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Slide 1: TRACKING THE ECONOMIC DOMINOS IN THE UNITED STATES JANUARY 2009
Slide 2: WHAT HAPPENED FINANCIALLY AND HOW DID WE GET TO WHERE WE ARE TODAY? AN UNDERLYING CAUSE, IF NOT “THE” UNDERLINING CAUSE MIGHT BE THIS: “NOT THE EXCESSIVE GREED OF A FEW, BUT THE MISALIGNED INTERESTS OF MANY.” NYT, 1/4/09 M.LEWIS & D. EINHORN
Slide 3: “HAD ANYONE STOOD UP AND SAID,“THIS BUSINESS IS IRRESPONSIBLE AND WE ARE NOT GOING TO PARTICIPATE IN IT – HE WOULD HAVE PROBABLY BEEN FIRED.” – NYT, 1/4/09 – MICHAEL LEWIS & DAVID EINHORN
Slide 4: “OVER THE LAST 20 YEARS AMERICAN FINANCIAL INSTITUTIONS HAVE TAKEN ON MORE AND MORE RISK WITH THE BLESSING OF THE REGULATORS, WITH HARDLY A WORD FROM THE RATING AGENCIES, WHICH INCIDENTALLY, ARE PAID BY THE ISSUERS OF THE BONDS THEY RATE. SELDOM IF EVER DID MOODY’S OR STANDARD & POORS SAY, ‘IF YOU PUT ONE MORE RISKY ASSET ON YOUR BALANCE SHEET, YOU WILL FACE A SERIOUS DOWNGRADE.’” – NYT,1/4/09 – MICHAEL LEWIS & DAVID EINHORN.
Slide 5: “THE S.E.C. NOW PROMISES MODEST NEW MEASURES TO CONTAIN THE DAMAGE THAT THE RATING AGENCIES CAN DO – MEASURES THAT FAIL TO ADDRESS THE CENTRAL PROBLEM: THAT THE RATERS ARE PAID BY THE ISSURES.” – NYT, 1/4/09 – MICHAEL LEWIS & DAVID EINHORN.
Slide 6: “AND HERE’S THE MOST INCREDIBLE THING OF ALL; 18 MONTHS IN THE MOST SPECTACULAR MAN-MADE FINANCIAL CALAMITY IN MODERN EXPERIENCE, NOTHING HAS BEEN DONE TO CHANGE THAT, OR ANY OF THE OTHER BAD INCENTIVES THAT LED US HERE IN THE FIRST PLACE.” – NYT, 1/4/09 – MICHAEL LEWIS & DAVID EINHORN.
Slide 7: THE FORECASTERS: WHO THEY ARE AND WHAT THEY SAID WOULD HAPPEN BASED ON WHAT THEY WERE OBSERVING WITHIN OUR ECONOMY . . . THE WALL STREET JOURNAL - JANUARY 2, 2009 JEREMY GRANTHAM, CO-FOUNDER OF BOSTON MONEY MGT SHOP GM0 • SAID IN 2000: “A SENSATIONAL BUST WAS COMING, THE REAL RISK WOULD HIT IN OCTOBER 2008, ONE MAJOR BANK WOULD FAIL.” THE WALL STREET JOURNAL - JANUARY 2, 2009 BOB RODRIGUEZ, MANAGES THE PFA NEW INCOME FUND • NOTICED IN 2005: “HIGH QUALITY ALT-A MORTGAGES BEGAN TO FAIL AFTER NINE MONTHS – HE COMPLETELY RAN FROM ALL MORTGAGE BACKED SECURITIES.” THE WALL STREET JOURNAL - JANUARY 2, 2009 PETER SCHRIFF, CHIEF GLOBAL STRATEGIST AT EUROPACIFIC CAPITAL • WARNED IN 2004: “THE HOUSING MARKET WAS A HOUSE OF CARDS AND STOCK VALUES WERE ARTICIFICALLY INFLATED.”
Slide 8: …AND THEIR CURRENT FORECASTS ABOUT THE U.S. ECONOMY JEREMY: • WE COULD EXPECT TO SEE A COMPETITIVE CURRENCY DEVALUATION AROUND THE WORLD WHICH WOULD HEIGHTEN INFLATION RISK. • THE DOLLAR WILL WEAKEN AND SUPER BLUE CHIP STOCKS ARE THE PLACE TO BE. BOB: • THERE IS NOW A MASSIVE BUBBLE IN THE TREASURIES AND THAT THE DEPRESSION WILL DEEPEN IN THE NEXT 6-18 MONTHS. • HE EXPECTS TO SEE INFLATION AND HE IS NOW INVESTING IN ENERGY STOCKS. PETER: • A DOLLAR DIVE IS IN THE CARDS AND THAT MASSIVE INFLATION IS NOW COMING WITH HIGHER INTEREST RATES TO ENTICE FOREIGN INVESTORS. • THAT TAXES WILL RISE, FOREIGN INVESTORS WILL DISAPPEAR, AND THE VALUE OF THE DOLLAR WILL DROP PRECIPITOUSLY.
Slide 9: …AND AS A RESULT OF ALL THIS, WHAT ARE THE OBSERVABLE RESULTS FROM THIS CURRENT ECONOMIC DOWNTURN? THE AIRLINE INDUSTRY: • THE AIRLINE INDUSTRY IS NOW MATCHING AIRCRAFT TO ROUTES MORE THAN THEY USED TO. SINCE THEY ARE NOW BENEFITING FROM LOWER FUEL COSTS, THE INDUSTRY HAS FOUND WAYS TO CHARGE FOR FUEL. THE LUMBER INDUSTRY: • BY THE END OF 2008, THE WASHOUT OF THE LUMBER MILLS WILL BE DONE. THE REAL ESTATE MARKET COULD SEE SIGNIFICANT GAINS FROM PENT UP DEMAND, AT PRESENT THERE IS NO LUMBER IN THE SYSTEM. MORTGAGE RATES: • VERY LOW RATES ARE FUELING A STRONG REFINANCE SURGE. THIS MIGHT PROVIDE A SAFETY VALVE AGAINST MORE HOUSING DEFAULTS.
Slide 10: JOBS: • DEEP CUTS ARE EVERYWHERE, AND SOME AREAS ARE LESS AFFECTED; HOSPITALS, INSURANCE, ACCOUNTING, AND INFORMATION TECHNOLOGY. • “VALUE BUILDERS” • “ALL ABOUT HONEYMNRS.” • CAREER WEBSITE JOBFOX HAS ANALYZED OBAMA’S PLAN (FOR JOB GROWTH) AND HAS COME UP WITH FIVE AREAS OF LIKELY JOB GROWTH OVER THE NEXT TWO YEARS, WITH 22 SPECIFIC JOB TITLES. AMONG THEM, ENGINEERING, ACCOUNTING, NURSING, AND INFORMATION TECHNOLOGY WILL ALL FARE PARTICULARLY WELL, JOBFOX PREDICTS. • ADDITIONALLY, NEW MARKET REQUIREMENTS WILL EMERGE IN FINANCIAL OVERSIGHT AND THE ENERGY FIELD. INVESTMENT DIVERSITY: • YALE UNIVERSITY ENDOWMENT FUND – DAVID SWENSEN – RESPONSIBLE FOR GROWTH FROM $1BB TO $23BB IN 23 YEARS – DOES IT THROUGH SPECIFIC INVESTMENT DIVERSITY. • HE STILL LOST 25% IN 6 MONTHS. …AND AS A RESULT OF ALL THIS, WHAT ARE THE OBSERVABLE RESULTS FROM THIS CURRENT ECONOMIC DOWNTURN?
Slide 11: …AND AS A RESULT OF ALL THIS, WHAT ARE THE OBSERVABLE RESULTS FROM THIS CURRENT ECONOMIC DOWNTURN? TAXES: • THEY WILL HAVE TO GO UP TO FUND THE TREASURY. THE BEST EXAMPLE OF THIS IS THE MOTOR VEHICLE GAS TAX PROPOSED INCREASE. GROCERY STORES: • WHOLE FOODS IS TAKING A NEW APPROACH TO BUSINESS CALLED, “RESEGMENTING YOUR CUSTOMERS." HOME BUILDERS: • A SURVIVAL TECHNIQUE – COLLECT YOUR LAND, BUNDLE IT TOGETHER FOR SALE, SELL IT AT A HUGE LOSS, FILE AN AMENDED RETURN AGAINST PRIOR YEAR PROFITS, AND BRING CASH TO THE BOTTOM LINE. THE FEDERAL RESERVE – THE BEIGE BOOK FOR THE 10TH DISTRICT: • RETAIL: DOWN, MANUFACTURING: DOWN, RE: DOWN AND REMAINING FLAT, BANKING: LOAN DEMAND DOWN, WAGE PRESSURE: DOWN. THE NEXT BUST: • TREASURY BONDS
Slide 12: WHERE ARE THE BUSINESS OPPORTUNITIES . . . OR BETTER STATED, “WHAT DO WE HAVE TO DO TO SURVIVE?” PRETEND THINGS ARE GOING TO GO BACK TO NORMAL, AND DO WHATEVER YOU HAVE TO DO TO TRY TO CONTINUE TO COMPETE IN BUSINESS, DOING BUSINESS THE SAME OLD WAY, NEEDING TO CUT TO THE BONE TO GET THERE, WITH NO GUARANTEES THAT ANYTHING WILL RETURN TO THE “GOOD OLD DAYS”  STANDARD BIDDING PROCESS  CONTINUE ON WITH A “PLANS & SPEC” CONSTRUCTION APPROACH  MAINTENANCE PROGRAM – SAME AS USUAL
Slide 13: WHERE ARE THE BUSINESS OPPORTUNITIES . . . OR BETTER STATED, “WHAT DO WE HAVE TO DO TO SURVIVE?” • BEGIN WITH THE PRESUMPTION THAT “BUSINESS, AS WE NOW KNOW IT, MAY NEVER RETURN TO WHAT WE COULD COLLECTIVELY CALL NORMAL.” FOR ERICKSON CONSTRUCTION, IT MIGHT BE A MAJOR PARADIGM SHIFT IN THE WAY WE DO BUSINESS. THE PROPOSED POSSIBLE SHIFT: PARTNER WITH A SELECTED GROUP OF SUBCONTRACTORS; JOINTLY APPROACH THE MAJOR MANUFACTURERS AND SUPPLIERS FOR DRASTIC PRICE REDUCTIONS – TRADING DISCOUNTED PRICING FOR A STREAM OF WORK. ALSO, MOVE ALL CONSTRUCTION ACTIVITY INTO THE BUILDING INFORMATION MODELING PROCESS, INTRODUCE DESIGN-BUILD INTO THE MEP PROCESS, AND REVISIT HOW BUILDING MAINTENANCE IS NOW PERFORMED. • •