Thursday, December 09, 2010

The Calm After The Storm

Over the past 18 months, I have been completely engaged in the construction and now running of Zeus Digital Theaters. My previous posts about the project have given a little insight into what I went through in order to get the project done. However, now that is over with, it is time for me to start paying attention to the rest of the world around me and where I think things are going on a medium-macro level in the mid term.

First, I think this part of Virginia has seen the worst of the recession. Nationwide, unemployment is rising still (latest is 9.8%, but that will be adjusted as it always is.) Much of the increases are from the economy not creating enough jobs to both feed the supply of new entrants and re-employ previously unemployed workers.

I believe a part of the sluggishness in employment growth is tied to Corporate America's resistance to new investments in new bricks and mortar locations is a tie over from the down turn where companies increased their operating profits by cutting costs (employees). All the blood is gone from that turnip. Now, the only way to increase profits is to either make some miraculous increase in productivity or to invest in new market growth in order to increase revenue.

So I do predict that corporate investment activity will increase in the next year. Of course, some of that cash sitting on their balances sheets will and should go to either stock buy-backs or to dividends. However, neither will increase revenues which is needed to increase profits. As a result, investment into market growth will happen this year. It has to. None of the executives want to be the guy sitting on the sideline with a pile of cash while their competitors gobble up market share. Once one moves, the others will follow.

Once the investment starts, we should see a jump in construction spending and related jobs. Once we start to see job growth again, then the Fed will start to un-wind all the liquidity programs, long term bond purchases and ultimately the Fed Funds Rate will rise. Once that happens, order will be restored to the universe. Of course, once interest rates rise, growth should slow a bit, but the dollar will strengthen as money flows into the US economy for debt investment.

Simple right? Publish Post

So the key right now to getting job growth is in the hands of the big corporations. They need to invest some of that cash to grow their revenues. That will in turn spur hiring, etc. etc.

Monday, December 06, 2010

The Trouble with Mixing Economics and Politics

Last night 60 Minutes ran an interview with Federal Reserve Chairman Ben Bernanke, who seems to have requested the interview to straighten up some of the misunderstandings concerning the Federal Reserve's QE2 program.

The QE2, (Quantitative Easing 2) program is a plan for the Fed to buy $600 Billion in treasuries in order to push down long term rates which help lower the cost of mortgages which would help with the housing crisis.

Of course, the general problem is that people think that the Fed is printing $600 Billion in order to push long term rates down. This is false. The Fed is just buying 10 and 30 year t-bills in order to push long term rates down. The money supply is staying the same. People further believe that this will cause hyper inflation. This too is false since we are close to deflation and the Fed has so many tools available to slow inflation if it should show up.

The underlying issue is a push by some politicians to rein in the Fed and bring it under the control of Congress. However, like all modern economies, an independent central bank is absolutely necessary. Otherwise, we would have the same silliness going on in our monetary policy as is in our fiscal policy.

Back in 2008, during the meltdown of the world economy, you saw the real limits of the political understanding of macroeconomics. They didn't understand the banking crisis, nor the Fed's response to it. They didn't truly understand TARP. They still don't understand most of the tax policy that they actually wrote.

Nothing could be more dangerous than to have the power of the Fed subject to the ebbs and flows of political  favor. The Fed is charged with keeping inflation in check and maintaining full employment. Most people in know, accept that there are few tools available to the Fed to keep us at full employment. They cannot affect demand or supply. All they can do is affect the money supply and to some extent the interest rates which impacts economic activity through the cost of financing growth and investment.

The actual growth and investment must start with a market in need of a product or service. Interest rates could be negative, but without demand for goods and services, there will be no growth. (example: Japan).

Economics can be hard to understand. Yet, it is understandable with a little effort. Those who drive public opinion would do well to understand the subject before pushing an agenda. Leave politics out of monetary policy.

Saturday, December 04, 2010

Long Time, No Update

I ran into an old friend who reminded me it has been a very long time since I blogged. This happens from time to time as I get too busy to eat, sleep or blog.

So over the past year, I have been focussed on designing, building and now operating the new Zeus Digital Theater in Waynesboro. This has been a very interesting, exhausting, stimulating, challenging and rewarding year.
Over the past year, I have pretty much worked every day 10-18 hours. I have learned a great deal and hopefully implemented those insights into running the theater.

Of course, the financing was tough from the beginning. Trying to finance a huge project like this during the worst economic downturn in the past 80 years was tough. I was able to pull it off by building on that "loyalty banking" I have written about before. Banks don't lend money to projects, they lend to people. Your reputation for success will either hurt or help you in this endeavor. I like to think that my past performance helped, but also my past loyalty toward my banker played a part.

The construction phase was fantastic. Yes, there were challenges and setbacks, but we brought the project in close to budget and on time. Jon Sweringen was great to work with as the GC. I have to admit, building this huge theater was alot of fun.

Since opening on October 8th, I have been putting together processes, systems and controls to make sure my vision actually exists. I can't say it has been easy, but nothing worth doing ever is. 

I am still a little new to the complainers. Most guests are fantastic, but there are just a few that ruin my day. For these people, I have a hard time not reverting to my old Marine days. I will say that generally, people are reasonable and polite. We won't get everything perfect and they understand. Those that complain the loudest usually have never done anything difficult in their lives, but expect perfection in others. 

So here we are, 8 weeks after opening the new theater. I am still working to tighten up my staff and what they do from hour to hour. However, I am very pleased with the project and the business. Waynesboro and the surrounding communities have been very welcoming. I am now waiting for a restaurant to go in front of the theater, which will make the site a real entertainment destination.