General Economic Conditions Continue to Deteriorate

[ATeam]

This morning's news about the Fannie Mae and Freddie Mac bailout, while historic, should not be seen as an isolated event or a cure. It is a symptom and part of an ongoing trend of deteriorating general economic conditions.

Leaving the political blame conversation for someone else to start in The Soapbox forum, I will note here that expediters need to consider general economic conditions when considering their ongoing and next business decisions. Expediting is an unforgiving arena, and even more so when general economic conditions are deteriorating.

At the most basic level, when shippers are not doing well, there is less freight to haul, and thus, less money to be made by hauling it.

You do not have to go far to gauge the state of today's general economic conditions. Shuttered retail space in shopping malls, sky-high fuel costs, a recent government decision to stimulate the economy by pouring tax-rebate money into it (there is no need to stimulate a healthy economy), freight carriers going out of business at triple their normal rate, and more, all point to a decline in general economic conditions.

Yesterday, in Los Angeles, I read real estate auction ads in the newspaper. For a house that once listed at $159,900, bidding starts at $60,762. A five-bedroom home that listed $339,900 now commands an opening bid of $129,962.

Here is today's news from CNBC:

"The government announced on Sunday that it was taking control of troubled mortgage finance giants Fannie Mae and Freddie Mac, effectively wiping out shareholders' interest in the publicly traded companies.

"The regulator of the two companies, the Federal Housing Finance Agency (FHFA) will manage the two companies on a temporary basis.

"The takeover is the second rescue bid engineered by the U.S. Treasury Department in little more than six weeks. It came as confidence in the firms ability to keep operating amid a deepening housing crisis continued to erode."

And from the BBC:

"The two companies account for nearly half of the outstanding mortgages in the US, and have lost billions of dollars during the US housing crash.

"The most recent figures show about 9% of US homeowners were behind on their payments or faced repossession.

"The federal takeover is one of the largest bail-outs in US history."

I have been highlighting the decline in general economic conditions for a while and have been mostly correct when predicting what is to come. We are not out of the woods yet, not by a long shot. I believe general economic conditions will continue to deteriorate.

That does not mean you should not enter the expediting business. It does not mean you should get out if you are already in. It does mean that if you have not already done so, you absolutely should strengthen your balance sheet.

In other words, live within your means and get out of debt.

When you are in debt and the freight slows, there is less money to be made but your obligations to your creditors continue. If you are stretched too thin, your truck may be taken from you and your house may the next to appear in the auction ads.

Here are links to some of my prior posts on this subject:

A Question For Expediting Veterans About Recession (8/16/07)

Do you think expediting for cargo vans is slow (8/20/07, my reply in this thread

Cheer up! A recession is coming... (9/3/07)

Recession and Prosperity (5/26/08)

What Does This Mean to You? (7/15/08)

Trucking Failures Continue at a Record Pace (8/13/08)

Five Fantastic Years! (8/23/08, my reply in this thread to a question asked)

What's coming next? I believe:

- Home prices will continue to decline

- As bank failures increase, the FDIC will run out of money and require a taxpayer bailout.

- In the stock market, we will see a Dow of 10,000 before we see 15,000.

- The economy will slow more and recovery will not come soon.

In good times or bad, it is wise to live within your means and get out of debt. It is especially so in bad times.

 

[springrivergroup]

This is way to optimistic. We should expect the next 20 years to be SLOW (reduced speed limits to “save oil”) COLD (gov. control of heating to “save oil” CA already is trying to get it started) and DARK (gov. office buildings will be the only places with lights, probably both day and night because the gov. workers are more important than the rest of us). The housing market is just starting to collapse now, wait till all the trillions of dollars of "pay option ARMs" blowup over the next 4 years. Commercial real-estate is starting to go bad now and has a long way to go. The FDIC does not have the money to backup the banks that will fail. The level of strange accounting in the banking and brokerage industry makes Enron look like boy-scouts. And its not just the US its world wide.

Now the good news, if you don’t have debt, and have some real assets, and pay attention to taking care of yourself and your family you will prosper during the bad times. Don’t expect any to come and fix it all for you and remember that no matter who you “work for” you are in business for your self.

 

[OntarioVanMan]

It doesn't jive.....last report, factory orders are UP 1.3% beating estimates and it's the 5th month in a row of increase.

 

[layoutshooter]

They don't "jive" because it is an election year. The press, wanting Osama Obama to win, will blow everything bad out perportion. Facts are no relevant. Most my age, 57, can remember when time were way worse than they are now. My first house loan, '81, was a bargin (VA rate) 15 1/2%. We had just lived through the Oil Embargo and huge tax increases at the same time. (looks like our "boy" wonder has not read history about tax increases durning economic slow downs) Un-employment was much higher than now and inflation was through the roof. Start drilling, building nuke plants, oil from coal etc and watch what happens. Do away with welfare and put them to work on the highways. MMMMM A real economic stimulus? Things did not really pick up till 3-4 years into the Reagan tax cuts. We have the power in this country to over come ANYTHING we want to. It's just much easier to whine. Layoutshooter

 

[ATeam]

It doesn't jive.....last report, factory orders are UP 1.3% beating estimates and it's the 5th month in a row of increase.

It's like a hurricane. Within the larger storm, some places may be spared. Or, what was spared today by the front side of the storm may be hit tomorrow by the back side. Deteriorating economic conditions do not occur all at once or in the same place. Indeed, some people will prosper as the economic storm moves slowly through.

The world is more interconnected now than anytime in human history, making a lot of individual economic indicators that used to jive before not jive now.

This will sound funny coming from me, but BEWARE OF THE OPTIMISTS.

In the news today, financial talking heads are siezing on any positive tidbit they can and talking it up. Like most people, they want things to turn around. But they are kidding themselves and their viewers.

Yes, it may be a nice, sunny day where they stand and in their view, but looking at the bigger picture, if it is sunny, it is only because they are in the eye of the hurricane.

 

[OntarioVanMan]

I agree...more is out of our control then ever before...oh well...at least I've made my little slice of life a sunnier day!! Hope evryone else does to....

 

[layoutshooter]

Beware the dark cloud people as well, ever here of a self-fullfilling prediction? I remember when I hire on with the Feds in '76 and had to take a 50% pay cut just to find a job that I would not be laid off from every two weeks. Our pay was terrible then. I was a GS 5 making under 10K per year. The inflation rate was 10-15%. The pay board that year recogmended a 17% pay increase to break even. We got 2%. The next year was a 20% recogmendation, we got 3%. I went in the hole, by large chunks, ever year for the first 6 years I was with the Feds. I watched an entire "trick", over 50 people, resign enmass and demand to be sent back to the States. They were tired of going broke for no reason. Remeber, when we were overseas our housing was paid for and we were still going broke. High taxes, low wages, high inflation, no pay increases, no promotions. Things are a bit tough now, might get worse, might get better. Raise taxes and I know what will happen. No matter what, I just don't care. Take everything I have, I will still eat. I have tents and guns and a lifetime of ammo. Tons of fishing tackle too. I did it before and I will do it again if I have too. Much healthier life style than this is too. No use whinning about what MIGHT happen. There will be plenty of time to whine latter if it does. Anyone up for a hunting/fishing commune? Layoutshooter

 

[OntarioVanMan]

Anyone up for a hunting/fishing commune? Layoutshooter

I just happen to have the spot???*LOL*

 

[greg334]

I'm still trying to figure out where this 'housing' crisis is happening because it surely isn't a crisis and it surely isn't happening here. I went on a ride yesterday trying out a new van and I saw things I can’t figure out – new housing popping up all over in the last three months. For example there are condos being built that are all sold in an area where there was once all farms, they are over priced at $250k for that area but they are selling them. There is a new sub down the street from my father’s home, they started out at $450k each, dropped to $245k and now are all sold out at $200k which is the market value for the area.

In all honestly, everyone has said that the housing market has been a bubble and needed to burst. So it burst and housing prices fell, good now maybe I can afford another house.

The same goes for the credit crisis, we have been returning back to tight credit but h*ll I can still get loans, credit cards and if I want a new car and I don't have a real job and bad credit. I know one guy who against all the advice listened to someone here and ordered himself a new class 8 truck, about $275k and he didn’t have a bit of a problem getting the loan – he has just started with one of the ‘top tier’ carriers but never drove a truck in his life, not even a pickup.

I think that what I have been told by the U of M is really the truth – this is all relevant to the person.

In other words it is about a person’s pocket book. For some they face depression era challenges but for others, they get along rather well. The former sees things more realistically from the bottom of the food chain while the latter does not see any problems. This goes for people in this business, a few have been at the top too long and don’t have a real clue what is going on at the bottom or care to because they will never have to. They all say "the waters fine, come on in' while sharks are swimming around.

In our political world, which every bit of economic news is really about, we are told how bad it is from the press, doom and gloom which all sets us up for ‘change’. Our political world dictates to us how we run our lives/business and what goals we want to achieve in our lives. In the case of this election, the news is skewed (falsely in some cases) toward the doom and gloom, so it has to be deciphered but only from a persons point of view can it be done right. The problem is we as a country listen to the ‘experts’ who for some reason BS us with what we want to hear, you know telling us to wear those Rose Colored glasses to see that rosy world. Well it does not take a pseudo financial wizard like the clown on MSNBC to really figure out that we need lower taxes, no bail outs for the country and to allow us, the people to do what we need to do with OUR money.

The other thing before I get off my soap box is that last week I read an interesting memo from the top idiot at Ford – he wants the ‘bail out’ of the auto industry in the form of tax incentives and loan guarantees by congress so they can put money into production plants, car designs and so on. The memo is asking people to write to congress to get this passed for Ford. Well I say no because they are in worst shape than Chrysler was in 1978. I think they need to figure out how to be competitive in their home market without the government’s help because if they default, then we pay the bill. Maybe Ford or Chrysler needs to fail and be absorbed by the other two before they all wake up. Like the housing crisis, the car crisis is fabricated to move money from my pocket to someone else’s pocket.

 

[layoutshooter]

If I lose it all OVM, I will be "a knockin" on your door. You could use the shooting lessons anyway!!! Not sure how good it is there. Plenty of game for sure, but lacking in water, therefor, fish. Maybe enough for a small population of "communers" Layoutshooter

 

[layoutshooter]

Besides, what we are really talking about is money. Money is nothing more than green wrinkled papar with no real value backed by nothing or anybody. You can't take it with you. My goal in life is to go out EXACTLY as I came in. Naked with nothing. In fact, if I owe a whole bunch of money at the time I GO OUT, I WIN!!!! I will have "Stuck IT" to the "MAN"!!!! WOW!!! Cool!!! Layoutshooter

 

[Humble2drive]

At the most basic level, when shippers are not doing well, there is less freight to haul, and thus, less money to be made by hauling it.

Phil,
I am not sure what your point is regarding the field of expedited frieght.
Has your monthly revenue decreased compared to last year or the year before??
Has the volume of FECC frieght been steadily decreasing this past year??
I ask because I have heard different information regarding this subject so I will attempt to explain:

It makes perfect sense that as the economy slows there will be less generalized freight to carry.
On the other hand, true expediting is a specialized segment of trucking that deals with time critical frieght.
As companies see their "costs of goods sold" increase due to all the costs related to inventory storage, it then may become more profitable to use expedited frieght services to bring the necessary parts and supplies on demand when needed. This reduces the need for companies to pay for keeping a full inventory of otherwise unneeded supplies.

If I remember correctly from macroeconomics 101. People who are positioned correctly in an economic turndown still make money. A recession does not mean that everybody has to lose. The money does not disappear, it merely changes hands.

Is expedited frieght positioned to win or to lose??
If it is positioned to lose are you actually seeing that on your spreadsheet compared to previous years???

As a Newbie, I get information from my company and information from contractors. That info is often polar opposite depending on who it comes from. This makes it difficult to come to any conclusion about the future of expediting.

 

[ATeam]

Phil,
I am not sure what your point is regarding the field of expedited frieght.
Has your monthly revenue decreased compared to last year or the year before??

Yes, but not because of business developments I can point to. We have gone home more this year than any year before so I cannot say we would be slower had we not gone home.

Has the volume of FECC frieght been steadily decreasing this past year??

I do not know. I am not privy to that information.

I ask because I have heard different information regarding this subject...

There has never been a day in this business where I have not heard differing information. One of the ongoing frustrations of this business is trying to figure out what the real numbers are out there. People lie about it. People guess about it. People keep certain information to themselves. Thus the differing information.

... so I will attempt to explain:

It makes perfect sense that as the economy slows there will be less generalized freight to carry.
On the other hand, true expediting is a specialized segment of trucking that deals with time critical frieght.
As companies see their "costs of goods sold" increase due to all the costs related to inventory storage, it then may become more profitable to use expedited frieght services to bring the necessary parts and supplies on demand when needed. This reduces the need for companies to pay for keeping a full inventory of otherwise unneeded supplies.

All true. But there is more to the story. I have no numbers to back this up, but my sense is that the supply of expedite trucks has increased; not because of the additonal expedite trucks and carriers that have entered the market (that we all knew), but because general freight companies needing to keep their equipment moving are willing to do expedite now when they were not before. When business picks up, they will probably return to their favored work. But for now, they will bid on an expedite load and dedicate a truck to it.

If I remember correctly from macroeconomics 101. People who are positioned correctly in an economic turndown still make money. A recession does not mean that everybody has to lose. The money does not disappear, it merely changes hands.

Perhaps in some cases, yes. But in many, many others -- specifically housing today -- money is being lost. People bought homes and paper backed by those homes at inflated values. With property values falling, the home owners and the holders of now-bad paper are screwed. That money did not change hands. It disappeared.

Is expedited frieght positioned to win or to lose??

I don't understand your question.

If it is positioned to lose are you actually seeing that on your spreadsheet compared to previous years???

Whatever is going on in the larger business, individual variables always apply. In our case, it is home time, so a spreadsheet analysis becomes clouded.

As a Newbie, I get information from my company and information from contractors. That info is often polar opposite depending on who it comes from. This makes it difficult to come to any conclusion about the future of expediting.

Bingo! Which is why I advise people to live within their means and get out of debt. Whatever decision you make regarding expediting, the stronger your balance sheet is, the better able you will be to sail in uncharted waters.

 

[layoutshooter]

I think you might have it wrong Phil. The benevolent government has been bailing out everybody that does stupid stuff with thier money. Buy a house you can't afford? Bail them out. Invest in Fannie Mae or Freddie Mac? Losing money? Poor baby, bail them out. I can see them paying of everyone who loses money on anything soon. SOOOOOOOOO, if I screw up and can't continue to run my business I will be bailed out and then be in good shape!!!!!!!!!! Man, I got a answer for everything!!!!!!!!!!!!! LOL I am sorry, I just can't take this stuff as serious as I should. It has all become such a total joke. I just revel in the fact that I have had it really hard before and lived through it. It gives me great confidence. I pity those who have always done well. They have not learned the lesson, there is life after failure. Relax, if it gets too bad we will all be in the same boat and then we can all start over. Layoutshooter

 

[greg334]

Wait Phil, weren't you saying a little bit ago that FedEx is increasing their numbers with all this new found business. I can't point to the exact post but it's there. I assume that being WG, you would be privy to all that info.

As for expedited freight market, I really think after the non-'time critical' shipments I have done, that carriers are using this still as a selling point to show the difference between them and competition. I honestly think that the bulk of critical shipments has dwindled to the point that it is more often than not going to put a dent into production.

For example FedEx has been telling customers that they can get it there in X amount of time even after the customer said we just need what ever it is to get to the delivery (sometimes it is because main stream trucking can't pick it up). Panther and E-1 the same thing, they treat everything as critical.

When I worked with this group of people from Tulsa who did just in time stuff for beer companies, they used a phrase that is more appropriate today in this business than it may have been in the past -

On Demand Shipping ©


I think that this niche market has come because of a convergence between mainstream trucking and this niche market (you know getting more and more LTL freight and brokered freight on the truck), the real thing is we are just now taxis with sleepers. Some are apartment taxis



On the political front, I think we will see more and more complaining and more and more doom and gloom in the news.

 

[ebsprintin]

Phil,

I'm going to wait for your 2008 recession prediction to come true before I try to process your next iteration of doom and gloom.

eb

 

[springrivergroup]

AND NOW THIS

Here is a Statement Of FHFA Director James B. Lockhart.

"Fannie Mae and Freddie Mac share the critical mission of providing stability and liquidity to the housing market. Between them, the Enterprises have $5.4 trillion of guaranteed mortgage-backed securities (MBS) and debt outstanding, which is equal to the publicly held debt of the United States.

Enterprises will be allowed to grow their guarantee MBS books without limits and continue to purchase replacement securities for their portfolios, about $20 billion per month without capital constraints."

My coment,

The debt of the US just doubled in ONE DAY to bail out the "investors" in these bad debts and we get to pay.

The stock holders (read IRA and retirement plans) just lost everything and the bond holders (Russia and China) will get paid fully. Would have been better for the people in the US if they just would let them go chapter 7.

 

[greg334]

Well I think it is time the US government gets out of the housing and banking industry all together. The Dems won't do it. Instead they pass the Monkey protection act of 2008 and will have 15 more days in congress.

 

[LDB]

Things are bad right now. Nobody sensible can deny it. The problem is that rather than acknowledging things as bad we've got large numbers, either due to an agenda or accepting too much of what is presented by those with an agenda, saying things are BAD! Just as global temperatures follow a sine wave, so do economic results. We are in a downward part of the wave at the moment but we're not at the doom and gloom level some would suggest.

 

[ATeam]

Phil,

I'm going to wait for your 2008 recession prediction to come true before I try to process your next iteration of doom and gloom.
eb

The National Bureau of Economic Research Business Cycle Dating Committee has become the accepted entity that dates the beginning and end of recessions. This is generally done well after the fact.

The former head of that organization, Martin Feldstein, has been saying in recent interviews that he believes the current recession started in late, 2007 or early 2008. When the current recession is officially dated, I believe the Bureau and Feldstein will agree.

Note that the NBER does not follow the popular definition of a recession as two consecutive quarters of negative GDP growth. Instead, it works with the benefit of hindsight and weighs numerous factors that are more comprehensive and nuanced than a simple GDP track.

Feldstein is one of the people I listen to when he speaks about general economic conditions. I don't do the kind of research he and others of his ilk do, but I respect it and base many of my opinions on their work.