You Just Have to Look Outside

October 19th, 2020

One day last week, my wife and I were up early.  We turned on the television and put on the news.  The weather forecast was on.  With confidence, the weather forecaster said, “It will be a great start to the day with rain moving in late afternoon.”  My wife looked out the window and said, “What is she missing?  It’s going to rain any minute.”  I left for work and, sure enough, within 5 minutes, it started to rain.  I called my wife and we had a good laugh about it. 

Later that night, we were talking about the weather forecast.  I told her I wanted to turn it into a blog but needed a hook.  She said, “Sometimes, you just have to look outside.”  I am sure the fancy weather models showed rain moving in late in the day.  It did not take a fancy model to look outside and see the dark clouds.  It certainly did not take a meteorologist to predict it was going to rain soon.

We are inundated with data and messages.  The amount of information available to us is staggering.  All that information can prevent us from seeing what is really going on.  We also allow so-called experts to guide us.  They suffer from information overload as well.  Take a trust but verify approach with experts. 

In this work from home environment, it can be tempting to rely on surveys to see how your customers and employees are doing.  They are a tool, just like radar.  But, just like radar, they might not tell the entire story.  If you do not look outside the spreadsheet and slide presentation, you might miss what is going on.  Don’t get caught in the rain. 

Reach Out to Someone

October 12th, 2020

I was recently in a store looking for something my wife needed.  Of course, the store I went to did not have the item.  I was in line and called my wife.  I got off the phone and an older woman in front of me in line (properly socially distanced of course) said, “Excuse me, I overheard your conversation.  You might want to try going to…”  We have a 3-minute conversation about the state of the world.  She ended the conversation by saying, “Thank you for talking to me.  I enjoyed our interaction.”

I know nothing about this woman’s life other than what I can speculate about.  I came to the conclusion that she was probably lonely.  We are entering into our eighth month of partial lockdowns.  I think we are all feeling a little lonely.  We are all grasping for hope for a treatment or vaccine, something that ends this pandemic and gives us our lives back.  It seems like that might be a long time away. 

When the lockdowns started, there was hope.  It was going to be a few weeks.  Then we had to wear masks for a few weeks.  In Ohio, the governor said there would be a mask requirement for 3-4 weeks in July.  It is October and we are still wearing masks.  Some areas are starting shutdowns again.  People are losing hope. 

Call someone you have not talked to in a while just to check in.  See how they’re doing.  Ask if you can help.  Give someone a little hope.  We all can use it. 

Don’t Miss the Boat

October 5th, 2020

I recently took boating classes.  (I digress.  I am not generally in favor of more regulations, but it boggles my mind that any yahoo can drive a boat with no training.)  I was talking to a good friend and experienced boater.  He told me the first rule of docking: “Never try to dock a boat at a speed faster than you’re willing to have your boat hit the dock.”  This time-tested advice is true in boating and is a good analogy where we are in the economic recovery.

I sense that fear is building in the economy.  Questions are being asked.  Is a second wave of coronavirus coming?  Will more lockdowns occur?  When will we have a vaccine?  Are there going to be more riots?  Are the elections going to be a disaster?  (If you’re not scared after the debate, you’re lying.)

Layoffs are increasing.  Banks are reluctant to lend to new clients.  All this adds up to an economy stuck in neutral that might even start to go backwards.  If your business made it through the first wave of coronavirus, you are being careful not to crash it in the second wave.  Everyone is proceeding cautiously.  Caution is good when you are docking a boat.  Caution is sometimes necessary when running a business.  But when every business is cautious, the economy slows down.  My gut tells me we are entering a period of being inundated with bad news and talk of a recession.  Persevere.  The economy might be heading towards the dock but it will eventually start to grow.  Don’t miss the boat.  We will have growth soon. 

Pay Attention to Freight

September 28th, 2020


I will again recommend you subscribe to the Cass Freight Index email.  It is a free subscription and a tremendous source of information on the economy.  From the latest issue: 

For carriers, revenue per shipment (simply the expenditures index divided by shipments) trends have reversed and are increasing due to rising trucking rates, as there are real constraints on driver and industry supply presently. We don’t see much capacity entering or returning the rest of the year, so as supply/demand remains tight, expect continued growth in the average freight bill. (Emphasis added)

I have espoused enough on inflation.  Every good we purchase is transported to us.  We have all been spoiled by “free shipping,” especially during the pandemic.  There is a cost associated with moving goods and it is going up.  Therefore, the cost of goods is going up at some point (and Amazon will again raise its Prime membership fee). 

As the Cass report indicates, freight volumes are going up.  That is a positive sign for the economy.   The report also notes that an “inventory dump” is occurring on the West Coast.  If businesses have learned one thing during this pandemic is just in time inventory does not work when shutdowns occur.  I am sure there are a slew of consultants promulgating the value of safety stock and providing executives with fancy spreadsheets that show the cost of inventory vs. the cost of a lost sale.  The inventory build will continue.  That trend, along with supply constraints, will support the trend of rising freight rates. 

We Obsess With Precision When Trends Are What Matter

September 21st, 2020

I had my annual physical last week. Because of family history of heart issues, I take my blood pressure on a regular basis.  I reported my home readings to my doctor. 

Of course, the first test when I walked in the room was taking my blood pressure.  It was high.  The doctor and nurse said they would retake it at the end of the exam.  After my exam ended, they put me in “time out” for 10 minutes.  I had to sit and relax by myself.  I kept my phone in another room.  Ten minutes later, my blood pressure was “excellent.”  My doctor explained that the 120/80 blood pressure that is now considered normal was taken from a study where people sat for 10 to 20 minutes prior to the blood pressure being taken.  I wonder if the companies that sell blood pressure medication talk about that part of the study’s protocol. 

From an early age, we are bombarded with the importance of precision.  There is one correct answer on a test.  Questions we are asked require yes or no answers. We applaud scientists and pseudo-scientists (economists) for giving us precise numbers on topics that are difficult to understand like climate change and economic growth.  We stand in awe of their confidence when they report numbers that have decimal points to us. 

Trends can get lost in our quest for specific, precise answers.  Isn’t it more important for my health to measure my blood pressure over time than once a year at a physical?  Isn’t it more important to focus on the trend for the economy than a quarterly number that is reported out 3 decimal points?  Can anyone, let alone the government, provide a real GDP growth number that is that precise?   

Over these next several weeks, we are going to be inundated with facts and figures about the economy and about coronavirus.  You will be better served focusing on trends rather than specific numbers.  Anyone who reports a specific number with confidence to you has an agenda.

The US Fiscal Stimulus Response to Covid is Staggering and Growing

September 14th, 2020

I recently read a commentary from Gary Shilling, an economist.  Shilling wrote:

Fiscal stimuli alone equal 12.3% of U.S. GDP, the largest of any major country, according to the International Monetary Fund.

Wages and salaries are down 5% this year, but with all the government supports, total personal income is up 5%.

Not that I doubted Gary (He is excellent and worth reading.), I provided source links below.

https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#U

https://www.bea.gov/data/income-saving/personal-income

https://www.bea.gov/news/2020/personal-income-and-outlays-june-2020-and-annual-update

Keep in mind a few things:

  1. The fiscal stimuli referenced above is above and beyond “normal” government spending.  This doesn’t include social security, Medicare, Medicaid, defense spending or any other regular government spending.  That adds another 21% or so, meaning the government is now accounting for over one-third of our economy. 
  2. By all accounts, another stimulus bill is in the works.  This one is expected to be at least $1 trillion more.  Remember when “a billion here and a billion there and soon we’re talking about real money” was the saying about government spending?  Now we throw trillions around like dollar bills.  Honestly, I don’t think most people (including me and I’m a borderline economics nerd.) can comprehend these numbers.
  3. When has a government program ever been cut?

The best way to get out of this mess is growth.  For growth to occur, we need population growth and an environment that encourages risk taking.  We have neither.  We also have two political parties willing to spend right now.  There is no traditional conservative voice with any clout talking about reigning in spending.  Ugh.

The spigots in Washington DC are open.  I don’t see them being shut off anytime in the foreseeable future.  We won’t know when the well runs dry until it is too late.  That is a scary thought. 

The Energy Inside Schools is Contagious

September 8th, 2020

Our son recently started high school.  He’s going half days with half the school.  Despite the limitations, the experience is energizing him.  While I am sure there will be days he dreads going to school, right now he is excited to go. His excitement energizes us. 

I have always been amazed at the energy within schools.  I have volunteered in schools.  Every time I leave a school, I feel better than when I walked in.  Kids are inquisitive.  Kids know how to have fun.  Kids want to get better.

So how did we lose that spirit?  Why do adults dread going to work?  How do we create work environments that replicate the energy in schools?  If work environments were more welcoming, productivity would increase.

As I (and many others) have written, the biggest positive of coronavirus is it gives us a chance to do things differently.  Let’s take a lesson from schools and make work environments more positive. 

There’s No Inflation? Really?

August 31st, 2020

For years, I have been confused by the government continually telling us there is no inflation.  Last week, the Federal Reserve committed to low interest rates, with some members even saying they will keep rates low even if they start to see signs of inflation.  My question to them:  what data do you look at that shows no inflation?  Have you looked at lumber prices? 

Rising demand has pushed up the cost of the lumber needed to build new homes, and framing lumber prices have increased more than 110% since mid-April, according to a new report from the National Association of Home Builders. Lumber prices dipped in the earliest days of the pandemic, but quickly recovered and then some.

“[The association] estimates that these recent gains have boosted typical new single-family home prices and apartment prices by approximately $14,000 and $5,000, respectively,” according to the report. “Without increased domestic production and reductions in Canadian tariffs on softwood lumber, these higher input prices will slow the market.”

https://www.globest.com/2020/08/24/high-demand-for-new-homes-fuels-surge-in-lumber-prices/?slreturn=20200730091133#:~:text=Rising%20demand%20has%20pushed%20up,quickly%20recovered%20and%20then%20some.

This is but one example of inflation I see every day.  Health insurance continues to rise.  Food prices have gone up.  Heck, even gas prices are up significantly over the last few months.

Solving our government debt problem only has a few possible solutions: raise taxes significantly, cut spending significantly, default, or inflate the debt.  It is becoming very clear which option our government is choosing.  Dust off the inflation playbook.  You’re going to need it soon. 

The Law of Unintended Consequences Strikes Again

August 24th, 2020

The federal government responded to the coronavirus pandemic with fiscal stimulus (loans to businesses, cash grants to citizens, delaying tax payments, etc.) and monetary stimulus (cutting interest rates, buying bonds, etc.).  While it appears the government’s unprecedented actions have stopped a full-blown depression, at least for now, I fear the lasting effects of its actions.

Prior to the pandemic, entrepreneurship was already in decline in the US as measured by the creation of start up companies and the size of companies most Americans work for.  

The pandemic will further exacerbate this trend.  Would you quit a job and start a business today?  Even if you are willing to do so, would a bank lend you money?  In good times, banks like to lend to people that don’t need money.  In bad times, this statement is even more true.  Banks are bracing for huge defaults later this year.  They are not going to lend to startup businesses.  That means the capital necessary to start a business becomes more expensive.  More expensive capital means lower returns.  That makes starting a business less attractive.  

The fiscal stimulus provided by Uncle Sam is being done with borrowed money.  At some point, that money needs to be paid back.  That means higher taxes or dramatic spending cuts.  I don’t see our politicians of either ilk having it in them to cut spending.  That leads us to higher taxes.  Who is better equipped to pay higher taxes and has the pricing power to pass on higher prices, large companies or small companies?  Advantage: large companies.  

Interest rates are at record low levels.  That favors companies (and people) who have good credit.  That does not help companies or people who have poor credit.  Current SBA 7-A loan rates, a popular government loan program for small businesses, range from 6 to 8%.  https://www.fundera.com/business-loans/guides/sba-loan-rates

Alphabet, the parent of Google, just sold $10 billion in bonds yielding 0.8% (yes, 0.8%) for seven year maturities and 2.25% for thirty year maturities.

https://www.washingtonpost.com/business/on-small-business/alphabet-sells-largest-corporate-esg-bond-at-record-low-yields/2020/08/03/f483a1de-d595-11ea-a788-2ce86ce81129_story.html

Guess who has the advantage again?  

Dynamism is what separated the US economy from the rest of the world over the last 75 years.  Creative destruction allowed startups to thrive and become large companies.  With less startups, we will have less creative destruction.  The government needs to create programs that encourage startups and reward risk taking.  If that does not happen, the US economy will stagnate.  

The Politicization of the Pandemic. Just the Facts, Please.

August 17th, 2020

Last week, the Mid-American Conference (not a major conference), the Pac 12 (major), and the Big Ten Conference (major) canceled fall sports, specifically football.  When the Ivy League canceled fall sports a month ago, I thought it was only a matter of time before others followed.  If the affluent Ivy League students are at risk for covid, how can we let the major colleges play with teams that are generally less well off financially and more African American than Ivy League teams?

Trevor Lawrence, a star player for Clemson, wrote a passionate plea asking for the season to take place.  You can read excerpts of it here.  Good for you, Mr. Lawrence.  https://www.al.com/sports/2020/08/trevor-lawrence-pleads-to-play-amidst-reports-college-football-to-be-canceled-wewanttoplay-trends.html

To state the obvious, we live in a very politicized world.  It is ridiculous that we have allowed our politicians to politicize a pandemic. 

First Trust, an investment firm headquartered in Chicago, puts out a weekly covid tracker.  (Full disclosure:  First Trust’s economic team, led by Brian Wesbury, leans to the right politically.)  I encourage you to read it and subscribe.  Use the data to make up your own mind as to the risks of covid to different population segments.  We need to stop letting politicians and the media dictate the narrative.  We, the people, matter.  https://www.ftportfolios.com/common/contentfileloader.aspx?contentguid=43588edf-b720-4a29-94a0-9c00883975e8