I did not have to search high and low for these, but here are four good economic signs and one direct observation. You are welcome to use this list to step away from the edge or as a simple reminder that it is people and firms taking action that will turn the economy around, not the government. There is growth to be had and people and firms are making it happen without the government.
5) Oil is so cheap (around $40 a barrel) that it feels free. Don’t believe me? Demand is rising again and inventory is not. We can and are driving and flying again with impunity (see more below).
4) Twitter raised $35 million in venture financing. Txt updates? Micro-blogging? During “depression-like” conditions?
3) Oracle has acquired more than 10 companies in the last 12 months and Cisco raised $4 billion in debt to make acquisitions. Yes, there are firms (and people) that aren’t levered up and are taking advantage of this recession to purchase rivals and innovators and undervalued assets. They are in fact growing their payrolls. They are efficiently deploying capital.
2) Nancy Pelosi’s husband and some of his buddies just put $30 million into a startup, minor-league American Football league. The United Football League (or UFL) is launching this summer and will play its championship game in Las Vegas over Thanksgiving weekend. That is a low-tech, purely domestic entertainment investment. What do they know?
1) I had to wait in line everywhere in Miami Beach last weekend. From our plane’s arrival (which was delayed because they did not have enough runways) to our attempt to snare a cab to our departure flight, where a line of black limos was waiting for beautiful people to head home and blocking taxi access. Yes, prices were down and RE there is getting crushed, but it was crowded and housekeeping, cabana attendants, beach combers, lifeguards, wait staff, and others were working. Which means managers, accountants, lawyers, web programmers, IT staff, and others were also working.
These are just a few small reminders that the world is not yet over. That perhaps we do not need to “rebuild” everything in America, and that people, acting as individuals and in concert as firms, will do the lion’s share of the work if the global economy is to find its way back to a growth trajectory.
February 26th, 2009 at 11:38 am
Good essay. What people seem to be forgetting is that markets — or the economy — is cyclical. It goes up, it comes down. The foundation of what we are experiencing now is normal, and natural (albeit made worse by some questionable decisions in the boom times — think of it like an extra cold, extra long winter that we didn’t properly prepare for — but it will end, and flowers will bloom again).
February 26th, 2009 at 3:43 pm
The old game is over, the cards are being shuffled, and a new game is about to start.
February 26th, 2009 at 4:29 pm
David, Miami is a unique place. Rob Lang and Mark Munro have a remarkable short piece on Las Vegas, which I’ll post soon which see it as a center of business connectivity. Miami is partly the same. Leveraging tourism into business and in Miami’s case art and food and design connectivity. That said, real estate prices there were blown way out of proportion. Looking at the Case Shiller Index, Miami ranks behind only NY, LA and DC in terms of appreciation over its 2000 base. Yes, it’s fallen 30 or so percent. It has another 30 percent more yet to fall. The question for Miami as for Las Vegas is can its underlying, emerging role as a center for tourism and connectivity, as well as Latin American finance, overcome the damage done by its over-bloated real estate economy.
February 26th, 2009 at 6:24 pm
I think that outside of a few heavily overbuilt industries (autos, homebuilding) things are not all that bad. Well… they weren’t bad until very recently.
But if you are in the auto or homebuilding industries… this IS the great depression! Annual rates of 9M new cars and 300k new homes are just stupid low.
The good news is that those rates cannot possibly go on forever. Simple population growth ensures it. Cars break down. People have families and need a home.
Regarding oil, weird things are still going on in that market. It is not clear to me that oil futures and gasoline futures are in any way aligned. They don’t move in the same direction, probably because refiners aren’t making any money, and are allowing their capacity to diminish as a result, which can send oil and gasoline futures in different directions.
March 2nd, 2009 at 11:44 am
Fascinating piece and a couple of comments:
5) Oil – the price of oil has always been difficult to actually understand. It is a commodity whose price is entirely driven at the margin. Will the demand for oil in India and China continue to grow at exponential rates, or will the depression cause consumers to pull back to where price cliff dives? Will Iran, Russia and Venezuela need revenue so badly that they pump more oil at lower prices just to support their policies? How much longer will it take for the contango to work it’s way out of the system? Finally, oil might be cheaper, but the price of gas and heating oil have not dropped to where the savings are being enjoyed by the consumer and acting as a stimulus. It is not reflective of a return to boom times.
4) Twitter is a fascinating case study, but it’s almost the exception which proves the rule. Twitter is experimenting with business models based off referrals-to-sales. e.g. Famous blogger recommends a book, if the book sells, said famous blogger and Twitter split some percentage of the sale price. Second interesting point, Twitter has very low burn rate. I believe they only have about ten employees, so $35M provides a very long runway and money for advertising. Finally, Twitter was funded by top tier VCs. Top tier VCs have had no difficulty raising funds. Accel raised a new pool of liquidity in November! I’d have to go and research the exact numbers, but I’d bet it was $500M+. There is plenty of money for proven quality. That is not reflective of the end of “depression like” times, that is intelligence investing in good ideas that need more time to innovate applicable business models.
3) Oracle is an interesting case. Times in the software business are changing. At sometimes you grow by innovating and other times, big fish grow by eating little fish. Oracle is growing their innovation by eating those with interesting ideas. But this is not new. Oracle has been acquiring between 10 and 30 companies a year for the last four years. Cisco is even more interesting. Cisco has and had about $27B in cash and cash equivalents and short term assets on their books on their books (http://finance.yahoo.com/q/bs?s=CSCO&annual) prior to their debt offering. If you have $27B and you sell bonds for $4B, that’s hardly indicative that credit markets are easing. There’s an interesting question about why you’d do it, but not whether you could.
You numbers 2 and 1 I have no insight into, but I wouldn’t take the other 3 as an economic indicator that times are improving. Times are changing, yes. And while change benefits some, it will crush others.
Thank you for an interesting and though stimulating piece, now I really need to get back to work.
August 20th, 2010 at 4:01 am
Assuming you got 30′000.- USD, can anyone share a solid strategy how to invest?