Tag Archives: downturn

Frustration against BP is hurting small business owners

Frustration towards BP in wake of oil spill

Above is a link to a video about on a case that I am working on that appeared on NECN on its 5pm new’s broadcast last night, June 4, 2010.  The focus of the news media has been how consumers are boycotting BP gas stations because of the oil spill in the Gulf of Mexico and BP’s handling of the cleanup.  The issues that  I am working on show the difficulty of the small business owners, and the effects that the public sentiment against BP is having on independent gas station owners.

There is also a link to an article published on June 4, 2010 in the Patriot Ledger and the Brockton Enterprise.

http://www.enterprisenews.com/business/x1834542120/Local-BP-stations-protest-threaten-lawsuit-over-high-prices

Please let me know what you think!

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The New Normal

I was meeting with a commercial tenant representative today over coffee, and during our discussion about what trends he was noticing in business, he said that he had been accumulating leads more rapidly over the past few months.  His view was that people were starting to consume more, or at least entertain thoughts of consumption and expansion efforts in business.  They’re not feeling more confident because the economy is on an upward trajectory, they’re just tired of being depressed.  I think he’s absolutely correct.  When you get hammered by a lot of bad news, eventually you don’t care anymore.  It gets to a point that you become sensitized toward bad news, and you just start moving forward with plans, and loosening the purse strings for no other reason than you become tired of the ways things are. 

This is the new normal.

Thinking about this, I realized that, although my set of circumstances differ, and my perspective is shaped by the view from my seat, my conclusion is the same.  

Things changed in the Fall of ’07, and have not been the same since.  2009 was an improvement, challenging but good.  Business in 2010 is different to the way it was in 2009 — things are changing rapidly.  There’s more activity, but not greater volume; clients are focused on cost cutting, do not have the ability to risk their remaining resources, are being smarter about their spending, and are less likely to ride with a project for as long as they had done in earlier years.  These factors are pressuring the market for services to change from the a la carte delivery of specific services to a more all-encompassing pre fixe.  Clients are demanding the delivery of those services in a way that adds value to their projects.  This is leading to more price stability for buyers of services, more specialization and niche building by sellers of services, and a movement away from the traditional ways in which services were priced and delivered. 

Once again, a new normal.  

Naturally, the question of whether we “are at the bottom” and “when is the economy going to return to normal” will be asked.  Well it isn’t going to — there’s a new normal. 

Our economy has lost millions of jobs during this recession, and even if we could replace them, it would take many years to do so.  Current business conditions, however, discourage small businesses from adding new workers.  Specifically,  health care costs, taxes, data privacy concerns, payroll costs and employee benefits are a major discouragement to hiring new employees.  At the same time, new technology has made it easier to outsource job functions than to hire more employees.  A company that needed 8 employees 10 years ago, can now achieve the same output with only 3 employees.   It’s possible now to bank online and make deposits from the office; bookkeeping  and accounting are easily outsourced as online software programs download banking, billing, revenue and expense data and process the data into registers and reports; billing and accounting information can be accessed from the internet by an outsourced independent contractor; printing, copying, marketing, advertising, internet strategy, as well as informational technology are all outsourced, and administrative and secretarial services are shared between companies that have co-located in larger office space, with any excess services needed being handled by virtual assistants. 

My point being that the old jobs lost are not going to come back, big companies will shrink, and small companies will try to remain small.  Jobs are being created, and will continue to be created but they are being created by new businesses, not existing businesses.  The new jobs are in different fields, and workers will need new skills. 

Once again, this will be the new normal. The new normal is to adapt or die.  Adaptation will need to be done quickly, and will require one to be nimble.  Large entities are by their nature not nimble and cannot adapt quickly enough to create significant opportunities in the new normal.  It’s up to us little guys to do that.  I’m up to the challenge, are you?

Government Intervention

fdr-govt-intervention

 The economic models of socialism, capitalism, and European-style socialized capitalism are under pressure given today’s economic realities.  In a global economy, where we are all inerconnected and inter-dependent, the reality of which model will be most effective in attending to our issues is murky at best.  John Byrne (Business Week’s publisher) sums it up best, “[t]his is the first financial crisis of the global age. There is no clear map to deal with it”.  When left to its own devices with minimal (or ineffective) governmental regulation it appears that the US capitalistic, free-market model can lead to short-sighted and self-serving decision making, that while fostering ingenuity, rapid development and competition can also lead to gluttony, abuse, and bottom-line fixations that are self destructive.  This over-inflation of the proverbial bubble, which of course will inevitably burst, tends to then eliminate a great amount of the progress and advances made by the capitalistic framework.  On the other hand, there is the socialized capitalism model that comes with increased government intervention, which I see as leading to less innovation, competition and growth, making it a minority shareholder in the global economy and allowing a purely capitalistic society to overtake it, and in doing so drag it into the bursting bubble. 

With our TARP $700 BN bailout fund, the first 1/2 of which went to partially nationalize banks, AIG, and temporarily bailout automakers, we seem to be proceeding full steam down the path of becoming France.  Moreover, Citigroup is essentially in government receivership.  Now, although I agree wholeheartedly with President Obama that the Wall Streeters (from technically bankrupt entities that have been propped up by taxpayer bailout funds) that paid themselves 2008 bonuses while receiving bailout funding are shameful and should be brought to account for their actions, the stance that our President is taking is a clear case of government dictating to private commercial entities how they should operate and compensate their employees, and that is about as close to socialism as we have come.  So what is the best way to go about this?  Is it necessary for the government to intervene to this extent or not?   I guess I am advocating for a managed (or regulated) capitalism as opposed to a socialistic capitalism.

Please comment.

obama-govt-intervention

End of the year musings

It’s very difficult to refrain from taking action to stem the spiralling economic crisis, but in reality there is little that has been done so far that will aid a near-term recovery, and less that can be done to prevent the continuing difficulty we will experience in 2009.  The billions of dollars funnelled through TARP to GM, Citibank, GMAC, and AIG will merely result in book-entries in their Chapter 11 papers, and saddle ours and future generations of taxpayers with overwhelming odds.  We have learned all too painfully that each element  of our economy is intertwined, and devastation in one area generally sifts into other areas as well.  Nevertheless, as much as the markets have gleaned about our economic decline, and built such factors into the pricing of equities, there is much that we do not know, and Madoff-like mushroom clouds are inevitable.  It shouldn’t be a surprise, however, that the commercial real estate market is now navigating very treacherous waters.  From projects in development that are being funded by construction loans to completed projects that are not yet stabilized, to established commercial properties, there are various issues that all point to major pressure on the very survival of the current ownership of such properties, and the various instrumentalities that support the industry.  2009 should see a wave of commercial developments that experience a default prior to completion; completed projects that are unable to secure the necessary permanent financing to retire their construction financing; and long-standing properties that experience tenant vacancies, value declines, and an inability to roll-over their debt as required by their current loan covenants.  There are many additional ways in which current commercial loans will be “under-water”, but suffice it to say that lenders and investors will be experiencing a flood of properties returned to them that they have no means, desire or ability to manage.  Furthermore, although these properties may be available at reasonable prices, the ability to finance such purchases with debt has become, and will continue to be very restrictive.  Once again, I am making the call that this is not necessarily bad, and that there are opportunities in this marketplace.  Specifically, because of this credit tightening, clients have been asking me to structure funds or pools of money into entities that comply with the private offering exemptions to the 1933 Securities Act in order to source the equity needed to acquire these “distressed assets”.  These syndicated entities will create a powerful force and result in tremendous opportunity, and should, and will be recognized by federal and state budgets as a driving force to re-establishing the marketplace and inserting the necessary regulatory checks and balances while transferring properties into the hands of value-minded operators as opposed to cash-flow and cash-out operators.  To pull off these kinds of deals requires a melding of disciplines, whether it be realtors or salespeople, portfolio analysts and reverse engineering specialists, securities and other transactional lawyers, commercial real estate managers, asset managers, valuation experts, structured finance and/or development finance consultants.  In this respect, the market collapse can be seen as a necessary cleansing, and the expansion of syndicated asset pools targeting the distressed asset industry a rising and re-building of the industry using a clear view of the past to guide our leverage ratios, valuation principles, and underwriting requirements.  Accordingly, 2009 may be as interesting and opportunistic as it will be difficult.

The dirty "R" word

I’m going to call it. Recession is a dirty word, a word that just doesn’t roll very easily off politicians tongues. It’s not what you want to hear, and it’s a word that you just don’t want to use in an election year. The Boston Globe yesterday quoted Peter Dunay, chief investment strategist for New York based Meridian Equity Partners, as saying that ” . . . [t]his is why we’re probably heading into a recession.” Kudo’s to you, Peter, for heading down the pathway that few have dared to go, even though you put on the brakes with the “probably” qualification. Henry Paulson, the Wall Sreet titan who is currently the Bush Administration’s Treasury Secretary, stopped short of using the bloody “R” word, but has acknowledged that the economy has slowed down. Mr Paulson stated on Good Morning America this morning that the economy has taken a downward turn. When I see a man like Henry Paulson sitting at the helm of the Treasury Department, and taking a front and center position on the morning talk shows to ease our concerns, it makes me comfortable. It really does help. I do know, however, that when I see JP Morgan tap dancing on the grave of Bear Stearns, doing the same jig they have done on many graves in the past, I know that we are in a recession. Chase is the grim reaper of the economy. All banks tend to take away the umbrella they gave you when it starts to rain, but no bank is better at not only taking away the umbrella, but stepping on the face of its troubled clients; clients that it financed in the first place, and then buying their businesses out from under them. You know that the jig is up when you see Chase circling overhead.

It’s not, however, all that troubling to say that we are in a recession. Recessionary times are challenging, and they require a different set of skills. For those of us that are used to workouts, and tough deals we’re okay with the word recession; the more hair on it the better we say. There’s opportunity in tough times, so let’s just deal with the fact that its here, and do our best to bust out of it. There are many strategic business moves that can be made in these times that will position the smart and the street-wise to take advantage of the inevitable boom cycle that will follow.

We like to help clients understand that if you are in a position to invest, build, create, produce, and deliver in times like these, you can position yourself very well for the next cycle. And let’s face it, you’ll be helping move the economy out of its “slump” or whatever they want to call it.