Relevant and even prescient commentary on news, politics and the economy.

Quote of the Day, Economic Recovery Edition II

David Wessel goes to a familiar source:

One big reason is that his efforts have made borrowing easy for big companies, those that can sell bonds, but not for consumers or smaller firms that rely on banks to borrow. “If you’re a large corporation relying on capital markets, the Fed and Treasury saved you,” says Charles Calomiris, a Columbia University economist. “In the other economy, the real engine of job creation, the banks aren’t lending and bank capital is still very scarce.”

Stuffing pension funds with GE Commercial Paper has never been easier. Creating the next GE (a working model this time?): a lot more difficult.

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I Got your REAL State of the Union right here

by Daniel J Becker (DOLB for the rest of you)

Well, I thought being tonight is the big night for the President I would give my version of the SOU. This is an update on the flower shop. For any new readers, these are real numbers from an honest to goodness small business.

As you can see from the chart below, or maybe not, I don’t need a loan. I don’t need a tax break. I could use a real national health plan as the medical for this year again, including premiums hit $15K (16.5 and 17.7 prior 2 years). I have a high deductible plan that increased from $6471 in ’06 to $7195 in 2009, 11% up.

No, even if you did the cash for clunkers again, I don’t have the extra cash flow to take a loan. Though the delivery van has 235K miles on it. It’s a 2002 Caravan.

All my loans are fixed, so I’m not worried about deficit fueled inflation as it relates to my monthly payments. My property, even with the 15% loss in the last 2 years based on tax evals is still 1.69 times more than my mortgages and I only have 15 or less years to go.

We’re working with less people at the shop and have layed off our manager/worker (he’s fast, a good designer and can carry the load when we’re not there) to 1/2 time. We’re watching every penny as to inventory, utilities, insurances (I’m getting money back on the WC because payroll is down).

What I’m worried about is this:
Keep in mind, that we were considered a larger than normal shop. If we’re doing this bad, imagine how the wholesalers and everyone else down line are doing. That’s the real trickle down folks!

There is only one thing that will fix it: CUSTOMERS!

It’s not that people are not trying to spend, it’s that they really have run out of money. Note that the credit card sales continued to rise for a year after the account and cash sales started to decline.
The people tried to spend. Now they can’t.

So, let me be clear to the Congress and the President: I NEED CUSTOMERS…WITH MONEY!

Update:  A commentor asked for some more data. 
Ins, Maintenance, Rent, Utilities, and Property/inventory taxes are 13% of gross. Payroll is 25% Payroll is down 14%, but gross is down 16%. We can cut payroll more, but the issue becomes my sweety having some down time. (please no lectures). Payroll was 25% of gross last year. 

Supplies (what we sell) were 48% of last years gross, this year 47%.

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Small Business topic


H/T Naked Capitalism for this New York Times article concerning the loan program established in May to help small businesses as part of the stimulus program.

With $255 million, the program is prepared to make about 10,000 loans of up to $35,000 each. As of Monday, the agency reported that only 1,127 loans, totaling $36.8 million, had been extended.

While the agency maintains that the program is on track, some in the banking industry say the banks are moving slowly because they have little incentive. “There’s not a lot of profit motive in a $35,000 loan stretched over six years,” said Paul Merski, chief economist for the Independent Community Bankers of America, a trade association.

Bob Seiwert, of the Center for Commercial Lending and Business Banking at the American Bankers Association, says “stringent underwriting standards” will require as much work as larger loans, making these even less economical.

Rdan here. What is a small business? is discussed here at Angry Bear and Small Business link is here,

SBA loans to big box stores ,

small business as an American dream ,

and the real world of small businesses ,

and gov intervention discourages local agricultural development.

Update: kharris points us to Grameens Foundation. Especially for the really small business.

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The myth of the argument is in the conflation

By: Divorced one like Bush

I am responding to a post put up at Crooks and Liars: The McCain campaign small business myth.

It presents that the myth is found in the number of small businesses in existance and what percentage of them earns $250,000 or more. I love C and L, but this is just totally missing the ship (notice I did not say boat).

The lie to the McCain position on Obama’s tax plan is not in the number of small business in existence or in the number of small business making over $250,000/yr.

The lie to the McCain position is in the conflating of business income with personal income. An S corp or a solo proprietorship business or any other similar configuration that is paying income tax on $250,000 is paying income tax on that money not because the business made that income and is keeping it because the business had plans for it. No, no, nooooooooo. It is the owner of the income generator that made that income and they made it as personal income. It is the amount of money remaining AFTER the business did it’s complete business thing for the year. It is the money remaining AFTER the business spent on expanding jobs, or buying more equipment, or marketing, or adding new facilities, or expanding to China, or hedging its energy costs or PAYING IT’s BUSINESS RELATED TAXES. It is the money that the owner of the income generator walked out the door with at the end of the year and then proceeded to use on their personal needs like: food, housing, transportation, oil futures, corn futures, GE, Haliburton stocks, boats, collectable cars, art, entertainment, lawn care, maid services, tuitions, security systems, etc.

In fact, anyone who has started a business has experienced that moment when their accountant calls them up and says: “You owe income taxes.” The rest of the conversation goes something like this: But, but, but, but, but…how can I owe taxes when I have no money left? “Well” responds your accountant, “did you buy food?”. Why yes I did, but I have nothing left. “Then the money you bought food with is the income your business paid you and now you owe Uncle Sam”. At that moment your stomach is getting ready to pay Uncle Sam as your legs are giving out. Later on, when you are humming along and you are taking $250,000 out of your S corp because you had no more expenses the true nature of you spirituality shows through. Either you think your taxes are too high, or you understand the benefits of paying taxes but think that spending more than the rest of the world combined on military is crazy.

Why the pundit’s on the Obama side have not pointed this conflation out, I do not know. Do they not believe in education? But, focusing on the number of businesses when the issue is personal income only allows the presentation on taxation and income to continue in the same vein as it has been continuing since Reagan. It is a continuation of the same argument that has allowed us to accept that Walmart cheap is the same as more money in your pay check; or that the increased cost of your benefits are the same as more money in your paycheck; or that the rising share of income going to pay all your taxes owed is the results of some waste and greed and civil service unions and teacher unions and not the results of less income earned from your labor; or taking a pension fund away is OK because it was not money earned but money gifted.

Yes, I’m an S corp, I was a sole proprietorship and the other business is an S corp.

If we don’t stop watching the shells we will never win the game of find the pea.

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Discretionary Income? Maybe, but it ain’t being spent (or maybe it already is?)

I am member of AAII (American Association of Individual Investors). They send out their Investor survey results every week. This weeks:
Bullish 25.58% Long term avg. 39.3%
Neutral 21.71% Long term avg. 31.9%
Bearish 52.71% Long term avg. 28.8%

We have all read exuberant stories about how wonderful Black Friday was. The WSJ is doing it’s part to promote sales prior to the event:

For those seeking a second opinion on the gloomy holiday spending outlook, here it is:A survey of 2,570 Americans with household incomes of more than $35,000 suggests that the expectations of weak holiday sales are overblown.
“The doom and gloom is overstated. Unemployment is low. Real incomes are healthy,” said Michael J. Silverstein, a BCG senior partner. “Consumers overall predict that this holiday season will be just as good, if not better, than last.”

Unfortunately this is all based on a month old survey. A time when the $3.199 I just paid today to fill the oil tank did not exist. The schizophrenic side of WSJ had this to say the next day, 11/16/07:

Fred Crawford, managing director at Alix Partners, a turnaround consultant, says: “The reason so many retailers are coming out aggressively is that they’re expecting a bad season.”

There is a nice little chart of the expectations of the big retailers with this article. They’re not to excited.

I asked at a forum only for florist and related business: How’s it going now that Thanksgiving is past?
Some responses:

“We hear a lot about how bad the US economy is doing but things are’nt great in Europe either. Retail suffered a lot in 2007 and Ireland was no different .Some times during the year I felt like tearing my hair out . It was really quiet during the summer but picked up from Sept and Nov was brilliant for me.”

“Actually, it has been the slowest Sept. and Nov. that we’ve ever had. As I said in a previous post, maybe our moving has confused customers or it’s the economy. It is really scary to have just made a hefty investment in a new building along with moving and renovation costs.”

In our area, we can tell that gas prices are affecting sales – both holiday & everyday.We filled up 2 vans yesterday at @ 3.15/gallon (OUCH!!). My local tracking trends tell me that when customers have less money to spend, they are looking for more ‘longer lasting”, “higher perceived value” items. Generally for us, that means that or fruit baskets business greatly increases, and often our plant/poinsettia business increases. We will be cautious in our fresh flower buying….staying ahead of the game, but not in too deep!

Sales in Sept. were in the expected range but October was down significantly. November is not too bad but not great. Sure hope December brings better things or I will have to lay someone off.

Our November so far, compared to the last year’s:
Local sales: up 17%, Wire-in: down 25%, Wire-out: same. Actually, it was disappointing. We usually do 20-30% better than last year’s numbers; this year is our 3rd year beginning July. The problem was the average sales price. Compared to the last year, this year’s average sales price in November is 10% down. It’s so clear. Our customers are cutting back the expense. We will use this info to adjust our price point for Christmas, which is more important than November sales.

There is an even sadder story by a shop owner of 26 yrs in Kansas who bought houses, put kids through college etc, etc and is now thinking of closing because they can’t make it.

We used to have a full business district, 3 clothing, 1 shoe, 3 hardware, 8 restaurants, 2 convenience stores, 2 pharmacies, 2 flowershops, 2 gift, 1 childrens store, 2 grocery, Dollar General, Duckwalls, and 1 lumberyard. We are down to me, 1 gift, 1 pharmacy, lumberyard, 1 grocery, Dollar General, 1 convenience, 4 restaurants. I have heard that Duckwalls and the gift store are going out of business by Jan 1. We are down to one mortuary, used to have 3. MY TOWN IS DYING! Small town america is dying.

I worked in high school for a small family retail business, and the owner noted that such businesses were always ahead (by 6 months) of the national rhetoric as to the state of the economy. My shop peaked in the summer of 2006. This year even credit card sales are down where as last year only cash was off but credit card sale were up. We were off 3.4% for the year until August hit. We are now 7.8% off. People are not even trying to spend “discretionary income”.

Here is one article quoting the National Retailers Federation concerning Maryland:

‘‘Our annual survey showed our members to be very pessimistic this season,” said Thomas Saquella, president of the 600-member state retailers group. One-third of business executives who responded to the Maryland survey predicted sales decreases during the holiday season, compared with only 7 percent in 2006. Only one-third believed that third-quarter sales provided some positive momentum for the holiday season, compared with two-thirds last year.

Referring to the accuracy of prior surveys:

If the projections are that accurate this year, this holiday season would see the smallest gain since 2002. Sales that year increased nationally by only 1.3 percent, according to the retail federation.

Bloomberg had this to say yesterday:

U.S. consumers spent an average of 3.5 percent less during the post-Thanksgiving Day holiday weekend than a year earlier as retailers slashed prices to lure customers grappling with higher food and energy costs.

And, last but not least I dropped of the shop van at my friends repair shop this morning making an appointment for the personal van. He had today and ½ of tomorrow scheduled. The rest of the weekly chart was empty. He started building a new house this past March. Now he’s feeling the pinch cause he can’t sell his current house. The new house would have been paid in full if he could have sold the current house. Best laid plans….

My sweet keep complaining about being poor (I told her she had to choose between Celine Dion and 1 of her weeks at the beach). I keep telling her we’re not poor, we’re broke. She responds with: “And why did we buy this flower shop?”

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