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Optimistic Sign #6: Housing Starts Bottoming?


Today's big economic news was that February's housing starts--the number of new homes which began construction during the month--jumped in a big way from January.  One month does not make a trend, but a lot of people smarter than I think that housing starts are a leading indicator for when we enter or exit a recession.

The pessimistic counter-argument would be that housing starts have fallen almost 80% from the peak, and since they can't go negative there has to be a bottom somewhere.

Which would also be my point: there has to be a bottom somewhere.  We may be at that bottom right now, though we won't know for sure for several months to come.

You Are Hereby Sentenced to Life in California


Sara Jane Olson, the middle-aged Minnesota housewife and convicted terrorist, is scheduled to be released on parole soon and she wants to return to Minnesota.

The local police want none of it.  They want her to have to serve her parole in California, where she was tried and convicted of her crimes.  (Apparently it is routine for parolees to be allowed to move to other states if they want.)

Not because she's dangerous.  Far from it: she may have been involved in a violent militant group back in 1975, but by all accounts her radical impulses faded with disco and polyester suits.  Since then the wildest thing she seems to have done is maybe put a drop or two of Tabasco in her hotdish for the lutheran potluck.

Rather, as the head of the local police union said, "She should serve her debt where she committed her crimes."  In other words, letting her return to Minnesota wouldn't be punishment enough.  Justice can only be served by forcing her to live in California.

Minnesotans like to make fun of California sometimes (and I suspect the reverse is also true), but this is the first time I can remember a member of Minnesota's law enforcement system actually seriously suggesting life in California as criminal punishment.

Optimistic Sign #5: Retail sales bottoming?


Retail Sales statistics for the month of February were released this morning, and they are down only 0.1%.  Just as important, the January number was revised up (1.8% growth from the original 1.0% growth).  Some sectors were better than others, and car sales were among the worst.

This relatively stable statistic--still subject to revision of course--suggests that some of the fear we saw in the last few months of 2008 may be starting to subside.

Optimistic Sign #4: Wholesale Used Vehicle Prices Rebound


According to Calculated Risk, wholesale prices for used cars and trucks rebounded significantly in February, after a huge drop in January.  Indications are that buyers are making larger down payments and taking out shorter duration loans.  It appears that many people are switching from buying new cars to used.

I view this as optimistic for several reasons.  First, it shows that these durable assets (cars, that is) do have value and are not plummeting to zero.  That gives more confidence to both buyers and lenders that they're not just throwing their money down the toilet.  Second, it shows that there is still fundamental demand for vehicles despite the inventory overhang, and there is a price where people will buy.  Third, it indicates that the demand for used vehicles is matching the supply, and some of that demand will eventually spill into new vehicles as the supply of used cars diminishes.

Optimistic Sign #3: CEO Roundtable


Every month or so, I sit down with a small group of CEOs of other small technology-based businesses here in the Twin Cities.  It's an informal place to talk through our problems, share experiences, etc., in a confidential and safe environment.

This month we started the meeting by going around the room sharing our views of the economy; naturally I shared my determination to seek out optimistic indicators no matter how foolish it makes me seem.  Pretty much everyone was gloom-and-doom.

But at the end of the meeting, one of the other CEOs made an interesting observation: "Remember how we started the meeting talking about how bad the economy is?  Isn't it interesting that nearly every one of us said that our business right now is picking up, and some of us are doing better than ever."

Optimistic Sign #2: Buying a Suit


This week, for the first time in about ten years, I had to buy a suit.  I only need to wear a suit a few times a year, and I had been living off the inventory I collected during my investment banking days.  That inventory finally ran out, so back to the menswear store I went.

(Incidentally, the new suit today, in 2009, cost less than a new suit of similar style and materials ten years ago even though it had to be special ordered.)

While at the store, I happened to chat with the owner and asked him how business was doing.  His response: January and February were brutal, but things seem to be picking up just a little now.  (They did have some deep discount items, but it was end-of-season stuff like sweaters.)

High end men's clothing is a very discretionary item, so when that starts to tick up, it means that some people are finding the money to update their wardrobe, or that they can't defer it any longer.

Optimistic Sign #1: Media Defaults to Pessimism


I've been optimistic that we're nearing the bottom of the recession since January 2008.  Long enough that I'm starting to feel foolish.

But you know what?  I've decided that I don't care.  My company is doing OK (never better, in fact), and the only way to deal with this murk we're in is to keep your head down and push forward.

So I decided a couple weeks ago that I would make a point of looking for signs that the economy is bottoming out, or even maybe starting to improve a little.  Maybe this is early, maybe we've got years to go before the recovery starts, but in the meanwhile I'm going to search for the signs of hope.

And someday the economy will recover, and when it does, you heard it here first.

On to my first Optimistic Sign: The Media Defaults to Pessimism

All through 2008, the media (and especially the financial media like the Wall Street Journal) wrote articles about looking for the bottom: how great the stock market prices were, the great deals you could get on a foreclosed house, etc.

Since January, however, I've noticed the tone of the articles change.  Now they say that things could get much worse, don't buy into a sucker rally, the recession will last much longer.

On NPR a couple weeks ago, there was an interview of a government official (I think it might have been Gordon Brown, Prime Minister of the UK) where the interviewee mentioned a forecast that the economy would bottom (that is, stop getting worse) sometime in the second half of 2009 and show some modest growth in 2010.

The striking thing was how hostile an skeptical the interviewer was to this pronouncement: "Really?  Do you honestly think we're going bottom out any time before the end of 2010?" (or words to that effect).

Remember, Gordon Brown does not know when we'll hit bottom.  Neither does the interviewer.  Nobody does.  We could be at the bottom right now, and we would not know it for months.

But the default position seems to have become that this recession will last at least until the end of 2010.  That's almost two more years of recession, and a recession lasting over three years total--exceptionally long in postwar history.  Is it possible?  Sure.  Plausible?  Maybe.  Certain?  No way.

I consider this irrational gloominess (the opposite of Alan Greenspan's famous irrational exuberance) an optimistic sign, if for no other reason than the pundits are always wrong.

But less cheekily, it means that we are emotionally accepting the fact of the recession which is an important step to moving on.  It's the moving on which produces a recovery.

Still Transitioning


I'm slowly getting the hang of this new blog software thing....This morning I finally discovered the comment moderation queue (so that's where all the comments went!).  I'm still fiddling with the site design, and plan to get a custom favicon up soon.

There was one complaint about the site design--I'm not sure if it's a browser issue, or someone complaining about my nonexistent graphic design skills.  I basically took the stock Drupal theme and added my "cosmic finger" banner and snow-covered font from the old site.  I tested it under Safari and Firefox, but I don't have easy access to a current version of IE (I have a ten-year-old copy, and this site sucks with that, but I'm not going to lose sleep over that).

The other thing I want to get working again is the live feed from my home weather station--which is only useful if you happen to live in my home, but cool nevertheless.  So expect to see some more tweaks of the site design: this is a work in progress, and I welcome all comments.  I'm even going to turn off moderation, at least for the time being.

So, How 'Bout That Economy?

I've been optimistic that we're near the bottom of the economic downturn since the beginning of 2008.  I'm starting to understand that I don't have a clue when this will end (but neither does anyone else).  To give myself some credit, however, I was also early in calling the start of the recession (back in February 2008, I wrote that I thought a recession started between November 2007 and January 2008, which was dead on and months before the Conventional Wisdom said we were in one).

In retrospect, what I wrote a year ago ("....the recession began sometime between November and January....we're probably close to the bottom right now....") seems hopelessly optimistic.

All of this is a way of saying, don't believe my opinions about the economy, I don't have a clue.

But I do have some observations:

  1. This is already the worst economic downturn since the early 80's, and there's a good chance it will be the worst since the Great Depression.  But we're nowhere near as bad as the Great Depression and I see no reason to assume it will get that bad.
  2. As bad as the recession of the early 80's was (and it was the only one on par to what we're going through now), it also ended surprisingly fast.  At least surprising for the people in the middle of it.
  3. The Great Depression capped a whole series of Depressions in the 1800's and early 1900's, some of which were almost as bad as the Great one.  The economy really is different (more stable) now, as compared to the Gilded Age.
  4. Therefore....we will come out of this recession, and maybe sooner than the Conventional Wisdom thinks.  Right now the Conventional Wisdom is that the recession won't end until the end of 2009, and some are pushing it into 2010 or further.  The CW will always see the end of the recession 6-12 months in the future, even when the recovery is already beginning.

Fred Wilson wrote yesterday that he sees a fundamental shift in the economy going on: the big old "blue chip" companies are often the ones who got themselves overleveraged and in trouble, and the younger, smaller companies are taking over.  I think there's a lot of insight there: over the past 20 years many mature companies (GE, GM, etc.) turned themselves into "growth" companies by developing financing arms, which essentially goosed their growth with leverage.  The real growth companies (ones whose core businesses were growing) saw no need.  The new "blue chip" companies are ones like Google, Microsoft and Cisco, with dominant market positions and cash-rich balance sheets.

In my own business, I've observed that the world is definitely not coming to an end, and in fact innovative companies are taking market share (a statement which--fortunately--describes our biggest client).  There is still consumer demand, especially if you have a product or service which people like at a good price.  There is still room to compete, especially on value and no-gotcha services.

So while I'm still optimistic that we may be nearing the bottom of the recession (and I'm going to stay optimistic no matter how long it takes!), in practical terms I'm keeping my head down and focusing on business.  If enough people do the same, this recession will be over, and sooner than we all think.