For all of you folks into hot rods and polynesian culture, here is a recent story on a Rough Air client, Daddykatz.  Bill Winger, the founder of Daddykatz, has opened a retail shop in Dayton, Ohio, which specializes in unique items focused on those interested in hot rods, tikis, and vintage clothing.  It is great to see one of our clients getting their new venture off the ground!

If you want to learn more about Daddykatz visit their site at www.daddykatzkustomkulture.com.

Economic forecasters are expecting the current recession in the U.S. to last 14-months.  A recession of that duration would be in the same league as recession in the 70’s and 80’s.  Our first negative quarter this year was the third, which indicates this downturn will last into the third quarter of 2009, we believe that it is a pretty realistic projection!

I ran across this article in The New York Times, which is an interview with the acting administrator of the SBA. There is a fair amount of discussion about steps the Small Business Administration is taking to help entrepreneurs continue to find the funds to finance their operations.

We have several clients who have run into problems with their banks. In most cases their lender is not renewing a line-of-credit, or their lender is not raising the borrower’s line as these small businesses continue to grow. Many of these business owners are having one of their best years since starting their business, and now find themselves in the position of worrying about raising capital when they should be worrying about managing growth.

The common denominator with this issue is typically a bank that became heavily involved in subprime and aggressive lending, which is now trying to clean up its balance sheet. These financial organizations have decided to try to rid their asset base of any loans, which may appear slightly risky on the surface. Many times small, growing companies fall into this category.

Although many larger banks don’t seem to be lending, unless the borrower can fully collateralize the entire loan with personal assets, some small local banks and credit unions are great places to raise capital for your business. In many cases these financial institutions did not participate heavily in subprime lending, which means they have money to lend, and their cost-of-funds is pretty reasonable. Translated, now may be the time to develop a relationship with your small local banker or credit union, they may be your best source for new capital.  

There can be little mistake that the folks making the big decisions about who gets saved and who doesn’t are from Wall Street, and not from Main Street. Citigroup, one of the largest banks in the world, and one that made incredibly poor business decisions in regards to lending and investing, is saved because “they cannot be allowed to fail!” On the other hand Ford, Chrysler, and General Motors are told they are dinosaurs and they must make it on their own. I have even seen the case made that bankruptcy would be good for GM!

I understand the need to bailout banks, and keep the credit markets moving. The impact of businesses not being able to get credit would be devastating within our economy. However, it appears to me that our leaders in Washington have too much concern for Wall Street bankers, and not enough concern for the small machine shop around the corner!

The bailout of the financial sector has not resulted in an easier credit environment for small business owners. From what we have seen, the smaller local banks, and credit unions, those that did not participate in the rush to lower credit standards, are the institutions that are still lending. The big financial companies, that the government has stepped in to save, are not using their taxpayer funded bailout dollars to help small business owners. They are using those dollars to invest in China (Bank of America), an Executive spa weekend (AIG), and acquisitions (PNC Bank).

Allowing Ford, Chrysler, or GM to go under has a major impact on all of the Tier 1, 2, and 3 suppliers out there. Any small shop heavily weighted in the automotive sector may find themselves in the back of a long line of creditors seeking payment from the Big Three. How are these businesses supposed to survive, with major banks not lending to them, and their biggest customer not paying them? These organizations are being set-up for failure by political leaders who are turning a blind to Wall Street’s incompetence , and turning their back on Main Street’s suffering.

The Treasury and the Fed need to step up to the plate, and ensure the money is getting into the hands of businesses that need it to survive. If the government continues to treat the manufacturing sector as someone else’s problem, then they risk pushing an economy on the brink, over the edge!

In my discussions this past week with colleagues, business owners, and everyday “Joe the Plumbers” I get a wide divergence in just how serious the economic crisis is, and where it is headed. Some refuse to see any problem at all, or insist on downplaying the issue. They insist those with “good credit” can still get loans, and that the economy is not doing nearly as poor as the media portrays. Some have first-hand knowledge of a small business being refused a new line-of-credit, or a loan being called. They talk about some banks that are refusing to lend.

There is little doubt that the U.S. economy is in a recession. How close you are to the epicenter of the problem will be directly tied to how big the impact will be on you or your business. Those tied to construction will be hit harder than those tied to consumer staples, but we all will feel a little pain. Given that, now is time for all of us to work together to begin the process of moving forward, it is time to put philosophical differences aside, and look out for our mutually tied self-interest.

The government needs to create a new, long-term stimulus package that creates jobs, and creates an environment where businesses and entrepreneurs will take risk and invest. They also need to restrict T.A.R.P moneys to those financial institutions that are continuing to loan. A financial institution that accepts $15 billion in T.A.R.P money, and then invests $7 billion in a Chinese construction company is quite simply a traitor. Some of these institutions burned themselves, and are now burning taxpayers by taking federal funds, and putting their self-interest first, rather than trying to support those businesses and people in the economy that need access to credit. These institutions got us into this mess, they need to step up to the plate, and start the process of getting us out.

Businesses must start taking some risks again. Asset values are at all-time lows, this means that we are facing a “once-in-a-lifetime” opportunity to make long-term investments in undervalued assets. It is time to take advantage of the current climate, and take the first steps. We have allowed our economy to get out of balance once, and tilt to far one direction. We are now paying for that mistake. Let’s not allow ourselves to tilt to far the other direction, and make the reaction to the crisis worse than the crisis itself.

Consumers need to be able to start consuming again. This may be a combination of government stimulus, and a better credit environment, but it needs to happen. With energy prices plummeting we have a real opportunity to put some discretionary cash in the hands of American Consumers. A halving of gas prices over the last few months is like a big tax break to the Average American. We must capitalize on this, and move it forward.

Finally we all need to stop paying close attention to the neurosis on Wall Street. Each time a piece of bad economic data comes out institutional investors, and analysts react like it is some big surprise, that they didn’t realize the economy is in recession, and that we have some hard work ahead of us. I have some news for these folks, the sky can only fall so far before it hits the ground. Their fear has become irrational, and they are hurting the rest of us in the process. We all know there is a problem, let’s focus on the possible solutions!

Our economy did not stop this past September, I assure you many people are still doing business, and there are many opportunities out there for savvy entrepreneurs to tap into. Although we may feel some short-term pain, there will certainly be some long-term gain. Each day that passes we are one day closer to economic recovery. The time to panic is behind us, we must now pick ourselves up, dust ourselves off, and get this thing moving forward again!

There has been a lot of discussion this past week about the federal bailout program, and its ineffectiveness. What was supposed to be a program that got credit markets moving, and encouraged banks to continue to lend, has become a program financial institutions are using to raise capital to buy-up weaker competitors. I have several small business clients, all of which are growing businesses that are profitable, which have been told their operating lines-of-credit will not be renewed this year. In some cases they are being told to find another bank! Some of these banks are the very institutions that have accepted federal bailout funds!

Now the bailout discussion has turned to the automotive industry, and some of the same lawmakers (and administration leaders) that were ready to jump in and bailout the financial industry, feel as though the automotive business should be left to fend for themselves. Ironically these are the same lawmakers that never encouraged U.S. automakers to focus on more fuel efficient vehicles, and convinced Americans that we could all drive monster SUVs, because gas would always be cheap. The same lawmakers that were ready to bail out the failing financial services industry, have failed to monitor the bailout program effectively, now believe it is O.K. if the Big Three fail. They are even claiming the U.S. auto industry is a dinosaur.

GM, Ford, and Chrysler may be dinosaurs, but they are really big dinosaurs. These three companies employ about 700,000 globally, and there are millions more working in large and small businesses that are automotive suppliers. It is a critical piece of our economic stability. Companies will fail, but there is no wisdom in allowing entire industries to collapse.

Our leaders in Washington need to understand, the catastrophe has already occurred, why in the world are we even arguing about whether or not we should clean it up? I am getting the impression these guys have no idea what they are doing!

Never let the facts get in the way of a good story! This seems to be the principle the financial press, and other national media, have used in reporting the fall in retail sales from October. Although I do not disagree with the overriding media narrative that our economy is in a recession, I do believe that the major players are now jumping on every piece of negative data and over playing their hand. The shame of it all, is that they are about twelve months too late.

Last year at this time, many talking heads in the media, the financial experts, were doing their best to convince us the economy was just fine. They pressed the idea that because the housing market was a small piece of the U.S. economy, its decline would not have a broad impact. Many went on TV and said that the growth in developing countries would help keep the U.S. out of a deep recession. These same experts would cite low unemployment, low inflation, and high productivity as the basis for their ideas.

At this point it has been proven that most of these experts were well behind the curve on understanding where the economy was headed, and it is becoming apparent to me that they are behind the curve again. Yesterday they were all abuzz as the government reported retail sales fell 2.8 percent in October. The narrative became the idea that consumers were snapping their wallets shut, and were now officially not spending. Although consumers did slow spending in October, the biggest drop in retail spending came from a 12 percent drop in sales of gasoline. Anyone who has filled up their tank lately can see that gas prices dropped more than 30 percent last month, and they continue to fall. Just like the impact of higher gas prices rippling through the economy, and impacting prices, and the perception of inflation; falling prices are rippling through the economy and making a decline in retail sales appear much worse than it is.

Warren Buffet has said, “When others are greedy be fearful, when others are fearful be greedy.” The media narrative today is doing nothing more than spreading economic fear. Every story seems to indicate that life as we know is going to stop tomorrow, and soon we will be standing in soup lines, and riding the rails!

There is no doubt we are in a tough economy, and it will likely stay this way well into 2009. That is the reality we all face, but a tough economy does not mean economic activity stops, it does not mean people stop spending all together, and we are just inches away from s Great Depression II. It does mean we need to manage our businesses better, keep our cost in check, and work harder to find new opportunities.

My advice, turn off the TV, tune out the financial press, and go to work on your business. We will all be better off in the long run!

President Franklin Roosevelt famously said, “We have nothing to fear, but fear itself!”  Warren Buffett, the Sage of Omaha, has said, “When others are greedy be fearful, when others are fearful be greedy.”  Although the current economic climate can make even the most bullish investors queasy, now is really no time for fear!

Over the last several months asset prices have taken a beating.  Stocks, bonds, real estate, and small businesses have all seen their values plummet.  There is no guarantee that prices won’t continue to fall over the next several months, although for long term investors things appear to be getting pretty attractive.  An article in today’s Financial Times raises that very question, is now a time to buy?  As Buffett says, “If you wait for the robins to sing, it will already be spring!”

No one should have any illusions about the difficult economic environment we will face in 2009.  It will require us all to manage our businesses well, and focus on the long-term.  However, if you have a strong balance sheet, and access to capital, you may be facing a once in a lifetime buying opportunity.  If it is within your power, don’t wait for the robins to sing!

There is a pretty wide chasm between the individual watching his 401k shrink, and the one wondering how he will keep a roof over his family’s head or food on the table. My focus on this blog has often been about the cold, reality of facts and figures that have no human face. Last month 240,000 faces lost their jobs, which brings this year’s total of people losing their paychecks to over 1 million people, a rough equivalent of the population of the region where I live. There is no way to tell how many more will lose their jobs in the next year, we can only hope the job climate gets better!

I am hopeful that we are near the bottom of this downturn, that there is light at the end of the tunnel, and we have more reasons to be optimistic about our near term future. Although an article in today’s New York Times reminds me that no matter how upbeat I am there are some who cannot see any light at the end of the tunnel.

Occasionally it is well worth our time to take a step back, and remember who really gets stung when the economy tanks. Everyone feels the effects of a slow economy, but there is a big divide between cutting back on eating out, and wondering how you are going to pay for groceries.

The U.S. Department of Labor reported this morning that employers cut 240,000 jobs last month, and revised September’s job cuts sharply upward to a loss of 284,000.  The unemployment rate rose to 6.5 percent, and some analyst are expecting it to continue to rise to within the 8 to 9 percent range in 2009.  The economy has lost 1.1 million jobs in 2008, which is on pace to equal the rate of job cuts in 2001.  The continued weakness in the job market is a pretty good indication that the U.S. economy is currently in a recession, and will likely continue to contract into 2009.