Forecast for 2014...A Lot Like 2013

Long-time members of ASAC-Charlotte, now NC Subcontractors Alliance, will remember a program in 2008 by Martha-Ann Marley, called “A Contractors Diet: How To Get Lean.” The program was a segment of her 2 hour seminar and based on an article she wrote for the CFMA magazine, “Building Profits,” January-February 2006 issue. Based on her 24 year experience as a surety underwriter with a major surety company, poring over thousands of financial statements, audits and economic data, she realized certain common attributes of companies that survived and thrived during down economies, versus those that failed. The main attributes being, maintaining liquid assets, cash flow and a plan for controlling costs during the downturn.

Based on her study of economic data, she predicted that the coming recession, now known as The Great Recession, would be deep and would not begin to show improvement until 2013. She gave a detailed list of things that contractor’s needed to do to survive and thrive during the recession. In her latest seminar based on her article “Stuck in Neutral?” “Building Profits”, May-June 2012 issue, Martha-Ann shows the data that indicates the bottom of the recession was reached in early 2013. But, there are not yet any indicators showing that the economy is pulling up off the bottom. She has now revised her prediction. Now, she predicts that the economy will not show improvement until late 2014.

 

The fact that you are still here is a good sign. You are a survivor. Some of the important things, according to Martha-Ann, are maintaining cash flow, protecting margins and accumulating the cash assets that are needed for working capital when business starts to grow. Remembering that subcontractors have to pay out cash for materials and labor, furnish a lien waiver, and then wait 45 to 60 days for payment from the general contractor and even longer to receive payment for retainage. The worst situation to be in now would be loaded down with cheap work and be unable to finance a great job that comes up in the future.

There is still a lot of uncertainty in the economy. What is the Fed going to do with interest rates? What is going to be the cost to your business for Obamacare? What will be the impact of pending federal regulations from OSHA and EPA? Remember, the EPA director in speeches has promised to “regulate the coal industry into bankruptcy.” What will that do to energy prices?

If you can’t attend one of Martha-Ann Marley’s seminars, you owe it to yourself and your company to read her articles. She is now NC President of Gardner Insurance Group. These articles are available on her website, http://www.gardner-insurance.com/ and can be downloaded in a pdf format by clicking on the pictures of the magazine covers.

Money and Banking 101

In the near future, I will begin posting on situations in the economy and government that affect my industry, subcontracting. To be taken as a serious source, I need to establish my bona fides. I graduated from Campbell University (then Campbell College) in 1970. I have a Bachelor of Science degree in Business Administration, but my true interest was in economics and I took all the courses I could in the economics area.

For Money and Banking, I was privileged to study under Dr. Charles E. Landon. “Dr. Charlie” was a man of small stature, but a man of large influence. He was one of the 3 founding fathers of the economics department of Duke University in 1926. He studied and taught through the “Roaring Twenties” and the Great Depression. He had great stature in the money and banking area and during his career, he was called on to counsel several presidents. He taught from an old fashioned professor’s desk, a raised desk similar to a judge’s bench in a courtroom. He was held in great respect by the students as he was always willing to take time after class to answer questions and coach us through the hard part. Dr. Charlie had retired from Duke University, but had come out of retirement to teach the course he loved most, Money and Banking.

Dr. Charlie is second from the left on the front row in this picture of the Duke University Economics Department taken in 1948.

Unlike many current economics instructors, Dr. Charlie kept to the facts. We covered all the different economic theories, including the good points and bad points of each. Keynes vs. Friedman. The various theories of money. Strong central bank vs. weak central bank.  Equal emphasis was given to each one and we, the students, were left to question the fine points and decide for ourselves.

Our current government follows the theories of John Maynard Keynes. His belief was that with a strong central bank (The Federal Reserve) the government could manage a consistent economy without the highs and lows of a free market economy. The Fed controls the money supply by changing the interest rates, issuing bonds and printing money. Keynesian theory holds that an increase in the money supply will stimulate the economy. If the theory is correct, then with the very low interest rates, all the government borrowing and spending and the Fed’s quantitative easing (printing more money), then why is our economy so stagnant.

One problem is that the Fed cannot control the Velocity of money. Velocity is the number of times a dollar will be spent over a period of time. For example, if I take $100 out of the bank and buy a painting from an artist, he might then take that money and buy food from a farmer, who might then take that money and buy a part for his tractor and so on. My $100 could conceivably stimulate the economy by many hundreds of dollars. In a slow economy, people tend to hold on to their money; save it or pay down their debts.  This produces zero velocity and has an adverse effect on the economy.

So, in my opinion, the economy will come back when jobs and confidence come back. People who are insecure in their jobs or don’t have jobs do not spend any more than they must and this does not create the money velocity to grow the economy. The fastest way to grow jobs is to stimulate business development. Right now, business confidence is low. There is so much insecurity about the future, including the unknown costs of Obamacare and regulations coming from various government agencies, that businesses are reluctant to expand and hire additional people.  Until the government changes its attitude toward business, this sluggish economy will continue.

It's Going To Be an iPad World

I recently decided to buy an iPad. I will be going on vacation soon and later on in the year going to an industry trade show in Las Vegas. I normally travel with a laptop and an Amazon Kindle. I caught a debate on TV, Kindle vs iPad, and what got me interested was the final argument that you could sync your iPad to your Kindle account.

I posed a question on Facebook for any iPad users. Is it reasonable to think you can replace both a laptop and Kindle with an iPad while traveling. I got the answer back from my friend Dudley who is currently living in Shanghai, China. The answer is absolutely, he does it all the time. His final statement was that I would probably never use my Kindle again. That's a pretty strong statement from someone who has a 15 hour plane ride any time he comes back to the states.

Once the decision was made, the question is how to purchase it. I visited Best Buy to test drive one. Do they have one in stock? No. Can I reserve one? No. You have to call them every day to see if any have come in and get someone to put it away for you. Next, I called the Apple Store. After a dozen tries to get through the busy signals and automated answering system, I learned that the Apple Store has none in stock and also does not know when any are coming in. They would reserve one, if I had an Apple account, but could not guarantee delivery before my vacation in June.

So, I went online to set up my Apple account. While there, I saw that I could order the iPad online with a shipping time of 7-10 days. Doing the math, I could expect to get the iPad in time for my vacation. So, on May 16th I ordered the iPad and two accessories, the docking station and the camera input adapter. I got my acknowledgment that the docking station would ship immediately, the iPad delivery date was to be June 4th and the camera adapter would be delivered June 28th.

I got the docking station in two days, shipped from Carol Stream, IL. When I opened my email on May 27th, I saw an email from Apple advising me that the iPad was shipped on May 26th and gave me a tracking button to follow the shipment on Fedex. I clicked the button and saw that my iPad was currently in Anchorage, Alaska. Huh? Did it go in the wrong direction? Then, I scrolled down to see the shipment origin was Shenzhen, China. Who knew? Apple is shipping the iPads directly from China to the consumer. Anyway, the iPad spent a little over a day in Anchorage awaiting customs clearance, then screamed across the US. In a little over 8 hours, the iPad left Anchorage, had a two hour stop in Memphis and was on to Charlotte, arriving at 6:50AM Saturday morning May 29th. Now here on Memorial Day weekend, I am anxiously awaiting my iPad's delivery to me at the office on Tuesday.

Doing a little checking, I found out that this is routine for Apple. They also ship their Apple TV's directly from China. I've also found out that Apple is not alone in doing this. I have another Facebook friend who is currently awaiting delivery of his new Droid phone from China. My office supervisor's husband also has a Droid phone coming from China.

What does this mean for America? If this method of logistics catches on, it means that another whole level of the logistics chain is going offshore. The current method of delivery is to ship a container load of product to a fulfillment contractor in the US. When an order is placed, the fulfillment contractor pulls the item, labels it and ships it to the consumer. Now, even this basic function will be in another country along with the manufacturing and call centers. My only contact with an American on this purchase will be the Fedex driver next Tuesday.

My friends, this is a changed and changing world. Whatever you do for a living, don't think you will not be affected. If you can't do more, you will probably have to accept less. What part of your job can be done in China, or India, or in the case of my employer, Mexico. Our company moved most of it's manufacturing to Mexico ten years ago. And now, we have all of our IT, data processing functions and help desk located in Mexico. What few IT people we still have in the US are now independent contractors employed by EDS-Mexico.

Folks, our economy will never be the same. Look out for yourself. The government can't continue to bail everyone out or we will end up like Greece. Don't stop learning. Think about what you can do if your job goes away and get prepared for it.