Economy in general and how it relates to Audio companies

Kevin Haskins · « **Reply #20 on:** 12 Jun 2008, 03:15 pm »

Quote from: Response Audio on 12 Jun 2008, 01:35 pm

Being smart and not trying to live above your means is what matters no matter what business you are in or what the state of the economy is.

Bingo! That is my point. In terms of caution, I am bullish and investing heavily in new product. I just do so based upon cash flow, not borrowed money.

I brought on help a couple years ago, tried to build the business with the cart before the horse, and I've learned my lesson. Now if I need help I outsource it in time of need rather than even THINKING of hiring an employee.

HT cOz · « **Reply #21 on:** 12 Jun 2008, 04:22 pm »

Wow very interesting topic. Recessions are healthy for the economy. It should be healthy for audio companies as well. The strong survive and the week get culled.

Our country is going to have a very hard time making it through this current situation. We have been living a gluttonous life style for so long that we have whole generations who think they are entitled to cheap everything. Compounding this problem is a government who is tying to appease the people instead of telling them the truth.

The truth is this we have been under investing in energy on a global scale for 20+ years. The massive discoveries of petroleum in the 1940-60 created a huge cushion of supply that was augmented by the west during the 1st and 2nd oil shocks. Today the world has effectively used up all available oil production capacity and now has to reconcile the need for growth in the oil supply with natural decline. We have not been doing this for 20+ years. (Think of a person living off of an inheritance and then being forced to go to work.)

On top of this problem, in this century, we have to deal with the transition away from a fossil fuel economy and global warming. These problems will require sacrifice and hard work to overcome.

Now it seems the only way to get anything accomplished is to wait until it is a massive crisis!!! Then make knee jerk reactions and look for scapegoats.

Disclaimer - I work for a major oil company on the trading floor.

Cheers
cOz

Rick Craig · « **Reply #22 on:** 12 Jun 2008, 05:05 pm »

Quote from: Marbles on 12 Jun 2008, 12:39 pm

A sign of problems could be If delivery dates slip.

Another sign could be if quality goes down.

Actually these two things can also happen when a business is doing well and overloaded with orders.

Marbles · « **Reply #23 on:** 12 Jun 2008, 05:11 pm »

Agreed, that's why I qualified it with "could be"

Wayner · « **Reply #24 on:** 12 Jun 2008, 05:39 pm »

The main reason the US defeated Japan and Germany in WWII was the fact that we were an industrial GIANT. Since then, we have allowed almost all of our manufacturing to go over to somewhere else (Mexico, China). Now all America does is buy and sell debt. The economic slip will continue to grow and compound until (if and when) manufacturing returns. A service based economy is an illusion. One small hope is that US steel exports have actually increased.

Wayner

Rick Craig · « **Reply #25 on:** 12 Jun 2008, 07:02 pm »

Keeping diversified has helped us and I'm actually quite busy right now, especially considering that it's summertime and typically slower during this time. Like Kevin said you have to think smart and make wise decisions like any other business. Material and shipping costs have increased quite a bit over the last six months so you have to either raise prices or accept less profit. Fortunately I have low overhead costs and can run pretty lean!

TheChairGuy · « **Reply #26 on:** 12 Jun 2008, 08:53 pm »

Manufacturers/vendors...you haven't seen the inflationary hit yet, but I have (the past two weeks).

Steel went from USD$5500 tonne to USD7400 tonne (in China, but everywhere is affected)....the largest increases you're encountered yet are coming soon. Prepare yourselves....

John

spudco · « **Reply #27 on:** 12 Jun 2008, 09:02 pm »

Quote from: TheChairGuy on 12 Jun 2008, 08:53 pm

Manufacturers/vendors...you haven't seen the inflationary hit ... Prepare yourselves....

John

This round of inflation will be an absolute doozy!

Marbles · « **Reply #28 on:** 12 Jun 2008, 09:10 pm »

And the government keeps printing money like there isn't a problem!

Wind Chaser · « **Reply #29 on:** 12 Jun 2008, 09:17 pm »

Quote from: Marbles on 12 Jun 2008, 09:10 pm

And the government keeps printing money like there isn't a problem!

Everyone should be allowed to print their own money!

BobM · « **Reply #30 on:** 12 Jun 2008, 09:19 pm »

I just had a similar conversation with a friend and colleague about my own business in the financial marketplace. We had a shake out back in 1987 that affected a lot of friends. Then there was a lull that broke into a full 10 year rally, then then ended in the 2000-2003 bust times. We've gotten back up since then but then 2008 strikes us down again. If you go back father in time you will see the same patterns, but the time lags between boom and bust were longer.

What I'm getting at is that things are getting more volitile now, with shorter periods of boom and bust. If you look at who came out on top after the busts were over you will find lots of strong companies that had cash on hand and good solid fundamentals. They invested in R&D and in increasing their market share during the down periods and emerged at the top of their game afterwards, swamping any other competition that might have also survived.

So yes, the strong get stronger, and a lot of this is because they can take advantage of the fire sale during the down periods. They're not surviving, they're investing in their future. Long term thinking works during times like these, if you've got the capital to see them through.

Yes, we may see some hyper inflation starting, and it probably won't come back down to what we previously thought of as normal levels. So plan for it and find a way to benefit from it in the long term. Hell, I bought bonds that yielded 13-14% back in the 80's. That's a phenominal yield historically. I hope it doesn't happen again, but if it does let history be a guide.
Enjoy,
Bob

Kevin Haskins · « **Reply #31 on:** 12 Jun 2008, 09:40 pm »

We shouldn't doom and gloom too much. Just keep some perspective. People will still get up and go to work everyday. We will all find a way to power our cars, people will still live in houses, kids will go to school, and people will listen to music and watch movies.

We are not talking the Great Depression here....

doorman · « **Reply #32 on:** 12 Jun 2008, 09:50 pm »

What Kevin said! There are also opportunities here.
(personal rule #1- keep exposure to tv "news" to a minimum!)
Don

Marbles · « **Reply #33 on:** 12 Jun 2008, 09:51 pm »

Quote from: Kevin Haskins on 12 Jun 2008, 09:40 pm

We are not talking the Great Depression here....

I sure hope not, it's a little different than other "downturns" I've been through.

I know in Detroit they are in a Depression (capital D).

JLM · « **Reply #34 on:** 13 Jun 2008, 11:25 am »

Good point Marbles. I live 100 miles from Detroit and since the race riots in 1967 and oil embargo of 1973 it's been down hill. Except for the opening of hair/nail salons, store front ministries, and decay neighborhood after neighborhood looks unchanged in 35 plus years. Population is less than 40% of what it was in 1950 (but up 40% for the overall metropolitian area). Poor leadership abounds everywhere. Mayor Coleman Young had his own jet (?). The current major is being prosecuted for perjury. The school system is bankrupt and under state receivership. 1,500 crack houses next to elementary schools have been targeted for demolition. And we all know how inept the leadership of the former "big 3" have been.

Overall Michigan has been near or at the "top" in the nation in unemployment, foreclosures, and urban crime for decades. Very few college grads can stay. We're becoming a retirement state. In the past 35 years the national population has gone from 200 million to over 300 million, but Michigan has only gone from 8 to 9 million and we've lost three seats in Congress. OTOH we do have a good looking governor (but the last 6 years has been hard on her too).

In tough times value shines brighter. That and operating with a positive cash position is why Frank and vendors like him won't be hurt too bad in a recession. Lots of rabid customers (those who constantly flip of equipment to keep up with the latest trends, borrow to buy, or spend out of proportion to their income) will have to cut back. One man, part-time operations that have little overhead should do fine too.

Mike Dzurko · « **Reply #35 on:** 13 Jun 2008, 01:13 pm »

Quote from: TheChairGuy on 12 Jun 2008, 08:53 pm

Manufacturers/vendors...you haven't seen the inflationary hit yet, but I have (the past two weeks).

Steel went from USD$5500 tonne to USD7400 tonne (in China, but everywhere is affected)....the largest increases you're encountered yet are coming soon. Prepare yourselves....

John

John you wrote eloquently about this months ago in that guest article for Enjoy The Music. Luckily, we saw it coming way back as well. Actually, there have been steadily increasing prices of things like drivers from Europe for the last couple years. So, we were able to build up our inventory at much lower than current prices and have been able to do fine with only slight price increases to date. However, as we start to move through older inventory and pay current prices, we will have to pass at least some of that on to the customers.

Steve · « **Reply #36 on:** 13 Jun 2008, 03:12 pm »

I agree with the scenario that the weak companies will be filtered out. I also do not see
oilcoming down anytime soon, if at all, plus the housing market is still shaking out.

I think more and more will be on a limited budget but they should continue to have an opportunity for excellent sound at reasonable prices.

I, like Bill, have no debts besides monthly payments and was prudent enough to save, and if worse comes to worse keep going even if there is a major depression.

Cheers.

Marbles · « **Reply #37 on:** 13 Jun 2008, 05:56 pm »

Quote from: Steve on 13 Jun 2008, 03:12 pm

I agree with the scenario that the weak companies will be filtered out. I also do not see oil coming down anytime soon, if at all, plus the housing market is still shaking out.

I think more and more will be on a limited budget but they should continue to have an opportunity for excellent sound at reasonable prices.

I, like Bill, have no debts besides monthly payments and was prudent enough to save, and if worse comes to worse keep going even if there is a major depression.

Cheers.

That's great to hear.

I wonder how bad inflation is going to get. As long as we continue to increase our debt and continue to print paper, the worse it will get. Then all those dollars you have saved will be worth less and less.

TheChairGuy · « **Reply #38 on:** 14 Jun 2008, 01:56 am »

The worst is yet to come - fellow manufacturers.

Most of you aren't large enough to feel the impact of inflation immediately due to the one or more layers in between you and the source (generally elsewhere than in the industrialized world).

But, with a spike of 30% for steel in a few weeks time and continued rising petrol, you can be sure your suppliers will be enacting some hefty increases for the materials you buy soon. I don't know if the lag time is 2 weeks or 4 months, but it's coming (much of it has to do with how your distributors or suppliers cash flow is and how much they can stock in advance).

I buy my finished product right from the factory in Guangdong Province so the effect is near instantaneous for me and my business.....you'll feel it soon (as will your customers as a by-product thereof).

No, it's not a depression (which I think is technically a period of declining prices and far, far worse than a recession), it's more like a period of stagflation we are entering into. Somewhat like 1976-the early 80's.

With too much money being printed and record deficits with rising inflation...the Federal Reserve will have their hands tied and cannot reduce Fed funds rates further (declining rates tend to stimulate activity and kickup further bouts of inflation)

http://www.businessweek.com/investor/content/jun2008/pi20080612_302707.htm?chan=investing_investing+index+page_economy

Chairman Bernanke walked into the Perfect Storm - he is neither to blame for this mess nor Greenspan before him. Except the odd blip due to 9/11/2001 events....much of the industrialized world, and certainly the US, has enjoyed nearly 15 uninterrupted good and financially rewarding years.

We are now going to be in for a bumpier ride for a few years....then likely see our way clear

John

Marbles · « **Reply #39 on:** 14 Jun 2008, 02:48 am »

With the flooding in Iowa, Southern Indiana and Southern Illinois, it is clear that the corn harvest won't be as high as once hoped. Corn and soybeans set new record highs today. Inflation is clearly a problem. I think you are right John, we are in or heading for stagflation.

The dollar is down 12.5% against the swiss franc so far this year.

I'm not sure the best place to invest right now, but whatever it is, I don't think it is in American dollars.