Discover your free Construction Marketing Ideas Email Newsletter

Saturday, October 25, 2008

Bubbles, brawn and brains

Why this recession?

I'll go out on a limb and suggest that the world economy is resolving two bubbles simultaneously. One, a real estate bubble caused by artificially low interest rates during 'good times' coupled with financial derivatives and mortgage gimmicks, coupled with another, in oil/commodity prices which went through the roof. These turned normal supply and demand equations on their heads as speculators and amateurs coupled with the 'pros' to do some truly strange things. And, as is typical during bubbles, the experts and media believe something permanent has changed and there is a new order of things changing the world (peak oil has arrived, for example).

Well, for oil, peak oil -- that is the diminishing availability of supply -- may have arrived, but of course the bubble changed the rules of the game causing (surprise, surprise) both investment in new technologies/exploration and conservation. Duh. Supply and demand. So when things got sort of back to normal, in other words, when people woke up and realized that the shortages were somewhat artificial (outside of refining and supply bottleneck issues), the price, not surprisingly, has started to crash. It will drop more, I think.

Same thing for real estate and construction. A sure sign of a bubble is when amateurs or neophytes become experts; when people begin leveraging and jumping through hoops to get in the game, and see paper wealth rising, and dream that the growth will go on forever. Then, the spigot turns off and everyone realizes it seems we are over housed and overbuilt, and, you get the next stage of the story.

Historically, bubbles end with crashes, but while you can predict these evolutions like night and day, you can't exactly predict how they will last/end/evolve. Anyone with that ability of course writing a blog would have a following of millions -- and the ability to create his own bubbles! (And I am definitely not that higher authority.)

Still, we now need to contend with two bubbles sorting themselves out and the possibility we have a whole lot of excess capacity in the construction industry right now. This suggests that some of the blog's readers will need to take deep cuts to survive, or will either need to leave or become highly innovative, tough, or both.

If you are younger, or relatively new in business, you'll know the advice: Focus on your good customers, keep your financial practices in good order, and observe solid, prudent, and creative responses to the circumstances. You should not bury your head in the sand or pour good money after bad.

And you've read the earlier postings reminding you of the 80/20 rule regarding priorities, and the simple fact that if you are in the top 10 to 20 per cent of your craft (reflecting a combination of passion, brains, and innovation), you will survive even the worst times because things don't stop completely even in the worst crashes/depressions -- some people still have jobs and businesses, and some even make fortunes.

But these answers cannot address your specific circumstances, your immediate needs, and your own priorities. These answers need to come within your own community, through relationships, connections, and your own imagination. (Beware of con artists -- they love hard times. I'm noticing for example a real increase in 'job offer' spam purporting to offer employment opportunities that somehow you (or I, or anyone who can read the email) would be qualified to do. . . sure, if you are ready to have your bank account cleaned out.)

If there is one difference between this bubble/crash experience and previous, it is the evolution of the Internet, with new worldwide communities and information sharing, at costs so low that even the hardest times and tightest budgets don't preclude access. Of course Internet messages are not oil in barrels or land and housing and commercial buildings, and if you are reading this blog, these are the areas of highest relevance to you.

No comments: