How And Why Things Are Not Always What They Seem During A So Called Economic Recession!
Entrepreneur how many times have you heard the saying, “looks are deceiving?” Probably at least a few times over the years, correct? And of course, right about now, you gotta be saying to yourself, what if anything could that possibly have to do with any type of economic recession? Right?
Fair enough. Basically, what it really gets to down to is this ; while any and all short or long term economic turmoil is never pleasant. Believe it or not, there is a flip side to the massive layoffs and lost of homes and the closing of businesses of all sizes etc.
And of course let’s not minimize the overall potential negative affects of the undue strain (temporary) or not, financial calamity could (and more times than not) will have on both your business and or personal relationships!
So just to be clear, no one’s discounting nor trying to marginalize these potential long term negative affects, strictly by trying to justify the all out pursuit of making a buck!
What The Average Person Often Doesn’t See And Or Misinterprets Whenever There’s An Economic Recession!
For ex; let’s say you run a fairly successful local Mom & pop family style restaurant and let’say you currently employ five full time employees as dish washers. (And merely for convenience sake, let’s say you pay each of them $20,000 each per year.
That currently equals a labor expense of $100,000 dollars per year. ( Of course in reality all five employees wouldn’t just happen to make the exact same amount per year! And they probably wouldn’t all be full time! Just bare with me for the sake of an extremely simplified example! Thanks!)
And wouldn’t you know (sure enough) one day a charismatic sales rep shows up and demonstrates how the restaurant owner(s) can save a whooping $60,000 per year or more! Say what? Simply by purchasing this brand new state of the art $3,000 dollar automated dish washer!
Plus the sales rep points out how other than extremely low annual maintenance and service costs, they never have to worry about a percentage of their employees, quitting, calling in sick or demanding periodic raises and or promotions etc! Or the always looming threat of going on strike!
(Now watch this!) The semi cash strapped small business owner/restaurateur layoffs three full time employees! Oh no! And word on the street is, they must be on the verge of going out of business,right?
Well, not exactly!
See in reality here’s what’s really going on. That extremely savvy restaurateur just saved $60,000 dollar in annual (and potentially) ever rising labor cost did they not? Yep! Which means that’s $60,000 dollars a year (or X amount) they can now use to strategically grow their business in other ways!
(And let’s not forget that a $60,000 dollar base line savings per year, amounts to a staggering $600,000 dollar savings over ten years! Hello!)
Here’s how this exact same scenario plays out in front of the average (not necessarily) financially sophisticated lay person.The nightly news announces (more like) plasters all over the local & national TV & radio news broadcast, that a major publicly traded company has just revealed they plan to layoff thousands of workers over the next X number of months! Oh no!…….
The Economic Glass May Look Half Empty But It’s Not!
Entrepreneur, going forward. Whenever you see, hear or read about any type of financial story regarding a publicly traded company announcing massive layoffs! Keep a close eye on their stock, because at some point it’s gonna go up!
For how long and to what degree! Nobody (absolutely nobody) can say for sure! (Not even miss Cleo!) But the real point is this, Wall St. insiders recognize that by systematically and dramatically lowering and maintaining corporate expenses, eventually equals higher stock prices! So they gobble the stock (or commodity up!)
All that extra buying activity drives stock prices even higher! (For a while anyway!) And while the unsophisticated general public is (obviously) focused on the job layoffs!
Savvy Wall Street investors (read that as large institutional buyers) cash in buying stocks of those publicly traded companies and immediately dump them off on the the unsuspecting amateurs and beginners etc! That more times than not, come to the party a day late and a dollar short!
And by then, billions of dollars literally have changed hands once again!
And typically the rich get richer! (And the poor, why they rush out and buy the latest techno gadget with their 22%, semi maxed out credit card! So they can record the latest version of, you fill in the blanks!)
And that my friend, in an extremely condensed-reality based- nutshell, is the all too tragic version of financial events, that consistently misleads droves of the unsophisticated average Joe’s to perceive a long drawn out economic recession, as a potential disaster!
Instead of a mega potential windfall profit! Any questions?
Please list at least two simple spin off concepts (in the comments section below) that you can apply to your business, product or service in the next 30 days or less!
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Mark, Your informative article shows that there are always two sides to every story. Most people would view layoffs at a company as proof that the company is struggling and that we are in the midst of a economic recession but that is not always the case. The savvy person can look beyond this and see it as a opportunity to profit from this circumstance. Many wealthy people have done really fantastic and made large profits on real estate, stocks etc. during some of the times when the news outlets were talking about unemployment numbers and how bad our economy was. Thanks so much for discussing this important topic!
Shelley Alexander recently posted…Raw Corn Chowder
So right you are Shelley!
And boy was discovering this truth quite an eye opener for me personally, as I began to acquire
a semi practical financial education!
In regards to your astute assessment about how many extremely vast fortunes have (and will)
continue to be made, when things seem there financial darkest!
Does the name Joseph Kennedy ring a bell! Yea, that Kennedy! During the so called great depression
he and other extremely savvy, sophisticated and experienced investors, literally bought millions of dollars
of distressed real estate for pennies on the dollar!
During the so called “great depression” era!
And because he was already rich,, he could simply afford to hang on until the financial turbulence past!
And then all those assets (including ) way under valued stocks, bought for literally pennies on the dollar!
Not only did they return to pre depression values (over time) of course!But they ultimately surpassed them.
Yes, the rich truly understand the real psychology behind time old investment advice, “by low sell high!”
Thanks Shelley for your astute and so very wise assessment! And for sharing it!
Thanks for stopping by! And don’t be a stranger going forward!