The Economy

[Tom-D]

I know this is a touchy subject, but....

What indicators do you use to tell what it is doing..

stock market?
Gold prices?
What? do you believe will happen as the gas prices rise as predicted?

Who's fault isn't the subject.

I have an opportunity to buy a small company at about .05 cents on the dollar, it will only make sense if the economy improves.

 

[tonycondon]

What? do you believe will happen as the gas prices rise as predicted?

I will pay more to go places

 

[Skip Miller]

Tom, I think the most important thing to watch is the employment number. Don't be deceived by watching the unemployment number! When someone is unemployed for so long that their benefits run out, the gummint stops counting them as unemployed, so that number ignores the long term unemployed who really still want to work.

Employees get paychecks, benefits. They buy cars and refrigerators and take vacations. The number of employed is therefore a good indicator.

-Skip

 

[dell30rb]

I throw money out the window of my airplane over populated areas with notes on them saying "if found, please return to (Me)" the more money I get back, the better the economy is doing.

I don't think the economy is doing very well.

 

[Matthew]

What indicators do you use to tell what it is doing..

When people I know, or work with, get jobs other than the ones they currently have. Like what just happened about 10 minutes ago, and a week ago, and about 6 weeks ago.

What? do you believe will happen as the gas prices rise as predicted?

Pitchforks, torches, mobs in the street ... and grocery prices will go up.

 

[olasek]

I know this is a touchy subject, but....

What indicators do you use to tell what it is doing..

Many different indicators.

I have brokerage account with a major mutual fund company and they send me very thorough market updates every quarter. The economic outlook, analysis, different industries, different regions of the world, etc., it is high quality stuff, it comes both on an audio CD and in print. I also subscribe to Bob Brinker marketimer letter, I very much respect his opinion too.

 

[Big Mustache]

The %85.00 a month I just got from my tax break will be going for higher fuel prices. The right hand givith and the left hand taketh away!

 

[alland]

I know this is a touchy subject, but....

What? do you believe will happen as the gas prices rise as predicted?

I live in the United Kingdom, gas prices are currently around £7.00 ($11.00) a gallon, I pay in British pounds the equilivent of $189.00 to fill my car !

It isn't the just the growing cost of crude oil making the prices high, 60% of the pump price is government fuel tax that is added to every litre we buy in the UK !!

When in the US at my vacation home in Florida I have watched the gas prices rise year on year, yet the price still has a long way to go before it reaches the level of rip off we have to accept day in and day out for the pleasure of getting from A to B !!

 

[Palmpilot]

Many different indicators.

I have brokerage account with a major mutual fund company and they send me very thorough market updates every quarter. The economic outlook, analysis, different industries, different regions of the world, etc., it is high quality stuff, it comes both on an audio CD and in print. I also subscribe to Bob Brinker marketimer letter, I very much respect his opinion too.

I was a Brinker subscriber for ten years or so and finally gave up on him when he missed the last bear market. He does give info on how the economy is doing. I currently subscribe to Sy Harding's service. He gives more frequent info on how the economy is doing, and seems to be very honest about his track record. His recent reports indicate that the economy is improving, but if course predicting is very difficult.

http://www.streetsmartreport.com/sc...The Economic Recovery Surprises Continue.html

http://www.streetsmartpost.com/

 

[Anthony]

I live in the United Kingdom, gas prices are currently around £7.00 ($11.00) a gallon, I pay in British pounds the equilivent of $189.00 to fill my car !

It isn't the just the growing cost of crude oil making the prices high, 60% of the pump price is government fuel tax that is added to every litre we buy in the UK !!

When in the US at my vacation home in Florida I have watched the gas prices rise year on year, yet the price still has a long way to go before it reaches the level of rip off we have to accept day in and day out for the pleasure of getting from A to B !!

It is happening here in the U.S. The tax is imposed to give you an incentive to drive less or not at all. They are using as the excuse some type of hoax called man man global climate change, but it is just to enrichen government.

 

[steingar]

You'll really know things are OK when gold comes back down. That won't be for awhile, as the European sector could still go bang bang. Let's hope not, since what goes around comes around.

 

[alland]

It is happening here in the U.S. The tax is imposed to give you an incentive to drive less or not at all. They are using as the excuse some type of hoax called man man global climate change, but it is just to enrichen government.

Anthony it would appear our two governments are not too different.....

 

[Piloto]

As oil prices increase so is everything that relies on it (utilities, farming, transportation and manufacturing). This leads to less money available for the consumers to purchase non-essential items such as electronic gadgets, sport equipment and hobbies. At $6/gallon average (some places $9/gallon) for AVGAS in the US GA pilots are flying less and only for justified reasons. Single engine airplanes would be the affordable ones to fly vs twins. What is worse is that fuel prices will continue to rise unless a magical solution is found. I predict that gold prices will start coming down as there will be less buyers to afford expensive jewelery. On the other hand oil share prices will likely continue to go up. We may end up going back to the horses for transportation, only grass and water, beats the $5/gallon for MOGAS and no need to worry about availability

José

 

[Palmpilot]

It is happening here in the U.S. The tax is imposed to give you an incentive to drive less or not at all. They are using as the excuse some type of hoax called man man global climate change, but it is just to enrichen government.

Just a heads-up, this thread is not in the Spin Zone, and I think the OP would appreciate it if it doesn't go there.

 

[tonycondon]

As oil prices increase so is everything that relies on it (utilities, farming, transportation and manufacturing). This leads to less money available for the consumers to purchase non-essential items such as electronic gadgets, sport equipment and hobbies. At $6/gallon average (some places $9/gallon) for AVGAS in the US GA pilots are flying less and only for justified reasons. Single engine airplanes would be the affordable ones to fly vs twins. What is worse is that fuel prices will continue to rise unless a magical solution is found. I predict that gold prices will start coming down as there will be less buyers to afford expensive jewelery. On the other hand oil share prices will likely continue to go up. We may end up going back to the horses for transportation, only grass and water, beats the $5/gallon for MOGAS and no need to worry about availability

José

LOL have you ever had (or known someone who has) a horse??

 

[Alexb2000]

I know this is a touchy subject, but....

What indicators do you use to tell what it is doing..

stock market?
Gold prices?
What? do you believe will happen as the gas prices rise as predicted?

Who's fault isn't the subject.

I have an opportunity to buy a small company at about .05 cents on the dollar, it will only make sense if the economy improves.

Much of the future of oil prices can be found by looking at the futures market on the Merc. Exchange. Right now oil futures are going up, both Brent and WTI. Most analyst agree with this.

Why:

World unrest, Iran, Syria, etc.

China and India are not slowing their demand

Think about it this way, even at $10 per gallon, $300 per barrel, we'll all still be driving cars. We may not like it, but that's the way it is, there in no alternative for most of the U.S.

One question that we faced in 2008 was, what happens to our economy and the world's when oil goes over $150? In 2008 it slowed the economy rapidly and pushed us into recession, reducing demand. We may see if that holds true this summer.

 

[EppyGA]

Personally I think Europe is heading down the ****ter. Greece doesn't appear to be fixing there problems, they're just taking bailout after bailout. For the most part the world is broke. That's going to be hard to fix. Here, specifically, I don't see things getting a lot better until a climate for business growth is established.

That doesn't help your decision Tom, it's just my view on things.

 

[olasek]

I predict that gold prices will start coming down as there will be less buyers to afford expensive jewelery.

I don't think price of gold has much to do with jewelery business.
By the way, India is world's largest consumer of gold and they are definitely growing economy.

 

[Jim Logajan]

I have an opportunity to buy a small company at about .05 cents on the dollar, it will only make sense if the economy improves.

Making a "microeconomic" decision based on "macroeconomic" conditions?
Hmmm.... not sure I'd rely much on the answer to that.

Just curious, but is this an aviation-related business?

Is it bigger than a breadbox?

When you say .05 cents on the dollar, does that mean $0.0005/$1 or you simply made a typo and meant $0.05/$1?

How was the valuation determined that yielded that .05 cents on the dollar? Was it based on that last time the company changed hands, or some other metric?

 

[Alexb2000]

I don't think price of gold has much to do with jewelery business.

+1 It's a hedge against all of these countries printing money like there is no tommorow.

 

[Skip Miller]

LOL have you ever had (or known someone who has) a horse??

Oh! The Greenhouse Gasses!!!

-Skip

 

[Skip Miller]

I don't think price of gold has much to do with jewelery business.
By the way, India is world's largest consumer of gold and they are definitely growing economy.

And the largest use of Gold in India is jewelry. 60 Minutes had a segment on this recently... Gold is seen as a safe storehouse of value. this has been true for centuries in India, but as the middle class grows and becomes more affluent (in relative terms) all the disposable income is going into gold jewelry.

-Skip

 

[Cap'n Jack]

And the largest use of Gold in India is jewelry. 60 Minutes had a segment on this recently... Gold is seen as a safe storehouse of value. this has been true for centuries in India, but as the middle class grows and becomes more affluent (in relative terms) all the disposable income is going into gold jewelry.

-Skip

And it's the good 22 carat stuff too. (24 carat is too soft to use as jewelery)

 

[Tom-D]

Just curious, but is this an aviation-related business?
No. but it could be.

When you say .05 cents on the dollar, does that mean $0.0005/$1 or you simply made a typo and meant $0.05/$1?

I mean the $100,000.00 company 5 years ago, can be bought now by paying off a $20,000 mortgage.

How was the valuation determined that yielded that .05 cents on the dollar? Was it based on that last time the company changed hands, or some other metric?

does that really matter?

This business is a small fabrication, machine and welding shop now used to support other companies in the area. I have used them in the past to fabricate aircraft parts. I completed a value study on their equipment and at todays prices of used equipment their equipment would sell for about $100,000.

on the surface it looks like a good deal. But if the Economy continues to tank, who knows.

Their place of business is in a building that is a rented space, that if there were no business would be a strain on my budget.

 

[Palmpilot]

does that really matter?

This business is a small fabrication, machine and welding shop now used to support other companies in the area. I have used them in the past to fabricate aircraft parts. I completed a value study on their equipment and at todays prices of used equipment their equipment would sell for about $100,000.

on the surface it looks like a good deal. But if the Economy continues to tank, who knows.

Their place of business is in a building that is a rented space, that if there were no business would be a strain on my budget.

It sounds like you are using a more conservative valuation than book value, which seems like a good way to approach it.

If you go for the deal, will your investment portfolio still be sufficiently diversified to allow you to sleep at night?

 

[olasek]

But if the Economy continues to tank, who knows.

I can tell you there is no such prediction at least among majority of serious economists, the economy according to them will continue to improve steadily albeit slowly, this is what they call a 'baseline' scenario. But no one can give you iron clad guarantees, no such thing. In your case you are also looking into some micro-economic factors local to your area and the type of industry youre are getting into - these micro elements may be of more importance than some macro stuff. Businesses go bankrupt even in best of times.

 

[Jay Honeck]

Tom, I think the most important thing to watch is the employment number. Don't be deceived by watching the unemployment number! When someone is unemployed for so long that their benefits run out, the gummint stops counting them as unemployed, so that number ignores the long term unemployed who really still want to work.

Employees get paychecks, benefits. They buy cars and refrigerators and take vacations. The number of employed is therefore a good indicator.

-Skip

On that subject, I just read that this coming weekend 80,000 Michigan residents will run out of unemployment benefits.

80,000!

 

[Tom-D]

I can tell you there is no such prediction at least among majority of serious economists, the economy according to them will continue to improve steadily albeit slowly, this is what they call a 'baseline' scenario. But no one can give you iron clad guarantees, no such thing. In your case you are also looking into some micro-economic factors local to your area and the type of industry youre are getting into - these micro elements may be of more importance than some macro stuff. Companies go bankrupt even in best of times.

Were these predictions made prior to or after Iran stopped oil shipments to Europe?

 

[Tom-D]

On that subject, I just read that this coming weekend 80,000 Michigan residents will run out of unemployment benefits.

80,000!

that will only make the unemployment numbers go down as they drop out the bottom of the system.

IAW several independent sources the real unemployed figures are 16% of the work force.

That all depends upon who you believe, thus the question. what do you use as indicators as to what is happening in the economy.

 

[denverpilot]

I know this is a touchy subject, but....

What indicators do you use to tell what it is doing..

stock market?
Gold prices?

The ticker. Anything else is just guessing.

Might as well go to Vegas and bet on the ponies.

What? do you believe will happen as the gas prices rise as predicted?

We'll sit in the dark and cold wondering why we didn't drill Alaska like a $2 whore.

I have an opportunity to buy a small company at about .05 cents on the dollar, it will only make sense if the economy improves.

Oh! Now we're getting somewhere! Real business!

Ask the business owner for a full P&L accounting. Determine if the business is profitable first. If they won't share it, walk.

Next determine the operating margin in real world terms. "If I lose X number of customers I can still pay the bills." Decide now if you can hold that level of business. If you can't, the asking price may be too high.

Also look at staffing levels. Staff is one of the most expensive things you'll ever buy. It's the only asset that can negotiate itself or screw something up so bad it turns from being an asset to a liability. Fast.

Got anyone you trust you can hire if need be?

Now figure out if there's anything you know how to do that will make the business' margins go up. This one's critical.

The macroeconomy tanking is a boon for some businesses. And a bust for others. But it's probably one of the last numbers you try to guess at, long after you look rationally at an individual business in its own market.

And, of course... think about what the assets of the business are really worth and how long it will take to liquidate it if it closed tomorrow.

Now you know your framework for the purchase negotiations.

After all that homework you can always offer to buy it cheaper than the current offer. It's worth only what it's worth -- right now.

If the seller is motivated, you can always turn a profit. Best to shoot for a win-win though. Motivations are funny. It's not always about money. Some sellers want the business to live on. Others want to head for Mexico. Some are just tired.

Example: Economy sucks. Friend knows a guy who owns a medium sized Security Alarm company. It's profitable.

Owner wants to retire. Friend makes him a ten year deal to pay him a "salary" as a consultant to buy the entire business. Lawyers draw up papers. Everyone's happy. Seller doesn't get a giant taxable lump sum. Buyer gets to use the profit from the business to pay to own it. Win-win.

Then that "make it more profitable" part. Six months later, he's ripped out all the expensive phone lines, installed wireless monitoring at all customers who want a discounted monthly monitoring fee. Discounted wireless monitoring still has a higher profit margin than the phone-based monitoring.

Built the wireless infrastructure himself at first, then contracted it out as cash flow increased.

Busted butt for half a year to change the fundamental underlying business technology.

Rebuilt the website to handle online payments and credit cards vs. monthly checks. More cost-savings and time-savings. Previous owner was driving around picking up checks.

Business is now 20% more profitable in a year and will remain so. Went from "hard work" to "well worth it" in a very short period of time.

The only part that macroeconomic factors played is that people are feeling even less "secure" these days and will buy "security" even before many other things. Not a "soft" market.

But his business plan never even bothered to take the overall economy into any serious account. It was about acquisition of a profitable business and making it better. The better he did on margin, the better he gets paid.

The state of the existing business and how to change it to be more profitable than it already was, were the driving factors. Not macroeconomics.

It also drastically changed his life in terms of time and reward. He was always a small biz owner but this one is solid. His free time now is spent building an enormous network. Everyone knows if they "need" a security alarm, he's the guy to call.

So... can you make the business into the place where if someone "needs" whatever it makes/does, they know yours the guy to call?

 

[Jay Honeck]

that will only make the unemployment numbers go down as they drop out the bottom of the system.

IAW several independent sources the real unemployed figures are 16% of the work force.

That all depends upon who you believe, thus the question. what do you use as indicators as to what is happening in the economy.

I use www.ShadowStats.com for my real-world economic indicators.

The author of this fascinating website goes to enormous effort to keep and determine economic factors (inflation, unemployment, etc.) the OLD ways -- from before the politicians started gaming the numbers.

Thus, the current nonsense that "inflation is under control" is thrown out the window. It is, in fact, between 5 and 13% annually since 2008, when measured the way it used to be measured. Unemployment is, indeed, over 15%.

 

[olasek]

Were these predictions made prior to or after Iran stopped oil shipments to Europe?

About a month ago.
The Iranian threats/issues have been known for months, the problem with Greece/Eurozone is another big unknown that weighs in on everybody, these are external geo-political threats that won't go away anytime soon. If you are going to wait for the world to become quiet and danger-free you will be waiting a long time, there will always be something that could potentially blow up.

 

[Palmpilot]

In his neck of the woods, I would think that the outlook for Boeing might be a factor too.

 

[Geico266]

I don't think price of gold has much to do with jewelery business.
By the way, India is world's largest consumer of gold and they are definitely growing economy.

+1 It's a hedge against all of these countries printing money like there is no tommorow.

And the largest use of Gold in India is jewelry. 60 Minutes had a segment on this recently... Gold is seen as a safe storehouse of value. this has been true for centuries in India, but as the middle class grows and becomes more affluent (in relative terms) all the disposable income is going into gold jewelry.

-Skip

Gold will not retreat significantly in our life times and will in fact will continue to climb, with opportunities to buy as pull backs materialize. The price of gold does not actually go up, rather the value of our dollar goes down as we continue spending money we don't have.

Interestingly, what has not been mentioned in this thread is the 950 pound gorilla in the room. Israel will attack Iran in a prolonged war that could plunge us all into WWIII. Once they attack Iran this time they will need a prolonged war to destroy hardened sites and facilities. The rest of the Arab world could explode and shut down oil production sending our economy into a depression.

The future is not good as long as Iran continues to build nukes.

But! Buying a business for $.05 on the dollar? I would be a buyer, unless it is an FBO. .

 

[Tom-D]

But! Buying a business for $.05 on the dollar? I would be a buyer, unless it is an FBO.

I spent most of the day with the owner at the shop. trying to see how we can cut overhead, finding new stuff to build, that sorta stuff.

we will see what develops.

I'd still like to know why you think the economy won't go over the cliff when gas goes over $4.00 maybe $5.00.

I know my motor home will set this summer if it does.

 

[denverpilot]

I spent most of the day with the owner at the shop. trying to see how we can cut overhead, finding new stuff to build, that sorta stuff.

we will see what develops.

Cool!

As far as inflation goes, there's an EASY indicator in the U.S. of inflation and probably 20 of them in every town or more.

McDonald's. Quarter Pounders.

McDonald's has some of the most consistent and cost-controlled distribution and procurement chains in the world.

If you watch the price of a non-loss-leader product (a regular cheeseburger won't work, or anything on the "value" menu... they often lose money or break-even on those), it accurately shows the price of delivering that product, which has had virtually zero changes made to it in decades, year after year.

While the government has been playing with inflation numbers to make them look low, the price of a Quarter Pounder has slowly continued up, up, up. Faster than the 3% number you'll find on financial websites.

And if the public is paying 10% more for the good old QPC this year than last, they're likely paying 10% more for everything else they purchase, too.

 

[Tom-D]

And if the public is paying 10% more for the good old QPC this year than last, they're likely paying 10% more for everything else they purchase, too.

There ya go, common sense stuff, lots of folks rely on others to research, when it's right there in your daily lives.

and when you spend most of your budget, on energy, isn't time to do some thing about it?

watch this set of videos, thinking building kits to set up a growing unit. pay attention to the equipment shown, it's all off the shelf, gather it and set up a kit to get started.

http://www.youtube.com/watch?v=vxNeBQCRv1c&feature=results_video&playnext=1&list=PL405A0622C86A0B53

 

[Tom-D]

In his neck of the woods, I would think that the outlook for Boeing might be a factor too.

there are too many hoops to jump thru to be a boeing parts producer, EPA approval, Union regulators, etc.

 

[olasek]

I'd still like to know why you think the economy won't go over the cliff when gas goes over $4.00 maybe $5.00.

Historically there is no correlation between prices of gas and recessions/depressions. At least there is no cause-effect linkage.
Also Europe has gas prices way over $5.00 and though some countries over there are doing poorly many are not and those that are doing poorly can't blame it on gas prices.
But yes, in the US every uptick in gas prices removes some growth from the economy but I don't think it is nearly as bad as you imagine.

 

[Tom-D]

Historically there is no correlation between prices of gas and recessions/depressions. At least there is no cause-effect linkage.
Also Europe has gas prices way over $5.00 and though some countries over there are doing poorly many are not and those that are doing poorly can't blame it on gas prices.

I beg the differ, the last time fuel jumped the economy tanked. The EU does not have a transportation system based upon trucks over long milage, cost of shipping has sky rocketed in the past year alone.

using the EU for a comparison is poor at best. IMHO.