Business conditions and its effect on stock market volatality
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Credit
Ours is a consumer economy, built on spending. Wages are down, the labor-force participation rate is at historic lows, and immigration policies are making it difficult for the unskilled or semi-skilled worker to have job mobility. So how have we been able to show ecomomic growth? Credit. Americans take on debt to spend money. We finance houses. We finance cars. We finance education. Hell, we even pay for groceries with credit cards. Using credit means you are borrowing money, transferring the entity to whom you owe the money. When you buy a car, the dealer gets paid from the bank, not from you. You, in turn, owe the bank, and pay over time, with interest.
Consumer behavior
But what if you don't borrow? And what if all of your consumers pay cash? Or in Bitcoin? Or trade raccoon pelts?
Well, it is true that, if you have created a credit-free Elysium in your life, interest rates won't matter. But you still need to sell products, and that's where consumer confidence comes in. People spend first on what they need, second on what they think they need but really just want, and lastly on the stuff they want but know they don't need. The last category is first to go at times in market uncertainty because people tend to cut back their spending. Then comes the second category. Both are where most businesses make their money.
Funding
If you're in the middle of a funding round, expect it to be delayed, lowered or cancelled. That goes for friends and family, who, like all consumers, are nervous about their cash, to seed and other rounds, where venture capitalists might be worried about where they are coming up with their own money. VCs like to act like Perseus before every market Kraken, but, in truth, they get just as nervous as you do. After all, with the exception of some angels, they're more often investing other people's money rather than their own. They have to go out and raise money from wealthy individuals and fund managers who are just as nervous about parting with a buck in an uncertain environment. Many a VC might have Fortuna favet fortibus plastered on their office walls, but they got to where they are by following Durate et vosmet rebus servate secundis.
Competition
Smart business owners and CEOs are probably saying to their staffs that they believe their companies aren't affected by this volatility and the best approach is to stay the course. Stiff upper lip, and all that. Privately, one hopes they are terrified -- not in panic, but just scared enough to move from prudence to anxiety. Why? Because how competitors act in these environments matters. If borrowing raises costs and lowers revenue, if consumers shy away from spending and if the ability to tap outside resources to keep the bills paid squeezes you, it squeezes just about everyone in your industry and you're fighting over a much smaller piece of cheese. It will get nasty. You might have to cut prices and margins, which will attract customers but might make you lose money in the short term. You might end up in price wars with competitors, battles neither of you can afford. Better-capitalized competitors might lure you into these margin traps, knowing they can weather a war of attrition a lot better than you can. Remember, you aren't just competing for customers. You're also competing for lenders and business partners.
Ours is a consumer economy, built on spending. Wages are down, the labor-force participation rate is at historic lows, and immigration policies are making it difficult for the unskilled or semi-skilled worker to have job mobility. So how have we been able to show ecomomic growth? Credit. Americans take on debt to spend money. We finance houses. We finance cars. We finance education. Hell, we even pay for groceries with credit cards. Using credit means you are borrowing money, transferring the entity to whom you owe the money. When you buy a car, the dealer gets paid from the bank, not from you. You, in turn, owe the bank, and pay over time, with interest.
Consumer behavior
But what if you don't borrow? And what if all of your consumers pay cash? Or in Bitcoin? Or trade raccoon pelts?
Well, it is true that, if you have created a credit-free Elysium in your life, interest rates won't matter. But you still need to sell products, and that's where consumer confidence comes in. People spend first on what they need, second on what they think they need but really just want, and lastly on the stuff they want but know they don't need. The last category is first to go at times in market uncertainty because people tend to cut back their spending. Then comes the second category. Both are where most businesses make their money.
Funding
If you're in the middle of a funding round, expect it to be delayed, lowered or cancelled. That goes for friends and family, who, like all consumers, are nervous about their cash, to seed and other rounds, where venture capitalists might be worried about where they are coming up with their own money. VCs like to act like Perseus before every market Kraken, but, in truth, they get just as nervous as you do. After all, with the exception of some angels, they're more often investing other people's money rather than their own. They have to go out and raise money from wealthy individuals and fund managers who are just as nervous about parting with a buck in an uncertain environment. Many a VC might have Fortuna favet fortibus plastered on their office walls, but they got to where they are by following Durate et vosmet rebus servate secundis.
Competition
Smart business owners and CEOs are probably saying to their staffs that they believe their companies aren't affected by this volatility and the best approach is to stay the course. Stiff upper lip, and all that. Privately, one hopes they are terrified -- not in panic, but just scared enough to move from prudence to anxiety. Why? Because how competitors act in these environments matters. If borrowing raises costs and lowers revenue, if consumers shy away from spending and if the ability to tap outside resources to keep the bills paid squeezes you, it squeezes just about everyone in your industry and you're fighting over a much smaller piece of cheese. It will get nasty. You might have to cut prices and margins, which will attract customers but might make you lose money in the short term. You might end up in price wars with competitors, battles neither of you can afford. Better-capitalized competitors might lure you into these margin traps, knowing they can weather a war of attrition a lot better than you can. Remember, you aren't just competing for customers. You're also competing for lenders and business partners.
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