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EJ
08-18-08, 04:14 PM
http://www.itulip.com/images/uenmpline.jpgThe jobs recession is here. Time to get to work.

Are you and your age peers heading into a jobs recession or are you already there? How much worse is it likely to get? What can you do about it? Start a company.

In our previous article on unemployment Housing Bubble Correction Update: Here comes the jobs crash (http://www.itulip.com/forums/showthread.php?p=39709#post39709) we showed duration of unemployment – how long the unemployed spend looking for a new job – is telling us that unemployment is no more than half as high as it is are likely to get in this recession. That implies an 11% plus rate of unemployment nationally, a rate not seen since the recessions of the early 1980s. Using the methods of unemployment data collection and analysis from that era, unemployment is two or more points higher than the BLS data show today using current methods. One major change since then if that those deemed "unemployed" no longer include anyone who is unemployed but gave up looking for work for more than six months, even though the most obvious reason for giving up looking for a job is that there aren't any.

The latest report out of the Bureau of Labored Statistics over at the US Commerce Department states unemployment in the US nationally at 5.7%. Unemployment is a lagging indicator, usually topping out several quarters to a year after a recession has ended. This time unemployment is already nearly as high as the peak of the last recession in 2001, yet according to our models the current recession will be longer and deeper than the last recession. The rise in unemployment that began in mid-2007 has a long way to go.

Previously we looked at the states and industries getting hit by unemployment first and hardest. In California, for example, unemployment state-wide is already 7%, well above the national average. Among industries slammed by the collapse of the housing market – one of the two major causes of this recession, the second being inflation from rising energy prices – construction and automobile manufacturing have been contracting for several quarters. This time we look at the impact of the recession on unemployment by age group. Are you and your age peers heading into a jobs recession or are you already there? How much worse is it likely to get? What can you do about it?

Unemployed Youth: Canaries in the Coal Mine?

Our analysis breaks unemployment down into five major age groups: 45 to 54 years, 35 to 44 years, 25 to 34 years, 20 to 24 years, and 16 to 19 years, plus we look at two special cases. We show the current unemployment rate and a projected future peak unemployment rate. However, we expect a series of recessions versus one big one, so interpret the the straight red line of unemployment growth as subject to ups and downs as the government reacts to conditions with stimulus packages – none of which, we believe, will work long term. In keeping with our philosophy to avoid the "on the one hand this, and the other hand that" method offered by mainstream economists offering opinions on the future, we make specific "one handed" predictions about where we think unemployment is going for each group. This follows our forecast October 2006 of a post housing bubble recession to start Q4 2007, recently confirmed the Commerce Department (http://moneynews.newsmax.com/headlines/gdp/2008/07/31/117813.html). No one else made such a specific forecast that far out, and no one else is making this one, either.


http://www.itulip.com/images/uempUSAJuly2008.gif


The unemployment rate for the US as a whole is 5.7%, as high as at the peak level during the last recession. After the last recession, unemployment continued to climb to 6.3%. We expect unemployment will eventually peak between 11% and 12% due to the combined impact of debt contraction and inflation on profits as the FIRE Economy unwinds.




http://www.itulip.com/images/unemp45-54yrs.gif


The most established workers enjoy the lowest unemployment rate, well below the average, and the highest salaries. While rising, unemployment for this group remains well below the peak rate of 4.5% that occurred during the last recession. In our more globally integrated economy today that rewards globally competitive workers and punishes those with less rarefied skills, this trend is likely to be even more true during this recession than in previous ones. Peak unemployment is projected to reach early 1980s levels.


http://www.itulip.com/images/unemp35-44yrs.gif


Next come workers who have been in the job market for at ten years or more. In this economy, the 35 to 44 year old group is doing as well as it was at the end of the previous recession. We see peak unemployment for this group reaching early 1980s levels. They are less experienced than the 45 to 54 year old group, but they are cheaper; as profits fall and companies reduce payroll expenses – by far the greatest source of costs for any company – and minimize productivity losses companies tend to pull jobs down from the 45 - 54 group into the 35 to 44 year old group. Then again, by the same token the 25 to 34 year old group poaches some of the 35 to 44 year olds' jobs.


http://www.itulip.com/images/unemp25-34yrs.gif


Next come the 25 to 34 year old group. They've been out of college two or three years and are in their first or second job. While they may be less expensive than the 35 to 44 year old group, as the recession drags on the more experienced workers will tend negotiate the same pay as the younger group earns, giving the 35 to 44 year old group an advantage if they're willing to take a pay cut to keep their job. This is why the Federal Reserve is so enthusiastic about recessions when faced with rising inflation, and why they are sitting on rates rather than raising them even as inflation races toward double digits (http://biz.yahoo.com/bizwk/080818/aug2008db20080815021990.html). The Fed's theory since the early 1980s is that the primary source of inflation is rising wages, and that if labor costs can be contained by increased competition for jobs, as occurs during recessions, their inflation problem will be solved.

This belief is at the core of current economic orthodoxy and ideology. No mainstream economist dares to note that falling wages and rising inflation can happen at the same time if another source of inflation exists outside wages, such as rising energy import costs due to a weak currency. The dynamic in the extreme is well known to Argentina from that nation's 2001 experience with inflation (http://www.itulip.com/forums/showthread.php?p=41130#post41130). In the US case, foreign central banks buffer the currency deflation process, and so we instead experience the decline as the Dollar Ratchet (http://www.itulip.com/forums/showthread.php?p=43523#post43523). As unemployment rises, debt becomes more difficult for households to service, accelerating a major cause of falling demand in the private sector – debt deflation. The US economy contracts further, foreign lenders have less money to send to the US to allow us to live in the manner to which we have become accustomed, the dollar weakens more leading to a further increases in imported energy costs and inflation. The ideology of wage containment to prevent inflation is facing a rude confrontation with reality.

http://www.itulip.com/images/unemp20-24yrs.gif


The 20 to 24 year old age group is either in or just out of college. Inexperienced and maybe credentialed or maybe not yet, in any recession unemployment is high for this group, but is already at the level of the peak of the last recession. We expect it to peak around 17%.


http://www.itulip.com/images/unemp16-19yrs.gif


Unemployment is high for teenagers in any economy but in this downturn already more so than in the last. The unemployment rate is 21%, where it was at the end of the last ugly demand recession of the early 1970s, but not as bad as after the depression conditions created by the Volcker Fed in the early 1980s when short term interest rates were driven to double digits to squash inflation. Inflation was nearly 20% then, if you can believe that. How about high school grads looking to get a job before heading off to college next year?


http://www.itulip.com/images/unemp16-17yrs.gif


A shockingly high unemployment rate greeted the teenage group this summer, unfortunately. Note the rate of increase – straight up. Try to find another spike in unemployment like that and you have to go back to the end of WWII when Johnny came marching home and flooded the US job market with excess labor before the post-war boom started. Already unemployment for this age group is only a couple of points below the worse levels recorded. Note to the McCain campaign: if you are wondering why the Obama campaign's message about the tough economy is resonating, it's because he is targeting young people and they are the ones taking the brunt of this recession even more than usual. If unemployment reaches the levels we forecast for 16 to 24 year olds, ranging from 17% to 40%, the US will have plenty of the kind of social dry tinder that has preceded every significant period of political change in history.


http://www.itulip.com/images/unemp16-19blackmale.gif


And if you are a black teenage male? At 38% the usually horrifically high rate of unemployment is no worse than it was during the post 2001 recession "recovery." The good news here is we don't see unemployment rising as far as during the early 1980s recessions, although it may still be a hefty 50% or more, up from 38% now.


The current recession is more serious than all previous recessions since the early 1980s. This time inflation, unemployment, and a credit crunch are cutting into demand. Demand, in the economic sense, is the combined desire of consumers to spend and the availability of the cash they need to act on that desire. Recessions with declining demand tend to be self-reinforcing as falling demand leads to falling consumption leading businesses to reduce labor costs by laying off employees, leading to falling incomes and further reductions in demand.

Another unusual aspect of this recession is that traditional Keynesian techniques to stimulate demand by expanding credit through interest rates cuts is hobbled by a moribund housing market; housing has for decades been the primary mechanism for transmitting interest cuts to consumers by reducing a household's primary interest expense, their mortgage. The freed up money acts much like tax cut. Now, however, interest rates are rising, especially for those homeowners who took Greenspan's advice in 2005 and took out an adjustable rate mortgage when fixed rate mortgages were at 40 year lows, and tightening lending standards are cutting off home mortgage refinancing for millions.

Finally, a weak dollar since 2001 means "oil prices drive up the cost of everything that requires oil to grow, be dug up, blown, packed, scrubbed, crushed, shaken, warmed, cooled, pickled, packaged, processed, or moved – that is, everything on God’s green earth including your own hair and the hot water you used to wash it this morning." The only way to reduce that impact short term is to use less oil. A recession will help, as long as the dollar doesn't fall faster than oil demand.

Conclusion

We are in the early innings of a major recession. Unemployment is highest for the most vulnerable age group, the 16 to 24 year olds. If you see unemployment heading your way, what can you do about it?

This may strike readers as counter-intuitive, but a recession is the best time to start a new business. You might think the opposite is true, because investors are freer with money and customers spend more during booms. On the other hand, talented labor is dear, fixed costs like rent are high, and competition is fierce. Companies that start in recessions tend to be well differentiated, with dedicated teams, and a powerful will to fight the odds. They are inherently stronger than the me-too companies you see form at the tops of economic cycles that pile into an already crowded market only to disappear in the next downturn. If you work for a company and you see a customer problem that day in and day out is ignored, start to write down a list of the things you'd do differently for that customer if you were running the show. Develop contacts with that customer, so if you are laid off and decide to start a company later you can approach your contacts for "advice" on your business idea. That first conversation may eventually turn them into your first customer, if they are willing to engage with you to refine your service or product idea. A second customer will follow the first, and within a few years you will have a business that's ready to take off when the economy turns around. That is how most entrepreneurs you have heard of have succeeded. Think you need a fancy business plan and venture capital to start a successful business? Nonsense. All you need is a good recession.

A recession is an opportunity. Don't miss this one.

Eric Janszen is the Founder and President of iTulip, Inc. Previously President and CEO of Autocell, Inc. and Bluesocket, Inc., Managing Director of Osborn Capital, EIR Trident Capital, author of Harper's Magazine March 2008 cover article The Next Bubble (http://www.harpers.org/archive/2008/02/0081908), Co-Author of America\'s Bubble Economy: Profit When It Pops (http://www.amazon.com/exec/obidos/redirect?link_code=as2&path=ASIN/047175367X&tag=wwwitulipcom-20&camp=1789&creative=9325)http://www.assoc-amazon.com/e/ir?t=wwwitulipcom-20&l=as2&o=1&a=047175367X

iTulip Select (http://www.itulip.com/forums/showthread.php?t=1032): The Investment Thesis for the Next Cycle™
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don
08-18-08, 05:33 PM
Setting aside the political motivations behind the "no longer looking for work' unemployment rate component, isn't the normal unemployment benefits period 6 months? There used to be a requirement to substantiate your efforts seeking employment- a short list of applications placed, etc. presented periodically at the unemployment office- that ended when your benefits expired. I assumed that was the official rationale for hanging the "no longer looking" sign on the artificially contained unemployment rate.

I think you are on point, Eric, with the opportunities/environment presented in a downturn for new business start ups. Of course only a small percentage of the working population is so hardwired, thank goodness! There's generally enough competition out there!!!

Mega
08-18-08, 05:37 PM
EJ
I am living proof that what you just said is 100% spot on. I struggled for employment for many years here in Liverpool. So, when we had a recession in the early 90's i started my small engineering company.

14 years later am still going althought things are getting tough now.

Great thing is i don't have to tol-er-late nob heads, and i found that most self employed people became self employed for the SAME reson.
Mike

bart
08-19-08, 09:33 AM
Another view that basically confirms EJ's overall unemployment target. There's a lagging relationship between unemployment and (corrected) CPI-U.



http://www.nowandfutures.com/images/unemployment_u3_cpi_phillips.png

Sapiens
08-19-08, 09:47 AM
The Fed's theory since the early 1980s is that the primary source of inflation is rising wages, and that if labor costs can be contained by increased competition for jobs, as occurs during recessions, their inflation problem will be solved.

This belief is at the core of current economic orthodoxy and ideology. No mainstream economist dares to note that falling wages and rising inflation can happen at the same time if another source of inflation exists outside wages, such as rising energy import costs due to a weak currency. The dynamic in the extreme is well known to Argentina from that nation's 2001 experience with inflation (http://www.itulip.com/forums/showthread.php?p=41130#post41130). In the US case, foreign central banks buffer the currency deflation process, and so we instead experience the decline as the Dollar Ratchet (http://www.itulip.com/forums/showthread.php?p=43523#post43523). As unemployment rises, debt becomes more difficult for households to service, accelerating a major cause of falling demand in the private sector debt deflation. The US economy contracts further, foreign lenders have less money to sent to the US to allow us to live in the manner to which we have become accustomed, the dollar weakens more leading to a further increases in imported energy costs and inflation. The ideology of wage containment to prevent inflation is facing a rude confrontation with reality. [/LEFT]



I can't tell you the countries, but the above theory has been tested in one Central American country and one South American country, both of which only have a Pacific coast line.

Charles Mackay
08-19-08, 11:53 AM
Another view that basically confirms EJ's overall unemployment target. There's a lagging relationship between unemployment and (corrected) CPI-U.

Bart, wondering why the data is so different in the 92-94 recession? Yours is over 12% and EJ's is 8% ????

jk
08-19-08, 12:24 PM
Bart, wondering why the data is so different in the 92-94 recession? Yours is over 12% and EJ's is 8% ????
u-3 versus u-6 iirc. different definitions of unemployment. u-6, which is what bart uses, includes discouraged workers and, iirc, those working part time because they are unable to find full time work. it corresponds to "unemployment" of the 1970's. thus when looking at a modern "misery index" you need to add u-6 to inflation+lies [or shadowstats' number].

santafe2
08-19-08, 01:33 PM
Another view that basically confirms EJ's overall unemployment target. There's a lagging relationship between unemployment and (corrected) CPI-U.



http://www.nowandfutures.com/images/unemployment_cpi_phillips.png

Very nice chart, Bart. This correlation seems obvious once you see it but it's not one I had made before. I hope you don't mind but I overlaid the recession lines from EJs post onto your chart. I think it adds even more texture to your idea.

509

bart
08-19-08, 01:54 PM
Very nice chart, Bart. This correlation seems obvious once you see it but it's not one I had made before. I hope you don't mind but I overlaid the recession lines from EJs post onto your chart. I think it adds even more texture to your idea.

509

More power to you or anyone who extends my work. Recession data does add some broad perspective and I probably would have added it myself if I had lots of free time.

And by the way, a few may know it, but the actual basic concept is also known as the much & correctly maligned Phillips Curve, also noted by the same Irving Fisher that said in 1929 - "Stocks have reached what looks like a permanently high plateau.".
http://en.wikipedia.org/wiki/Phillips_Curve

Thanks to jk too for answering and detailing the U-6 vs. U-3 unemployment definitions, etc.
http://www.bls.gov/news.release/empsit.t12.htm is the definition source, and U-3 is the "normal" one quoted by most media. I do track both but didn't have a chart available with U-3 and CPI w/o lies.

Jay
08-19-08, 01:54 PM
I can't tell you the countries, but the above theory has been tested in one Central American country and one South American country, both of which only have a Pacific coast line.
Could you give us some real info? A cryptic posting means nothing in and of itself. Why not mention the countries, and more important what the outcomes were.

FRED
08-19-08, 01:59 PM
Much appreciate these comments. Unfortunately, each time we write these articles, intended for a broad audience, we cannot explain to readers that the current U6 is the new U3, the rate that is referred to in the press simply as as "Unemployment." Government statistics distortion is an entire subject in and of itself that general readers are not familiar with. Going into it in each piece distracts from the main point, and anyway readers don't really want to think about it.

Mitigating the deflation of the true rate of unemployment by government statisitcs is the fact that the employment market is far more dynamic now than in the 1970s. The Internet not only makes finding a job easier – a national job search through networking is now trivial – and starting a business is trivial as well. There is some truth to the New Economy. It's not all BS.

Charles Mackay
08-19-08, 02:00 PM
u-3 versus u-6 iirc. different definitions of unemployment. u-6, which is what bart uses, includes discouraged workers and, iirc, those working part time because they are unable to find full time work. it corresponds to "unemployment" of the 1970's. thus when looking at a modern "misery index" you need to add u-6 to inflation+lies [or shadowstats' number].

ahh, ok, ... and even U-6 is light according to John Williams..

http://www.shadowstats.com/imgs/sgs-emp.gif

bart
08-19-08, 02:23 PM
Much appreciate these comments. Unfortunately, each time we write these articles, intended for a broad audience, we cannot explain to readers that the current U6 is the new U3, the rate that is referred to in the press simply as as "Unemployment." Government statistics distortion is an entire subject in and of itself that general readers are not familiar with. Going into it in each piece distracts from the main point, and anyway readers don't really want to think about it.


My apologies Fred. It didn't even occur to me that it was confusing for others... and my apologies to them too. I know how I used to mumble to myself about things like that when I was first learning and now I find myself guilty of the same thing. :o

I've just created a new chart with the normal U-3 rate, and replaced my original post with it... and hopefully that won't make it even more confusing.


This is the new one that matches your charts, and that has also been substituted earlier in the thread with the normal unemployment rate.

http://www.nowandfutures.com/images/unemployment_u3_cpi_phillips.png



This is the other one that was confusing.

http://www.nowandfutures.com/images/unemployment_cpi_phillips.png

Sapiens
08-19-08, 02:37 PM
Could you give us some real info? A cryptic posting means nothing in and of itself. Why not mention the countries, and more important what the outcomes were.

Because the paper is not public. Yet you may find a clue here:

http://www.frbatlanta.org/invoke.cfm?objectid=D72F6A35-5056-9F12-126A93C868C998E2&method=display_body

Jay
08-19-08, 03:08 PM
Because the paper is not public. Yet you may find a clue here:

http://www.frbatlanta.org/invoke.cfm?objectid=D72F6A35-5056-9F12-126A93C868C998E2&method=display_body
Damn, I don't want the Hardy Boys, I want it served up to me on a silver platter!

The Economic Review... I don't want to slog through that, my brain is already cooked from this place. Well, at least it isn't solar eclipses and the occult.;)

Sapiens
08-19-08, 03:12 PM
Well, at least it isn't solar eclipses and the occult.;)

Jay,

It is all about the information. ;)

-Sapiens

P.S. Hidden in plain sight. :cool:

BiscayneSunrise
08-19-08, 03:28 PM
Jay,

The only country in Central America with just a Pacific coast is El Salvador. As for South America, the clue narrows one down to just three countries, Ecuador, Peru, Chile.

jimmygu3
08-19-08, 03:54 PM
Jay,

The only country in Central America with just a Pacific coast is El Salvador. As for South America, the clue narrows one down to just three countries, Ecuador, Peru, Chile.

Adam West: El Salvador, Ecuador, Peru, Chile.... it's a clue!
Burt Ward: We have to hurry Batman, or Sapiens will press the doomsday button!
Adam West: Ecuador, Equador, equator! Robin, what's the equator of Gotham?
Burt Ward: The Gordon Beltline Expressway!
Adam West: And who serves the best chili in town?
Burt Ward: Of course, Sal & Pero's Chili Hut on the beltline!
Adam West: To the batmobile!

Andreuccio
08-19-08, 04:06 PM
Damn, I don't want the Hardy Boys, I want it served up to me on a silver platter!

The Economic Review... I don't want to slog through that, my brain is already cooked from this place. Well, at least it isn't solar eclipses and the occult.;)

C'mon, Jay. The article's all of 3 paragraphs, plus a concluding sentence. The title's even shorter than that. You're a bright fellow. You can do this. :D

santafe2
08-20-08, 01:12 AM
Going into it in each piece distracts from the main point, and anyway readers don't really want to think about it.

Actually, there are readers here, that only come to iTulip to think about it. I've found the comments on this thread illuminating. JK's observations, Bart's chart, Sapiens reference to, I assume, to the 21st Century version of the Chicago School of Economic fascism and EJs somewhat depressing reality check for employees in the US for the next few years. Never under estimate your readership or your subscribers willingness to bring your new readership up to speed.

santafe2
08-20-08, 01:23 AM
I've just created a new chart with the normal U-3 rate, and replaced my original post with it... and hopefully that won't make it even more confusing.

Bart, I prefer my charts with all new hip hop lies or old school lies. When you mix them, I get very confused. Please compartmentalize all your graphical depictions of government fairy tales in the future. Thanks.

Charles Mackay
08-20-08, 12:49 PM
Does anyone know what codec is needed to play the iTulip Any Media Player? I thought I had every codec in existence but the Steven Keene interview freezes both FireFox and Internet Explorer on more than one computer that I've tried it on. It initially asks for quicktime which I have but then freezes.. ????

Slimprofits
08-20-08, 12:51 PM
Does anyone know what codec is needed to play the iTulip Any Media Player? I thought I had every codec in existence but the Steven Keene interview freezes both FireFox and Internet Explorer on more than one computer that I've tried it on. It initially asks for quicktime which I have but then freezes.. ????

Same thing happens to me running Windows XP, IE and Media player - The Keen thread freezes as soon as it opens.

FRED
08-20-08, 01:00 PM
Actually, there are readers here, that only come to iTulip to think about it. I've found the comments on this thread illuminating. JK's observations, Bart's chart, Sapiens reference to, I assume, to the 21st Century version of the Chicago School of Economic fascism and EJs somewhat depressing reality check for employees in the US for the next few years. Never under estimate your readership or your subscribers willingness to bring your new readership up to speed.

Exactly my point. My comment was that the addition of the comments by bart, JK, et al is exactly the right way to introduce guests to iTulip concepts rather than by EJ putting them in the main body of the articles. Remember that the ratio of readers as iTulip members who are familiar with these concepts to guests who may not be is typically 400:1 (http://itulip.com/forums/showthread.php?p=42621#post42621). Thanks again.

Charles Mackay
08-20-08, 01:00 PM
Same thing happens to me running Windows XP, IE and Media player - The Keen thread freezes as soon as it opens.

I should also note that my machines are running XP

metalman
08-20-08, 02:21 PM
I should also note that my machines are running XP

it's broken.

FRED
08-20-08, 02:24 PM
it's broken.


Thanks for letting me know, guys. Uploaded as a WMV file. Try it now. (http://www.itulip.com/forums/showthread.php?p=42596#post42596)

Charles Mackay
08-20-08, 02:41 PM
Thanks for letting me know, guys. Uploaded as a WMV file. Try it now. (http://www.itulip.com/forums/showthread.php?p=42596#post42596)

Thanks, it works now!

Wasn't EJ's interview of Keen going to be posted at the end of the week?

Andreuccio
08-20-08, 03:13 PM
Exactly my point. My comment was that the addition of the comments by bart, JK, et al is exactly the right way to introduce guests to iTulip concepts rather than by EJ putting them in the main body of the articles. Remember that the ratio of readers as iTulip members who are familiar with these concepts to guests who may not be is typically 400:1 (http://itulip.com/forums/showthread.php?p=42621#post42621). Thanks again.

Shouldn't it be 1:400, not 400:1?

Jay
08-21-08, 01:07 AM
C'mon, Jay. The article's all of 3 paragraphs, plus a concluding sentence. The title's even shorter than that. You're a bright fellow. You can do this. :D
Actually, that sucker was 17 pages when downloaded. I just read the punch lines. Come on, I have a young family and pregnant wife! (And work ain't no cake walk right now.) I want it all packaged with a bow. Do you know how many crazy tomes Sapiens recommends? Hee-hee.

I won't even go into what trying to keep up with Rajiv's stuff is doing to my life at the moment.

Andreuccio
08-21-08, 02:00 AM
Actually, that sucker was 17 pages when downloaded. I just read the punch lines. Come on, I have a young family and pregnant wife! (And work ain't no cake walk right now.) I want it all packaged with a bow. Do you know how many crazy tomes Sapiens recommends? Hee-hee.

I won't even go into what trying to keep up with Rajiv's stuff is doing to my life at the moment.

Agreed, Sapien's must either be one hell of a speed reader or he's got Cliff Notes on some pretty obscure texts.

Still, I think you really are working too hard. This one's pretty easy. You're looking for one South American country and one Central American country. Start reading. When you've found one of each, stop. You're done.

Maybe no bow, but giftwrapped. :)

gasull
08-21-08, 09:35 AM
This may strike readers as counter-intuitive, but a recession is the best time to start a new business. You might think the opposite is true, because investors are freer with money and customers spend more during booms. On the other hand, talented labor is dear, fixed costs like rent are high, and competition is fierce. Companies that start in recessions tend to be well differentiated, with dedicated teams, and a powerful will to fight the odds. They are inherently stronger than the me-too companies you see form at the tops of economic cycles that pile into an already crowded market only to disappear in the next downturn. If you work for a company and you see a customer problem that day in and day out is ignored, start to write down a list of the things you'd do differently for that customer if you were running the show. Develop contacts with that customer, so if you are laid off and decide to start a company later you can approach your contacts for "advice" on your business idea. That first conversation may eventually turn them into your first customer, if they are willing to engage with you to refine your service or product idea. A second customer will follow the first, and within a few years you will have a business that's ready to take off when the economy turns around. That is how most entrepreneurs you have heard of have succeeded. Think you need a fancy business plan and venture capital to start a successful business? Nonsense. All you need is a good recession.

A recession is an opportunity. Don't miss this one.

This is the most interesting part of your post. I wish you develop this idea further in another article.

FRED
08-21-08, 01:31 PM
This is the most interesting part of your post. I wish you develop this idea further in another article.

There is a long section in EJ's upcoming book The New New Deal (Penguin) the covers the topic. Stay tuned!

Jay
08-21-08, 02:16 PM
Agreed, Sapien's must either be one hell of a speed reader or he's got Cliff Notes on some pretty obscure texts.

Still, I think you really are working too hard. This one's pretty easy. You're looking for one South American country and one Central American country. Start reading. When you've found one of each, stop. You're done.

Maybe no bow, but giftwrapped. :)
It wasn't the countries so much as I wanted the impact of the changes and how it relates to possible currency issues facing us now. That is what I really wanted.
Cheers.

Andreuccio
08-21-08, 02:22 PM
There is a long section in EJ's upcoming book The New New Deal (Penguin) the covers the topic. Stay tuned!

Maybe you posted this somewhere already, but when's the expected publication date?

Andreuccio
08-21-08, 02:23 PM
It wasn't the countries so much as I wanted the impact of the changes and how it relates to possible currency issues facing us now. That is what I really wanted.
Cheers.

Ah. That's a great question, but now you are asking a lot.
Cheers right back at you. :)

mcgurme
09-01-08, 05:45 PM
This may strike readers as counter-intuitive, but a recession is the best time to start a new business. You might think the opposite is true, because investors are freer with money and customers spend more during booms. On the other hand, talented labor is dear, fixed costs like rent are high, and competition is fierce. Companies that start in recessions tend to be well differentiated, with dedicated teams, and a powerful will to fight the odds. They are inherently stronger than the me-too companies you see form at the tops of economic cycles that pile into an already crowded market only to disappear in the next downturn. If you work for a company and you see a customer problem that day in and day out is ignored, start to write down a list of the things you'd do differently for that customer if you were running the show. Develop contacts with that customer, so if you are laid off and decide to start a company later you can approach your contacts for "advice" on your business idea. That first conversation may eventually turn them into your first customer, if they are willing to engage with you to refine your service or product idea. A second customer will follow the first, and within a few years you will have a business that's ready to take off when the economy turns around. That is how most entrepreneurs you have heard of have succeeded. Think you need a fancy business plan and venture capital to start a successful business? Nonsense. All you need is a good recession.

Great article, as usual!

Maybe it's prescience, or maybe it's just dumb luck, but about 8 months ago I went out and did exactly this. While I already have a full time teaching job, I saw an opportunity to take advantage of my skills in electric bicycles (http://www.cnn.com/2008/TECH/ptech/08/15/electric.bikes.ap/) and sports utility bicycles (http://www.salon.com/mwt/good_life/2008/07/24/sports_utility_bicycle/), to start a business promoting these kinds of car replacements (Cycle9.com (http://cycle9.com)).

But this leads me to a few questions for EJ or the other list members here:

- Starting a business takes capital. Often for a small business, this means expanding one's home mortgage, because banks don't give unsecured loans to new businesses (or perhaps any businesses in today's market). Yet many of your previous recommendations have been "get out of debt". I often find myself grappling with this issue. How can one decide how much debt to take on as part of a new business, in this economy?

- We are presently located in a low-cost lease situation, but it is not an ideal location. We'd like to move into a better location in our local college town (Chapel Hill, NC). However, the rents there haven't come down at all recently even with the economic downturn - they are still at or above the levels of a few years ago. Some folks here think they won't come down, because we are a college town. But I am very hesitant to get stuck with a 5 year lease at a premium rate, when the economy is headed south. Do you think that some locales might defy gravity and keep their rents high?

Again, thanks a bunch for your insights.

Morgan

c1ue
09-01-08, 06:26 PM
Morgan,

Don't commit a lot of funds to space.

Go further out.

One suggestion which I employed: via the county recorder's office or your own experience - go around to buildings which are empty and which have been owned by the same person for a long time.

In CA - the property taxes on these is very low so there is really almost no limit to how long the rent can be.

If your cash flow is good, you can keep an eye out for a better spot.

Of course, I speak of manufacturing vs. retail. Retail is going to be a different equation. But even then you may have medium to short term sublease opportunities.

EJ
09-01-08, 09:18 PM
Great article, as usual!

Maybe it's prescience, or maybe it's just dumb luck, but about 8 months ago I went out and did exactly this. While I already have a full time teaching job, I saw an opportunity to take advantage of my skills in electric bicycles (http://www.cnn.com/2008/TECH/ptech/08/15/electric.bikes.ap/) and sports utility bicycles (http://www.salon.com/mwt/good_life/2008/07/24/sports_utility_bicycle/), to start a business promoting these kinds of car replacements (Cycle9.com (http://cycle9.com)).

But this leads me to a few questions for EJ or the other list members here:

- Starting a business takes capital. Often for a small business, this means expanding one's home mortgage, because banks don't give unsecured loans to new businesses (or perhaps any businesses in today's market). Yet many of your previous recommendations have been "get out of debt". I often find myself grappling with this issue. How can one decide how much debt to take on as part of a new business, in this economy?

- We are presently located in a low-cost lease situation, but it is not an ideal location. We'd like to move into a better location in our local college town (Chapel Hill, NC). However, the rents there haven't come down at all recently even with the economic downturn - they are still at or above the levels of a few years ago. Some folks here think they won't come down, because we are a college town. But I am very hesitant to get stuck with a 5 year lease at a premium rate, when the economy is headed south. Do you think that some locales might defy gravity and keep their rents high?

Again, thanks a bunch for your insights.

Morgan

Congratulations on the new business. The secret to success for any reseller business is to maximize margins and minimize costs by getting exclusivity from the best manufacturers on the most desirable products in as large a geographic area as you can, then keep fixed costs at a minimum e.g., no long term leases if rents are declining and manage cash flow and inventory carefully, even if your business appears to be expanding rapidly. Never let manufacturers load you down with inventory, no matter how deep the discounts in the "sweet" end of quarter deal. Good luck!

mcgurme
09-01-08, 09:22 PM
Hi Clue,

Thanks for the input. We do a bit of both retail and (very light) manufacturing. But the retail component is very important to us right now, and being where we are just doesn't bring a lot of direct exposure. It is a great idea to check the recorder's office - will definitely do that.

In the future, we plan to get more heavily into the manufacturing end, as the cost of imports continues to increase for all the reasons discussed in many threads here. But that will take time to develop, and perhaps when that becomes a significant part of our business, we can do that at a separate location.

Morgan

Morgan,

Don't commit a lot of funds to space.

Go further out.

One suggestion which I employed: via the county recorder's office or your own experience - go around to buildings which are empty and which have been owned by the same person for a long time.

In CA - the property taxes on these is very low so there is really almost no limit to how long the rent can be.

If your cash flow is good, you can keep an eye out for a better spot.

Of course, I speak of manufacturing vs. retail. Retail is going to be a different equation. But even then you may have medium to short term sublease opportunities.

mcgurme
09-01-08, 09:29 PM
Congratulations on the new business. The secret to success for any reseller business is to maximize margins and minimize costs by getting exclusivity from the best manufacturers on the most desirable products in as large a geographic area as you can, then keep fixed costs at a minimum e.g., no long term leases if rents are declining and manage cash flow and inventory carefully, even if your business appears to be expanding rapidly. Never let manufacturers load you down with inventory, no matter how deep the discounts in the "sweet" end of quarter deal. Good luck!

Hi
Thanks! Great advice. We have definitely been doing some of this - getting exclusive territory on a number of up-and-coming products from reputable manufacturers. And we have been modeling cash flow carefully in anticipation of the downtime (winter months).

But, the challenge is, rents aren't declining, they are holding steadfast around here. So that poses a conundrum about what to do. We could just "wait it out," but then if rents don't decline here, we will have missed a lot of opportunity for better exposure at current rents. Anyway, I thought you could predict the future, to tell me what will happen here? ;)

But, again, thanks. It was in part reading all the stuff on iTulip that made me think this business was the right thing to do in the first place.

Morgan

EJ
09-01-08, 09:44 PM
Hi
Thanks! Great advice. We have definitely been doing some of this - getting exclusive territory on a number of up-and-coming products from reputable manufacturers. And we have been modeling cash flow carefully in anticipation of the downtime (winter months).

But, the challenge is, rents aren't declining, they are holding steadfast around here. So that poses a conundrum about what to do. We could just "wait it out," but then if rents don't decline here, we will have missed a lot of opportunity for better exposure at current rents. Anyway, I thought you could predict the future, to tell me what will happen here? ;)

But, again, thanks. It was in part reading all the stuff on iTulip that made me think this business was the right thing to do in the first place.

Morgan

Sorry, can only forecast markets that I know. Here in the Boston area I've stayed in touch with the agencies that helped me locate space for my last two companies. Rents had been rising since 2004 until recently, and are now declining, especially farther from Boston. There was a lot of over-building here during the boom. Outsourcing also reduced the need for office space. I have no direct knowledge of the local retail market, but judging by the preponderance of FOR LEASE signs at malls and other locations, the circumstantial evidence is that rents are under pressure. I don't know the special economic and supply circumstances in your area but I have a hard time believing that a consumer recession is bullish for retail rents even in the absence of over-building, although a seller's agent will always tell you rents are either rising or are about to. Hope that helps.

jimmygu3
09-02-08, 12:51 AM
I have no direct knowledge of the local retail market, but judging by the preponderance of FOR LEASE signs at malls and other locations, the circumstantial evidence is that rents are under pressure.

When we were kids, my brother and I used to play "count cows" on road trips. Yesterday my wife and I played "count the FOR LEASE signs" while driving around Atlanta.

c1ue
09-02-08, 09:30 PM
Morgan,

If your primary concern is traffic and retail space, one option you might consider is a small prime retail space with an inventory storage area farther away.

Of course, for the market you appear to be targeting - I would ask why the internet and the whole electronic sales thing isn't more effective.

I guess it would depend on your present and anticipated/desired volume.

mcgurme
09-02-08, 10:03 PM
Morgan,

If your primary concern is traffic and retail space, one option you might consider is a small prime retail space with an inventory storage area farther away.

Of course, for the market you appear to be targeting - I would ask why the internet and the whole electronic sales thing isn't more effective.

I guess it would depend on your present and anticipated/desired volume.

Hi,
Good questions, thanks.

The answer isn't based on purely business/financial logic. My business partner and I are doing this in part to have a positive impact on our local community. Our business is filling a real void here. In terms of pure profitability, it might make more sense to just do the internet thing and forego any expensive retail space. But, since we are doing this to make a difference, there are many customers who will never buy something like an electric bicycle or bicycle conversion kit sight unseen over the internet. Plus there is the question of support. We want to reach some of those folks. Nonetheless, while our store is doing reasonably well from walk-in sales, internet sales remain critical to the cash flow.

But anyway, if I were looking at pure profit, at least for now it would have been better to just seek out consulting gigs related to my day job (it's in an area of biotech). So a lot of this business is about passion, not money making. My money making goal is to have it be at least profitable enough that it is self-sustaining (and paying off the loans), so that it can continue to have an impact in the future. If I make money beyond that, it would be great, but not essential.

One other consideration is that having a real, physical store often brings us added legitimacy in the eyes of consumers and suppliers alike. It is very hard to estimate the impact of that overall, but it certainly does have a positive impact. It also gives us access to brands that will not allow sales over the internet, or in some cases only allow such sales in conjunction with a physical store.

I do like the idea of the dual location, and we had once considered that. So far, however, there aren't any decent, small spaces we've found that might fit the bill... we'll keep looking.

And in response to the other comments - it may be surprising, but there really aren't many "for lease" signs around here close into town, where it is walkable/bikable. There are more further out, but that's where we are now, and it is ironic being a bike store that is not in a bike-friendly location...

There was a story in the local paper about a long-established family pizza joint having to shut down because when their lease came due, the landlord upped the rent almost 2-fold, to around $30/sq ft. The landlord had no problem finding another taker at that rate... (for around here, that is high in a historical sense).

So, maybe we are in a gravity-defying zone? House prices have declined a bit here, but so far, no sign of commercial rents declining.

Morgan

metalman
09-02-08, 10:47 PM
So, maybe we are in a gravity-defying zone? House prices have declined a bit here, but so far, no sign of commercial rents declining.

Morgan

patience, patience. the crunch will come. it always does.

c1ue
09-03-08, 04:54 PM
Morgan,

I understand your desire to contribute to the community.

But there are a lot of ways to contribute beyond having a prime retail location in a walkable area. Charities, scholarships, sponsorships to name a few.

If there is public transport - maybe one possibility is to get a location near the bus depot.

These generally are in very bad areas, and are also often central to the bus network.

Then you can be both public transport-able and be contributing tax dollars to a 'bad' area.

GRG55
09-05-08, 08:38 AM
The jobs recession is here...

Even the BLS is now coming around to this point of view. (http://www.bls.gov/web/ceshighlights.pdf) Latest non-farm payrolls report just out.

6.1% unemployment. Big jump!

Only areas of increase appear to be mining/resources, teaching (education) and government (yet again)...


Edit Added: Here's Reuter's first summary release (http://www.reuters.com/article/newsOne/idUSN0439189920080905), which includes:


"...There were steep cuts in hiring in nearly every major category of employment. Some 61,000 manufacturing jobs were lost in August, the most for any month since mid 2003..."

Hard to imagine an even stronger US$ (as some, like Gartman, are predicting) is in the cards for long, unless the authorities intend to let the export sector wither like much of the rest of the economy.

Equally difficult to imagine anybody continuing the delusion that the next Fed administered interest rate move is UP. In fact the strongest argument against a cut in Fed fund rate is the potential for an early resumption of dollar decline as the long denied US recession becomes mainstream thinking...