The Economy

[olasek]

the last time fuel jumped the economy tanked.

When was it?

 

[alaskaflyer]

I beg the differ, the last time fuel jumped the economy tanked. .

So nothing else was going on at the time?

 

[Tom-D]

When was it?

does it matter when?
read this:
http://www.consumerpsychologist.com/gasoline_prices.htm

and pay attention to this
Because it is difficult to reduce spending on gasoline, the effects of price increases are often shifted to other economic sectors. Some economists estimate that for every one cent increase in the price of gas, spending in other areas will decline by one billion dollars. This figure does not appear to be based on recent empirical data, but it is clear that gasoline prices significantly affect consumer spending. In 2007, Wal-Mart estimated that the then current higher gasoline prices take away $7.00 per week from an average family budget. Since then, this figure has certainly increased significanly. The problem is compounded by the so-called “Multiplier Effect,” whereby money is re-spent as it makes its way through the economy. (E.g., restaurant workers buy movie tickets and studios in turn hire actors and staff, who in turn spend their money, giving income to others who in turn spend….) Because a large part of the cost of oil goes abroad, there is less opportunity for multiplication within the U.S. economy.

 

[olasek]

does it matter when?

Yes it does if you want to have intelligent discussion. But I was clearly wrong. Again,no historical correlation but gas prices do have impact on growth. I am over and out.

 

[Tom-D]

Yes it does if you want to have intelligent discussion. But I was clearly wrong.

The article told you when, did you read it?

I have an opinion show me some thing to change it.

 

[Tom-D]

When was it?

this gives ya a better grip on how fuel prices effect the economy.

http://www.eia.gov/oiaf/economy/energy_price.html
It says :

Looking from the 1970s forward, there are observable, and dramatic changes in GDP growth as the world oil price has undergone dramatic change. The price shocks of 1973-74, the late 1970s/early 1980s, and early 1990's were all followed by recessions, which have then been followed by a rebound in economic growth. The pressure of energy prices on aggregate prices in the economy created adjustment problems for the economy as a whole.

I believe I have made my case, in the long term, the ripple effect of higher fuel prices will have a lasting effect on our lives.

 

[denverpilot]

Is fuel really higher or is the dollar simply staggeringly weaker than it once was?

That's a supremely critical factor in how one responds to higher energy costs.

I'm not sure the fuel prices going up is a cause, more than its an effect -- which will transmit the reality of how weak the U.S. Dollar is, to all of us.

We're still firmly entrenched in the "Necessary Goods" portion of the recession cycle. Proctor & Gamble is still selling all their stuff pretty well. If you start to see people cutting back on toilet paper, that's a really bad sign.

The next growth cycle is when folks start putting capital to work buying new large "big ticket" items.

Right now, Whirlpool is still having dismal quarters.

Interestingly, John Deere and similar large construction equipment companies are doing well... but you look deeper and they're not selling inside the U.S.

Real growth isn't happening here. We're contracting behind the wave of aging Boomers and I don't see that changing on the huge macro-scale for quite a while.

We'll grow some sectors, but others will languish.

Big houses, fast cars, even large beer brewers... all headed downward. See Molson-Coors.

But... Micro-breweries... Up. Way up. Quality not quantity. Local, not national.

Specialty shops that make individuals dreams come true in niche markets? Those can still do quite well.

Just need enough individuals with discretionary income interested in any particular dream.

Even then, the "dreamiest" aviation company to come along in my lifetime, Cirrus... Had to sell out to the Chinese to keep operating.

That or their Boomer owners saw it as the last chance to get paid... I can't tell on that one yet.

There weren't any thirty-something's biting at their heels wanting to compete and/or buy them up, that's for sure. Gen X hasn't got the capital and those of us who do are squirreling it away in non-taxable accounts.

The few that find a "dream" to fill, usually started tech companies. Or they fulfilled someone's very specific dream... "I want a portable device that has all my stupid paper charts in it..."

Ding! Foreflight. Started by a CFI and friends. It has to meet the, "What the hell? Why not?" test to devote a decade or more of your life to it.

Gen Y has just barely started finding real jobs in their 30's. They'll be at least 10 years before they're serious about capital investments.

They might break out into interesting growth paths. It'll depend a lot on how badly Boomer healthcare bankrupts them.

Lots of Gen Y is very non-materialistic, but they'll pour millions into "causes".

It'll be interesting to see what they come up with. An example might be Ted's life... Who would have ever predicted there would be enough money in transporting abandoned and abused dogs and cats around that an entrepreneur could afford to do it in a piston twin?

It speaks to enough hearts and fulfills their "dream" that Ted's airborne quite a bit, apparently. It's a niche that fulfills a large group of dreams.

Just as an odd but immensely interesting example of how our society spends money and time...

Your shop you're thinking about buying, Tom. What dream does it sell? Parts is parts, and China makes 'em all cheaper than we can right now, including shipping halfway around the globe. Tell the story about exactly how your parts are better. Tell the story of the parts only you can make through your passion and dreams you've had. Parts for vintage airplanes? A shrinking market for sure, but the dreamers will pay ever-higher prices to keep their Vintage dreams alive. And they'll send it happily to you, if there's a way for the next generation of vintage dreamers to even buy-in at the poker table. (Cost of entry to that game is outrageously high and when it's not, often an even more terrifying maintenance bill is hiding behind the curtain. Who wouldn't love a Cessna 195? But... oh the price tag...)

Lots of ways to sell dreams. I sell the dream that computers will make your business possible. I stay away from those who say it'll make your business easier to manage. They never do. They're complex machines run by illogical people. But if the computer does something that makes or saves real money, that's the systems I like to work on. The type that if you turn them off, the company's core business is gone.

Sell some dreams. Not worth worrying too much about the macro stuff. If a war starts, the dream becomes peace. Otherwise, it's pretty much all over the map.

 

[Palmpilot]

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

I don't doubt it, but I would think that if Boeing's business was increasing, that would tend to stimulate the local economy generally, with the converse being true if their business was falling off. In addition, if Boeing soaks up more local production capacity, that would tend to indirectly increase demand for the services of the business you are thinking of buying into, by reducing the amount of unused production capacity in the local economy.

 

[Everskyward]

As far as fuel prices go, I think they affect lower-income people disproportionately more than higher income people so it depends on who the market for your stuff is.

I think the solution to higher gas prices is to invest in energy companies. When their stock goes up it will more than offset the extra amount you pay for gas.

 

[Anthony]

As far as fuel prices go, I think they affect lower-income people disproportionately more than higher income people so it depends on who the market for your stuff is.

I think the solution to higher gas prices is to invest in energy companies. When their stock goes up it will more than offset the extra amount you pay for gas.

Totally agree with the above. I think that is a nice way to hedge, but I'll have to look at the corrolation with stock price, dividend distribution and the increasing price of gas at the retail level. I don't know if that corrolation exists, but it may. The price of crude oil has also increased dramatically which raises the cost of the production of refined products.

The problem with a hedge like this is most "poor" or even middle income people live pay check to pay check and can't afford to buy large blcoks of oil company stock to act as a significant hedge.

 

[Clark1961]

I think the solution to higher gas prices is to invest in energy companies. When their stock goes up it will more than offset the extra amount you pay for gas.

While that's a nice thought, be just a little bit careful. Historically oil companies are horrible long term performers in the market. Energy prices have been cyclic in nature and Wall Street hates the downturns probably more than they love the up swings.

We're dealing with this right now as natural gas prices tank. Obviously it's time to buy gas but we have to convince the board and our investors to spend while income is dropping. The board is compensated with stock so they aren't inclined to do anything that investors might not like. Taking on debt while watching the cash flow drop is a thing that some investors don't like.

As for the original question on what the economy is going to do? Dunno, I just produce gas. I'd examine the opportunity on a cost/benefit basis and determine if I could tolerate or manage the risk. Risk management could include taking on partners or finding funding and keeping a cut (think management fee). Chances are that if you have to ask about the level of risk (economy in this case) you probably shouldn't take on the project.

 

[Dr. O]

Michigan is in the crapper and there is no solution... (lifetime resident) Our largest city is bankrupt and decaying and looks like Beirut during their civil war... As is our second largest, and so on...

On the USA; we are bankrupt, and the politicians are frantically kicking the can down the road to get elected one more time and to hell with their grandchildren... We have lived the lie since the 1950's that we can have guns and butter and we can support those who don't work and won't work from the public treasury... It didn't work for the Romans, or anyone else, but we have an Executive branch and a Legislative branch hell bent on believing it will work for us if only those nasty rich people would pay their fair share (Communism by another label)... We are well on our way to becoming just another Banana Republic where a wheel barrow full of our paper money will buy one loaf of bread... Yes, I believe that we have gone over the top and are on our way down... My generation is the last to live the good life... Like a huge tree that has disease we will not die overnight, but as the seasons go by, we lose more branches and slowly become hollow at the center of the trunk...

As far as investing into a manufacturing operation in the USA _ I would be very cautious... If the guy who started the business, built it up, and knows the industry far better than you has to sell it for five cents on the dollar, what makes you the magic man?
Most of this type of manufacturing (B2B ) are niche operations... Either you have a rare skill at making the widget, or a patent, or you have old school connections that almost guarantees orders from friends - or you are going to lose your business to Asia or just to a declining market (as the current owner surely did)...

A local company here (near Saginaw) that has for decades made specialized carts for holding jet engines during manufacturing (and repair) now finds that an Asian company is offering to make the carts... Their price for the finished cart including shipping is less than his cost just to buy the steel and brass and UHMW and microswitches, etc. required! He is losing orders as the engine maker is ordering more from Asia and less from him... The handwriting is on the wall pointing to the day the orders will go to zero... He is now basically getting by on emergency orders where they need specific carts on a "right now" basis...
My son-in-law was President (and part owner) of a 700 employee stamping plant (not Michigan)... Eight years ago his major customers (the auto companies) found they could get their steel stampings delivered from China for one third less than his cost for labor and materials... Literally overnight a 50 year old company was out of business...

There are no easy answers... Only if you can find the niche where you can provide a part for B2B that avoids Asian competition do you stand a chance... Grim, but those are the facts...

denny-o

 

[denverpilot]

While that's a nice thought, be just a little bit careful. Historically oil companies are horrible long term performers in the market.

Be a LOT careful. A rising tide floats all boats, as they say... but from well-head to gas pump (or natural gas pipe into your meter, or whatever), there's too many players and too many moving parts to track.

You can have individual companies anywhere in that supply chain have problems that require them to blow that quarter's capital on repairs, trading losses, lawsuits, permits, bad weather messing with tankers of both the floating and the land-bound variety, problems untold at refineries that shut them down, or drastically reduce their output...

Even company traders can botch things up if the inventory in the tanks at a refinery were to run dry before crude is supposed to arrive off of a common carrier pipeline, or similar... and the only way to keep from bleeding money is the trader will have to pay too much to get the raw crude from someone else's share already allocated. That can toast the bottom line for a quarter, in one stroke of the pen.

Saw "all of the above" at Texaco in the early 90s. I hear it hasn't really changed much, although there's a new way to screw up... let SAP / the computers, mis-route crude and/or account for it improperly.

Point being, the individual smaller companies that are involved in that, may or may not be profitable enough to show a significant stock price rise.

 

[EppyGA]

Interesting discussion here. I did a little research last week because of the battle over the payroll 2% tax rate cut. Certainly we can remember the President running around the country talking about the importance of the $40 for people. Wasn't there a website or something where you could go and tell him what the $40 meant to you?

Someone making the median income in this country ($41,673.83) would have and additional $833.48 a year at his/her disposal, just under $70 a month. What the President didn't say is if that same person drives a car getting the average MPG (28) for the average number of miles a year (15,000) he/she is now paying $900 more per year than when the President came into office for his/her gas. End result, a loss of $70 per year.

Cool diversion of our attention, huh.

 

[MSPAviator]

Gen Y has just barely started finding real jobs in their 30's. They'll be at least 10 years before they're serious about capital investments.

As a Gen Y'er, I agree with this. I only started to be able to afford the airplane thing in my late 20s. And I don't own a house or have kids.

Who wouldn't love a Cessna 195? But... oh the price tag.

I wouldn't want a Cessna 195. Neat, but it's glorified 1930s technology. In an ideal world, I'd want something like a Cirrus but with yokes, retracts, constant speed prop, no chute, and a FADEC turbodiesel engine that runs on Jet-A which burns 5gph at cruise to make 200kts TAS at FL250.

 

[Anthony]

Someone making the median income in this country ($41,673.83) would have and additional $833.48 a year at his/her disposal, just under $70 a month. What the President didn't say is if that same person drives a car getting the average MPG (28) for the average number of miles a year (15,000) he/she is now paying $900 more per year than when the President came into office for his/her gas. End result, a loss of $70 per year.

Cool diversion of our attention, huh.

In addition when the Administration rigged the Unemployment Rate to seem lower than it actually was, all the mainstream media outlets were touting how the economy was roaring back! Now with gas prices at record highs, there is little front page mention of it, and the devastating affect it has on working families.

I remember Obama giving an interview during his campaign (not that it ever stopped) where he told the reporter it was OK that gas prices were a lot higher, the just rose to fast.

I don't see any news outlet replaying that one.

 

[Alexb2000]

A local company here (near Saginaw) that has for decades made specialized carts for holding jet engines during manufacturing (and repair) now finds that an Asian company is offering to make the carts... Their price for the finished cart including shipping is less than his cost just to buy the steel and brass and UHMW and microswitches, etc. required! He is losing orders as the engine maker is ordering more from Asia and less from him... The handwriting is on the wall pointing to the day the orders will go to zero... He is now basically getting by on emergency orders where they need specific carts on a "right now" basis...
My son-in-law was President (and part owner) of a 700 employee stamping plant (not Michigan)... Eight years ago his major customers (the auto companies) found they could get their steel stampings delivered from China for one third less than his cost for labor and materials... Literally overnight a 50 year old company was out of business...

There are no easy answers... Only if you can find the niche where you can provide a part for B2B that avoids Asian competition do you stand a chance... Grim, but those are the facts...

denny-o

Sounds a lot like my brother-in-laws machine shop. They have no debt on anything, building, machines, materials, NOTHING. They make oil field clutch parts and have done so for 50 years. They are within 100 miles of 90% of their customers. Asian competitors are bidding their parts for 30-40% of their cost of materials! They are taking all the profitable large run work and leaving the piece meal stuff that the Asians don't want.

When something isn't possible like the above scenarios, then you have to look deeper. The government in China is supporting these business by providing them access to materials, labor, and logistics, almost for free. They know that once these U.S. plants are closed, the skilled workers scattered to the wind, the machinery is sold off, then there won't be any competition and they can raise their prices to a viable level.

The world is not a free economy, it's become a place where you have to have the full backing and support of the government to be competitive. We need to wake-up to these realities and reverse our anti-business mentality.

 

[chambers]

In addition when the Administration rigged the Unemployment Rate to seem lower than it actually was, all the mainstream media outlets were touting how the economy was roaring back! Now with gas prices at record highs, there is little front page mention of it, and the devastating affect it has on working families.

I remember Obama giving an interview during his campaign (not that it ever stopped) where he told the reporter it was OK that gas prices were a lot higher, the just rose to fast.

I don't see any news outlet replaying that one.

Gallup is reporting a unemployment rate of 9% as of feb 15th this morning.

 

[Geico266]

When something isn't possible like the above scenarios, then you have to look deeper. The government in China is supporting these business by providing them access to materials, labor, and logistics, almost for free. They know that once these U.S. plants are closed, the skilled workers scattered to the wind, the machinery is sold off, then there won't be any competition and they can raise their prices to a viable level.

This is the oldest trick in the book to kill competition. Swoop in, sell products at a loss to collapse the existing businesses, raise prices due to no competition. To stop this we use to impose tariffs, but in today's global economy the gutless politicians cave in and require none.

All voters ask when headed to the polls is; "Which politician is going to benifit me the most." Any politician that wants to do what is best for the country is quickly swept away. Now, since 53% of the population in this country is on the dole from the government we have reached a tipping point where no austerity measure will be inacted until our economy collapses.

The only way to stop this "bus heading for a cliff" is WWIII or disenfranchising (not allowing people to vote) those who are collecting any money from the government. Do we allow prisioners to pick the warden?

 

[Tom-D]

All voters ask when headed to the polls is; "Which politician is going to benifit me the most."

I doubt the voter gives it that much thought.

 

[Anthony]

Gallup is reporting a unemployment rate of 9% as of feb 15th this morning.

I saw that on page 83 of one of the papers. Buried. And hardly anybody is talking about the up tick, but the DOW hitting 13K, now that's NEWS!

 

[Tom-D]

In addition when the Administration rigged the Unemployment Rate to seem lower than it actually was, all the mainstream media outlets were touting how the economy was roaring back! Now with gas prices at record highs, there is little front page mention of it, and the devastating affect it has on working families.

I remember Obama giving an interview during his campaign (not that it ever stopped) where he told the reporter it was OK that gas prices were a lot higher, the just rose to fast.

I don't see any news outlet replaying that one.

Let's not get into who to blame.. that's not the question.

 

[Tom-D]

I don't doubt it, but I would think that if Boeing's business was increasing, that would tend to stimulate the local economy generally, with the converse being true if their business was falling off. In addition, if Boeing soaks up more local production capacity, that would tend to indirectly increase demand for the services of the business you are thinking of buying into, by reducing the amount of unused production capacity in the local economy.

all most all small parts for Boeing are manufactured off shore. All my Son in Law's siblings work for Boeing, His sister spends a lot of time in China and Japan.

 

[Everskyward]

As a Gen Y'er, I agree with this. I only started to be able to afford the airplane thing in my late 20s. And I don't own a house or have kids.

I started investing in my late 20s and yes, I've invested in energy too. I've noticed that the stock prices seem to generally follow the commodity price. Oil is up and natural gas is low. My heating bill hasn't topped $100 this winter and I heat with natural gas. I'm very glad I started early, even with all the ups and downs.

 

[Tom-D]

Your shop you're thinking about buying, Tom. What dream does it sell? .

Their customers are the 5 refineries in the area, they make flanges and stuff needed by the refinery maintenance contractors that they need right now, because the china imported stuff won't fit, or is wrong in some manor.

they also make drive lines and several other things that walk in the door.

 

[Anthony]

Let's not get into who to blame.. that's not the question.

Yes Dad.

 

[Tom-D]

Yes Dad.

Would you like to see the thread go to spin zone.

just saying.

 

[Anthony]

Would you like to see the thread go to spin zone.

just saying.

That's where it should have been in the first place. Any discussion of the economy is going to bring politics into it, or you really can't have a meaningful discussion. But, hey it's your thread so go for it.

 

[Tom-D]

That's where it should have been in the first place. Any discussion of the economy is going to bring politics into it, or you really can't have a meaningful discussion. But, hey it's your thread so go for it.

Why did I have a gut feeling you would say that? just like I have a gut feeling the higher fuel prices will slam a lid on any economic recovery.

yes a gut feeling counts as an indicator of what the economy is going to do.

blaming some one doesn't.

 

[Anthony]

Why did I have a gut feeling you would say that? just like I have a gut feeling the higher fuel prices will slam a lid on any economic recovery.

yes a gut feeling counts as an indicator of what the economy is going to do.

blaming some one doesn't.

In order to fix a problem you first have to determine the root cause. So, let's ignore the root cause (blame) and just talk about stuff. OK, have fun.

 

[Everskyward]

In order to fix a problem you first have to determine the root cause. So, let's ignore the root cause (blame) and just talk about stuff. OK, have fun.

I don't think Tom is trying fix the economy in this thread. He only wants to read the economy so he can determine his business plan.

 

[Palmpilot]

Would you like to see the thread go to spin zone.

just saying.

I asked Anthony a question about his comments, but when I saw your post, I deleted it.

 

[JOhnH]

The economy is in the pitts, and the only thing either of the political parties want to do is blame the other side so they can get (re)elected so that they can push their own agenda. Americans have gotten so fat and lazy (in a literal as well as figurative sense) that they brought this on themselves. Well, I have lost 40 pounds and I intend to lose 30 more. It is tough and it takes sacrifice, but when you are desperate, you do what you have to or die. I wonder what path our politicians will take. We need a real leader. Not someone that just want to be in charge.

Perhaps the nation should form a search committee for a President like major corporations do.

 

[denverpilot]

I saw that on page 83 of one of the papers. Buried. And hardly anybody is talking about the up tick, but the DOW hitting 13K, now that's NEWS!

So from March of 1999 (the first time the Dow "broke" 10,000) to the present day, the Dow grew roughly 30%, or 2.5%/year.

Yawn. There's an investment for ya... doesn't even keep up with the government's false inflation rate, so anyone trapped by the tax benefits of retirement accounts in stocks that make up the Dow, has consistently lost money since 1999.

The Dow is a complete joke as an index anyway, but it's fairly indicative of the Market overall over that large of a period of time.

 

[Everskyward]

So from March of 1999 (the first time the Dow "broke" 10,000) to the present day, the Dow grew roughly 30%, or 2.5%/year.

That's only if you held the same stocks during the whole period and didn't buy at all during the lower points.

 

[denverpilot]

Perhaps the nation should form a search committee for a President like major corporations do.

Yeah, that'll work... they'll figure out which of them wants to do it over cocktails at the golf club, because he or she just had a nasty divorce and "needs something to do". Then they hire each other onto their Boards of Directors and make sure everyone's getting plenty of stock options all 'round.

I'm not sure that Corporate CxOs are where you'd look for the "highest quality leadership" in the Country. They're bigger chronys than the politicians. Sometimes they even wear both hats. :rollseyes:

 

[denverpilot]

That's only if you held the same stocks during the whole period and didn't buy at all during the lower points.

Completely understood... Tom was looking at the macro picture to answer his question about buying a business.

I wasn't getting into the tactics of buying and selling securities.

I'm saying... the largest "most stable" businesses in the Country have made less money than the rate of inflation since at least 1999, and that's all the further back I looked, since Dow 10,000 was an easy to find date and starting point.

 

[Everskyward]

Completely understood... Tom was looking at the macro picture to answer his question about buying a business.

I wasn't getting into the tactics of buying and selling securities.

I'm saying... the largest "most stable" businesses in the Country have made less money than the rate of inflation since at least 1999, and that's all the further back I looked, since Dow 10,000 was an easy to find date and starting point.

OK, but that period was one of the flatter periods in history with some ups and downs in-between. Here's a historical graph. I didn't realize it before but the 60s, 70s and 80s were pretty flat too yet some people look back fondly.

 

[denverpilot]

I was trying to stick to a timeline that covered the lifespans of Tom's expected customers.

Edit: Because the "flat" awful Market is all anyone who'd purchasing from Tom has ever known.

It affects your willingness to spend, deeply... when the Market hasn't done anything but roller-coaster up and down during the period of your life where you actually had Capital to invest.

Tom's generation saw it going up. They're all dismayed that no one is spending now... thinking like they did...

Most of us who aren't see that big peak as the top, or near top, of all the "extra" production of the Boomers, finally hitting an end. Big wave.

Kinda leaning the reply over to Social Economics now that we covered macro, micro, and the "dreams" Marketing stuff... now we try to get into the heads of the potential customers.

Most of them, aren't spending money and won't for a lot of reasons. I think the flat market is why... that's all they've known after the one big boom/bust in Gen X's 20's.

 

[Everskyward]

I was trying to stick to a timeline that covered the lifespans of Tom's expected customers.

Oh my...