Lessons Learned: Five Ways To Avoid The Next Recession

by Filed Under: Jevin Sackett, Market News

economics“Those who cannot remember the past are condemned to repeat it.”—George Santayana

In business, particularly in an entrepreneurial business, taking risks is all in a day’s work. Certainly, a smart businessperson will do what he or she can to mitigate risks—a practice widely referred to as ‘risk management’—but entrepreneurs understand that risk and reward are two sides of the same coin.

In business, as in many aspects of life, you rarely encounter one without the other.

However, smart businesspeople also know better than to repeat the mistakes of the past. That’s one reason why you never saw a second edition of such legendary corporate mistakes such as the Ford Edsel, or Coca-Cola’s disastrous “New Coke”. You will also note that, despite those legendary business errors, both Ford and Coke remain iconic brands that are dominant forces in their respective industries.

Unfortunately, not all businesses—or governments—take heed of Santayana’s wise advice, and learn from the mistakes of their past. And as the Great Recession begins to—thankfully–fade into memory, there is a growing concern that some of the same errors that helped to trigger that economic disaster could be repeated.

Our company, Sackett National Holdings, has subsidiaries that have a national footprint in multiple business sectors that were either directly—or indirectly–impacted by some of the misguided policies that exacerbated the Great Recession. Specifically, our company’s SettlementOne subsidiary works closely with the financial services sector, and is a national provider of credit and data information; in addition, SNH’s National Credit Center subsidiary services more than 4,000 automotive dealerships nationwide with credit information and software solutions.

Therefore, as you might imagine, economic and political decisions that directly impact the financial services and automotive sectors are of great interest and concern to our company.

And so, with the passage of time and the fading of the recession’s legacy, I think it would be beneficial to take a moment and review five of what I consider to be the most important business lessons to be learned from the 2008 Great Recession:

5) The Size Of A Mortgage Should Reflect An Individual’s Fiscal Reality:

Prior to the collapse of the housing sector in 2007/2008, there was a generally accepted notion among some Americans and politicians—including some with enough experience/knowledge to know better—that housing was a universally ‘safe’ investment that would continue to gain in value, in perpetuity, and no matter the location; there was also the active promotion of some mortgages that required very little, or even no, down payment. Both of these misguided ideas were substantial contributors to the eventual collapse of the housing sector.

Common sense—remember that useful business tool?—and Best Practices dictate that consumers, just like businesses, should not financially overextend themselves. Someone earning $40,000 a year should not be purchasing a home valued at 15 or 20 times his annual income—often with little or no down payment–especially when one at half the price meets his needs. And while home equity can, over time, contribute to a family’s net worth, a family home should not be viewed as simply another gambling ‘chip’, with ever-increasing value. This, I believe, is a critical lesson worth remembering from the massive foreclosures that devastated the lives of millions of Americans in the last recession.

4) Politics Should Not Trump Reality:

In a recent post, I examined the question about the future prospects for universal home ownership as an integral part of the American Dream. As a corollary to that question, and in keeping with the previous suggestion, it’s imperative that government policy encourages home ownership (and the subsequent financial obligation) that is in line with Americans’ financial capabilities. To do otherwise, is to risk a replay of the foreclosure debacle of the last recession.

3) Business Growth Should Also Reflect Reality:

As CEO of a rapidly expanding, entrepreneurial company, few if any businesspeople understand or support the notion of corporate growth more than I do. However, just as we should expect consumers not to overextend themselves, so too should businesses ensure that their growth—and related financial liability—reflects their fiscal reality. In business, as in life, just because you can do something, doesn’t mean you necessarily should—or at least not until it makes fiscal sense to do so.

2) Be wary of ‘bubbles’:

In the 1990s, it was the infamous ‘tech bubble’—the hyper-inflated growth of new tech companies, far too many of whom had little or no long-term business plans or chance for prosperity (Pet.com anyone?) In the next decade, as discussed, there was the housing ‘bubble’, and the inevitable explosion of a housing market that was largely built on a weak financial foundation. As a general rule of thumb, when pondering a potential business ‘bubble’ opportunity, it’s best to simply remember what your mom probably told you growing up: “if something seems to good to be true, it likely is.” Put another way, the Laws of Nature dictate the almost inevitably, ‘bubbles’–of any kind–eventually burst; best to avoid them whenever possible.

1) Don’t Be Blinded By Greed:

In the movie Wall Street, fictional tycoon Gordon Gekko delivered a famous speech about the business virtues of ‘greed’. And while ambition and drive—along with hard work—are, indeed, fundamental requirements in order to succeed, they differ greatly from greed, which Webster’s defines as “a selfish and excessive desire for more of something (as in money) than is needed”. I would only add that the road to ruin is littered by businesses and people who allowed greed to cloud their judgment and perspicacity. For businesses and individuals alike, sound financial decisions require a clear mind, and greed often manifests itself into one of the aforementioned business ‘bubbles’ that ultimately burst, and leave millions to suffer in its wake.

So, as we (thankfully) move forward and leave the Great Recession to the history books, let’s also try and keep Santayana’s wise advice in mind.

For while we should not live in the past, we should also not forget the–sometimes painful–business lessons it has taught us.

 

The US Dollar: The King of Currencies

by Filed Under: Jevin Sackett, Market News

Jevin Sackett CurrenciesLet’s begin with a quick quiz: of all the products that America exports to the rest of the world, what uniquely American creation is the most sought after U.S. product worldwide?

As an exporting nation, the range of possible answers is, of course, as diverse as the American economy.

And although the U.S. continues to be the preeminent global exporter of many highly desirable goods—ranging from cars and trucks, to movies and television programs—the most sought after American product worldwide remains its most durable and reliable commodity: the U.S. dollar.

Yes, even in an age in which it’s fashionable among some to speak about the decline of American dominance in global affairs, the dollar remains the most desired—and powerful—currency worldwide.

When asked about the driving forces behind the might of the American dollar, economists will likely proffer several reasons for its ongoing supremacy among world currencies. However, I believe that the most significant reason for the dollar’s continued strength is simple: it is both backed by—and representative of—the United States.

All one has to do is read or listen to the news any day of the week to discover how unstable and insecure much of the world is these days. And that global instability and insecurity often comes in many forms: social, political, as well as economic. Even some of our most traditionally stable allies, including several European nations, find themselves struggling to overcome social and economic instability as they continue to wrestle with the after-effects of the Great Recession, as well as the domestic threats posed by terrorist groups at home and abroad.

Which is not to say that America does not face many of the same social and economic challenges as our allies. The key difference is that–despite China’s growing economic strength, and our own domestic economic challenges—the United States is correctly viewed as the “safest harbor” among the world’s major economies. The strength of the dollar simply reflects that worldview.

Contrary to what you might hear daily in news reports, our government is still among the most stable in the world, and our economy remains the largest and most influential worldwide. In fact, in the ensuing years since the Great Recession, the American economy has been the most resilient of all the major world economies.

Add to that the fact that American workers are amongst the world’s most productive–and the immense influence that American consumers’ buying power has on global exports–and you begin to see why the world views the American dollar as the most desirable among global currencies.

Now, there is—of course—a downside to having the world’s strongest currency. American companies export goods to nations around the world, and a stronger dollar makes those goods more expensive for other countries to import. That, in turn, adds to the nation’s trade deficit (the difference between the amount of goods we export versus those we import).

So, while American consumers may benefit from a strong dollar when purchasing foreign currencies for their vacations (in Europe, Asia or elsewhere), there is also a price to be paid back home for the muscle of the US dollar.

All of this may seem to some like an obscure debate topic among economists, but the fact is that an overly strong US dollar signals both good–and potentially bad–news for both American businesses and consumers.

Take, for example, the US auto industry.

In earlier posts, I’ve discussed the resurgence of US automakers, and how our company’s subsidiary–National Credit Center (NCC)–continues to grow and prosper along with the auto dealerships it services.

However, due to globalization, the US auto manufacturing industry is now far more international than it has ever been (best example being the Italian-based ownership of Fiat-Chrysler). In this new era, the price of US exports—as well as domestic imports—resulting from a strong dollar, can have a direct effect on the bottom line of both American businesses as well as consumers.

Still, despite its potential pitfalls, the global strength and desirability of the dollar is a reminder that in an age beset with chaos and uncertainty, America–and its mighty ‘greenback’—is still seen as providing the safest of safe harbors throughout the world.

The Year Ahead – I’m Feeling Bullish

by Filed Under: Market News

Jevin Sackett market newsAs a new year beckons, American businesses find themselves on the precipice of what most economists are predicting will be the healthiest economic growth since before the Great Recession began seven years ago.

After several years of sluggish economic growth, that’s welcome news for American businesses large and small. Still, in the wake of previous predictions of strong economic recovery that ultimately proved overly optimistic, some U.S. business owners would be forgiven for being skeptical about the painting of an economically rosy 2015.

However, this may well be the year that economists are finally correct in predicting solid economic growth. Putting all the rhetoric aside, the recent economic ‘arrows’ point convincingly towards a strong economy in 2015.

A few economic signposts worthy of consideration:

  • According to the federal Bureau of Economic Indicators, real Gross Domestic Product (GDP) in the U.S. grew by an impressive 5 percent in the third quarter of 2014; that is on the heals of the previous quarter’s solid 4.6 percent growth
  • Personal income, another strong measure of consumer confidence and economic growth, was also up by .4 percent in November
  • Gas prices are down—way down—from where they were last year. A barrel of crude oil has declined from over $100 a barrel in the first half of 2014, to below $50 a barrel at the beginning of this year. That savings translates into hundreds of dollars more in the pockets of the average American consumer
  • The stock market has, repeatedly, set new record highs over the last several months, and corporate profits are healthier than at any time in recent years
  • And perhaps most importantly, unemployment has been steadily declining, with the most recent unemployment rate in the U.S. down to 5.6 percent

While a healthier job market is good news for American workers, and signals overall strength in the economy, it also presents the prospect of a more challenging recruiting environment for American businesses. As more companies look to hire new employees, businesses will have to hustle to ensure they can recruit their first choice of new hires.

At Sackett National Holdings, we are on the front lines of the recruiting efforts of American businesses, as our SettlementOne Screening employment screening products play a key role in helping companies ensure they’re hiring the best available candidates.

And when one considers that U.S. businesses hired 252,000 employees in December—after hiring an impressive 353,000 the previous month—the laws of supply and demand dictate that 2015 is likely to be a far more challenging year for companies looking to hire new employees.

In addition to our company’s employment screening experience, as CEO of a rapidly expanding business, I also have first hand experience with the many challenges of ensuring the quality of new employees.

And so while I–like all American business leaders–welcome the long-awaited arrival of good economic news, I also recognize that with that positive news comes added business responsibilities.

If American businesses hope to ensure that economic predictions for a strong 2015 are reflected in their own corporate performance, they must also ensure that their company’s business—and hiring—plans are reflective of, and responsive to, the nation’s dynamic economic environment.