Boom, Bust or Bubble?

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I was recently having dinner with my old friend Bill, who happens to be a top gun financial advisor and Wall Street guru. Oddly enough, I gave him one of his first jobs as a waiter over 35 years ago when he was in college. Needless to say, we each have a long history in financial services and the restaurant business and we have seen the big swings in the economy and how they have affected the foodservice industry. 

Over appetizers I asked him – “so Bill, everyone seems happy about the economic boom, so when will the big drop come? Most financial types agree that we are overdue for a “correction”, so what do you see in your crystal ball?” He looked at me over his Shrimp and Polenta and said – “I don’t have a crystal ball but I do have history books and we can certainly make reasonable assumptions based on what has happened before. There are clear patterns emerging that look like past corrections in the market and drops in the economy and people should pay attention.”

Being in the trenches as a young restaurateur, it didn’t seem that I had any control of what was happening and just had to roll with the punches.  I made it through Nixon’s recession in the mid ‘70’s when we had gas rationing and lines at the pump while oil prices increasing 4X and unemployment exceeded 9%. My cost of goods soared as trucking costs skyrocketed along with electric and heating oil. Finding a profit was tough, especially when customers stopped coming out for dinner.

Then in the ‘80’s came Jimmy Carter’s recession with 21% interest rates, stagnant economic growth and unemployment blowing up to 11% and individual credit card debt hit all-time highs. Even with my restaurant being on Madison Avenue in the “Silk Stocking District” of the Upper East Side, sales took a 25% back slide and I had to fight to stay in business. Holy crap – what a wild ride!

Like most people in our industry, I got up every morning and went to work hoping that the world outside would not affect my customers too badly because everyone got hungry every day, right? Wrong! Forces around me were impacting my sales and increasing expenses. At that point in my career, the only thing I knew then about “trickle down” economics was that when the greater economy took a hit, so did my small business which depended on disposable income and discretionary spending. I kept my head down and stuck to the grind almost unaware of how serious things could get. Either that or I was in denial.

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  • McKee Foodservice
  • Inline Plastics Safe-T-Chef
  • T&S Brass Eversteel Pre-Rinse Units
  • DAVO Sales Tax
  • Texas Pete
  • BelGioioso Burrata
  • Atosa USA
  • AyrKing Mixstir
  • Day & Nite
  • Simplot Frozen Avocado
  • RAK Porcelain

So what does that have to do with us today?  Forget the politics. Whether you believe the boom in the economy is the ongoing upswing from the stimulus package of Obama or driven by the tax cuts and deregulation of Trump – we are enjoying a strong surge in the economy with many positive indicators. But should we be wary? Does this mean smooth sailing ahead? Are we blinded by the euphoria of economic growth or are we in for another rude awakening?

Everyone knows the stories of boom and bust. The ups and downs. Highs and lows of the financial markets and the greater economy are natural. It happens all the time. In those perfect storms, the economic system can turn sideways when the highs are built on hype and when risk is injected in large doses. In these cases, the bottom falls out and everyone has a hard landing and it can take years to recover. 

Such was the case with the “Great Recession” which started in December 2007 and the global economy was brought to its knees pummeling the entire banking system which came to the brink of a catastrophic failure.  Access to working capital for small businesses dried up, with few exceptions. Strategic Funding was one of the few that continued to fund from the crash through the entire recession, but it wasn’t easy.

When the crash hit, financial journalist Andrew Ross Sorkin recalled seeing Wall Street executives running to ATMs to pull out all of their cash from their banks fearing a complete collapse of the system. This crash was fueled by high levels of risky debt and a financial system driven by hubris and false positives. Everyone seemed fat, dumb and happy leading up to the collapse. Only a very few saw the bubble coming precipitated by the bust in the housing markets which triggered a domino effect through out the world. In 2007, the average working stiff felt secure that their house would keep growing in value and that their retirement funds were safe and life was good. By early 2008 the stock markets, retirement funds and other investments had lost almost half their value.  Houses were now worth far less than their mortgages and they were “under water”.  Foreclosures began to stack up like cord wood as people lost their jobs, savings and homes. Needless to say, they lost their appetites too.

As Bill and I moved onto our entrees, we both agreed that we are seeing similar clouds appearing on the horizon. A high-priced stock market, tons of debt, trade wars developing and a general disconnect amongst the average guy on the street and the true financial conditions they live in. It’s like watching a hurricane form in the ocean.

Consumer debt in the U.S. is now over $13 Trillion and climbing. Credit card debt has hit an all-time high, which some economists blame on unnecessary spending and others claim is a result of stagnant wage growth in the working class. Building student debt, medical expenses and general cost of living, topped with high interest rates make it clear – somethings got to give. Yet, with unemployment at a 17 year low and despite zero wage growth (more on that below) – 85% of blue collar workers feel that their financial future is headed in the right direction.

Bill and I found it interesting that this overall sense that things were a boom for the average guy was misleading. Real wage growth for the working class was ZERO when adjusted for inflation. To make matters worse, it was reported that every single incremental dollar earned by the working class was sucked up paying for health care and insurance. Bloomberg Business News just reported today that the Republicans commissioned a survey to see how Americans felt about their landmark tax cuts and got a rude awakening when the majority of people viewed it negatively because it only benefits corporations and the wealthy while driving the national debt and deficit up by $1.5 Trillion! Families in states like NY, NJ, CT will get slammed because they have lost important deductions that will boost their taxes considerably. The real sticker shock will come in April when many taxpayers find out that they under withheld and now need to write a check to the IRS.   

By the time dessert came, I asked Bill – “So what will it be?  Boom, bust or bubble?”.  He looked up and said… “You tell me.”


If you have any questions or just want to discuss your business, please contact me at dsederholt@ragnarpartners.com

  • Inline Plastics Safe-T-Chef
  • Simplot Frozen Avocado
  • AyrKing Mixstir
  • T&S Brass Eversteel Pre-Rinse Units
  • BelGioioso Burrata
  • DAVO Sales Tax
  • McKee Foodservice
  • RATIONAL USA
  • Day & Nite
  • Imperial Dade
  • Atosa USA
  • Red Gold Sacramento
  • Texas Pete
  • RAK Porcelain

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