reports last night (although Kudlow himself is on vacation this week).  A fellow named Michael Pento was also a panelist, and he launched into a single-minded attack on the future of the U.S. economy. 

It seems he was quite unhappy with the money supply, and what he saw as the coming flood of dollars being printed and spent in Washington.  Each time he was questioned by the guest hosts, he returned to his home base of the money supply.  Each time another panelist suggested an alternative view – that the building blocks were slowly being put into place for a solid recovery toward the end of 2009, as both I and money manager David Kotok did – Pento figuratively jumped on our backs and pummeled us with money supply fists.  He certainly had internalized a lot of facts about the money supply.  Not much else … but  a lot about the money supply.

I found this money supply stridency a bit odd.  Money supply?  Is that all there is to economic analysis?  I have this basic belief that economic forecasting is a wild, multivariate analysis, with unpredictable waves, rogue exogenous factors, political unrest and change, and crazy things like weather and social phenomena all coming to bear on how the overall consumption and output statistics stack up. 

As I reflected on the session, I started to think Pento was a bit like the global warming crowd: No matter what happens weather-wise, they immediately say, “Global warming.”  We’ve got astounding snows and cold this early winter in Colorado.  The reason?  Global warming.  Big hurricanes in 2005 and not really much of any since.  The reason?  Global warming.  Antarctic ice cap growing.  The reason?  Global warming.

Well, probably not.  Forecasting much of anything with a boatload of inputs and influences is a dicey business.  You can’t look at one silo of information – the money supply, say – and reliably know what’s going to happen in a massively complex global economy, any more than you can take the temperature in Des Moines and reliably say there’ll be no skiing in Aspen after 2050 because of global warming.  It’s just not that simple.

That isn’t stopping Michael Pento and Greenpeace from saying otherwise.  But it ought to inform their listeners as to how much weight they should attach to the predictions.

http://www.cnbc.com/id/15840232?video=979863936

Lies Lies Lies

Automaker, Union, Presidential, and Democrat B.S. of the day

ITEM: “Senate Majority Leader Harry Reid, D-Nev. “I dread looking at Wall Street tomorrow.””

ITEM: “The U.S. economy would suffer a "catastrophic collapse" if domestic automakers fail, General Motors Corp. Chief Executive Rick Wagoner testified in renewing his plea to Congress for federal aid.”

ITEM: “That's why it's imperative that Congress and the Bush administration provide aid, as desired by President-elect Barack Obama and fellow Democrats in the House and Senate. "For the auto industry to completely collapse would be a disaster in this kind of environment," Obama said in a "60 Minutes" interview Sunday night.”

ITEM: “President-elect Barack Obama also urged Congress to act, saying today that the collapse of U.S. automakers would have a “devastating ripple effect throughout our economy.””

ITEM: ““Without this bridge, we’re going to fall into the biggest calamity this country has known since the Great Depression,” said Representative John Dingell, a Democrat from Michigan, the carmakers’ home state. “A terrible disaster looms.””

ITEM: “The Bush administration will consider its options to save the auto industry, including using the $700 billion funds under the Troubled Asset Relief Program, White House spokeswoman Dana Perino said Friday. "A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time," she said.”

FINAL ITEM: AS OF 1:47 PM EDT  DOW JONES INDUSTRIAL AVERAGE OFF ALL OF 47, OR JUST A SHADE UNDER 1%, ON NEWS CONGRESS HAS REJECTED BAILOUT.

Lies.

Lies.

Lies.

Lies.

Lies.

Apocalypse Averted?

It appears the Apocalypse is likely to pass us by.

I think it’s time to start identifying the origins of optimism.

·       The auto bailout is the “Dog That Did Not Bark”.  No bailout and no confirmation that the Treasury WILL actually bail out (even though some sources are reporting they will – there are no details whatsoever and I suspect a major political firestorm before it can happen after a failed vote) and the market is up today – putting lie to the notion that an automaker bankruptcy would tank the US economy. Arguably, the market is beginning to think that market forces will finally be allowed to work, paving the way for a late 2009 recovery.

·       Expect layoffs to continue through at least the first quarter of 2009 – companies still responding to downturn and feeling almost irresponsible if they DON’T cut back.

·       But increasing small positive signs are showing:

a.    Credit markets have shown return to functionality (like it or not, TARP stopped the panic and Fed steps eased crisis).

b.    Retail sales are consistently showing less weakness than doomsayers thought.

c.    US savings rate is up, which while a short-term negative for the economy is a long-term positive.

d.    University of Michigan consumer confidence survey sharply higher, when many were expecting lower.

·      Remember, we focus on how much those who lose jobs are hurting – and that’s true.

·      But for the other 93.3% of employed Americans are having a bonanza – gas prices have plummeted almost 70%, housing prices are off nearly 20%.  We always immediately think that’s disastrous, but for a family on a budget – that’s a huge boon.

·      Add in bargain prices on all goods and services, and you have the makings for surprisingly high consumer confidence – if you’re in that 90+ percent that’s still employed and still doing ok.

·      This has already been a long and deep recession – more than a year now.  My guess is we have another quarter of tough news, but the laws of economics are likely to start kicking in here mid-next year.

·      That doesn’t mean back to the old normal – it just means that the bleeding is likely to slow and even stop, creating a basis for recovery.