Guest Post: A Tale Of Two Economies

Tyler Durden's picture

Submitted by The Contrary Investor

The Tale
Of Two Economies

It simply continues, and as we see it is
THE key tension in investment decision making of the moment. 
It's the tension of the macro versus the micro.  After all,
isn't this very tension exactly what has been playing out as 2Q
earnings season has unfolded?  Again, the key question being,
what will be more important to investor decision making ahead, the
macro domestic and global economic and credit cycle backdrop or
company specific earnings and forward guidance?  We'll move
through this little look at life as we know it at the moment
relatively quickly as basically it only continues to validate the
"tale of two economies" theme we have been discussing
for well more than a year now.  But we do believe there are
some very valid conclusions that can be drawn from one of the most
noticeable economic divergences we have seen in many a cycle.  

To the point,
in recent weeks we have been treated to the quarterly Conference
Board CEO business confidence survey as well as the NFIB (small
business) survey for July (data through June).  As with so
many business conditions surveys, the CEO confidence survey is a
diffusion index.  Any reading above 50 tells us the
preponderance of responses were positive, and vice versa. 
Quarter over quarter the CEO survey was unchanged in the recent
report and remains consistent with headline economic expansion
based on historical precedent.  At least over the recent
past, survey levels at 50 or above have been consistent with at
least 3% year over year real growth in GDP.  Over 70% of the
CEO's surveyed expect profit growth over the next twelve months
and half of the respondents expect an increase in demand to drive
profitability.  Alternatively for the small business crowd,
demand and poor sales is their number one concern.  In terms
of the US corporate sector, large and small business conditions
have been and continue to remain worlds apart.  The chart
below is a look at the history of the CEO survey and the bottom
clip aligns the historical CEO responses with the rhythm of year
over year change in nominal GDP.  In terms of the confidence
survey versus GDP relationship, the CEO survey has been a very
important historical leading indicator valid at both cycle peaks
and troughs.  It's why we always check in.


Conference Board CEO survey now joins both the recent Duke CFO and
Business CEO Roundtable surveys in one unanimous and very much
unambiguous message - no double dip recession ahead.  In fact
as per the harmonious singular message of all three, we're not
even close.

After a good
bit of improvement in April and May, small business optimism again
retreated in June.  We've been over this before and the
divergent relationship between large and small business outlooks
remains completely intact in the current cycle.  Therein lies
the key tension for the US economy of the moment as we see it. 
And the key tension for investors.  Why?  First, as is
exemplified in the chart below, there has been a very strong
historical directional relationship between small business
optimism and the year over year rate of change in headline US
employment.  Levels above 95 on the small business survey
have been consistent with payroll expansion in the past. 
Yes, there has been recovery in the year over year rate of change
in payroll employment, but the census worker hiring has skewed
this near term and we continue to compare to meaningful prior year
weakness.  Stripped of census worker hiring YTD, improvement
in headline US payrolls relative to the job loss numbers since
2007 is nothing short of a rounding error.

optimism dropped below 95 in November of 2007, not only was it
heralding the onset of a nasty official US recession, it also in
the clarity of hindsight marked the end of prior cycle month over
month expansion in US payrolls that indeed ended one month later
in December of 2007 as the final month for positive payroll
additions.  Over the subsequent 24 months ended December of
2009 the US lost 8.4 million jobs and experienced only one month
of job expansion (minor) over that 24 month period.  The
bottom line here is that small businesses are the largest US job
creators.  As long as small business conditions remain
depressed, it's going to be very tough to achieve any type of
sustainable domestic labor market recovery.  That should be
more than clear by now.  CFO and CEO optimism and outlook
surveys recovered meaningfully close to one year ago now, and we
have little to nothing to show for it in terms of non-census
related labor market expansion.  Importantly, when we look at
macro economic data such as the ECRI weekly leading index,
necessarily small business outcomes are being reflected in those
numbers.  Based solely on historical numbers precedent, the
ECRI data is telling us another recession either has arrived or
soon will based on the historical track record of this data
series.  The NFIB business optimism numbers themselves are
also consistent with a recession outcome.  In fact, the NFIB
numbers really tell us small businesses never exited a recession
outcome in the first place.  It's clear to us that large
company CFO and CEO surveys are being influenced by the ability of
large companies to participate in global stimulus (lowered costs
of borrowing, strength in exports as per foreign stimulus related
global demand maintaining strength, etc.).

But what
about small businesses?  What stimulus have they received? 
In the past we have questioned the lack of hiring tax credits or
investment tax credits conspicuously absent in Administration
policy.  The Fed printing up money and buying back mortgage
and CRE backed paper, as well as US Treasuries has only benefited
Wall Street and the banks.  It has done nothing for small
businesses.  The only stimulus, if you will, that might have
benefited small business was the reduction in macro interest rates
vis-a-vis the Fed Funds rate.  But something, at least for
now, has changed in the current cycle pretty dramatically relative
to historical experience.  As we see it, small business
conditions are not responding to interest rate stimulus. 
This is different.  The chart below chronicles the
relationship between the NFIB numbers and the Fed Funds rate over

It is clearly
seen that in prior cycles, dramatic drops in the Fed Funds rate
ultimately sparked a move in the NFIB optimism reading back above
95 that would indicate expansion.  In fact these death
defying plunges in the Funds rate meant trips below 95 on the
small business survey were very short lived, as is clearly seen in
the early 1990's and early 2000's recession periods.  Lastly,
it took ever deeper Funds rate declines to work the reflation/expansion
magic in each successive recessionary cycle of sparking renewed
optimism stretching over the last quarter century.  Of course
in the current cycle, despite the Fed Funds rate being somewhere
near academic zero, as it has been now since December of 2008,
small business optimism remains in historical recession territory. 
As the chart suggests, has the historical linkage between interest
rates (monetary expansion) and small business economic conditions
been broken in the current cycle?  We suggest that for now
the answer is yes.  And this is a key differentiation point
between prior cycles and the present.

As a quick
aside, it is becoming very clear to us that fiscal policy may be a
non-starter ahead.  Although there is more 2009 stimulus
spending in the pipeline as we move into 2011, the political
backlash against further deficit spending/stimulus continues to
grow.  It's not just the Tea Party.  This backlash is
evident in recent State primary elections and we can only imaging
how it will manifest in November.  So stepping back for a
minute, as we look forward this puts increasing pressure on the
Fed as potential the sole source of further stimulus.  But
with interest rates already at zero, just what can the Fed now do
to positively influence small business outcomes?  Print more
money and by back more financial paper?  Hardly, that won't
do a thing to help small business.
that says something about the whole pushing on a string thesis. 
The cost of credit may have gotten a whole lot more attractive for
large corporations, but how about for households that are the
largest small business customer base?  Thanks to the
government for allowing the financial industry to front run
changes to credit card/consumer credit regulation, cost of credit
to the average household has only gone up over the recent past. 
Is this why the linkage above appears broken?  We think it
goes a long way toward explaining the current period divergence up
to this point. 

Of course
what has changed in the current cycle that we believe directly
affects small business conditions is the lack of job growth
mentioned above plus the lack of personal income growth stripped
of transfer payments, as we have also discussed in depth as of
late.  Again, over time, the NFIB optimism survey and the
rhythm of year over year change in personal income devoid of
transfer payments has been very highly correlated.  If the
June numbers are telling us small businesses are becoming more
somber as they look into the second half of the year, then should
we expect the rate of change in personal income to also contract
(again, stripped of transfer payments)?  History tells us the
answer is yes as the NFIB series has historically led the year
over year change in non-transfer payment related personal income
growth.  This is exactly why we suggested recently, despite
our deep negativity regarding deficit spending, that in the
absence of extended unemployment benefits retail sales and
consumption in aggregate will slow over the remainder of the year. 
Is this what small businesses are "seeing" as they look

Three last
charts and we'll call it a day in terms of the "tale of two
economies" update.  First, the tale of two economies
theme plays out in highlight fashion in the top clip of the chart
below.  It's the ISM (large company) new orders subcomponent
of the ISM series set against the NFIB business optimism numbers. 
Again, very highly directionally correlated until the clear
departure seen in the current cycle.  One issue to note is
that in recent months these two data points have begun to move in
much better directional harmony, as you can see.  And why
might that be?  We personally believe it is because the bulk
of the macro inventory rebuild cycle is over.  Inventory
restocking will now be much more closely linked to demand/sales. 
And if inventory activity is any indication of business optimism,
which we believe it is, we need to note that in the June NFIB
report inventory plans fell back into negative territory after a
one month hiatus in the land of the positive.  Although we'll
spare you the chart, small business plans to add to inventory have
been in negative territory now every single month since December
of 2007 with the exception of May of this year.  That
absolutely speaks to business confidence, or more correctly lack
thereof and reinforces the tale of two economies theme playing out
as we have seen inventory rebuilding in aggregate.  Clearly
it's the large companies that have driven the macro inventory
rebuild.  And we suggest this has been done with an eye to
international sales.

Of course the
two bottom clips of the chart show us the divergence between
hiring in the manufacturing sector relative to small business
community hiring in aggregate.  Please realize that the NFIB
survey is dominated by service sector businesses. 
Manufacturers account for less than 15% of total respondents. 
And in the spirit of honesty and integrity, 20% of the NFIB
respondents are involved in some form of construction.  But
the last time we checked, even these folks need jobs and personal
income growth that is essentially the basis for macro economic
expansion.  To be honest, we see the same dichotomy when look
at the manufacturing ISM and non-manufacturing (service sector)
ISM numbers and trends.

One last
issue to keep in mind when looking at the ISM numbers is what is
termed survivorship bias.  Companies formerly responding to
the ISM surveys that are no longer around are not being
"counted", so to speak.  It's those that have
survived and in all probability taken market share from the weak
that dominate current period responses.  This is true in each
cycle, but probably a good bit pronounced in the current.  So
one question we must ask when looking at a series such as this is
are current levels of response overstating strength?  Again,
just a bit of perspective.

disheartening for the small business community is the depth of
lack of pricing power during the current cycle.  The top clip
of the next chart is clear on this observation.  We've never
seen anything like it.  And certainly the only reason this is
the case is that demand is the missing key ingredient for small
businesses.  The top singular concern of NFIB respondents in
June was "poor sales", as has been the case for many
months now.  Also after having emerged into the light of
positive territory in recent months, June showed us a return trip
to the dark side for forward small biz sales expectations. 
In the 2001 recession, small businesses blinked for one month
concerning sales outlook.  Night and day compared to the
current cycle.

hesitation, we suggest the above trends appear as they do directly
related to lack of job and income growth for households.  If
you ask us, this is a ground zero issue for investors ahead. 
Small businesses are clearly contributing to the deterioration in
the macro, as exemplified by the ECRI numbers.  Yet the micro
of large company reported earnings is holding up for now.  Of
course large companies have the luxury of reporting
"operating" (stripped of non-recurring costs which
continue to grow) as opposed to actual earnings in the public
venue.  Is this why many a CEO and CFO are optimistic,
because they can help shape reported earnings outcomes?  This
is THE tension for investment decision making.  And we're
sorry to say it, but we do not believe this is going away anytime
soon.  Probably only exacerbated as we venture into 2H 2010
and surely exacerbated in 2011 as tax rates go up.  Moreover,
recent legislation calling for producing 1099's for all corporate
transactions over $600 is one of the largest negatives we can
think of for small business.  Not only does it add a layer of
unreimbursed cost to small businesses, but will probably cause
large business to consolidate their own supply relationships with
smaller companies to likewise avoid expensive bureaucratic and
duplicative paperwork - a double negative for the small business
community.  Just what are politicians and the Administration
thinking?  Answer:  They are not.    

Finally, as
we have heard it said a million times now in the mainstream media,
lack of credit availability is hurting small business.  A key
source of business credit historically has been small community
and to an extent regional banks.  Licking their CRE wounds,
they are in no mood to lend.  This is the key linkage between
CRE outcomes and the small business community.  But, only 10%
of small businesses said they were dissatisfied with credit
availability in June.  In fact as per the top concerns of the
small biz community, financing came in sixth.  We strongly
suggest lack of credit availability is not a key issue for small
businesses, despite mainstream commentary to the contrary. 
Maybe lack of credit availability to their customers (households),
but not to themselves.  So as we look at small business plans
for capital spending, we do not believe this is being held back by
credit availability, but is rather a statement on actual forward
business outlook.  Inventories and capital spending plans are
the telltale real world and real time business confidence
indicators.  Both are down for the count relative to
historical cycles. 

Bottom line
summary.  The tale of two economies theme remains valid and
intact for now.  We are seeing a huge divergence between
large and small business condition outlooks at present.  A
divergence we have never seen in modern historical
experience.  Large businesses represent the micro in terms of
the positive of company specific earnings.  They are the
large S&P 500 companies whose earnings are more dependent on
the rhythm of the global economy as opposed to the domestic US
economy specifically.  They are the large companies whose
reported "operating" earnings are not falling apart,
despite a few bumps in the road now and again. 
Alternatively, we see the small business community representing
the domestic US macro.   They are the job and ultimately
personal income creators.  They are largely the service
sector, the largest driver of domestic US economic outcomes. 
The NFIB numbers are simply telling us of a deceleration in macro
economic activity ahead.  And herein lies the tension for
investors.  What will be more important in decision making
immediately ahead, the tone and rhythm of the US macro economy
inclusive of jobs and personal income, or the micro of reported
quarterly "operating" earnings of truly large and
globally centric companies whose job and personal income creation
activities largely lie abroad?  It's why we need to remain
focused on this "tales of two economies" theme.  Is
it really going to be the case that the S&P 500 companies
alone (as a proxy for large corporations) experienced a headline
economic recovery in the current cycle while small businesses
never even left the post recessionary starting gate?  It's
sure looking that way for now.  In terms of "counting
cards" as per a potential US double dip recession outcome,
the NFIB puts a checkmark in the plus column for the double dip
scenario.  Just keepin' a list.

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russki standart's picture

We are run by a Corporatocracy, aka Fascism, the union of state and large corporations. Who carez about the too small to save? 

midtowng's picture

This might be the opening for a fascist government. Small businessmen historically are the foot soldiers of a fascist government.

I can easily see them get a bunch of Republicans elected in November, only to see that their "allies" are beholden to big business as well (as if they didn't learn from the Bush Jr. Administration). Small businessmen, in their frustration and desperation,  would then turn even further right to a fascist candidate.

   That's how it worked in Italy circa 1922, and Germany circa 1931.

NOTaREALmerican's picture

Fascism and socialism are two manifestations of the same thing:  the desire by the dumbasses for complete protection.     The strong kick-ass daddy Party is the fascists (Republican's) version of this and the smothering mommy Party is the socialists (Democrat's) version.    The Blue Team and Red Team of the Republicrat Party.    Different clowns, same circus.   

Dburn's picture

This might be the opening for a fascist government. Small businessmen historically are the foot soldiers of a fascist government.

You must be a Academic or in a Fed job. That was the worst post I've ever seen. Progressives/liberals seem to be allergic to small business calling them overrated tax cheaters and not nearly as liberal with pay and benefits of much larger companies.(How fucking stupid is that? ) Economist Dean Baker seems to be leading the progressive charge against small business. Another theoretical economist who really has his ass up or head in ass about small business.

I find all of that incredibly insulting. But it's absolutely nothing compared to the Dems sneaking in a provision in the lousy health insurance subsidy bill in the dead of the night that will be forcing 10s of thousands of small businesses to issue 1099s on all suppliers and inevitably all customers who purchase $600 or more of goods. The calculation was 17 billion in additional revenue over 10 years to catch those "tax cheats". 17 fucking billion. A rounding error to what the deficit will be . The real one. The two trillion one not the BS one printed every year. That's enough for me to stay home from the polls. I'm willing to bet that enough small business people to throw local elections will too when they find out the sheer stupidity of attempting to smack small business for a few dollars when Large corporations cheat on Taxes with total impunity by paying you whores to look the other way or to make it legal as they salt away 100s of billions to trillions overseas. 

Did it ever occur to you geniuses to cut the defense budget 2% and have all of it in one year? Or maybe if that was too high of a hurdle for you spineless wonders, you could cut 1/5 of 1% each year over the same 10 year period. The cost of this for small business is not just new accounting software. It's the cost of learning it for lower level people and mailing 100s to thousands of them at the end of the year. The cost of mailing it or paying accountants to do it and the time involved to itemize every single sale is staggering. New software, new forms..You must have gotten a huge BJ from the Accounting Sector. A quid pro quo for the FASB Mark to myth you forced down their throats so Banks could issue fraudulent financials.

You may hate us ,but we created two thirds of the jobs from 94 -07. It's literally the only avenue open to some semblance of the American dream for many people from freelancers who work at home to small firms that rent the buildings the banks are dying with to larger ones who employ 500 or more people.

We pay inventory taxes, unemployment insurance, local and state tax, sales tax,property taxes and payroll taxes plus our income taxes. All the while local and state officials gives billions away each year to lure hundred of new jobs over a elongated period of time from large companies who change their mind regularly after they get the funds. It staggers the mind when one considers what state and local govts will pay to keep a professional sports team in a city. The pension benefits that we have to pay for the state employees who get the best of everything and sometimes end up earning more on their pensions than they did while they were working as the last three years are pumped up with bullshit overtime. Now states are choking on it. State academics who make 300-400G with tenure a year before they get to the consulting contracts. Hell Larry Summers is a walking talking example of the worst of the worst as he almost broke Harvard , then went to wall street for a quick 6 million before nap time for four years at the White house masterminding the mind bending fuck of America.

Dems may think it's a small thing and you may even find people who will agree.

Watch the fuck out. There is always the proverbial straw that broke the camel's back. This one may be it. The Dems have ignored small business as thousands of us rolled over into insolvency. . We don't get 2.5 years of unemployment.We don't issue new debt,or use fraudulent financials to raise equity or get 0% loans. We would go to jail for that. Big Corporations? HA HA HA HA HA We get nothing. We don't ask either. Just leave us the fuck alone. No car companies, no equity injections by the govt , no 0% loans for our bad receivables but we did get this log of shit from the Dems along with an economy forever hobbled by giving away trillions to to large companies to pay out huge bonuses and make investments overseas. We pledged personal assets to back credit the banks suddenly and without warning, called in , even as the Dems were handing them trillions. We cashed in retirement savings to save the business, all for naught. Now at this late stage to watch Obama get his hand slapped for 30 billion stinking dollars to help the one sector that gives hope is frankly stunning in it's stupidity. 30 Billion of help to buy votes and not getting it while the Dems vote 100% for this travesty just seals the deal. . I hope it finds you out on your asses and opens the door for a new party. What's needed is not idealoges but pragmatics . The Dems have shown their cards. They are as bad , if not worse than the GOP. The are corrupt and beholden to special interests just like the previous group of fanatics.

To attack the small business owners, after fellating Large corporations for the last four years and claiming it will lead to fascism. That's too much. You sir or madam , are a flaming goat shit eating asshole.

Free Banners from My company to anyone who has a good chance against a Dem Incumbent. One good turn deserves another.

NOTaREALmerican's picture

Oh please, cry me a river, why don't cha...

"Conservatives" love to talk about small this and small that but vote for more bigness.   You don't like living in a society that now has two or three monster huge corporations and a bunch of small losers fighting it out for scraps?  Then ask yourself why the Red Team of your Republicrat Party hasn’t pushed to break-up large corporations to "encourage competition".   

Of course, you know the answer...   Because in real life - not some fantasy childlike small bidness libertarian world, REAL life is about screwing people.   And big bidness buys politicians to remove competition – to screws small bidness AND the peasants.    Period.  

When I see "conservatives" talking about breaking up big-bidness (and teabaggers talking about getting rid of their own socialist health care program) then I'll believe you.


Until then, you're just living in your libertarian fantasy land that can't admit the US government is exactly the size its owners wanted it to be.   BIG, so it can screw the losers (and the sociopaths running things are laughing all the way to the TBTF zombie banks). 


TexasAggie's picture

So what: You propose to stay home to teach who a lesson. It doesn't matter if 90% don't vote, the 10% that did would carry the election.

I read on a blog after the 2008 that enough Republicans stayed home in Ohio to have changed some of the election results because they didn't think JM was conservative enough. Well, they sure showed the Republican's, but fucked America.

So you propose the same thing.

trillion_dollar_deficit's picture

One anecdotal note:

Last summer, just about every credit card company was offering some kind help program featuring lower rates (0 - 9.9%) and/or lower payment schedules. These programs lasted one year and are now ending. I participated in three of these programs. With them ending, my bottom line is being hit to the tune of at least an additional $100 in monthly payments. I suspect there are many more like me including many small businesses.

russki standart's picture

I am a semi retired entrepreneur that managed to sell out in 2007. I now sit on the sidelines watching friends struggle to obtain a 5000 dollar government backed credit line whilst the banksters took trillions on the pretext that they would extend more credit. Guess what, the banksters are holding the money and we are holding the bag. The huge banks earn riskless returns whilst we are asked to pay higher taxes and accept service cuts.  If we disagree, we are radicals, to be denied our first amendment rights and threatened with dismissal, jail or worse. Welcome to Hope and Change. 

NOTaREALmerican's picture

Re: Welcome to Hope and Change. 

Not sure what you meant by this, but punishing "radicals" didn't just start.   Those who didn't believe the Weapons of Mass Delusion bullshit were branded "not REAL Mericans" (don't cha know).    And there was that little war in Southeast Asia a generation or two ago when the "radicals" were dismissed with "Love it or leave it you hippy, and get a haircut!!".  

What you (happen) to be noticing (yourself) is that REAL Merica survives on the myth (bullshit) of its past glory.   Welcome to the club "radical".  (And,  GET A JOB YOU HIPPY.  I don't sit at home complaining all day about the greatest country in the entire universe.  I work for a living at my TBTF Socialist Zombie bank.   And get a haircut too!)


Gully Foyle's picture

Funny but this snippet of song sticks in my head.

A Musical
the Castaways
of Gilligan’s Island

POLONIUS: (Sings) Neither a borrower nor a lender be,
Do not forget: Stay out of debt; Think twice, and take this
good advice from me, Guard that old solvency. There’s just
one other thing you ought to do. To thine own self be true.

[Enter entire cast]
Neither a borrower nor a lender be,
Do not forget: Stay out of debt;
Think twice, and take this good advice from me,
Guard that old solvency.
There’s just one other thing you ought to do,
To thine own self be true.
Monkey Craig's picture

good call Gully.


I remember a Buffett quote from a while back (he cited Shakespeare, but modified it for today): Neither a short term borrower or a long term lender be.


I believe he was dissing the I-banks / hedge funds financed by the repo market, while also expecting inflation. My $.02




Sqworl's picture

It's monumental BS...0% introduction for 8 months, but $400.00 trasaction fee!!!  4% for the money!!!

Miles Kendig's picture

You know it when you smell, see or taste it...  Backatcha sweetness

Village Idiot's picture

I am heartened by the sight of more small businesses offering discounts for cash. Had a nice sushi dinner last night - 10% off for cash patrons.  I wonder how much of that cash makes it back to the bank?

Gully Foyle's picture

Village Idiot

You may find this relevant. The original article is from 1986.

The Disappearing Dollars

"A study has concluded that $136 billion in U.S. currency — 88 percent of the total circulation—is missing.

In a comprehensive look at personal money-handling habits, Federal Reserve Board economists concluded that individuals over age 18 are holding $18 billion in U.S. coins and cash. That is about $100 per person.

That is, however, only 12 percent of the $153.9 billion of cash supposedly in circuiatAon. Where is the rest?

“I wish we knew where it was.” said Paul A. Spindt, a Fed economist and one of the authors of the study."


Village Idiot's picture

“I wish we knew where it was.” said Paul A. Spindt, a Fed economist and one of the authors of the study."


I'll bet he does. 

Snidley Whipsnae's picture

If the gov azzhats can't find it they can't tax it... or, you can't get blood out of a turnip.

I like gathering anecdotal info and I walk a lot, talk to people, stop at yard sales, go to flea mkts... Today I stopped at a neighborhood yard sale and the home owner is sending the bank his house keys. He has worked as a moving van driver for Allied most of his life and now Allied is just about closed down in Florida. He is 'going back up north where there are still plenty of jobs'. I wished him the best of luck but I doubt there are 'plenty of jobs' anywhere in the US right now for movers. Housing is stagnant and the people that are moving are using U Haul, Ryder and the like. Just sayin.

DoChenRollingBearing's picture

I am about to ask people (restaurants, doctors, etc.) for discounts if I pay cash.  I LOVE cash and love gold even more.


My brother is about to shut down his specialty gift store in December.  He has been there almost 20 years.


Those of you who have not read about VI's call to arms and my idea to pull $500 out of the ATMs on Thursday August 12 should consider doing it.  Hope to see some of you in line there at the ATM!  If we make this happen, Friday the 13th might be an interesting day in the markets...

Village Idiot's picture

DoChen - did you catch the the rest of the "crop circle" thread? I think we have something here.  "Keep it rolling"

Dburn's picture

That's usually a sign the business is running on it's last leg. They are on cash only with their suppliers, not even certified checks will do. That happens frequently with restaurants as they get daily deliveries and die much faster than other small businesses. Especially a sushi joint where the food is more expensive. . So if they want their morning deliveries (critical for Sushi) they have to have cash and they won't get it from the bank from credit card sales for a 6:00am delivery. Don't assume all small businessmen hide shit in their shoes. Anytime I see large cash discounts as in cash only , they probably lost their credit card processor too and are running it through a friends who charges them, you guessed it, 10%. They have no way to know if they have been handed a bad card if the friend decided to go to bed early. 

I would bring a food tester. Have them eat a few rolls and if they don't die, bon apetit. Sometimes the deliveries get old or they get the bottom of the barrel.


Village Idiot's picture

"I would bring a food tester. Have them eat a few rolls and if they don't die, bon apetit. Sometimes the deliveries get old or they get the bottom of the barrel."


That's gross. Of all the reastaurants, i had to pick sushi.


HedgingInfiniteRiskIsNotPossible's picture

Moreover, recent legislation calling for producing 1099's for all corporate transactions over $600 is one of the largest negatives we can think of for small business.  Not only does it add a layer of unreimbursed cost to small businesses, but will probably cause large business to consolidate their own supply relationships with smaller companies to likewise avoid expensive bureaucratic and duplicative paperwork - a double negative for the small business community.  Just what are politicians and the Administration thinking?  Answer:  They are not.

Yeah, this is huge. Very bad news for small businesses.

Heroic Couplet's picture

Paperwork?! Yeah, if you're a small business running in the 1950s. In 2010, you have this magic pill called office automation. You make a folder called 2010, in Word, Excel, or what have you.

You download the government paperwork, whatever it is. You do it yourself or hire someone. Open the document, 12 times a years, by creating a new tab along the bottom of an Excel spreadsheet. Save it with the name of the month and year. Twelve will do, one for each month. You copy and paste, or you just simply go to the cell or space and enter the month's update. What the hell-o does paperwork cause a complaint when we live in the age of office automation, thanks to Microsoft, Google, Adobe Acrobat, and Linux?

Rogerwilco's picture

@Heroic That MS Office solution is all fine and dandy, what about the next step? The oh-so-friendly and compassionate folks at the IRS run their bots over the data and gig you for some real or contrived mismatch. How much does that cost? See how far Word and Excel will get you when paying the taxes, fines, and interest. I guess a smart fellow like you could use MS Money to print the check.

NOTaREALmerican's picture

Like I, a salary-man my entire life, care about the trials and tribulations of our heroic small bidnessmen.   The few that I know have been scamming the taxman all their lives.   

Life is about running scams on dumbasses or participating in a scam.   I work for a TBTF Zombie bank pimping loans to unemployed young people (a great scam for the last 20 years).    Eventually, though, people figure-out the scam or - if the scam is good enough - the mafia (government) moves in on the scam to get their cut.     The IRS has been getting their cut from me for 30+ years now.   I sure don't mind them getting as much hide from "our" heroic small bidness scammers as they can.

Like most Americans,  I could care less about "my fellow Americans".  I laugh in their general direction.


russki standart's picture

And this process benefits, Whom? And it creates value, How?  And do you believe that this will be the end, or the beginning of even more intrusive demands since Microsoft, Google, Adobe Acrobat and Linux do it all for us? 

Dburn's picture

You absolutely have no idea what you are talking about. JHC, Excel and Word, I'm sure Microsoft with it's 30 billion in cash would love to have you blog for a living.

Did you even bother to read the article. Lets see what the author had to say about it.

This is THE tension for investment decision making. And we're sorry to say it, but we do not believe this is going away anytime soon. Probably only exacerbated as we venture into 2H 2010 and surely exacerbated in 2011 as tax rates go up. Moreover, recent legislation calling for producing 1099's for all corporate transactions over $600 is one of the largest negatives we can think of for small business. Not only does it add a layer of unreimbursed cost to small businesses, but will probably cause large business to consolidate their own supply relationships with smaller companies to likewise avoid expensive bureaucratic and duplicative paperwork - a double negative for the small business community. Just what are politicians and the Administration thinking? Answer: They are not.

Obviously you have never run a small business. Even in good times margins are compressed so that every layer of paper work that the govt lays on us sinks us just a little bit lower which ultimately takes safety nets we have laboriously built and fills them full of holes because our only safety net if we fail is welfare. Employers sometimes get enamored with the idea of hiring high energy entrepreneurs and small business people but quickly tire of them as they have tendency to be concerned about outcome instead of process and have a very low tolerance for bullshit. They know when they hear it and they don't care if the employers know it. So we aren't welcomed in to the ranks of the salary earners who complain when they pay $1000 a year in Health care costs while we are lucky if we can get by on $10,000 a year for a single person with a $5000 deductible. Never has society invested so little in small business and seen such a huge return over the last few decades unlike large business who cut defined pensions from 46% of the S&P 500 to less than 20% now and they will soon expire. Most of it is in Telecom , based on Unions and they are due for renewal. Last years Corporations, all corporations paid 164 billion in income tax.

Since small business didn't participate much in making a profit last year or this year, we can only assume the guys that are currently sitting on 1.87 trillion in cash right now as their high ranking employees made of with 100s of billions in bonuses underpaid that 35% bracket just a hair. Take GE. No seriously, you can have it. They had over a 10 Billion dollar pretax profit, yet paid nothing and managed to get a 1.1 billion dollar carry over. Think about that. The Dems are trying to get 1.7 billion out of small businesses a year. If they had one major S&P 500 , just one of GE's size pay the 35% rate , the money would be doubled. But why spend a 100 Million or so doing a touch everything audit of GE for a potential multi-billion dollar return when you can have the IRS spend billions to bring in 1.7 billion using a computer system that still isn't completely integrated. Does it hurt when you think? Word and Excel? Mel?

I'm sure GE paid 100s of thousands for big favors claiming how much we would hurt employment as they had their employees write out $2300 checks. You must be thinking of Al down the street who has time to sit in front of Excel and Word who might as well be retired now. You couldn't possibly be thinking of any company that has employees. It's obvious your experience in the world of small business is next to none. Imagine when 10s of thousands get letters from their largest customers telling them they will no longer be doing business with them so they can consolidate purchases making a few lucky winners large businesses who will quickly be taught all the ins and outs of offshore tax havens as the IRS starts dunning small business for a hundred here and a hundred there. This is small issue compared the total fuck ups the democrats have shown to be , but it's just enough to keep you in the woods for 40 years thinking "we had it all, what went wrong?" Largest majorities in modern history and you pass a bill putting another knife in the coffin of what was the most productive part of the economy. Fucking Genius.

Gully Foyle's picture

I thought this was a discussion about The Wire.

While Baltimore went broke the drug trade thrived.


Payne's picture

If the IRS really got 1099s for every transaction occurring  in the US over $600, by a US company or Foreign company operating in the US what kind of computer and program could sort through the data and compare it to a filed return. I don't believe it is reasonably possible. 

Village Idiot's picture

What is the penalty for not filing a 1099 misc. for $$ paid out these days?  Fifty bucks, if memory serves me right.  Watch that number change.

Misean's picture

Is it really the fact that mega-corps are "tied into the global economy" while small business is local, or is it that a legion of tax attorney's and accountants, and lawyer/accountants can jimmy rig a financial report to look good 'cuz there's just a lot more rug to sweep the shit under?

Dburn's picture

Both for large busines. The big accounting firms make big bucks thinking up these tax dodges becuase there are big bucks in it. Trillions.

Everyman's picture

Everybody except CNBS and the Pundits and the pumper/dumpers.  Thrown in that mix is the corporate eliteists and the politicos, and the ruling class and TPTB are all delusional as a herios addict on methadone claiming they are "cured" without all the cold turkey stuff.

They have yet to go through the "withdrawl" symptoms, and are kidding themselves with a laughibly bloated Dow, Sand P.


OutLookingIn's picture


 Yes. We need big business.

The jobs engine of the economy is small business, responsible for 66% of employment. A recent small business survey stated that 91% of respondents declared, that their credit needs have been met and that they had no plans to borrow. Lack of customers is their biggest concern.

Until the small business sector returns to health and starts hiring, the "recovery" is one of statistics only. The only way small business returns to health is if their customers return and start consuming. The consumers are broke and struggling under mountains of debt and unemployment. Catch 22!  

Rogerwilco's picture

It's obvious to me that Obama and his union buddies have no use for small business. It's an annoyance chock full of greedy Republicans, and its political power and social stature must be decreased as quickly as possible. Tiny, incremental steps, a death of a thousand cuts...

midtowng's picture

There certainly are political implications here, but you would be mistaken if you think that if Republicans were in charge then this would be different.

 This is a class thing. The Democrats and Republicans are owned by the same big corporations. They are looking out for their donors.

 OTOH, you are right that small businessmen are largely Republicans. This divergence will probably push the GOP to victory this fall. Then the small businessmen can watch themselves get screwed by the people they worked hard to elect.

Dburn's picture

There isn't a bit of sunlight between the two parties. This is no longer a country, it's a hunting ground.

NOTaREALmerican's picture

Seems like big-bidness didn't have any problems outsourcing jobs to the godless commies in China.    Are we assuming Obama and his union buddies run big-bidness too?   

Death by a few huge cuts.  

Nothing will change until the majority of the American dumbass peasants stop worrying about what "those people" are getting and realize that the nobility - the top 1% - has all the country's loot.    But, until then, dumbass American peasants will do what they always do and lunge at each other's scraps.  

Rogerwilco's picture

"Are we assuming Obama and his union buddies run big-bidness too?"

Big business at the level of say GE, Boeing, Raytheon, etc.? Fucking-A yes.

midtowng's picture

This goes a long ways towards explaining the divergence between the stock market and the economy. No wonder the Blue-Chip S&P 500 is powering ahead while the economy can't produce jobs.

Village Idiot's picture


scroll up a bit if you are still here.

ebworthen's picture

The 1099 for transactions over $600 is to limit, track, and tax Gold sales.

Any dealer wil be introuble with the IRS. 

Think of Goldline and other dealers advertising on talk radio.

The Gub'ment don't want people buyin' gold and not using trackable ATM and other Bankster transaction methods.

Much harder to avoid paying taxes if things are put into a database ;-)

All hail Caesar!

russki standart's picture

Actually, given the very few people that hold gold, I believe that the real reason for this regulation is to demonetize gold by taxing and/or tracking its transfer. 

Frank Owen's picture

"France, less favoured on the whole as to matters spiritual than her sister of the shield and trident, rolled with exceeding smoothness down hill, making paper money and spending it. Under the guidance of her Christian pastors, she entertained herself, besides, with such humane achievements as sentencing a youth to have his hands cut off, his tongue torn out with pincers, and his body burned alive, because he had not kneeled down in the rain to do honour to a dirty procession of monks which passed within his view, at a distance of some fifty or sixty yards. It is likely enough that, rooted in the woods of France and Norway, there were growing trees, when that sufferer was put to death, already marked by the Woodman, Fate, to come down and be sawn into boards, to make a certain movable framework with a sack and a knife in it, terrible in history. It is likely enough that in the rough outhouses of some tillers of the heavy lands adjacent to Paris, there were sheltered from the weather that very day, rude carts, bespattered with rustic mire, snuffed about by pigs, and roosted in by poultry, which the Farmer, Death, had already set apart to be his tumbrils of the Revolution. But that Woodman and that Farmer, though they work unceasingly, work silently and no one heard them as they went about with muffled tread: the rather, forasmuch as to entertain any suspicion that they were awake, was to be atheistical and traitorous."
Oh, how things have changed. not.

Eally Ucked's picture

What is really economy? All those restaurants, cosmetic parlours, cinemas? How long it will last when your ipads, iphones and other stuff is made in Asia, support Starbucks, drink their coffee grown somewher else. How you make your money? Just by being financial wizard or middle man (salesman) for other nations? Producing weapons is not enough so we have to start making something, am I wrong and I miss something?

NOTaREALmerican's picture

Re: Producing weapons is not enough so we have to start making something, am I wrong and I miss something?

I suspect you might not be a REAL Patriot as all REAL Mericans know that making weapons and building a huge empire - to protect us from "those people" - is the only valid reason that government should exist.  

(LOVE IT OR LEAVE IT HIPPY!!!   And get a goddamn haircut!)

Caviar Emptor's picture

This may have been news in 1981. "Supply-Side" policies were aimed at reducing the cost structure for large US corporations through wage-deflation. Outsourcing manufacturing jobs, de-regulation and anti-union policies got the ball rolling. And roll it did, right up to this minute with inexorable progress. The net net was 3 decades of income deflation. 

There were other forces that took hold as a result of "supply-side": tax policy heavily favored capital over income. A snowball effect takes hold under these conditions. The crucial fallacy in the reasoning behind "supply-side" was that capital was NOT reinvested vigorously into the US economy. First because tax policy made simple passive accumulation favorable. Second because of the pull of capital toward developing economies which was encouraged by policies favoring outsourcing and the dollar economics that were constructed to support it, such as the ability of the US to run massive trade deficits forever through agreements and arrangements. 

Then there's the issue of the myth that was built regarding "the old economy" versus "the new economy". At first "new" meant the "service economy", a vague set of notions that meant that America would bet all its chips on building up the FIRE sector. Of course being bankers and real estate agents to one another is no more viable long term than serving burgers to one another. And the developing world has grown it's own bankers and real estate agents, precluding the US from being the "world's capitalists". As the equation deteriorated in the 1990s, we came up with the fiction of the "entrepreneurial new economy", "the virtual economy" versus "bricks and mortar". The results speak for themselves. Selling electronic music, books, media are all deflationary relative to the original versions. 

So we have two economies by design, not by accident.