As we entered 2011, there was fear of a double-dip recession which caused a downturn in consumer confidence bringing the housing market to a near standstill. Now, as the year draws to an end, we are seeing some optimistic indications of a recovering economy.

 

 

In my recent interview on Fox Business News’ After the Bell, I discussed the signs of a turnaround in the housing market and how we are seeing incremental progress where homebuyers are beginning to take advantage of low interest rates and depressed housing prices. For a more in depth look on my thoughts on 2011, and outlook of 2012, read my most recent Forbes.com post “ America’s Recovery: Are We There Yet?”.   

 I am proud to announce that I am now a contributor on Forbes.com’s Investing Channel. Below is my first post, which can also be read here on Editor Stephen Schaefer’s Exile Wall Street Blog. Your thoughts are welcome.

 

A key driver in most businesses is a sense of urgency. It forces management to kick up the thought process to think about risks whether real or perceived, and in a compressed time frame. Complacency kills businesses.

The current state of our economy has created a dangerous sense of stability. That stability is encouraged by seemingly intractable problems such as high unemployment, low GDP growth, low interest rates, and a general sense that things will not change. I believe that thinking this will always be the case, is a mistake.

It has been typical that when we are in a prolonged period with a unidirectional focus, passive inertia sets in. Shock occurs when things change, most probably in a somewhat violent and unpredictable manner.

A good example of this is how most business owners and consumers today are not concerned in any way about the direction of interest rates. Today, we will likely see low numbers for New Home Sales and tomorrow’s FHFA House Price Index will likely show prices are still low. It’s clear that homeowners do not feel a sense of urgency that interest rates may rise, and also sense that home prices will continue to fall. This situation cannot continue indefinitely. Rates are artificially low, with the Federal Reserve working overtime to keep them there. Home prices remain depressed mostly because of overbuilding and oversupply, coupled with a shadow inventory of foreclosure units. Both of these events have created one of the most favorable entry points for those looking to buy a home…So why isn’t there more excitement around these facts? It’s because a sense of urgency is missing. No one believes that current conditions will be changing anytime soon.

But let’s look at some of the facts. Interest rates can rise, and may do so despite all the efforts of the Fed. With the crisis in Europe, a real possibility exists that European Banks will no longer be buying U.S. Treasuries. Add a slight increase in GDP growth, and the 10-year U.S. Treasury Bond Yield could be substantially higher than today, which could in turn lift mortgage rates. Additionally, the latest data show that building permits for new homes actually increased over 10%, and some markets actually saw increased prices in housing costs.

Some small business owners seem frozen in their fear with respect to the condition of the economy even though they have been able to not only survive, but actually grow in this environment. Some of the worry may be about matters outside their control, and may in fact be needless. Many business owners we speak to are so consumed with the goings on on the national and global scene that they leave no time to consider the issues important to this dynamically changing environment. Complacency and fear are a dangerous combination.

A genuine sense of urgency would clearly help the general economy as potential homeowners would move off the sidelines, and business owners would start to lean into upcoming growth by hiring ahead of the growth they are experiencing instead of managing for as long as possible in an understaffed position.

So, let’s not be lulled into this negatively-biased complacency, and instead look at the changes that are occurring around us, and employ a sense of urgency in all the decisions we make. There are many positive developments beginning to surface in this economy, and those prepared will be best positioned to take advantage. The rest will be stuck playing catch up…

With today’s news on housing starts and new building permits, I thought it would be an opportune time to again discuss how important it is to stay focused on local events and circumstances. At NJCB we are seeing some encouraging signs from various segments of the economy, specifically with our contractor and homebuilder clients. While we do not feel that we are out of the woods just yet, we certainly are beginning to see the edge of the forest. Land prices are at depressed levels, materials and subcontract services are more competitive now, and of course, interest rates are at historic lows… Most important, we are seeing increasing confidence in a more stable economy.

So, while all the news channels are focused on Europe, The Debt Commission, The Presidential Race and other national or global events, we continue to focus on the developing building of confidence in our own local markets.. I discussed this issue today on Bloomberg Radio and in the CNBC Power Lunch interview below.

 

 

 

The recent announcements by many of the large National Banks to increase fees seem to come as a surprise to many, and there is a sense of outrage from the customer base.

While these actions are outrageous and ill-timed with consumers struggling like never before, they may actually be beneficial business decisions for those banks.

Let’s face it; the largest banks have never had you, the customer’s best interest at the heart of their business plans. It was always about size and scale and algorithms… The phrase “you’re only a number” didn’t start yesterday, but long ago when banks starting crossing markets and serving customers who they did not know or share a connection with. When you could no longer enter a branch and have someone answer any of your questions, and instead were given an 800 number to answer even the most basic question, you had to know the relationship part of the business was gone…

So, why the outrage today? These banks have accumulated a lion’s share of the market of depositors and now use spreadsheets, algorithms and analysis to decide how to suck every last penny out of each transaction without regard for any individual. It’s all based on math, retention rates, decay rates and profits. But their marketing certainly won’t tell you that…

By continuing to do business with these banks, you are succumbing to the passive inertia that they are counting on as they continue to allow machines to make decisions about people.  

But here is the good news… You have a choice. There are more than 7,000 Community Banks in just about every city, town, and hamlet across America…

They understand relationships, and treat each customer as an individual.

At our own bank, NJCB, we have never charged the types of fees that everyone is outraged about, have always dealt with our customers on a one-on-one, face–to- face manner (in fact, we know our customers by name…) and have never made decisions about our clients using a spreadsheet or computer program.

 

So, don’t perpetuate this cycle of abusive behavior with the big banks.

The choice is always yours… do you want to have a productive relationship with your bank?

 

As summer has turned into fall, and I reflect on my many adventures of the sailing season, it occurs to me that my desire to succeed in business and my interest in sailing are intertwined and indeed based on a few common principles.

As a leader, we must be able to listen and be aware of our surroundings. We must understand not only what we see, but also what we don’t see, and when the wind changes we must adjust course or tack. It is said that the pessimist complains about the wind, the optimist expects it to change, however it is the realist that will adjust his sails…  We must also be confident in not only ourselves but have an unwavering confidence in those around us. A good leader knows how to empower others, and trust in direct reports. Sailing with a team magnifies this concept especially when things get dicey. Leaders need to navigate the quagmire of difficult decisions and be able to make those that benefit the company, employees, and other stakeholders.  

Many books have been written on this subject, and there are many references made to sailing, or nautical terms not only in leadership matters, but also in everyday life…One of my favorite books, “Sailor in the White House” by Robert Cross draws these parallels regarding one of the toughest leadership challenges and jobs anywhere. Cross succinctly describes the qualities he perceives to be necessary at sea: “the necessity to learn how to ‘change tack’ and be versatile in the face of changing weather, the need to understand the tradeoffs and consequences of compromise, the requirement for an explicit chain of command and leadership aboard any vessel at sea, the desirability of confidence in choices and decisions made at sea, the influence good cheer can have on team work, and the ability to withstand and endure bad weather, storms, and discomfort – sometimes outright pain…”

While the art of sailing is “to leave nothing to chance” we have used this concept in our business to help navigate the most trying of economic times by being ready and in the present to challenge conventional wisdom, and even prosper while others rely on outdated methods.

What I find especially intriguing and comforting in my sailing adventures is that when all is trimmed correctly, and everything is going in just the right direction, an eerie silence takes over. It is at the same time exciting and terrifying. One of my favorite Henry David Thoreau quotes actually captures this concept when he says “The sail, the play of its pulse so like our own lives: so thin and yet so full of life, so noiseless when it labors hardest, so noisy and impatient when least effective.”

As we have expressed our views on the current crisis of confidence, it is important that we remain focused on those things that we can control, and relentlessly trim our sails to the best position possible, constantly keeping our eye out for any opportunity that may present itself. After all, while ships are safest in the harbor, that is not what they were designed for…

“Sailors, with their built in sense of order, service and discipline, should really be running the world.” Nicholas Monsarrat

Borrowers who can refinance probably already have since rates just prior to Operation Twist were the lowest in six decades.

Interest income for those who depend on bank deposits such as retirees, or those who need to be liquid are seeing the lowest interest rates in history, reducing their income.

Those who have a mortgage that is underwater or a Loan-to-value that is too high to qualify will not be helped by this program, and are not able to refinance, a fact that hurts the general economy as one in five homes are in this condition.

If we can stipulate that the economy is not suffering because of high rates, then why are we taking this action at this time, which will neither create jobs, nor create any confidence in the economy?  Banks have more than $1Trillion dollars sitting on the Fed’s Balance Sheet at near zero percent interest, so liquidity is not an issue either.

Banks do not lend because the demand is not there, or they don’t see profitable opportunities in the market place, namelylending to borrowers who do not demonstrate an ability to repay the loan.  This is the definition of “pushing on a string.”

While the Federal Reserve is apparently doing all it can to help the economy; acting alone, or without the policy makers in Washington supporting its actions with concrete plans to jumpstart the economy with a laser focus on Jobs and Growth creates this lopsided approach which will have many unintended consequences, and will not soothe the markets.

For more information see the following related articles…

• Forbes: No Help For Housing In Bernanke’s Operation Twist

 

• Associated Press/BusinessWeek: Fed does the Twist: $400B plan to help economy

 

• CNNMoney.com: Federal Reserve Launches Operation Twist