Born-Again Savers

March 14, 2009

Wednesday night’s Daily Show blast of Jim Cramer and CNBC exposed how so many of us were duped by frenetic Wall Streeters who parlayed our money into something worth half of what it was a year ago.

We listened to people no smarter than we who were tantalized with 30 percent returns and conveniently forgot to mention that there is a difference between Savings, and Investments.

Now that financial advisors have found Jesus, they’ve once again started preaching about that difference; but only because they’re jobless if they can’t obtain more of our money.  They need us to be reformed investors, and born-again savers.

american-savings-2

We have been repentant – kind of – and are saving again.  America’s savings rate grows with every recession, then plummets when the economy improves.   It has risen dramatically (see the little blip at the far right of the graph) after falling essentially to zero since 2005.  To ZERO.

Even in this worst of times we are not close to putting away enough of our income to avoid a cat food-based retirement.  The erosion of the Social Security net might persuade us to save more, you would think, but hi-def TVs and Starbucks are just too tempting.  We suck at saving but we’re great at believing our government will bail us out when the sky falls in 2020.

I still have many years before reaching retirement age and have a pretty good chance of getting there with enough savings to be comfortable.  I’m not so sure about my 64-year-old friend, who can no longer retire at the end of the year.


Back to the Future with High-Speed Rail

March 11, 2009

high-speed-rail

If I hear one more article about the promise of high-speed rail in New York I think I’m going to gag.

Does anyone remember the promise of the Buffalo subway system?  That service to nowhere cost the government somewhere around $500M back in the early ’80s.  Ridership never came close to justifying the cost.  You think high-speed rail across the upstate region is going to suddenly make Buffalo, Rochester, Syracuse, Utica and Albany chic destination spots? Amtrak with all its millions in government help couldn’t do it, not while it shares the same rails with slow-moving freight trains and dilapidated stations.

And until you solve the problem of obtaining easy last-mile travel once you step off the train, city-to-city high-speed rail will remain unattractive.   So far, that last-mile discussion hasn’t even begun.

While construction of a rail line may have some short-term (very short-term) benefits to a few laborers scattered across upstate New York, rail’s life cycle costs are enormous.  We have spent the past 30 years proving that such rail service can’t exist without subsidies; why would we want to subject ourselves and our children to that kind of future penalty?

Let’s get real.


Innovate Buffalo Niagara

January 28, 2009

innovatebn_logo-rev

The Innovate Buffalo Niagara awards luncheon was held today at the Buffalo Convention Center.  The Buffalo Niagara Partnership’s now-yearly event highlighted 66 companies in 5 categories, from Advanced Manufacturing to Professional Services.  The winners got a nice plaque and a chance to bask in the limelight for about 10 seconds.

The place was full of optimism in spite of the current economic climate.  In a period where many businesses are shrinking, companies like Geico, Multisorb and Roswell Park Cancer Institute are adding to staff.  Granted these are companies whose business products are in most cases far removed from the heavy industries that made Buffalo great in the 50’s and a failure 20 years later, but that’s the point here:  This area will survive this economic downturn and grow far more quickly by having a diverse business environment than by relying on a few big players.  The 66 companies in the competition represent just how far, how quickly, we’ve come in terms of economic diversity.

We need more of these businesses.  Keep them coming, please.


Resumes

January 26, 2009

economy

Since December I have received more unsolicited resumes than I can shake a stick at.  Some make for a great read but I cannot help these people right now, especially when most are asking for work in fields that we, a software development company, don’t offer.  I just don’t need to add a bridge inspector or statistician or tech writer to our staff.

Last year’s job losses nationally came in at around 3.1 million with the manufacturing, professional business services and construction sectors taking the biggest hits, and January hasn’t been kind either.  In just the past week eleven companies alone announced 76,000 jobs cuts and we have not hit the bottom of the layoff barrel.  Worse is the number of underemployedit was 11% in October, and it’s growing and adding to our collective distress.  We are closing in on the 1982 unemployment numbers.

The strongest companies will survive – by working hard, sacrificing, focusing, by evolving and in some cases by sucking at the National teat.  (By the time the proposed $900 Billion stimulus package is finalized I’m sure every congressional district will contain at least one teat-sucker.)

I will work my ass off to make sure that my company successfully adapts to these times.


Energy Indpendence in Our Lifetime

November 25, 2008
(courtesy CNN)

(courtesy CNN)

John Hofmeister, former president of Shell Oil and now head of Citizens for Affordable Energy, spoke at WNED studios last Friday.  Parts of his speech were covered by the Buffalo News as well as the local television media.  An oil insider, Hofmeister made some great points that the media covered well.

That morning, John also spoke at the Buffalo Niagara Partnership’s Movers and Shakers series, making quite a few comments that didn’t make it into the paper or TV.  One of them was about the run up of oil prices this past summer.

Hofmeister pointed out that the dramatic rise in oil prices had nothing to do about speculation but about Asian aviation fuel demand and China’s preparation for the Olympics.  In its attempts to reduce smog, China demanded a change from burning coal for power to burning oil.  They basically bought up all the diesel fuel that they could, and this was principally responsible for the sudden increases.  Just as suddenly, demand pressure on diesel fuel started to drop shortly after the Olympics.

Interesting.   Since diesel is a middle distillate and gasoline is an upper distillate, one would think that as the world’s demand for diesel increases, a glut of gasoline (as a byproduct of the distillation process) will appear on the open market, depressing gasoline prices relative to diesel fuel.  This might make one question whether or not it is wise for the U.S., one of the few countries not fully converted to a diesel transportation infrastructure, to ever do so.

Hofmeister made a few other interesting comments:

  • Without a huge improvement to mass transportation there is no way that dramatic rises in gasoline prices won’t strain many American budgets beyond their limits.  And suburban sprawl makes the mass transit solution untenable.  Because the U.S. has no infrastructure available to support alternative energy transportation in more than a niche manner, there are no short-term alternatives to the internal combustion engine through at least the next decade.
  • When the U.S. was importing 35% of its oil from foreign countries the Nixon Administration, in 1973, declared that the U.S. would be oil independent in 5 years.  35 years later, 65% of our oil is imported and over that time no policies have been developed to reduce that dependence.
  • You would think that the Department of Energy determines – or at least implements – energy policy in the U.S.  Nothing could be further from the truth.  There are 13 Executive branch agencies and 26 Congressional committees that determine policy, plus the courts.  Energy policy is determined politically.

Hofmeister was animated about his last point.  Unless Congress adapts the same model for energy policy as they do for monetary policy – an independent board modeled after the Federal Reserve – no solution to our energy woes will be found.  After 35 years, Congress has proven itself incapable of fixing the problems, and needs to relinquish policy control to an Energy Resources Board with teeth.


Big Business’ Dirty Little Secret

November 21, 2008

Piggy bank

Several years ago my company’s average net receivable – the amount of time our customers wait before paying for our services – was just over 30 days.  Around 2002 that average started to rise, first to 45 days, then to 60.  Two years ago one of our largest customers – a big gorilla of a company – unilaterally raised their payment terms to 90 days.  Other companies followed their lead.  (So much for a contract being a contract.)

Last month the big gorilla sent us a letter indicating that they were again changing payment terms on our contracts to 120 days.  Any work we perform for this company today will generate payment to us in March.  To get payment we hope they survive that long, and that they don’t change the payment terms yet again.

Businesses that delay payments ruin our cash flow in order to preserve theirs.  The big companies are essentially using their suppliers as piggy banks to get cash – essentially for free – for which they would normally have to go to the banking industry to obtain.  Today’s tight credit markets will inspire many other companies to follow suit.  Picture yourself being told by your employer that your next paycheck will be delayed by a month.  Good luck staying atop your mortgage and utility bills.

With terms like this some companies are no longer potential clients of ours because we can’t justify the risk of their bankruptcy within that time frame.  Four months is too long in today’s economy to risk doing work in some teetering business sectors.

We’re just a tiny player in the game but luckily the big gorilla is only a small fraction of our business.  Pity the cash-poor companies dependent on a big gorilla for the bulk of their revenue, receiving the same letter as us.  Their cash flow is going to tank.

This is an artificial boost to the bottom lines of the S&P companies at the expense of everyone else.  Payment delays are a one-shot method to inflate the corporate balance sheet (and therefore the stock price) without addressing any underlying business problems.  Other than providing executives a way to hit their bonus targets I see no business upside to this practice.

So the stock prices of the Dow and the S&P are being silently buttressed by the small businesses being forced to subsidize them; and the small business community – still the heart of American capitalism – has its back to the wall because of it.


La Mancha Negra, Part 2

November 17, 2008

So the answer to the question “What the heck were you doing in Caracas” is “Enjoying myself”.  I worked for a telecommunications company in the early 90’s and we had to make a trip – several trips – to support an installation of wireless units used by the banking industry.

And Caracas was a trip.  Really.  I went in the middle an attempted military uprising, and there were soldiers with guns, everywhere.  And lots of distant shooting at night – sounded like fireworks.  Since we were working with the banking industry it was especially tricky, what with private security forces and the military exchanging wary glances at each other as we would pull up to an ATM machine, electronic equipment in tow.

I loved the exotic nature of the city, and would go back in a heartbeat.  But it was especially frustrating because I was a runner, doing about 5 miles a day, and at that time no one ran in Caracas unless they were guilty of something, and those suspected of being guilty of something were often shot first, questioned later.  So I resorted to running up and down the 8 floors of stairs in my hotel.  It was not nearly as satisfying but it provided a workout.

I worked in a 26-story office complex with one working elevator.  People packed into it like sardines in spite of the weight alarm going off at every floor.  I took the stairs.

Caracas was (and still is) a typical large, third-world city, and is a great example of a middle-classless economy:  You end up with the filthy rich and the shantytown poor.  Just down a ways from the Gold District is a stream about the width of Tonawanda Creek, only it’s an open sewer.  You can smell it from blocks away.  Sanitation systems were and are not a high priority to the Venezuelan government.  Beggars with deformed body parts were everywhere.  And where they were not there were beautiful women and handsome men in fancy clothes.  If you had beauty – especially if you were a woman – you had a path to a great job; if not, you cleaned hotel bathrooms for a pittance.

It was obvious from La Mancha Negra that road construction, too, was not a high priority for the government.  Nor did there seem much in the way of decent health care or, for that matter, good educational facilities; though the Venezuelan government does have a pretty well-funded military.

While the U.S. has a long way before tumbling into such chaos, it is to our country’s advantage that we not let our middle class erode to the point where climbing back up becomes an exercize in futility.


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