It’s been a long 3 years of Recession but recent signs seem to indicate that life improves quietly and in small increments. The latest indicator of generally positive news is unemployment. The job situation seems to be improving, generally. And this is great for the consumer part of the market. But by how much? If one is to look at te last three years of commodity prices, one would easily observe that it costs substantially more, today, for the same products and services we purchased 4 years ago.

So, in times of reduced incomes, shouldn’t market demand actually push prices lower? Anyone going out to eat or drink will attest to the fact that prices have risen substantially. Yet, if people are getting rehired, and likely at lower pay rates, how can this be sustainable? This paradox leads me to believe that sales volume in the consumer area will not rise as rapidly as the decrease in unemployment would lead us to hope. In the same vein, I believe financial services companies will do still better than they are now. Newly employed consumers will at least try to pay off their debt and that should swell financial institutions capital accounts although it may decrease their income-from-interest-charged-accounts. Understandably, the FED would be looking at raising interest rates. Financial institutions will be getting more of their own cash. But will this affect consumer interest rates? It shouldn’t because these institutions have been borrowing at near )% interest for the past four years. But why miss an opportunity to raise rates? Only consumer demand can control this, theoretically.

But is all this a sign that the economy is improving? I think that it is. More people at work and more development projects are signs that employers are investing. More people with disposable income looking for something to purchase creates a market. The only piece left is to determine pricing and stimulate purchasing. Expect to see more deals and coupons as suppliers try to figure the market clearing price for their goods and services. After all, it is a new, post-recession market.

So, what’s different? I think that the main difference is how marketing goods and services will happen. The internet, through social networking sites, will play a key role in reducing costs and increasing accessibility to more focused and better quality target customers.

Look to social networking and cloud-based services companies to lead the tech sector. Infrastructure companies such as Cisco, Juniper, and Brocade are still trying to restructure and create efficiencies. Performance should be expected to be flat until their internal reorganizations are better aligned with the market.

I don’t understand oil and renewable energy. I think the US mis-stepped in this entire sector. But anyone who has solid facts to enlighten us in this area, please send and I will update this posting accordingly. Yet this sector continues to amass record profits in the old-school model.

As expected, the most recent indicators of inflation showed the Fed Chairman Bernanke downplayed inflationary pressure. Although the number came out to just a little over 3%, many of us are feeling it to be more in the 12-25% range, down here in the trenches, on Main Street.

And this is normal if you think about it. Because of our weak economy, the value of the US dollar has decreased relative to other world currencies, which pushes prices upward - your dollar buys less product. One clear example of this is Starbucks and Peet’s Coffee and Teas. Walk into any national chain supermarket and you will notice that, although the price of a bag of your favorite coffee may have gone up a just a little, you are no longer picking up a 16 oz bag (that’s 1 lb). The bag you are picking up is only 12 oz (3/4 lb). Dinner out is costing more as well, and so is gas, cable tv, insurance, and pretty much everything else.

There’s a great, and heartbreaking article, that I found on Google - a slice of life piece from the perspective of a trucker: http://www.startribune.com/opinion/otherviews/126619568.html

In any case, prices were raised by manufacturers and retailers because base commodity prices went up, in my opinion. This, in turn, puts pressure on consumers to find more cash to buy the things they need. As a result, they need to work more. And, this is where our trucker comes into the picture. So, this leads me to wonder if prices will need to rise again?

The fully-burdened costs of production need to be addressed not only the cost of base inputs. See, it’s not only base commodities and manufacturing processes that are utilized in calculating the cost side of profits and margins. A fully-burdened cost also includes payroll. Then, the cycle will be complete. I believe that it is at that point that the economy will stabilize for the status quo. But, wait, there’s more. Unemployment will then need to be addressed. Somewhere in there, I would also expect taxes to rise so that We The People can start paying back that $14 trillion in debt.

Which also leads me to think that if we are to avoid a years long debate on what the adequate wage hike should be, we should consider the full spectrum of what this economic downturn has caused to the dollar. Living wage will need to be adjusted, so will incremental tax increases, health care, interest rate hikes, dollar devaluation, and a still uncertain commodities market. And, luckily for corporations, and not so much for the average person, this is all occurring in a context of high unemployment - meaning that the supply of labor is higher than demand, a wonderful environment for keeping wages lower.

Therefore, it’s easy for me to see that a pretty heated debate on labor can be heading our way in the near future.

And this is why the USA needs to focus on job creation more than ever before. May I suggest a few favorite areas? Let’s grow alternative energy, healthier, more natural, food coming out of the food chain; let’s buy more Made-in-the-USA products; and let’s stop trying to prop up old technologies, old production methods, and old industries. It’s time for everything new! Why? Because it make things more efficient, creates basic infrastructure building and maintenance jobs, and drives new demand.

One more thought: capitalism requires growth to fuel itself. As I predicted years ago, our demand for stuff peaked and we still drove the consumption side of things instead of driving preservation and saving. So, we crashed. Maybe next time, we can think ahead and not be so reliant on the same old growth. Economic peaks could be a time for consumers to look inward, clean the house, so to speak, pay off debts, simplify. And companies could look at double and triple digit growth as a wonderful gift from hard work and innovation that is inherently temporary and should plan long-term and in cycles that include not only growth but planned consolidation and stabilization as well. Who cares if investors want to see constant an unbelievable growth? Responsible corporate and social governance is also about keeping business and people from falling into bad situations. A growth-focused management perspective does not accomplish this. We need to be more strategic and think a little above the bottom line as the economic cycle grows and contracts.

This economic downturn was particularly hard on high tech workers - those who jumped on the start-up bandwagon and rode the stock option roller coaster to fantastic heights only to discover that the price of homes were right there beside them, rising higher and higher as salaries rose higher and higher. And went it all came down, these startups-turned-S&P-500 leaders shed their personnel as fast as they took it on. Many who lost their jobs were a decade or two of service deep into their employers. But these employees traded security for cash.

It’s interesting to note that two generation ago, employers offered pension plans and worked towards the goal of life-long employment. The New World companies of high tech made no such promises. But they promised a lot of cash. Well, you get what you get.

One last thought: Many former high tech workers that managed to squirrel away some of their stock options had enough confidence and experience to start up their own businesses when they left their jobs of 15-20 years. The vast majority of those businesses that are still left standing are small businesses. And I salute these entrepreneurs because they were the bravest of all. First, they started businesses in a deep recession. They chose to provide for themselves instead of seek government help. They hired or protected jobs while others were firing. And they invested in their communities at a time when even the banks would not do it unless the government gave them free money and a strict order to do so. They took one hit after another: the first, when they left their jobs. They took another hit when they bet all they had to collateralize their SBA loans. And, they may take another hit soon because it’s tradition to first protect large enterprise in America to the detriment of small business that actually employers more American workers. Imagine such a high tech worker-cum-entrepreneur leaving her/his job, betting their home, opening a business, hiring a few employees and then being run off Main Street because a large chain establishment signed a long term lease with a better rent terms for the landlord. For the entrepreneur, it would be a devastating triple loss.

So, when we press President Obama to pay more attention to small business, it’s not just about the loans and the tax credits. It should be also about the entire situation and environment faced by small businesses from predatory lending and leasing practices, to preventing day-to-day vendors from requiring the lifting of the corporate veil at every turn and requiring personal guarantees on everything, to being more strategic about neighborhood development projects that affect small, independent businesses. In other words, small business needs to be at the table, so to speak, when major policy decisions are being considered at local, state, and federal levels. And all manner of small businesses should be considered, not only those in the $5 million to $650 million range.

It’s time to stand up for change. It’s the only way we will be able to afford the inevitability of more rising prices and rising wages. I believe this is the signal of the true bottom of the market. And the true turnaround will not happen until all these Necessary Adjustments are fully addressed.

I was watching Bloomberg Television, a few minutes ago, and caught FED Chairman Ben Bernanke’s comments on inflation fears in the US. He assured everyone that price stability is top of mind for him and his team and there is no desire to have prices rising, quoting a 1.5 to 2% inflation rate. To substantiate this rate range and add more context to the concern over inflation (in the context of a discussion on further quantitative easing), please see the following article.

More to the point is this article on Yahoo!.

From Main Street, particularly in the area of food and beverages, it seems difficult to believe that inflation is only at 1.5 to 2%. For example, regular readers of this blog have seen the devastating effects of adverse weather and economic policy on the coffee industry. For the second time in only one year, major coffee roasters and distributors, namely the owners of the Dunkin’ Donuts brand, as well as Starbucks, have announced a retail price increase. We’re already paying $5 for a specialty latte at Starbucks!

Likewise, small bakeries are falling due to rising primary costs. Anyone watching the commodities markets knows that milk, eggs, and flour have all drastically increased in price over the past year and a half… not to mention, meat, poultry, many fish, and seafood, fruits and vegetables, and grains. Maybe this 1.5 - 2% inflation rate is averaged across many sectors of production. Who knows?

As far as I can see, with persistently high unemployment into the foreseeable future and out-of-sight inflation in basic food, it is clear that inflation may need to be addressed more urgently on a sector-by-sector basis, starting with those sectors most important to basic survival. Somebody needs to look at basic food items. Now.

One easy solution would be to raise the value of the US dollar. But this brings with it a whole bunch of problems. The US has been focused on keeping the value of the dollar as low as possible in order to make its exports more competitive on the world markets. It also is trying to balance out the ill-effects of China’s manipulation of their currency. The good news is that China has started to raise interest rates to cool their over-heating economy - one more reason to consider letting the dollar float a little higher.

It is comforting to read that the FED Chairman is deeply concerned about pricing stability and it would be great if he and his team could take a closer look at basic foods - coffee, dairy, greens and grains - to help support a faltering Main Street and provide pricing relief to the general population which is still struggling with double-digit unemployment. It’s good strategy to look offshore for growth opportunities through export but let’s also keep a vigilant eye at home.

It amazes me every time I read a news headline or listen to what’s on the radio or TV when the market goes into a price easing phase. We are so heavily programmed into believing that a bull market is the only good market that it almost makes me sick to the stomach.

Why focus on the price of things? Why not focus on the value of things and their place in the economic cycle? This blog has been protesting the inordinate increase in commodity prices for quite some time, now. And, as with everything else on this gravity-ridden planet, whatever goes up eventually comes back down.

I’d like to remind everyone that the recent drop in commodity price PALES in comparison to their egregious rise over the past year. Take my favorite example: coffee. Last year the ‘C’ future contract for coffee was hovering around 120 to 150. Yesterday, it was as high as 217! Then, today, it deflated somewhat to 200, or so. That’s still an increase of 80 points, or 67%. Investors have little to complain about and importers have a little more room to breathe. This jump created quite the stir in the coffee roasting, distribution and retail industry (pardon the pun). Several retailers in coffee came to me inquiring as to how to best sell off their operations because costs are no longer manageable with the customer bases they serve.

I would imagine that similar concerns are arising in many other primary and secondary industries that import base commodities, like food production (requiring flour, eggs, milk, beef, poultry, etc.), metallurgy, etc.

Furthermore, this price adjustment can also be attributed to the rising value of the American dollar. Importers, in the USA, were cringing at the need to devalue the dollar. A weaker dollar buys less product in international markets. Again, the vast majority of coffee is produced outside the US, as is oil. So, as the value of the American dollar stabilizes to a naturally higher value, security values adjust accordingly.

Therefore, it’s not necessarily a bad thing for commodity prices to fall. They give local specialty businesses and manufacturers the ability to maintain employment and keep jobs in the US by keeping Costs of Goods Sold lower. In turn, this keeps the price of our export products lower and can even enable employers to divert financial resources to other parts of the income statement and balance sheet, a badly needed empowerment for local businesses.

Coffee is a commodity… like oil. And, these commodities are mined, if you will, in various places around the world, mainly outside of the US. So, the levers that enable inexpensive importing become vital to our capacity to move ourselves from one place to another and to wake ourselves up.

We are all painfully aware of the ever-rising price of oil. But, has anyone been paying attention to the price of coffee, recently? Those of us who follow the coffee industry have been sensing that Summer 2010 would be the season for serious upward movement in coffee prices. And, sadly, we were right.

There are many factors at play in setting world prices for coffee: consumer demand, for sure. But, there’s also local economic conditions, weather, and farming challenges. And, since approximately the second quarter of 2009, a perfect storm has been building.

At the time, the price for one coffee futures contract was between 110 and 120 per contract. From Q4 2009, through Q2 2010, the price basically held in the 130s. If memory serves correctly, the run up in price in early 2009 was due to adverse climate conditions in major coffee producing nations in South America and some bad weather in Indonesia.

Through the rest of this time period (to the present) other conditions have come into play. The price of African coffee has been rising as well. Top grade Kenyan coffee is nearly twice the price of other coffee around the world.

In anticipation of all of this, Starbucks raised their prices last year. And they did this in a smart and strategic fashion. They rose prices on the premium drinks but tried to keep the price of regular coffee drinks stable. I believe that there were a couple of main reasons for this. First, McDonald’s has become a major competitor and it likes to keep prices VERY low. McD’s can offer premium coffee at below market prices due to its buying power. And, it doesn’t focus on the “specialty” aspect of coffee. It is a retail outlet operation maximizing the value of its real estate. Coffee specialty operations, however, focus on making and serving the best coffee possible and charge a premium for this experience. You can see how different dedications operating in the same market can wreck havoc on business operations, niche marketing, and the bottom line.

But I digress.

However, this has a nasty effect on the market in general. It’s like having your local jeweler suddenly drop prices on diamonds. Although he/she would be willing to make a 5 or 10% margin on sales, the entire industry is built on a much higher margin in order to offset costs that other industries may not have. By one market player cutting prices, it creates a nasty downward spiral for everyone else and can decimate an industry.

Coffee is not just coffee. There’s the bottom of the barrel swill that is very inexpensive to purchase and there are a myriad of different quality grades leading up to the top 5% of coffee quality, designated as Specialty Coffee. Like fine wine, you get what you pay for. And, farmers and coffee co-operatives that produce and distribute raw beans carefully manage this grading around the world. The agricultural side of this industry, that mainly operates in developing nations, has been working very long and very hard at bringing the price of raw coffee to a level that can sustain the farmers and the distribution mechanism required to provide quality coffee around the world. Like us, they also face the variability of commodity pricing in the market and uncontrollable weather and political upheavals.

Although companies like Starbucks (in the past) and McDonald’s are very large buyers of coffee, they also effectively drive purchase prices down.

Although McDonald’s claims that they also pass this price savings on to customers, they work adversely in the coffee market by taking up supply and locking in prices that can lock out smaller, more dedicated and specialized players.

Making matters worse, recent weather disasters have also wrecked havoc on the price of wheat from top producing countries, including Russia and Canada.

Bottom line: your local coffee shop will be raising prices. If you believe in the entrepreneur as the key driver to jobs creation and to pulling us all out of this Recession, then continue to support the specialty shops that employ your sons and daughters, right in your neighborhood. And this also helps to support farmers in developing nations.

Who’s afraid of the Big Bad Wolf that will huff and puff your home away?

There is a lot of talk in Washington about how credit swaps wrecked the financial markets and put many innocent Americans out of their homes (and their jobs). It would be interesting to take a walk down memory lane and determine if the wolf is not perhaps hiding in sheep’s clothing.

I had an interesting discussion over coffee, today, with a respected colleague. We were discussing the economic turnaround and brought many aspects into the discussion including Wall Street. And this discussion got me thinking about what really happened in real estate. As I recall, while the American economy was booming a growing number of middle-income taxpayers were looking at purchasing their own homes. However, the longer they looked the more expensive their dream homes became. Although these people were earning decent money, it seemed like their piece of the American dream was just a few unattainable dollars beyond their means.

So these average Americans, incredulously, turned to their lending institutions for help. These lenders could not bend the rules beyond what they had already done and sought to pull together loans that could be affordable to these frustrated (and cash-heavy) wannabe home owners. And, voila, the sub-prime lending market was created in order to serve a growing demand of customers: variable rate loans, short-term fixed loans with balloons, jumbo loans, all came to the party.

Now let’s look at this from the perspective of the financial institutions that made this American dream possible for the average American. Was a new math invented that, up until that point of exasperation within the middle class, did not exist? Did brilliant Wall Street or Ivy League minds rise to the challenge and invent a new Game Theory or revolution the Theory of Numbers? Of course not. Wall Street is specialized in managing risk and creating financial instruments to create cash in the economy (and in their investors portfolios, hopefully). So, without any malicious intent, how does Wall Street generate cash in a loan package that is affordable to a very risky class of borrower and provide incentive to investors to lay down precious cash?

First, they need to show that the risk isn’t that bad - that, in fact, it’s quite good given the return potential and certain safety mechanisms that minimize the risk. Besides, (second) these Wall Street folks and these investors all own homes as well, and I would imagine quite nice ones in fine neighborhoods. Why is this important? Because none of these people, and none of the average Americans that also own homes for that matter, want to see the prices of homes go down.

Then, they need to appeal to the home buyer with a low rate.

But the math of finance cannot reconcile the two. The price of homes is too high and the average American should not leverage itself above its means. What does common sense say? The price of homes should drop. What does Wall Street do? Protect the downward movement of home prices by spreading risk in investors’ portfolios so cash becomes available to the home buyer. Everybody wins.

Now about that math of finance. Look at the portfolios with those risky loans. If the risk is high, so should the reward be high. But high risk looks bad to investors. So, package the high risk loans with lower risk loans. Better yet, put a higher percentage of low risk loans into the package to minimize the risk of the entire portfolio. In this way, if a few loans default, the overall portfolio of loans won’t suffer too much. Sounds like a good plan. Investors accept stabilization of risk along with slightly lower returns. And, voila, a lower risk investment to Wall Street yields cash to mortgage companies in loan packages that are now more affordable to home buyers… with a few caveats - one of them that the home buyer accepts a “little more” risk as well. But who cares about a variable rate loan that is fixed for a few years then becomes variable, at a time when the country is experiencing the lowest interest in decades? At the time, this all looked like a good idea as well, from the home buyer’s perspective.

This could be the case of the road to Hell being paved with good intentions.

So, who’s the Big Bad Wolf now?

The right thing to do was to cool down the real estate market, not protect its exacerbated inflation. But demand was high, real estate promoters learned how to create market tornadoes by slowly releasing inventory and driving prices up as much as possible, and lenders made access to cash as easy as possible. Everybody wins, right? Everybody wants to play.

So how do we fix this? I hope we don’t point to the market itself and simply stop at the credit default swaps and say: “That’s it! That’s the culprit! Kill the credit default swap and all derivative instruments since they exacerbated the downfall of the financial system!” That’s too easy and, in this bloggers opinion, incorrect. It is not one instrument that is the problem. It is the entire environment. MAybe we should ask ourselves: what kind of laws, regulations, market mechanisms, etc. could have been in place to put the emphasis on reducing home prices rather than creating more and riskier liquidity?

One of the greatest achievements of the modern world is the free market economy. Yet it can only exist when proper parameters are in place, as ironic as it sounds. We have seen that it is possible to corrupt the free market system and we need to put safeguards in place to prevent this from happening again. We need to protect the free market system from Wall Street, from Main Street and from the average American. It needs to do what it’s supposed to do - and nothing more. The free market system cannot be abused for personal gain but it can, and should, be used to create prosperity through stability in a free flowing economic cycle.

My previous post bravely announced the achievement of a second recovery milestone - if the first milestone was the recovery of Wall Street, the second milestone would be the beginning of the recovery of Main Street.

Since then, two interesting events occurred. First, the Obama (read Pelosi) health care bill passed in Congress and, second, a real estate developer in large projects told me that the bubble in commercial real estate has yet to burst and should do so later this year.

This sounds like one step forward and two steps back. But to counter-balance this a little, I just read on the Marketwatch web site that Bank of America is looking at some of its hom loans in distress and considering taking write-downs on part of the principal on these mortgages to offer distressed home owners some relief.

So what does this all mean?

For small business, the news is very worrisome even though the ill effects are postponed for two years. At some point in the health care debate, there was a threshold that was established, if memory serves correctly. If a business had less than a certain number of employees, it would be exempt from mandatory health coverage for its employees. I wonder where that went? Currently, competition is rising because many unemployed professionals find it to be the only way they can get a job, rents in proportion to gross sales have more than doubled, mainly due to the fact that sales are off, generally, over the past three years, and banks still don’t get it when it comes to lending to small business. For example, I know someone who is paying 15% interest on a revolving line of credit. When this person applied to get a 0% interest credit card in order to transfer the balance, they were refused. How does this help small business?

Government really needs to step in and make lenders review their practices in lending to small business and really needs to think about the impact of implementing universal health care at the lowest point in economic history in this country except for the Great Depression. A suggestion would be that in addition to creating state-level health plan exchanges, small business should be given tax incentives for the first 5 to 6 years in order to absorb this new cost into their cash flow and do so in a time when we would reasonably expect to be in a phase of economic expansion.

As for the real estate developers prediction of a crash in commercial real estate this year, it for businesses generally because this would offer an opportunity for greatly reducing rental costs and could spur renovation and expansion through redevelopment at a lower cost. The thing to keep in mind, here, is that there are two opposing forces at plan. Hopeful renter-entrepreneurs looking for a low-cost opportunity to get in at the ‘right time’ and property owners wanting to maximize rental income. With depressed sales revenues on the part of business owners, their entire cost structure shifted downwards and the first place that business owners can right-size is payroll. Everything else is pretty much out of their control. The only way the rest of the income statement can adjust is if other parts of the environment drop their burden on small business, including rental costs and leasehold improvement and maintenance costs. The only way out of this economic vice is through lowering costs to something that the market will bear.

If landlords are too leveraged to be able to absorb the reality of the tenants current economic situation, bad things happen. They lose tenants and, due to loss of rental income, can face losing their properties. Unfortunately, the tax system does not support preservation of the economic cycle in such instances. At some point, the landlord benefits from interesting tax write-offs to keep buildings vacant or divest altogether from a losing position. This is another place where government, in concert with financial institutions, can step in. A controlled deceleration in commercial real estate could be good for everyone but government needs to play a role in setting up the right conditions for this.

In conclusion, Main Street fails in supporting soft landings and downward economic adjustments because it is based solely on profit-taking. And, profits are generated through growth. And, in turn, growth is not always rooted in the public interest. In such times, growth-focused mechanisms fail to do the right thing because they devolve the whole societal ecosystem in which they exist. We need a stabilization mechanism. This is not normally where Wall Street excels. So, where do we turn to for help? And, by help I mean setting the levers of the economic and social process to foster stability in order to set a new foundation upon which growth can return? It’s a tricky balancing act of meeting basic short-term societal needs and responsibly setting up for long term growth. If Wall Street’s only premise is that in such times only the strong should survive and that this cathartic process is fundamental to prompt recovery, then most of us face dire circumstances until the few strong ones can return us to growth. Given that the few strong can support only a small percentage of Americans, then we have a shortage of capacity to support the country’s population in employment and basic services. Such thinking is what got us into the Great Depression.

The vicious circle of negativity needs to be broken and the easiest way to do this is through a return to near-full employment. But if growth is not possible, then how do we ‘make do’ until growth returns? Enactment of social programs while simultaneously stimulating economic growth in key new industries seems to be our best way out. Basic products and services as provided by small business help on one end while spurring development of new technologies and alternative energy, on the other, builds new large enterprises. Keeping a low dollar to stimulate exports seems like a good idea for the next 2 to 3 years while keeping interest rates low until any commercial real estate bubbles explode and until small business and home owners get onto more solid financial ground can stabilize the domestic situation. Interest rates can rise when confidence returns and more businesses require loans and more people want to buy homes. In short, if demand is low prices should be low, on everything. As demand rises, prices can rise.

It has been one year since this blog accurately predicted and announced that the crisis in Finance was over. So what has happened since then?

As recovery slowly made its way through the rest of the economic system, it has done so with the help of government intervention, as would be expected in such a meltdown. Yet, some could say that this recovery may have been stalled due to political wrangling for the sake of wrangling. A protracted debate on healthcare in the US, the stalemate in how to discipline Wall Street have stalled economic progress in fueling green technology and Main Street.

Nonetheless, this focus was re-established a couple of months ago when President Obama’s attention was taken away from Healthcare long enough to pronounce a few words to Wall Street regarding the fate of Main Street and that money needed to flow downstream as quickly as possible. In addition, the federal government provided incentives to businesses to hire the unemployed. Add to this some positive results from Big Business and continuing signs of stability in Finance and it is no surprise that, in the past few weeks, we have heard major companies are starting to hire again, like Cisco. In addition, Daimler divested itself from what can be seen as a hedging position by moving away from Tata Motors, an investment it made after walking away from Chrysler. To yet further support the argument that the beginning of corporate recovery is currently in effect, some growth moves are being seen in corporate acquisitions and market penetration activities with new product announcements, rock-bottom pricing in the restaurant industry and positive growth indicators in consumption.

As for financial market indicators, commodities have edged lower due to a strengthening dollar. More specifically gold seems to be peaking, for now.

From all this, I am concluding that we have entered a second recovery phase. If recovery of financial markets was the first phase, then a beginning recovery of Big Business is the second phase. Analysts were not too far off in guesstimating that this would occur 12 to 18 months after recovery of the financial markets.

So, if all this is true, we should see a slow and steady decrease in unemployment, an increase in retail sales, and hopefully a reduction in personal debt (yeah, right) over the next 12 to 18 months.

Furthermore, if this assessment is correct and people are getting hired through the spring quarter, results from these new hires will be expected by autumn. So, this can be a brisk summer for travel, a tense but exciting time for families, and should be a precursor to a marketing-heavy fall. Maybe tradeshow activity will pick up, depending on budgets. Maybe teleconferencing activity will pick up if budgets are tight or if new customer relationship management policies come into effect.

My only question involves the other side of this scenario. Although marketing will pick up on the part of companies who hired during the spring, who will they market to? Where is the money? My guess is that financing will be offered at a reasonable rate to businesses with decent credit scores and this could fuel corporate purchasing in companies seeking to grow their customer bases and who have a clear plan to do so.

So, as a market observer, I would look for clean balance sheets, income statements with near-industry standard ratios, given the current economy, and companies with clear marketing plans focused on reasonable growth in key market areas. The clean balance sheets will ease borrowing. A clear marketing plan ensures money will go where needed with measurable results.

As a result, this is an opportune time for capable companies to get one-up on their snoozing, battle-weary competitors. This, in my opinion, is what the turnaround will look like at the microeconomic level. All the indicators point to now as the turning point on Main Street with an execution timeframe of 6 to 10 months at which point initial results will be measured and more marketing and investments tweaks will be made.

We’re not out of the woods yet, as the expression goes, but we’re headed in the right direction with yet another milestone passed.

Last week, President Obama was on 60 Minutes and sent a message to Wall Street: no big bonuses when Main Street still has not seen its fair share of TARP support and no bonuses until all TARP borrowed is paid back in full.

A few days later, CNBC provides live coverage of the Wells Fargo issue of billions of dollars in bonds, allegedly to cover a portion of their TARP repayment to the government. Now this is interesting… and it somewhat worries me. We, the People, lent money to Wells Fargo so it could help borrowers through mortgage difficulties and help Main Street preserve jobs. Yet, Wells Fargo, like many other of its peers, only did this in part. At the same time, it benefitted from a 0% loan of billions of dollars and invested those dollars to reap easy interest. In such a situation, the longer they are permitted to sit on their TARP loan, the more money they make - all the while those who were supposed to benefit from this money also wait. There is no incentive for banks to trickle this money down to where it belongs.

So, President Obama’s message to Wall Street, last week, was to get moving on trickling this money down to where it belongs.

My impression is that Wall Street is VERY anxious to get the government out of its board rooms and wants to pay back TARP money as quickly as possible regardless of how it is done. So, a Wells Fargo, for example, will incur debt on the open market and possibly also dilute its shares in order to raise its “own” money to make the government go away.

Yet, Wall Street has not changed its ways. No policies have been implemented to avoid the errors of the past. Is this the time for government to go away? Furthermore, is this the right way to make it go away… by incurring more debt, and of a less secure and more costly nature? I’m confused. Maybe someone out there can explain to me why issuing bonds is a better idea than staying with TARP, financially?

In any case, President Obama’s message on 60 Minutes clearly designated entrepreneurs as that segment of society that is best positioned to enable the next phase of a turnaround by creating jobs. I have even heard that there is a program available that enables some small businesses to hire more employees and the government will pay their salaries as long as the employer pays the payroll taxes. I will look into this further and let everyone know what I find. In the meantime, if anyone out there has more information on this, please post a reply to this blog entry.

Now is a time where execution is key and money should be easier for entrepreneurs to obtain. Let’s see what happens over the next six months.

By now, it’s common belief, I daresay common knowledge, on the street that financial companies, those that exploded universally in November of last year, are on the road to recovery and some are even doing well.

Over the past 4 weeks or so, we’ve seen some broad stabilization across the stock market and a Dow number that is slowly and reliably pointing upward. I still maintain that my original call of a March 2009 bottom is correct and that underscoring that this is the most delicate time in any broad economic recovery is correct - if we have money to invest then when, where and how should we do this? If we are surviving, where are the jobs that will help us get by, day to day?

TARP money has not completely trickled down to the end-most working level as of yet but it has been making its way down. I’m hearing that some grassroots level companies and sectors are or will be getting some stimulus money very shortly.

Friends in larger companies, multinationals, have been telling me that decision-makers have not been making any moves as of yet because they are trying to figure out what the post-economic-meltdown world looks like. In a way, that’s sad to hear because anyone who has been unemployed through this turmoil (and there are up to 15%+ of such folks in many areas of the US, right now) can tell you exactly what this world looks like and where the priorities are. Some may look at such business leaders and lament that they have been spared the worse and now live in an ivory tower, unaware of what is truly important.

On the other side, this is one of those times in history where haste can make waste. We can be so eager to help the loudest voice complaining about kids to feed and foreclosures to avoid and lose strategic perspective. However, I would like to believe that the past 6 months has been about strategic thinking. Those who have been holding down a job in a position of authority, I hope, have been working on a turnaround strategy beyond merely cutting costs and saving their jobs. If not, it’s time to go beyond self interest and developmental myopia because the public will be demanding the next step in the recovery process with a louder and more pressing voice than ever before and this is certainly not the time to figure it out as we go along.

It has been the job of government to temporarily step in where the private sector has egregiously failed and bring stability back to the markets and calm broad spread panic. This has been done, pretty much.

The next step has been to ensure that money continues to flow through the economic cycle. This also has been done. And, if money disappeared, the government needs to enable the creation of more money to ensure that the value assets is maintained and enough cash is flowing to get business done. And this, too, has been done.

So, money has been available and some of it has been spent (and some squandered but that’s beyond the scope of this posting). Since the firing of GM’s CEO, the focus has moved from Wall Street to Main Street, but it’s now focused on the Park Avenue end of Main Street - meaning that businesses deemed at some point to be too big to fail have been getting all the attention.

I would expect small business, which accounts for the majority of jobs in the country, according to most reports from EDD and chambers of commerce across the country, to get some focus very soon. SBA loans are still ridiculously unavailable and many landlords that lease commercial space are still unaware of the fact that many of their small business tenants have experienced a very serious drop in revenue - to the extent that it is not uncommon to see some struggling mom-and-pop shops paying 25% or more of their gross income to rent alone. The landlords claim that the drop in business of their tenants is not their problem. They are in the real estate rental business, not the coffee business, or insurance business, or hairdressing business. To them I say, we are all in the survival business, right now, and that is all that matters, for now. The government did its part, tax payers have done their part, and entrepreneurs have gone bald and become neurotic over managing their risk in order to survive and push beyond mere survival with gutsy promotions and product introductions in the toughest economic times since the Great Depression. What makes landlords so special that they feel that they are immune to doing their part in keeping our collective head above water? But I digress.
While business leaders on the front line think about their company’s next step and eye ‘free money’ from the government (and tax payers), I would encourage them to think strategically and for the long term while minimizing current woes. Simply plugging random holes with cash doesn’t ever fix anything. And, these same business leaders are in the extremely stressful position of having to think very quickly and act even faster.  The best way to ensure permanent dependence on the government for services and business management is to needlessly over-spend taxpayer money. Paradoxically, inaction could be worse than making a bad decision.

So, the true mark of a leader in such times is clarity of thought and swiftness of action. And, this also means that we are in a time where getting the initial steps to a turnaround are critica. Small businesses, program managers, and divisional leaders still need to get it right the first time but a few failures in the context of a larger number of successes will not prevent economic reocvery but could prevent a business from taking full part in it.

This really is the time for Ying/Yang balance in business, isn’t it?