Tuesday, August 25, 2009

Get yourself a good lawyer

The subject today is not the economy. First, because I have nothing new to say, having vented in the last few blogs, and second, because the news on this subject is generally positive so any contribution I make would just add another voice to a growing chorus of positive thinkers. The subject today is not the economy. First, because I have nothing new to say, having vented in the last few blogs, and second, because the news on this subject is generally positive so any contribution I make would just add another voice to a growing chorus of positive thinkers.

Today the subject is litigation, brought on by the confluence of two communications received Monday morning. The first was a news item in the Wall Street Journal (August 23, 2009) headlined 'Billable Hour'Under Attack. In essence, the contributing journalists, Nathan Koppel and Ashby Jones, explain that a nascent movement is underway, led by major U.S. corporations, to request that their outside law firms switch from the traditional practice of billable hours to a flat fee arrangement, which is said to be a way to reduce the outside legal expenses of these corporations.

I think many of us became aware of billable hours from television shows like Boston Legal, most recently, and its predecessors. In case you don't know the term, it means that law firms staffed with highly paid junior lawyers must increase their billable hours to afford them as employees. The recent recession and its impact on corporations was the cause for a review of outside legal fees as a way to keep the bottom line in order, and incidentally to act as a catalyst for a paradigm change in the way they are billed. Young lawyers like the salaries but hate the hours, 12 a day was not uncommon, that's a lot of billable hours.

I'm sort of on the fence on this one. On one hand I think a legacy policy is due a change, on the other I enjoyed the practice on occasions when I was involved as an expert witness, charging my time, as the lawyers did, on billable hours. I have also done flat fee work but this was usually for background research assignments. When courtroom appearances were involved I usually went the billable hours route, because predicting a flat fee in this circumstance is difficult with so much beyond your control.

The second litigation communication was a notice that a class action lawsuit in which I am a class member, revolving around tax recovery charges, has been settled and it's now time to decide how to participate in the settlement. I have been involved in a reasonable number of class actions, ranging from auto lease overcharges to foreign transaction fees. Many of these, based on the possible settlements, were hardly worth the effort to participate but some I chose settled and I received cash awards or equivalents. One or two were modest in size and welcome.

The problem with these suits is that the law firms handling the class action make the big bucks, leaving a smaller pie for divvying up for us participants. Remember, at these law firms billable hours is the name of the game.

Anyway my position on class action suits (including those that appear in the Sunday newspaper supplements) is to read what the settlement will be and if it is for cash, join the suit, if for goods or payment 'in-kind' (discounts of air travel with all kinds of blackouts) ignore it.

Since I generally see (except for those newspaper notifies) only class actions that mostly affect me as a traveler, I can only imagine how many of these actions are underway as this is being written. Must be keeping legions of young lawyers busy building up those billable hours.

Will the shift to a flat fee focus change the number of the class actions that appear? Doubt it.

Monday, August 17, 2009

It's all in the timing

As if it wasn't tough enough trying to predict where the economy is going, I now have more input. As if it wasn't tough enough trying to predict where the economy is going, I now have more input. For several weeks after the Munich World of Photonics show we were bombarded with grim news about the manufacturing economy and the economy in general in Europe. From our people on the ground in Europe to daily published statistics in the media to personal profile stories in the New York Times, all we read about was the sad state of the European economy and its impact on the average citizen.

The news got so bad we started to wonder where our European friends had been for the past year or so. We, here in the U.S., have been suffering for over a year and they just woke up six months ago and realized they were in recession. What gives here?

Well I don't need to sweat this one any more. Friday's Wall Street Journal, in a bold type face, front page, above-the-fold headline trumpets "Europe Recovers as U.S. Lags" with a deck of "Germany, France Escape Recession Even as Consumer Weakness Hobbles America."

Now this has got to be one of the shortest recessions on record; one month it's on, the next off. And all those complaints in Europe were for what? And what is worse, the article goes on to say that Europe is joining China, India, and "increasingly elsewhere in Asia" as countries rebound from the recession. What recession, I ask? Sounds more like a hiccup than a heart attack.

So here we sit in the Western Hemisphere, all alone as the rest of the world returns to economic health. Meanwhile in the U.S. the Federal Reserve lets us know that economic activity is leveling out but likely to remain "weak for a time."

I'd be ranting and raving about this dichotomy but further into the WSJ article is this buried gem about the cautious European Central Bank (emulating the Fed) predicting a slow return to sustained growth. Some economists believe "the ECB is behind the curve."

So I choose to take the same tone and think the Fed is "behind the curve" and, as I have said here for a few weeks, the recovery will move faster than is thought.

As I finish this blog on Monday morning another bit of good news arrives in the form of a New York Times (and other papers) news item about Japan's rebound from the deepest recession since WWII; courtesy, it is said, of a stimulus program.

So here we sit in the USA, looking at our friends in Germany, France, China, South Korea, Singapore, and Hong Kong enjoying some good economic news while we continue to dither about slow recoveries and the impact of stimulus projects. Acquaintances in some of the mentioned countries blame the U.S. for this world economic situation and they are privately smiling as we muddle around on a solution while they are gearing up to increase their export to this country when the consumer comes back into the market.

Wednesday, August 12, 2009

It could be worse

Nobel Prize winning economist Paul Krugman said Monday, at a world capital markets conference, the worst of the global economic crisis is over but that full recovery is at least two years and more away. Nobel Prize winning economist Paul Krugman said Monday, at a world capital markets conference, the worst of the global economic crisis is over but that full recovery is at least two years and more away. He said the rapid rebound from the 1997-98 Asian financial crisis was due to a sharp rebound in exports. Showing the bright thinking that won him the Nobel, he said Asia will rebound faster led by recovery in manufacturing exports. Excuse me Mr. Krugman, exports to who if recovery for the rest of us will be two or more years in coming?

A measure of the global manufacturing economy's impact on the industrial laser market can be gained from a review of the latest financial reports from leading product supplier companies: Rofin-Sinar Technologies, Coherent Inc., Newport Corp., IPG Photonics, and II-VI Corp. and published statements by Trumpf, Bystronic, and Prima Industries. Depending on the period business has been off between 26 and 48% compared to the same period a year ago. Admittedly 2008 was, for the most part, a good year for these companies, save for the last two months for those involved in the sheet metal cutting market, so the percent decline is somewhat distorted. A better measure would be to look at a three-year period perhaps. But what we have at hand are the numbers presented to the financial analysts, which the reporters pick up and which tend to make the headlines.

Allow me to cite some remarks, from sources I will not identify, quoted in the aforementioned reports.
-We are hopeful for the beginnings of a recovery in the second half of (FY) 2009.
-Based on third quarter bookings we anticipate revenues in the fourth quarter will be...similar to the third quarter.
-With certain end markets appearing to stabilize and good customer engagement, we believe bookings will begin to recover in the September quarter and continue through fiscal 2100.
-We expect to be well positioned for renewed growth when the global economy recovers.
-We are optimistic that we have reached the bottom of the downturn. In some geographic regions we are experiencing a more positive customer settlement due to the stimulus packages.
-Regardless of capacity adjustments (we are) maintaining (our) presence in all markets and we continue to work intensively on development projects.

A recent survey by PricewaterhouseCoopers LLP (their Manufacturing Barometer), as published in the Youngstown, Ohio Business Journal, reports that while most industrial manufacturers still believe the U.S. and world economies declined in the second quarter, the outlook for the next 12 months shows improvement, with the lowest levels of pessimism (18%) and the highest levels of optimism (43%) seen in the past five quarters.

According to the report, 43% are forecasting positive growth rates, up from 34% in the prior quarter. Some 32% are forecasting negative growth over the next year. Overall the projected average revenue growth for industrial manufacturers over the next 12 months is minus 0.4% compared to minus 7.9% for 2009, a signal of less pessimism.

Market demand remains the major barrier to growth in the U.S. according to 82% of respondents and decreasing profitability is the second highest concern with 50% of those responding. Capital investment plans rose to 27% and those responding plan to spend 6.2% of total sales up from 5.4% last quarter.

These survey numbers are not as high as some would like but right now they fall into the category of "not as bad as before:" which is becoming the replacement for the overused "cautiously optimistic."

The July Business Conditions Report from the Precision Metalforming Association indicates that an economic recovery in the key sector of Fabricated Metal Products may be in the offing. An eye opening 37% of respondents (up from 21% in June) said they expect increased general economic activity in the next three months. Tangible evidence is that 31% said their shipments were up from three months ago (versus 14% in June) and 46% expect increasing new orders over the next three months versus 29% in June. These are very positive numbers that tend to support my thesis (last week's Blog) that the recovery may be more rapid than experts predict. As an example look at this change in a survey from 30 days ago. Good Stuff.

Thursday, August 6, 2009

Sooner rather than later

Last week Newsweek magazine declared on its cover, "The recession is over." Last week Newsweek magazine declared on its cover, "The recession is over." These words were printed on an inflated big blue balloon (interesting choice of color). But just below the balloon is a needle poised to puncture it. An asterisk on the word "over" proclaims "Good luck surviving the recovery." Thanks a lot Daniel Gross (the author of this piece). You really know how to puncture good news before we can begin to bask in the glow of it. I must admit, his article does make interesting, if disturbing, reading.

It seems that debunking the recovery is just the latest in a stream of economic forecasts that so far have been way off base. In my youth I had a mentor who classified all economists (and accountants) as historians, always ready to tell you what went wrong after the fact; people who by definition are not risk takers.

Some economic projections postulate the fault for a slow recovery will lie at the feet of the manufacturing industries. Let's see now; are unemployment figures a leading or trailing indicator? Here in the U.S. we bailed out the banks, insurance companies, and other financial institutions and currently the auto industry with a "clunker" buy back. But when it comes to manufacturing, you're on your own guys.

Some in the administration don't have a problem bailing out financial institutions by dumping a few hundreds of billions onto the banks to allow them to pay off their loans so they can again offer swollen bonuses to the deal makers. After all, we are told they are entitled by contract. But dump a few billion on the manufacturing sector to rehire those contracted workers that were let go who could help get us going again, faster and wiser--No way!

One reason is that we, manufacturing, are our own worst enemy, especially here in the U.S. We would like the stimulus money if it came without strings. Sorry guys, only bankers get that privilege. As long as I have been associated with manufacturing in this country it's always been the same, give me the money but don't ask me to be regulated.

So we can't really cry. Other nations know how to pick up their manufacturing economy, especially that exporting giant Germany. And for a model, how about that capitalist giant China? In less than six months they turned a flat GNP into a 7% possibility. Maybe politics their style has some value.

Well I am here to tell you that I don't believe the recovery will be long and hard--contrary to all the evidence the economists put forth. They got the recession wrong two years ago so why believe them now? I do agree that it will be hard, but when was success in manufacturing not hard?

My money is on a solid recovery led by a reenergized, lean, mean manufacturing machine. It won't be in auto but in a myriad of high technology solutions to the growing needs of a global economy.

I work in an innovative industrial environment that may be back on its heels right now but not down and out. Regardless of what some historians would lead you to believe, the industrial laser industry bootstrapped its way to billions of dollars of annual revenues and they'll do it again. Sooner than some would have you believe.

In the laser industry companies have prepared for the recovery by investing, in a down economy, in R&D to develop innovative solutions to solve the next generation of manufacturing problems. And many of them, in the face of growing red numbers, have held on to key personnel that will be needed when the recovery begins. These are just two reasons I think the laser industry will recover quickly in developing markets.