Joshua Saunders

First, when recessions are building and when economic activity slows, the landscape always looks uniquely bleak. Commentators always say, “This time it’s different and this time it’s going to be another Great Depression.” It isn’t going to be another Great Depression, not by a long shot.

The Great Depression was caused by a Federal Reserve deliberately trying to slow down the economy and drastically overshooting its mark over and over again. This time, the Fed is actively stimulating the economy and flooding it with liquidity. To be sure, this effect is damped by the dim mood on Wall Street, but it always eventually gets traction and money starts to spread throughout society.

Unless the Fed is actively seeking to crimp economic activity — as it did in the late 1970s and early 1980s, when we had the worst postwar recession — there will not be a genuine depression. There could be a recession and there probably will be, but a real depression, with long-term unemployment over 15 percent, is a most unlikely prospect with a pro-expansion Fed.

Buy Now, Reap Later

In a word, this is going to be a rocky time for a while. Good people will suffer. But we’ll get through it, and there will be no Great Depression in the foreseeable future.

If you have a good, long time horizon, it’s time to buy European stocks, emerging markets, even our own market. But don’t let yourself get short of liquidity. If you have a few years of cash and bonds on hand, get some stock now while there’s blood in the streets. The good times will come back when you least expect them.

Article except written by my favorite economist, Ben Stein.

It is essential for any business to know their customers.  But do you know who your non-byuers are?  Those people that don’t buy your product or service.  Maybe you aren’t reaching them properly or not at all?  Consider alternative distribution channels.

Maybe the product is not positioned correctly to attract these non-buyers.  Is it worth it to reposition the product?  Would it isolate your current buyers and reduce your revenue?

Is your product or service a luxury good?  Are you pricing possible buyers out of the market?  Or is your product priced to low, and these people perceive your product as cheap?

 All complex problems, but it helps to reverse the roles sometimes and really probe why people are NOT buying from you.

The economy is slumping and no market is looking good, whether it be the stock market, housing market, or the prices you pay at the grocery store.  But there are some things you can do to take advantage of the situation and prepare yourself for the future.  Here are some tips:

Pay down debt with your refund and stimulus check
Average tax refunds are over $2000 and the tax stimulus plan will put hundreds of dollars into ordinary American’s pockets.  The government intended for you to spend this money to stimulate the economy.  Don’t be tempted…  Pay off your high interest debt.  A majority of Americans have CC debt, pay it off now.  Don’t even save some of your refund to buy a gift…  lower your debt.  The government won’t always be this friendly and hand money back to you.

Take advantage of life insurance
Term life insurance has been declining in price over the last decade, 33% for some categories.  For as little as $30/month you can get a 20 year $500,000 policy.

Don’t take a loan out of your 401k
Let’s not be stupid here during the recession.  18% of people currently have a loan out of their 401k.  The problem with taking a loan out of your 401k is that you pull out pretax dollars, but pay it back with money you’ve already paid taxes on.  When you withdraw the money at retirement, you’re essentially double taxed.

Invest Long Term - Invest in the Stock Market
The best advice I could give here.  Sure the market is volatile and gaining and dropping hundreds of points a day.  But the market is correcting and at a low point right now.  Haven’t you ever heard “Buy low and sell high?”  The best time to buy is when the market is at the low point.  Is that low point right now, know one knows for sure, probably not.  But it’s definately going to go back up given time.  With that said, invest for 10-20-30 years down the road.  Diversify in international stocks and various indexes.

Ben Stein wrote a very good article a couple days ago that I completely agree with and have been spouting for months.  The economy plays on people’s fears.  the media hypes the falling economy because it is more newsworthy.  I am pasting this article verbatim.  Feel free to comment.

This is going to be a bit controversial. Bear in mind that I often make mistakes and could be wrong about some of this, but it’s all food for thought.

Irrational Pessimism

First of all, markets are made up of human beings, and human beings can be irrational. They can be irrational on the upside, they can be irrational on the downside.

We saw “irrational exuberance” in the late 1990s, and it led to a crash. I believe we’re now seeing highly irrational pessimism in the markets, especially the credit markets. The gloom comes from the bad results that banks and other lenders got when they loaned money on mortgage obligations in the form of collateralized mortgage obligations. These instruments were never meant to be as safe as AAA bonds, but they were thought to be much safer than they turned out to be.

Beware of Cold Stoves

There have indeed been major defaults in mortgages. Just as important, there’s been wild speculation on indexes tied to mortgages, and this speculation by itself has led to immense losses in mortgage-linked investments. To a large extent, these losses will be recovered when the subject properties are sold and when speculation goes to the long side. But for now, national and local banks are sitting on big losses.

This has scared them about lending on anything at all. It shouldn’t, but it does. It’s sort of like the old saw about the cat: Forever after jumping on a hot stove, it’ll be scared of hot stoves. But it’ll also be scared of cold stoves.

Fear Working Overtime

So, lenders are terrified of loans even to very sound borrowers. Just to give an example, banks are scared of lending even on Fannie Mae and Freddie Mac bonds — even though these bonds are backed by the federal government and can’t default by any likely standard.

This reluctance to lend is causing a credit crunch, and this is terrifying markets and newspapers everywhere. This fear has knocked down the Dow by over 2,000 points from its October high. It’s led to strong fears of a recession and to a slowdown in hiring and investment as businesses cut back their borrowing and spending.

By this point, the banks and bankers are terrified that they’ll be fired if they make bad loans, and that if by some lightning strike of improbability their loans to good borrowers fail, they’ll see their banks fail altogether. Again, that’s irrational human fear at work.

The problem is that even irrational fear can have real consequences, and can indeed cause a serious recession — even if the actual losses in mortgages aren’t large enough to cause one by themselves. In fact, that’s what’s happening right now.

Let the Healing Begin

So what to do? First, bear in mind that irrational markets eventually get a taste of reason. Also bear in mind that, as Warren Buffett says, markets are at first a voting machine, but always eventually become a weighing machine. Reality will triumph, and the credit markets will get their act together, loans will start to be made, and credit will begin to flow.

But why not get the healing process started today instead of waiting for a bad recession? Why doesn’t Mr. Bernanke call in the big bankers and tell them he’ll make sure none of them fails? Why not tell them the Fed will always be there to bail them out and recapitalize them if need be? Why not stop solvency-risk fears today? Why wait until another day? Why wait until a million or 2 million more people lose their jobs or homes or both?

Further, why not tell the banks that a condition for recapitalizing them is much stricter regulation about lending policies — not lending against bad collateral, not lending to borrowers with no credit history? Why not also impose rules about executive compensation to keep top brass from looting their own stockholders even as they kill their own companies?

Regulation to the Rescue

It’s a myth that all regulation is bad. In banking, regulation saves greedy, foolish people from killing their own banks and the economy in general. Let’s save the banks, save the economy, and lay the foundation for a smarter tomorrow — starting today.

And then let’s investigate what role speculation by hedge funds against the credit markets has played in our current problems. Some killers have made a bundle out of our troubles; let’s find out exactly what they did. It’s going to be a scary story, but that’s fear for another day.

I’m heading to Japan in less than a day and boy am I excited.  As discussed earlier, I’ll be visiting with major electronics companies as well as government agencies.  The focus of my trip is on energy efficiency, sustainability, and environmentally friendly products.

I’ll post a few things on my blog while I’m gone to keep you busy, but until next month, Sayonara!

My assistant emailed me a quote of the day which I think holds fairly true.

Keys to success… Research your idea, Plan for success, Expect success, & just plain do it! It amazes me how many people skip the last step! Practice being a “doer” and success will follow you every step of the way!

Facebook is deciding to give one to all facebook users.  for years we have relied on AIM, ICQ, MSN Messenger, or more recently GTalk.  Instant messenging applications have been available on facebook through the use of their open API, but facebook coming out with their own product effectively kills these other apps, some of which are VC funded startups.

Something I always say… every business has competition.  If you don’t have competition, maybe there is no market for it.  If there is a market, the competition is the status quo.  As basic microeconomics theory states, as firms see a profit in a given field, they will enter that field until no more economic profit exists.  This is a simple case of this.  Did these startups not expect facebook to enter the instant messenging realm?  I guess so.

A blog war is brewing and know one knows who the winner might be.  Six Apart’s Anil Dash wrote a blog post encouraging users to switch to their platform instead of upgrading to the latest WordPress.  WordPress founder Matt Mullenweg quickly shot back calling them desperate and dirty.

While the battle heats up, from an outsider’s perspective this looks like nothing but immaturity and a lack of common business sense.  I understand a lot of startups are run by young entrepreneurs, but have some aptitude of how to run a business.  You don’t hastily shoot back at your competition right away saying the first thing that comes to your mind.  You let your public relations and marketing people strategically decide how to counteract an attack.

Having a typing war on the internet is not a sign of a mature business or founder who knows how to run a company.  I mean come on, I used to have internet chat wars on AOL with friends when I was in 6th grade.  Unfortunately, this isn’t 6th grade anymore and these companies that are receiving tens of millions of dollars in venture capital are acting like children.  Where are their board members, advisors, and VC’s to police them?

Recently there has been a lot of buzz about a blog post by Jason Calacanis about how to hire the right people and conserve money in your startup. I agree with most of the points in his post (some I don’t are the $5000 espresso machine and $600 chairs). You can read the post here: http://www.calacanis.com/2008/03/07/how-to-save-money-running-a-startup-17-really-good-tips/

The comments to the post attacked Jason on every front. An article on TechCrunch even fired with a post called “Calacanis Fires People Who Have a Life” (see it here: http://www.techcrunch.com/2008/03/07/calacanis-fires-people-who-have-a-life/)

Jason responded with a blog post “Can you have a life and work at a startup company” (post here: http://www.calacanis.com/2008/03/07/can-you-have-a-life-and-work-at-a-startup-company/)

All of this was followed by Michael Arrington more or less taking Jason’s side in his post on TechCrunch (http://www.techcrunch.com/2008/03/08/startups-must-hire-the-right-people-and-watch-every-penny/)

Very interesting debate. I highly suggest you read the posts and come to a conclusion on your thoughts. I know what I believe and maybe I’ll save that for a future post.

I’m still alive and I apologize for the lack of posts for a little bit.  I’m busier than ever with my regular work load, a few special projects I’m working on, advising a new startup, my MBA studies, and preparing for an international business seminar I will be going on in a week and a half to Japan.  I promise more posts will be coming soon.

If anyone lives or will be in Japan at the end of March, let me know.  I will be in Osaka and Tokyo for ten days meeting with various business executives and government officials.  My trip focuses on marketing, technology and entrepreneurship and will take me to Panasonic, Hitachi, Fujitsu, OakLawn Marketing, Toyota, Osaka University, METI, Takeda Pharmaceutical, as well as some good sightseeing and Sumo Wrestling!