Wednesday, November 11, 2009

Zeus Digital Theaters

Zeus Digital Theaters is my new project. Zeus is an 8-screen, all digital theater being built in Waynesboro, Virginia. The theater is going in on my DeWitt Crossing project.

When I do a new project, people have a hard time catching up with the concept. So below is my little Q&A Interview with myself on the subject.

So, you are building a new theater in Waynesboro. Why there and why now?

Waynesboro is the perfect market for a new movie theater. Why there isn't one already is beyond me. I think the easy answer is that most theater companies overlook Waynesboro because the demographics don't look right on a map due to Skyline Drive and the Blue Ridge Parkway. However, I know the market very well and expect it to perform nicely for this theater.

Why did you call it Zeus?

We all know about the Apollo Theater and the Mercury Theater, but there is no Zeus Theater. Greek gods are great for theater names simply because they invoke the fantasy that is shown in the movies. Zeus works especially well since his icon is the lightning bolt which loosely translates into digital projection.

What is special about the theater?

First, it is the only all digital, stadium seating theater that I have found in Virginia. Second, it will have more Digital 3D screens than any other theater within a 2 hour drive. Finally, the theater will have a retail store inside that focuses on movie related tshirts, toys and accessories.

What is so great about digital projection?

Since 1929, theaters have been showing movies using film. This 35mm film project has held up well for 80 years, however, the movie studios are moving to digital systems which have a number of benefits. With a digital movie, there is no physical print which means that the quality of the image does not decrease with each showing as it does with 35mm.

Also, digital gives us the ability to show 3D films. Finally, digital allows us to show locally produced movies from the public.

Wednesday, September 30, 2009

Updates on my projects

Okay, I will admit that I am not very committed to the whole blogging thing. This should not surprise me. I seem to have the same committment problems with writing that novel, pulling weeds and filing paperwork.

Anyhow, here is what is going on:

DeWitt Crossing, my commercial real estate project in Waynesboro, is moving along nicely. I just completed a consulting job with Weaver Insurance to project manage their building on Lot 4. It looks great.

I am well underway with the movie theater project. I expect to have the site plan approved by the end of October.

The restaurants are starting to get interested in the site. Right now, we have 4 looking at lots.

The W. Adin Hayes building is full. In Fishersville, we welcome Dr. Christensen to the J. R. Hayes Building.

Things are moving along nicely. I personally believe we hit the bottom in the recession during July and August. That doesn't mean we are shooting straight up, but it does mean that the worst is over.

Thursday, April 02, 2009

Is Inflation a Problem?

Over the past 6 months, the US government has been pumping liquidity and new cash into the economy. In the 4th Quarter of 2008, consumer prices were deflationary which reflects the drop in demand as shown in the 4Q GDP growth rate of -6.4%.

So here is the issue, at what point will inflation become a problem?

Obviously, there are many other people out there who understand these issues better than me. All I need to know is what to look for to see when inflation comes back.

First, what is the fed doing with the fed funds rate? They have it at 0% to .25%. There is no where to go but up. When they start to raise this rate, it means they are trying to slow the growth rate (demand) and control inflation.

Second, what is the 10 Year Treasury doing? Right now, it is yielding around 2.6%. When the yield gets back above 3.5% and stays there, you can expect more normal inflation to return. It will jump everytime the Treasury prints money but it is the longer term that I am interested in.

Finally, what are the commodities doing. We cannot avoid inflation if oil gets too high. Right now it is in the $45-$55 trading range. If you see this get up into the $60-$70 range, then that will move into the rest of the economy and push up core consumer prices.

I look at inflation for a number of issues:

1. I have lots of money borrowed at Prime + which is tied to the fed funds rate and therefore, tied to inflation.

2. I own lots of commercial land. I need that land to keep increasing in value over the long haul for my equity to grow.

3. Finally, inflation will let me know how the overall economy is looking. (Except in the case of stagflation where the economy stalls and inflation spirals up.)

Friday, March 20, 2009

Dealing With Dirt

Since I work with dirt quite a bit in developing commercial land and buildings I have learned a few things about it. Here are the major lessons learned in dealing with dirt, excavation and site work:

1. Try to get your dump, fill or storage sites as close to where the dirt is coming from in the first place. It will save you money on the hauling.
2. Include all the seeding and stabilization work in the originial contract with your site contract.
3. Be sure the RLD (Responsible Land Disturber) is the site contractor and not you.
4. Retain at least 5% until the erosion and sediment permit is closed by the governing body.
5. When dealing with rock, it is always better to blast it than to hammer it since you generally do the hammering at an hourly rate. If you can get the rock removed based upon the cubic yards for a flat price, take that. In my area it is typically $60 for mass rock.
6. Watch how much top soil is put down in the finish grading. I have been ripped off by contractors who put only 1-2" down when the plans called for 6". You need at least 6" to grow grass in all seasons.
7. Finally, sell your excess fill dirt. Don't just give it away. Clean, compactable fill is hard to come by. You should be able to recoup those costs.

Monday, March 16, 2009

A Cash Flow How To For The Entreprenuer

Okay, this year the economy sucks. Yes, we all know it by now. However, for the entreprenuer, it is especially dangerous. The worst thing a small business can do is file for bankruptsy. Of course, you can only go bankrupt if you don't have enough money to pay your debts. The secret is cash flow.

I use a simple process that helps me see where the cash is coming from and going to. For a small business, cash truly is king. Here is how it works:

1. I create a spreadsheet showing all the months across the top row.
2. Then down the side I list all the sources and uses of cash. For instance, free cash flow from RentQuick is listed by each month. If the cash flow is income it is listed as a positive. If the cash flow is an expeniture, then it is listed as a negative. Other items are estimate tax payments, personal use payment, property tax, investments, insurance payments, etc. I list the net cash flow for each business I have. So a startup might be negative and a cash cow might be positive.
3. I then add up all the sources and uses by the month. The resulting spreadsheet shows when I need money and by how much.

Pretty simple.

Saturday, March 14, 2009

It is time to get to work

Over the past six months, I have been holding back like most people. I started to believe that the commercial real estate market was dead so I didn't try anymore. No longer! Come Monday morning, I am going full bear on finding buyers, builders and tenants. I am not going to wait until everyone is on board with the economy. I will start calling everyone in my prospect list to get a deal going.

Everyone gets into a slump. I think I have been allowing too much of the negative market data to hold me back. I am going to get to work on Monday and make something happen. If there is nothing out there, then at least I will know for sure.

Anyone who is ready to do a deal in the Waynesboro area should get in touch with me asap. The rest of the world can sit by while I make something happen.

visit for my contact info.

Thursday, March 05, 2009

Where does real wealth come from?

As we are all in a world of crap because of the financial meltdown, I thought it would be relevant to discuss where wealth actually comes from. Over the past decade and a half, it seems that people believed that wealth was created by speculating (they called it investing) in the stock market. In 1997, had you invested $1,000 in a basket of DOW Industrial stocks, you would have lost about 30% after adjusting for inflation.

Where is the wealth? It is gone, but it never really existed in the first place.

Real wealth comes from real profits which are created by real value for a consumer. Buying stocks is not investing except in the rare instance where the company is on the other end of the transaction (IPO and stock offerings). So unless the company is getting the money you are paying for their stock, you are not investing.

What you are doing is buying something that someone else thinks is going to go down in value. Otherwise, why would they sell it?

You aren't investing. Instead, all that has occurred is that the owner has changed.

Wednesday, March 04, 2009

New Career Choices

Today, I snuck up to Wintergreen to get a morning of skiing in. While there, I met a great guy named Mark. Mark is about 65 and a retired executive. We rode the lifts between runs and struck up a conversation about the economic changes.

If you were born in 1944 like Mark, then you would have been entered the job market in the mid-60's. At that time, the best place to work was likely GE and IBM. These companies offered defined pension plans for employees who worked there for their entire careers. This is where the retirement parties included a gold watch. The contract between employee and company was straightforward: work here for your entire career and we will take care of you until you die.

My generation is a little different. I was born in 1968 and entered the Marines in 1986. Had I gone straight to college, I would have entered the career mode in 1990 or so. My generation figured out that the defined pension plans were a thing of the past. Big companies made matching contributions to a 401K which I could roll over to another if I were to leave. The implied contract was not for life. My generation was the "free agent" employee. They moved from job to job after anywhere from 2 to 4 years on the job.

Of course, the current market is messing that up for a number of people. If you are sitting on a 401K then you likely have seen the value drop in half over the past year. Companies are now stopping their contributions to 401k plans and if enough time passes, they might not restart them.

My kids are going to have a tougher time putting together a career than I did. I hope to guide them to see the big picture and make choices based upon what works best for them. However, we can agree that the safe old days are over and risk is shifted to the workers away from the companies.

Monday, March 02, 2009

Who pays analysts?

It seems there are plenty of analysts out there who are paid to make financial predictions. These guys go on CNBC or other shows and make their predictions with a completely straight face. However, if you look at their actual performance, their bosses might want their money back.

Here are a few of my favorites:

May 21, 2008 Arjun N. Murti, analyst at Goldman Sachs predicts oil to hit $200/barrel just before oil peaks at $147 then falls back to its current level of $40.23/barrel.

Jim Cramer predicts Bear Stearns is fine and healthy just before it goes completely under.

AIG (AIG) "could have huge gains in the second quarter." —Bijan Moazami, analyst, Friedman, Billings, Ramsey, May 9, 2008. AIG wound up losing $5 billion in that quarter and $25 billion in the next. It was taken over in September by the U.S. government, which will spend or lend $150 billion to keep it afloat.

So whats the point? Simple, just because someone makes a prediction, doesn't make it so. Most of these guys are making guesses. They don't know anymore than anyone else really. This isn't a complete insult to them since they know they are really frauds.

The big point is that you need to weigh all the advice, predictions and data then make as best a decision as you can. If you run your own business, focus on the little things and plan for the big things.

There are more at:

Sunday, March 01, 2009

If Obama Fails, Who Wins?

Lately, Rush Limbaugh has been called to the carpet over his line that he hopes Obama fails. Now, since that statement was made, Mr. Limbaugh has clarified this to mean that he hopes Obama's policies fail.

While this blog is not a place for political discussion, it is a place for explaining economics. It is important to look at the alternatives to the statement, "I hope Obama fails". (I call this "game theory light")

Alternative 1: Obama fails and the economy suddenly improves.
Alternative 2: Obama fails and the economy continues to slide.
Alternative 3: Obama succeeds and the economy improves.
Alternative 4: Obama succeeds and the economy fails.

Based upon these options, we are really only happy with #1 and #3. Obviously, we all want the economy to improve and for people to get back to work. I do have a problem with Alternative #4 because by the administration's metrics, success is gauged by job creation. So it doesn't make sense that Obama and his policies could succeed without the economy improving.

Now, let's look at it from the Republican point of view. Clearly, Limbaugh is interested in getting the GOP back into power. So here are the alternatives for the Republicans:

Alternative 1: Obama fails and the economy suddenly improves.--GOP Wins
Alternative 2: Obama fails and the economy continues to slide.--GOP Loses
Alternative 3: Obama succeeds and the economy improves. --GOP Loses
Alternative 4: Obama succeeds and the economy fails. --GOP Loses

This will take some explanation.

#1. If Obama fails and the economy improves, then the GOP would be the political winner.

#2 If Obama fails and the economy gets worse, then the GOP loses because they could only claim to have caused Obama to fail, but without an improved economy and no real plans other than for the government to stay out of it then the GOP will lose.

#3. Self explanatory

#4. This is similar to #2, but in this case the GOP may win politically and the country would lose economically. You could argue that the GOP would win here simply because Obama lost, but the human costs would be pretty high. This alternative is still flawed because Obama's success is tied to job creation.

Friday, February 27, 2009

What is Stimulative?

This morning, I was watching Fox and Friends to see what Donald Trump had to say. Included in the group on the couch was Geraldo Rivera. As they were picking apart the stimulus plan and discussing about the pork in the law, something really strange happened: I agreed with Geraldo.

This is pretty weird. It is right up there with seeing a goat flying outside the window of a 747. If you ever find yourself agreeing with Geraldo, then you might go a little dizzy as I did. Just sit down, collect yourself and try to regain your composure.

The Donald was saying that all this spending is going to destroy the economy. All we need is time and everything will be fine. Then Geraldo said it. Stimulus spending is any spending. He used the example of a grape juice museum (which is not in the plan). If the government builds the grape juice museum, while not necessarily what we need, it would still be stimulative. He is right!

Anytime the government borrows money and then spends it is in fact, stimulative in the present time or when it is spent. Yes, over the long haul that money needs to be paid back which will come from higher taxes or inflationary repayment (printing the money). But the immediate effect is stimulative.

So while we may not agree with all the things that are being bought, we should agree that any money that is spent and not immediately paid for with taxes is stimulative.

Monday, February 23, 2009

Status on Projects

For all those of you out there who care, here is the status of my business projects: RentQuick is starting her 11th year and things are going well. Compared to the last recession, we are holding our own. Much of this has to do with the better inventory (Our new Durabooks are a great hit) and a pretty good reputation among our clients. Ultimately, the best part about this company is that after a number of years in trial and error, I have the best team ever. They do more for the continued success of the business than I do.

Hayes Investments: Right now, Hayes only has one empty office space, which is fantastic. In 2008, Hayes Investments started doing project management consulting. We broke ground last week on a 12,000 sq/ft building for a client. Pretty good looking building too. I expect the project management side to continue to grow. We will see how it goes.

DeWitt Crossing: In 2007, the phone was ringing steadily with interest in the project. Right now, I don't think I have had a real phone call on property sales since December 2007. This is where the economy is really being felt. Commercial property is just not going to move while people are retrenching. The unbelievable interest rates help though.

Black Bear Title and Settlement: In November 2008, I purchased Home Front Title from the previous group of owners. We are just getting things where I want them. The office looks great and I expect the revenues to continue to grow this year. Of course, the refi boom will be a great help.

People ask me what I think of the current economic situation. My answer is simple: serve your clients to the best of your ability, pay attention to expenses, try to keep the revenue in line and everything else will work out.

Sunday, February 22, 2009

It's Economics Silly!

Last night I had some friends over for our regular nickle-ante poker game. As the night went on, comments were made about how bad the stimulus package is and how all of this is going to cause rapid inflation.

Of course, the guys saying this stuff were just parotting what they heard on television or the radio. Honestly, do you really think that Rush Limbaugh understands macroeconomic theory?

So what is the effect of the stim and how will it affect the broad economy? To understand this, we must first look at where we are now. In October, the money market pretty much siezed. This caused a ripple effect that quickly caused the failure of Lehman Brothers. Once that hit, then the Treasury Department got involved and pushed through the Toxic Asset Recovery Program (TARP).

After everyone saw that the economic meltdown was underway, then there was a rush to liquidity. You can tell this by looking at the 3 month treasury bills which went to almost 0%. When there is a rapid movement away from leveraged investments to cash, you will see asset prices drop. In other words, lots of people who had stuff that they owed money on sold that stuff at a reduced price. That is part one.

Part two is the forclosure issue. As homeowners go through foreclosure, they lower the value of their homes and their neighbor's homes. This is because when you have an appraisal done on your home, the appraiser looks at the comparable home sales in the area. If Joe down the street sold his home for 30% off then it will affect your home and subsequently what you can borrow against it. This is part two.

Put parts one and two together then you get deflation. Deflation, the opposite of inflation, means that asset prices are moving lower, consumer prices are moving lower, wages are moving lower. It is very, very bad. If you get into a deflationary spiral, then people will hoard money because it will be worth more later. If people don't spend money, then the demand continues to drop and prices keep droping. If prices continue to drop, then deflation increases and people don't spend. I think you get the idea.

So back to the stimulus plan, anyone who understands these forces knows that you cannot let the market fix this on its own. Will the market correct eventually? Sure, but at what cost? This mess will cause massive unemployment, loss of capital, bank failures, hoarding, and eventually price fixing.

As for what it will cost the taxpayers, the choice is simple: either invest in something now, or face lower revenues which will cost the taxpayer just as much.

Here is how it all works:

1. Prices are falling, demand is off causing the risk of a deflationary spiral.
2. The government prints money then uses that money to buy bonds from the government.
3. The money is then spread across the country and is spent. (it really doesn't matter where)
4. As the new money is introduced into the economy, it causes inflation.
5. The inflation counters the deflation which as discussed above is very very bad.
6. Because the treasury actually printed the money, the real national debt does not really increase.

Any questions?

Saturday, January 31, 2009

Pray for Recovery

This afternoon, as I drove down a local road, I saw a sign on the side of a business that said, "Pray for Recovery". Now, I don't know about you, but prayer may not be the best method for getting the economy going again.

So at the risk of offending everyone who believes in the power of prayer, I would like to list some other things that will have a more imediate impact without divine intervention:

1. Get something fixed around your house that needs to be done. This past week, I hired a local handy man, Stu, to put in some more insulation in the attic and fix some leaky doors upstairs which was running up my heating bills. I have needed to do this for some time, but now made sense. He did the work in just a couple of days and was ready to get on it as soon as I called.

2. Refinance your home. Right now, 30 year fixed rates are the best they will ever be. Yes, you need to have some equity in your home and decent credit, but if you do, then you will add hundreds of dollars monthly to your wallet that can be used for things you need. Not to mention, everytime you refinance one of those loans, it is one less loan that is sitting bundled in with the toxic mortgages.

3. Provide a better service to your employer or client. Since we are in a national malaise, it is understandable that people aren't working at their fullest. Now is your time to shine. Focus on what you do and do it better than you ever have before. Think about it. The best and brightest never are in want.

4. If you are spending your money, spend it on services before imported goods. I am talking about consumer electronics mostly here. If given the choice between a $1,000 HDTV and $1,000 in services (get your will redone, have a room painted, have your car repaired, hire a shrink, get a massage, etc) then the money spent will go much further to help the economy. This is because on the TV most of that money is being sent overseas and thus is leaving your local economy.

Pray all you want, but the real way out of this recession is by collective action.

Wednesday, January 28, 2009

Preparing for the downturn

By now, if you have not put your small business in a strong position for the economic slowdown, then you are likely having sleepless nights. We can all hope that the worst is over, but chances are that it is only beginning. Keeping in mind that the overall goal for you, the small business owner, is to come out of the recession with what you went into it with, then you may want to do some of the following:

1. Be sure you have plenty of cash. This means talking to your banker to be sure you have a line of credit to carry all the business expenses for 3 months. If you don't have this line set up already, get to work on it now.

2. Keep your receivables down. Everyone is feeling the pinch, so make sure you are collecting on all your invoices quickly. Anything that passes 30 days should be pursued with all your strength. The longer it goes, the worse it gets.

3. Make sure you aren't paying for deadwood. I know it seems heartless, but if you have employees that aren't performing, then you need to get rid of them before they pull your good employees and you down.

4. Get back to being a guerilla. Don't forget to beat the bushes for new business. Now is the time that all that great customer service you have been working on for years should pay off. Provide a needed and valuable service to your clients and they will use you. Call people and talk to them like people. You don't need to spend money to do this, just time.

5. Keep your employees informed on where you are and where you need to be. I never subscribe to the secret finanancial planning. If you need to hit a number in revenue to make things work, let everyone know. They won't ask for a raise, they may just rise to the occasion.

Sunday, January 25, 2009

4Q GDP expected to be horrible

This coming Friday, we will see the US GDP number come out for the fourth quarter of 2008. The expected number is -5.1% annualized. That is pretty horrible.

Based upon a GDP of $14.4 Trillion that means we are looking at a loss of about $185 Billion in lost GDP for the fourth quarter alone. Since countries can only increase their GDP in two ways: increasing the number of workers or increasing the productivity of the workers, we are facing a serious productivity and employement situation.

Theoretically, if you increase the number of people on the job while keeping productivity the same, then you should have an increase in GDP. Likewise, increasing the productivity of workers while keeping the number of workers the same also increases GDP. In all cases, it is always a little of both. More workers and increasing productivity means more GDP.

Right now, it is pretty obvious what is happening. People are being laid off (less workers) and those that are still employed are producing less (lower productivity).

Normally, we could blame all this on consumer demand. But this time it is different. Over the past year or so, credit has tightened. As a result, projects and investments have been put off. Since people could not borrow the money to say, build a new office building, then that translates into lower GDP.

Way back in October, we saw then Treasury Secretary Henry Paulson make the case for the TARP (Toxic Asset Recovery Program). The idea made sense, buy up the bad assets held by banks and get the banks back in the business of lending. The original plan did not happen because of a problem with pricing the assets. So instead, the banks were given money in exchange for stock warrants. Thus partially nationalizing the banks.

Today, we have a new administration. I call on them to get back to the original TARP idea which is to take the bad assets off the books of the banks. If this is done, then the good loans can be pulled out and the bad loans can be renegotiated.

I don't expect anyone to listen to me, but it feels good to say so.

Saturday, January 24, 2009

Recession Rules

Okay, so we are in a recession. That feeling that we had in the Fall of 2007 when people began to talk about the failings of the economy, the upcoming burst of the housing bubble and the eventual slowdown that would soon follow has now turned into the worst downturn since the Great Depression.

So what is a small business owner to do? Well, first you want to remember that a drop in overall GDP will affect your business, but it likely won't eliminate your business. A drop in revenue of 20% while bad, should not destroy a healthy business.

The main goal is to come out of the recession with what you went in with. In other words, you want to keep your net worth the same. That means your assetts should remain stable as should your debt. Just keep it together and weather the storm. This is easier said than done.

Rule 1: cut out all dead wood early and quickly. If you have an employee who is not productive and will likely never be productive, stop carrying them along. The livelyhood of your good employees are at stake when you keep around a lousy one. Just cut your losses and drop them. They will have to adapt and become productive on their own dime, not yours.

Rule 2: Review every expenditure. Look for monthly recurring bills that can be eliminated. Ship things ground instead of over night. Turn down the heat. Cut off lights. Put off purchases until you really need them. (Never cut corners when it comes to serving your clients.)

Rule 3: Invest your time in revenue growth. Now is the time to reach out and get more business. Any idiot can make money in an up economy, but your prove your worth in a down one.

Rule 4: Stay up on the economic news. You want to know when the Fed meets and what they are likely to do. Pay attention to your interest rates and where they are heading. Pay off the high interest rates first.

Rule 5: Talk with your banker at least twice a month. Let them know good and bad news. Be sure they know what you know. Your banker likes knowing who you are and what you are doing. Right now, you need them and they need you.

Rule 6: Be honest with yourself. Don't fudge your income statement. Take and honest assessment of the business and how it is truly doing. Look at cash flow and pay attention to the little things.

You can and will survive this downturn. Like most small businesses, you are a dreamer and a doer. Lot's of people are counting on your success, not the least of which are your family, employees and clients. Just remember you need tough times to make it great.

Tuesday, January 20, 2009

It is great to be an American

Today is a great day to be an American. We all just whitnessed the peaceful transfer of power from one President to the next. Regardless of your feelings on either of them, you have to admit that our system, while flawed, is still very impressive.

Since I am a former Marine, you would expect me to be fairly patriotic. But nothing moves me as much as what we have had today and during the past few months. If you have kids, be sure to point this out to them so they understand: America is great because of our laws.

Hoo Rah!

Tuesday, January 13, 2009

How We Can Fix It

Over the past several months, the news about the economy is getting worse. Some people would look at this and blame it on a so-called "media bias" who is just talking about the bad news. But if you have lost your job, or know someone who has lost their job then things are quite so theoretical. Reality become very real.

The problems with the economy are huge. These are big problems that are being handled by the big people. The greatest economists, financiers and political leaders are hard at work on a solution. Right?

Does that mean we little people have no ability to fix things? Or is our only role in this as consumers who must go shopping?

My answer is that we "little people" have lots of power. Collectively we are the ones who control the economy anyway. Last year, the United States produced $14.4 Trillion. Most of that money was produced not by the big time investment bankers, but instead by small business. Don't believe me? Look around for all the big companies in your neighborhood. Now ignore them and look at all the little companies. You can do this in a phone book too.

Sure, Walmart is there. But so is S&K Mini Escavating and DDR Engineering. Most of the buildings in an average city (not NYC or Chicago) are owned by private investors. Do you think there is an equivalent to Walmart in the architectural field, or dentistry, or title company? Nope, they are all little guys doing big things.

So while you hear about all these big companies failing and costing the tax payers big money, just remember that the little guys are holding in there. They are the ones who can fix the economy by simply doing what they already do: thrive regardless of the economy.