Economic Predictions - Help!!!!!

Buter · Coal Joined: Nov 17, 2004 Posts: 4

I have spent a good time reading this section of the Peak - Oil board and understand it is a specific section for people that have studied the philosophy for some time,
But I come to this section of the Forum for help - I have a business which employs a fair amount of people and I am trying to make some economic decisions in the next 6 months.
I am curious to hear what some of the seasoned people in this forum believe will happen economically in the next 6 to 18 months.
I live in Manhattan, NY - and while this city seems to be somewhat artificially inflated - it seems the bubble is starting to burst - i.e., the sub-prime fiasco and the first significantly public travesty - Bear Sterns.

In any event - I am curious to hear all your thoughts about our economic future.

Thank you,
Jeff

careinke

Think 1930 lasting forever, only in a fascist state.

Cliff (Start a rEVOLution, grow a garden)

kpeavey · Expert Joined: Oct 04, 2004 Posts: 1235

sell the business
leave the city
buy a farm
take the employees with you
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-George Orwell, 1984

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Accept the Facts.

MrMonkey

C'mon guys, he's asking for guideiance for the next 6 - 18 months and not how it's gonna be in 20 years or more!

I think especially the US will see a continuing downturn in 2008 with rising inflation and more expensive lending. Expect to see a further tightening of the lending market, resulting in falling consumer spending.

Thats my best bet for now Smile

uNkNowN ElEmEnt

I think there is going to be quite a sustantial shake down time. for some of us I don't think owning a farm is the best idea just yet. I think that it would make you a good target for those who are going without or government thugs (aka cops) looking to hoard food stuffs.

Economically, I think it will be a serious down turn (not major just yet). I think it will parrallel the 1930's in that it will affect quite a few at the beginning (read next 6-18 months) but that it will not become wide spread (depending on your definition) until a year or two into it and become down right catastrophic in the next 3-4 years. followed by hell once people realize its here to stay.

hows that?

Nano

Hi Buter,

I think the next 12-18 months are going to be a real let-down for some of the doomers on this board. Nothing spectacular will happen IMO. I think everything is going to chug along about the pace it has the last few months. I think we're hovering around market-bottom in a lot of ways. The credit crisis will not become a full-blown solvency crisis IMO, at least not in the coming 12 months. The Fed won't let that happen, for one thing, as we've seen in the way they've propped up Bear Stearns. They'll devalue the dollar first. And if the credit crisis blows over in the next 12 months, then there won't be a solvency crisis at all and we'll go back to business as usual. We'll be poorer and have to work harder, but it won't be Mad Max doomer style any time before 2020 is my best guess.

Economic decisions for the next 12-18 months? Really depends on what your business is and how resistant your client base is to the fallout of the current crisis. I'll venture a guess that doing nothing for now while monitoring the talk among your clients and competitors closely for signs of weakness and/or doubt is the best course of action.

pup55 · Expert Joined: May 26, 2004 Posts: 3679

Welcome to PO.com.

Everything on here is an opinion, and as we always say in this situation, do not believe everything you see on the internet, this post is for entertainment purposes only, and do not take investment advice from anyone who has a job .

However, you are asking for business advice, so it is slightly different.

I think you should look at two scenarios:

a. the 1980 case, where your sales drop about 10% and your costs increase about 10%, and this goes on for about four years.

b. a 1929 case, where your sales drop about 30% and your costs
stay stable, and this goes on for about 10 years. If you are in some kind of housing/construction business, this may be happening to you right now.

Look at your business from a cash flow standpoint and ask whether you will stay in business under each of these two scenarios.

Doing this will cause you to look at the following questions:

a. Do you have issues that will cause you to leak cash even with no business coming in: examples: Rent on an expensive building, debt payments on some piece of production equipment, other expenses such as inventory carrying costs that will cost you even if your business backs down. Do you have a whole warehouse full of raw materials that are costing you money to store?

b. What is the stability of your customer base? Is your customer base dependent on some other set of conditions out of your control ex; a sandwich shop across the street from a giant auto plant? If 10% or 30% of your customers walk away, how would it affect your staffing, production capability, etc.

c. Under each of these scenarios, how much could you cut back and still make it work? Could you lay off a couple of people to better match your sales, and still have a business, or are your systems set up so that it takes a minimum of 6 to run the place even at low levels of throughput. Alternately, can you get into some other line of business using the same basic skills to take advantage of what you have on hand.

d. Can you put yourself into a position to take advantage of situations that you might like ex: do you have a local competitor that would go under during these conditions, or do you have a chance to move into another building with cheaper rent and utilities because the local real estate market is down? Also, there could be some bad situations arising from this: If your landlord goes broke and has to evict you, could you easily move the business tomorrow if you had to?

In short, look at your costs, customer base, and competition, and see what your business looks like under these scenarios.

I was in Asia right after the famed 1997 currency meltdown, and a lot of little businesses over there had a lot of problems. Nobody knew whether their customers could pay them, everybody was bringing in supplies from some global-type raw material supplier that was not affected by the downturn, but then having to turn around and wait for payment from the customers, so everybody's hard currency cash flow was bad, the whole thing was a mess. What happened was, people stayed in business who trusted one another. Everybody was in the same boat.

So if you have not done so already, start communicating and building trust with your customers and suppliers: Make sure they all know that you are all in the same boat, and to let you know if you have to all work together if there is some kind of sudden downturn. The ability to do this has pretty much gone away over the last 20 years or so in the US as all of these corporate types have cut back on their customer service people, so all the more important to seek out suppliers and customers you can establish a relationship with. If you have not done this already, by all means, today is a good day to start.

Another thing you might look out for is a lot of new customers knocking at your door, wanting to do business with you. I am around small manufacturing businesses some, and what is happening is that a lot of customers are starting to have credit problems and have been kicked out by their old suppliers, and are coming around to you to supply them. These mooches are pretty likely to run up a lot of accounts receivable and take a hike on you, so you need to be really careful to check credit on any new customers that show up, not allow them to get too far out on paying their invoices, because you need this like a hole in the head, run up a lot of product and not get paid for it.

If you find out that you can keep running under even case B above, there is probably no need for you to panic and sell everything and walk away, and there might be some opportunities. However, if your analysis says that you are screwed if one of these things happens, by all means you should either change your business to make it more robust, or do what kpeavey says, and take the money and run.

What I think is that we are headed toward something like 1980 rather than like 1929. The wild card is this currency issue. If we end up with something that looks like the Asian problems of the late 90's and the currency collapses temporarily, there will be a lot of problems, but at least you are in the same boat as everybody else from a business standpoint, and it is weatherable, if you have good customers and suppliers.

In either case, you should spend time on making yourself as efficient as possible. If you are not already, you need to be fanatically obsessed by product quality. The worst thing you can do is buy a bunch of materials and run up a lot of screwed up product. Even if you are in a service-type business, you need to avoid running up a lot of costs and have the customer not be happy. You are already probably under some pricing pressure, so all the more reason to keep control on the quality of your product or service. You might have been able to look the other way on quality at one point when business was good, but not any more. The secret of quality: take measurements. You can't improve what you do not measure.

Secondly, look for ways in your business to become more efficient. Look for ways to streamline processes and run equipment more efficiently to minimize cost versus throughput. Example: A lot of people have kilns or autoclaves or some big piece of equipment that they need to heat up to run. Consider going to four 10-hour days rather than 5 8-hour days so you only have to heat up and cool it down four times a week.

Thirdly, now might be the time to invest in some employee training. Rather than send them home an hour early, it might be better to use this time to teach them how to take process measurements, make improvements, and measure their results. A lot of these little businesses have a little family-type labor force that has been around for a long time, but could really use some type of training, and you probably do not want to lay them off because it would cost you too much to retrain someone new. Also, a lot of states will give you a tax break on certain types of workforce training. So, this is an opportunity to get them to find ways to improve the business.

If you are adaptable to change, can look at your operation critically, and are not too slow to react to changing conditions, chances are you will be fine. If not, have a plan in place to deal with some problems, because that is what you are going to have.

benzoil

I have to agree with Nano. Expect a goodly recession this year. Expect a slow recovery to start next year. It's not doomtastic yet - unless you're a home builder. Smile

That said, I think that it will be a short recovery. Oil prices will drop during this recession, but not as much as one might hope. We'll stagger/limp out of this crisis straight into more peak-induced oil price increases, which might start a second leg down for the economy.

Aside: I've read everywhere that the problem with the Great Depression was that the Fed tightened credit when it should have expanded it. That won't happen this time, but what if the banks tighten credit on their own? Isn't that already happening? Just a paranoid thought.
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mark

There's a website I've depended on for the last 4 years. I believe this guy has been more right than wrong and I've learned a lot from listening each Saturday to his broadcast.

http://www.financialsense.com/

Even so, you must do your own work; as I'm sure, as a business owner, you already know. I'd recommend listening to more than a few broadcast to get a background knowledge of current events. Personally, I'm a little more on the doomer side than he is but that's just me.
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Tyler_JC

My first suggestion is to ignore everyone who believes that we are entering another great depression as we speak and that this is the beginning of a death spiral that ends in the new Dark Age. They have been predicting this for years and probably decades. These people do not now nor ever have run a business. At the very least, heavily discount their opinions.

My second suggestion is to do what Pup55 suggests.

Good luck.
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Ludi

Hey, I'm a business owner! Razz

My personal advice is to have several plans for several possible situations.

1. Plan for things being about the same (stagflation)
2. Plan for things being slightly worse (recession)
3. Plan for things being considerably worse (depression)

Everyone should have general emergency plans and some emergency supplies both at home and at work. See Red Cross website for suggestions.
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Nano

baha

If you are worried about your people, consider this:

Alot of the proplems we have come from growth and "efficiency". People are the backbone of your business. Constant growth means new people, and efficiency can mean loss of people. Instead keep the people you have, encourage them to find cheaper or easier ways to do things, but also find more local sources for materials and equipment. Fund local sources even if they do cost more. You'll need them when trucking goes bad.

Instead of lay-offs (unless deserved) try treating your folks like a family and tell them everyone will take a pecentage wage cut equally in the case of lack of cash. Lay offs are what will intensify this recession. And you need people on your side when TSHTF.
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tick66 · Tar Sands Joined: Apr 23, 2005 Posts: 25

I predict more rollercoaster rides for a year or more. I hate roller coasters.

Ludi