Fall 2012: Prelude To Recession

In my opinion, the U.S. economy has begun a slide into probable recession. This prediction is based on a technical reading of the major stock market averages (Dow Industrial, Nasdaq, S&P 500) as well as analysis of several recent shocks to our economic system. I have "called" these economic movements in the past and occasionally been correct about them. I want to give you, the reader, an opportunity to understand what I'm seeing, so I will use this blog to explain the analysis that happens behind the predictions.

In stock charting, we don't just show the price points making up the chart. We usually also draw a line on the chart showing the average price of the last 50 trading days. Additionally, we draw a 200-day moving average. Taken together, these moving average lines depict the longer-term direction of the price that is being tracked.

In a healthy stock market, the prices of the major indexes stay above their 50-day moving average lines (and the 50-day moving average lines stay above the 200-day moving average lines). This indicates the price is increasing and its long term trend is upward.


Thanks to stockcharts.com

Here is a daily price chart of the S&P 500 Index from late May 2012 to the date of this blog post. We have healthy behavior in portion 1, within the green circle, where the daily price lines are moving upward above the blue line, which is the 50-day moving average line.

A few weeks ago, in portion 2, (yellow circle) we have a warning indicator. The daily values have dropped below their 50-day moving average, but they are still above their 200-day moving average. Stocks and indexes occasionally bread down below their 50-day moving averages but then recover above them. That is not what has happened here.

A few days ago, in portion 3, (red circle) we see a serious warning that the S&P 500 index may have begun a longer-term downward trend. The daily values have crossed below their 200-day moving average. Notice that the index has remained below the warning level for several trading days. The Nasdaq 100 and the Dow Jones Industrial average are both also below their 200-day moving averages and have been there several trading days longer than the S&P 500 index has.

so we start with the facts - reality - the three major indexes have all fallen into the danger zone, and have not recovered so far. To be sure, there have been occasions in the past when they all crossed below the danger thresholds then recovered back up into healthy territory. On the other hand, every recession in this country dating back at least to the Great Depression, has been signaled by the major indexes of the day slipping below their 200-day moving averages and not recovering.

In concert with the stock market danger zone, we have: 1) the "fiscal cliff" of tax hikes and federal spending cuts looming, 2) continuing uncertainty regarding solvency in Europe, 3) a recent swell of unemployment due to the destruction from Hurricane Sandy, 4) thousands of troops returning from foreign wars also joining the pool of the unemployed, and 5) Atlas Shrugged - in the form of pissed off Republican business owners retaliating for four more years of Barack Obama by cutting hours and positions to protest what they see as a slide into Socialism.

A deal on the fiscal cliff would certainly give a positive jolt to the economy but it remains to be seen whether that, alone, would provide enough impetus to restore it to the path of slow, gradual growth it had been on prior to November.

First Day of Oil Spill Cleanup Work

Reminisces of my first day reporting for oil spill cleanup duty on Friday, August 13, 2010:

It is 4:20 AM. I've just gotten up and turned on the coffee maker. The head supervisor at the oil spill cleanup staging area told me yesterday to come in today. There will be many workers like me at the staging site, a local elementary school parking lot. Because of the crowd, I've been instructed that when I get there, I should stay in my car until 5:30 AM, when we're supposed to line up and have our badges scanned to clock in by 6 AM. I put on my work jeans, a special long-sleeved white shirt made up of breathable fibers treated to reflect heat and UV rays, and my steel toed work boots, pour the coffee in a travel cup, and head out the door.

At 5:15 AM, I arrive at the parking lot. It's difficult to see what's happening at the clock-in area because there is a line of large charter busses in the circular drive. We're supposed to park in the "grass" - there isn't much grass left, it's mostly red clay mud, but it's not too wet. As I park I notice that none of the other workers is waiting in his or her car. I gather my hard hat, safety glasses, and fluorescent vest from the passenger seat and head up toward the front of the school. My heart stops - I see that there is already a long line of workers snaking around the edge of the circular drive. My brain starts calculating whether there are already more people here than bus seats, but I keep walking anyway until I reach the end of the line.

At 5:30, the line moves through the two badge scanning administrators surprisingly quickly. We workers are herded toward a number of tables labeled "Strike Team 1" to "Strike Team 5". I recall that the supervisor told me to look for Strike Team 1 or 2, so I head to the Strike Team 1 line. We are signing in (in spite of the fact that we were just scanned in) and printing our names on the Team Roster list for the specific team to which we belong. After 15 minutes of worrying that Strike Team 1 will fill up, I get to the head of the line and look for my name. It isn't on the list. I ask a supervisor behind the table and he asks me what my name is. When I tell him, he says, "Oh, last names L through Z are on Strike Team 2, get in that other line!" So I get in the other line, just certain I'm going to be put on standby. But it turns out that they've had to change the rotation, so some of the people in line aren't supposed to be here today and they are instructed to leave. When I reach the head of the line, I locate my name on the sheet and sign in. I locate the bus for my team, climb inside, and find a seat along with about 30 other workers and a few foremen.

It's 6:15 AM. A couple of men have spoken to us on the bus about why we haven't left yet, though none of them has identified himself as a foreman or a supervisor. One of them has started passing back a notebook and pen, instructing us to print our names and phone numbers so the team foreman can contact us in the days ahead if need be. Then the notebook is passed through again, and we're supposed to put our names, addresses and social security numbers on a different list. The foreman explains that he wants to make extra sure that the administration department has this information for all of his team members so that our paychecks will be processed correctly. After about a dozen people have already filled in this information, a general uproar from the workers convinces the foreman that we should only have to put down the last four digits of our SSNs. He locates the list and scratches out the first five digits for the people who've already begun the list. As a software engineer, this constant duplication of information is driving me nuts. I start designing a web-based oil spill team management application in my mind...

Our bus rolls out of the staging site and we arrive shortly along with a second bus at a location that has an access road to a long stretch of ocean front in Ft. Walton Beach. Some logistics people are already there, they have all terrain vehicles (ATVs) that get loaded up with the equipment stored in our bus. We wait for what seems like a long time after the ATVs leave. In the meantime, various people get on the bus and address us, only one of whom, a safety enforcement person, bothers to tell us who he is. Since we are still waiting, I get the sudden urge to stand up, pretend to be someone in authority, and make a speech about what is going to happen today. But I successfully resist this temptation and we are off the bus at 7:30 AM.

I ride with 13 other people to one of the work sites in an open-sided trailer pulled by a farming tractor. (think of a covered hayride with bench seats) My team's site for today is not too far from the beach access road. We exit the people carrier and set up a the site by erecting a portable canopy near the dunes for a break area and laying a large rectangle of plastic sheeting in front of it for a decontamination area. (where we will put on and remove our protective gear) The team is divided into two squads that will rotate between working and resting due to our exposure to the heat and humidity. Spilled oil from the BP well has been weathered by the sun and the sea over a period of days, so it is no longer off-gassing dangerous fumes like benzene or tolulene. (unlike the oil from the Exxon Valdez which was much closer to the shoreline) There is no smell of anything on the beach but salty ocean air.

It is 8:15 AM. My squad is chosen to work first. We line up at the decontamination area and don the special oil resistant gloves and boot covers. There aren't many visible tarballs on the surface of the sand but I soon find out that there are many of them hidden below the surface. Our squad has four roles to fill while looking for the oil tarballs. Some of us use plastic rake shovels with metal mesh to rake the sand. Almost immediately, oil tarballs ranging in size from a dime to a quarter pop up from beneath the surface. The rake person could scoop these up and sift the extra sand out through the mesh, but it's more efficient for them to keep raking while a second role uses a long handled net to capture and sift the tarballs. A third role follows the rakers and sifters with buckets or thich plastic bags to hold the captured tarballs. A fourth role uses a plastic shovel to dig exploratory holes in the sand at various locations around the work area. Occasionally this person will find much larger veins of oil tarballs (some of which are as large as a human hand) that the rest of the team can concentrate on. Sooner than I realize, 30 minutes has elapsed and it is time for our team to be relieved by the other squad. We lay down our tools at the far end of the decontamination mat and remove and discard our protective gloves and boot covers while the next squad puts on fresh ones.

Our squad shifts continue to rotate like this throughout the day with a general break at noon for lunch and an occasional stand down due to rain or nearby lightning. Lunch happens under the team canopy but safety stand downs require us to be transported back to the busses. In the early afternoon, we strike the work sites and head back to the busses. The logistics people retrieve the work site gear in the ATVs. In the meantime, various foremen and safety personnel get on the busses to tell us how we did and what general work habits they observed that were either exemplary or borderline dangerous. After what seems like a long time, the busses are loaded up. I make a mental note to bring something to read with me on future shifts. By 3 PM, we have arrived back at the staging location and have clocked out, the work day is over.

Overall, a very positive experience. The work is not back-breaking, but it is definitely back-aching - the sand can get heavy, especially after a rain shower. Yet, I am glad to be participating in the cleanup effort. I was lucky to be at a place in my life that made it easy to drop what I was doing and come to help out. There were times when I felt a little discouraged by the obstacles on the path to becoming qualified for this work. It's gratifying to have persevered and achieved the goal that I set for myself. And there are the bonuses: I'm making some new friends and enjoying my time living in the Ft Walton Beach area. I won't be doing this work for too long, but doing it makes me feel like I was able to help out my country in a time of need. And that has been worth more than all the rest of it.

Starting Anew In Austin

I moved to Austin, Texas the weekend of April 10. I drove a rental truck with my car in tow from Orlando, Florida, and the whole trip took about 30 hours, including a five hour stop at a motel to get some rest in Baton Rouge, Louisiana. Packing and getting underway was made a good bit easier thanks to the help of some good friends in Orlando who helped me organize and box up my stuff. Much appreciated!

So now I've been in Austin almost two weeks. It's gone by fast, and I'm finally just about settled in where I'm staying, a room share in a beautiful four-bedroom house up in the Arboretum area (northwest from downtown). Although my ultimate plan is business ownership and development, I have allowed myself to be courted by a couple of software companies for full-time employment. One of them had previously extended me an offer in spring '08, but I took a competing offer in the DC area instead.

Why would I participate in job interviews if I want to go into business? This is the question I am living with currently. There are a few ways to look at it: 1) I'm selling out on my dreams by pursuing full-time work, postponing the "real" life I keep telling myself I'll have someday. 2) It's something practical to do while I keep my ear to the ground and get a feel for the best avenues of business opportunity that are available. 3) It's a way to practice some of the best wisdom I've ever learned, being willing to be "open to everything and attached to nothing". (Wayne Dyer)

I am truly blessed. I followed opportunity back in 1995 and built the kind of career and skills that get me noticed in the job market for very good pay. But sometimes I wonder if this situation has also created a kind of gravity that keeps me from moving up into an orbit that is higher still. When I read the business stories of people like Richard Branson, Felix Dennis - even Bill Gates and Michael Dell - I feel like I may be settling for something less than what I have the potential of becoming by taking on a salaried position. You see, it's always a good time to take a job, and it's never a good time to jump into business. A software job offers me good money. The benefits are nice. There's a lot to like about it and I would never dishonor the value of working for a paycheck. It's just that something deep inside of me wants to the one who creates jobs, who puts capital at risk, who makes a difference (of whatever magnitude) in this world by creating and promoting his own products and services.

I was recently re-reading a chapter in Ken Fisher's excellent book The Ten Roads To Wealth where he writes about managing other peoples' money. Wealth managers make up the largest percentage of the annual Forbes 400 list of the world's richest people. Fisher himself is on the list for that reason. He was saying in his book that the most important part of getting started (from a business survival standpoint) is learning how to sell. In fact, he recommends a person interested in this path to learn selling even before learning investing. That got me thinking - maybe what I want to do is take on a sales job and get some more real-world experience there. I say "more" because I have worked as a salesman in the past - my first job was concession sales at the Toledo Zoo, after which I sold computers at KMart. Back in the '90s, I occasionally took up holiday sales work at Circuit City. Most of my friends think I have this skill in spades, but like so many areas of my life, it's mostly raw talent that hasn't been developed in a focused, sustained way.

One thing is for sure, I feel as energized now as I did when I first took computer programming seriously back in 1995, when I had a sense that the world was my oyster and only opportunity was ahead. As my dear friend Mimi Munroe would remind me, "You can't get it wrong." No Mim, I can't. I remain clear about my eventual outcome, yet the path to that destination is an unknown adventure that I embrace with abandon.

Cutting the Employment Cord

Yesterday was my last official day at EA Orlando, two weeks after I gave them notice. There was nothing wrong with the company or the position. It's just that I felt like I was going to burst unless I put myself "out there" and took a chance at creating a business of my own. I am fortunate to have money saved up so I could live on it for a few years (with a fairly tight budget) if I needed to.

I'm doing research on a handful of opportunities, all of them original business ideas. One of them is to emulate Fred DeLuca's (the founder of Subway Sandwiches) success by starting a fast food concept that can be refined into a system at one store, expanded locally, and later developed into a franchise opportunity. Another idea is to take my considerable expertise and create a new technology product or service - this would take more time but would have the potential for a much bigger payoff. You know me, I want it all - perhaps I can start the fast food shop, get it rolling with a good management team and then focus on developing the technology product.

Every job I've ever worked has been trouble simply because when I see ways for a company's processes to be improved I don't keep my mouth shut. On the contrary, I've been the epitome of the boy who called out, "The Emperor is naked!" It is only fair to the fine men and women who have had the challenge of trying to manage me that I remove myself from the employee pool and take a shot at being the Emperor. Interestingly - my way has worked out well when I've worked at startup companies where it's fine to chit-chat with the President and the Chief Technology Officer. I guess I just don't "get" turf wars and office politics - it all seems like a bunch of unnecessary friction that slows down the process of innovation and continuous improvement. I understand that there are many people who do "get" these things and who are willing to work around them in exchange for stable employment. I am very glad for such people - after all, my future companies are going to need managers and employees too.

In a way, it all boils down to this: Although I have finally come to accept that I cannot escape structure, I don't have to spend my life struggling against somebody else's structure. I have the option of creating my own structure - one that pleases me, one that I can live with and thrive in.

Back Into The Fray

Earlier this week, I concluded the self-evaluation begun during my wilderness getaway. After taking everything into account, I decided to pursue returning to full-time work as a software engineer. I love the work and it pays well. There is still surprisingly strong demand in the market for my skills and it never hurts to make hay while the sun shines. (as my farmer relations used to say)

My other major option, raising capital and starting a small business, is still an important goal for me. A good portion of my getaway was invested in creating a specific business plan, including estimating startup costs, on-going cashflow, expansion plans, etc for the venture I had in mind. This was a valuable exercise and the plan I created may, one day, be the plan I pursue.

During my previous years of employment, I did a good job saving money in retirement plans and I feel like that part of my financial picture is in good shape. So beginning with my next job, I intend to divert my savings into a taxable investment account that will be dedicated toward helping to fund future business ventures and investment real estate purchases. I hear it works best to have a good chunk of your own money on the line when you present an opportunity to invest to others.

This decision (returning to employment) will likely mean another geographic relocation for me. If that turns out to be true, it will also likely mark the end of a short but incredible romance. Yet I feel the magnetic pull of my capacity for greatness in this world, and it is not a force that my spirit is inclined to resist. When you're in on the secret that love is not scarce, it is abundant - well, it doesn't make things easy, but it does make them possible.