Thursday, October 09, 2008

Signs of depression

Above: UK debt as a percentage of GDP 1900-2000 (TK's prediction for 2008 onwards is in red)

Above: USA debt as a percentage of GDP 1940-2080

FOUR people turned up to the annual bash at Shipston, the lowest turnout in its ten year history, which upset Lou and Jason who had planned on the normal fifteen to twenty being in attendance. As a result, I have agreed that next year Salvo will sell tickets for the meal and credit cards will be taken for room bookings, three of which were cancelled in the two days prior.

The meal was convivial, although repro outnumbered antique this year. As a result of the small number, the discussion was more erudite than usual, with issues such as the increasing price of Chinese cast ironware (it has doubled in the past two years), how to beat the recession (grow vegetables and keep chickens in your yards), tax inspections and who is going bankrupt (Conservation Building Products for one).

The last recession was in 1989-1993. In those days they happened every seven years and had been since records began. Gordon Brown's handing over of interest rate control to the Bank of England was deemed a clever idea because it did away with politically caused recessions. But the Bank of England's mandate was to control inflation. It was not to regulate house price inflation caused by borrowing. Anyone could see that this was bottling up the mother of all recessions, and it was only a matter of time before it would descend maelstrom-like on a mainly disbelieving populace.

This depression will probably last for a few years. The total global debt is huge and is mainly owed by the west to the east. The USA's $700bn bailout represents less than one per cent of their total debt including pensions of $70 trillion and rising (see chart). Current US debt is more than $500,000 per household. UK total indebtedness is £1.5 trillion including pensions and UK total GDP is £1.4 trillion. So the UK would have to work for nothing for a few years to get back on an even keel.

SalvoWEB has in the past been an indicator of economic activity, with many visitors coming to our site when they are thinking about projects at the planning stage. An upturn in visitor numbers presages an increase in sales over the coming months. Right now visitor traffic is at a low point (see link below).

Since the 1970s the salvage trade has always been able to make money during a recession. There have been several reasons for this.
1. Recessions reduce the number of competing businesses as some, usually those most recently established, give up in a kind of last in first out movement.
2. For businesses with a cash surplus there are usually stock bargains to be had. A recession is a good time to buy.
3. During a recession the annual stock valuation can involve a healthy write down as NRV drops. Make the most of that to claw some tax back.
4. When houses become hard to sell, and money is tight, homeowners think that since they are going to be stuck with their houses for a while they should get jobs done on their house. Using salvage is often favoured because reclaimed and antique materials are a better investment and will appreciate in value even if the rest of their house depreciates.
5. Recessions usually create volatile markets where big opportunities exist if you can spot them and are nimble enough to steal a march on the competition. Keep a close watch for shifts in your stock category sales and profitability - they may be a pointer to some real money to be made. Equally if you run out of stock this could be an indication that your prices are too low and that you can put them up.
6. The media is always looking for good news stories in a recession. Try you local TV radio and newspaper for a story about a customer who uses salvage for a project because they love the quality, know its good value, know it will increase the value of their house, and that even if they get stuck with it their house will be happier to live in now that antique or reclaimed materials have been installed, and that its so much greener and low carbon footprint and it employs more local people, and so on.
7. Now might be the time to think hard about advertising. You should spend ten per cent of your turnover on sales and marketing, including advertising. Don't forget that it is free to put stock on and what better thing to do in those quiet periods.

Let us know your trade stories and any more tips for weathering the recession.

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