Hard times and Animal Spirits

The hard facts are cold. Things just aren't the same.

That's why it's time to raise some "Keynes."

Gotta admit ... Keynes got it right when he coined the term "Animal Spirits."

You know, that lively term that captures how human decisions reflect our "spontaneous urge to action," where a simple math equation just does not figure into how confidence builds in an economy. Human behavior ... the belief that we control our destiny at the end of the day. Destiny's hand is our own.

Enter Spring.

The phones are ringing again!

Powerful words were spoken over the phone by Tim Born of Glass Doctor in Rome, Georgia, last week to this writer. "Where January and February were dead, things have sprung to life again and I work 12 hours some days to keep up."

The sounds of a turnaround? Possibly.

In another phone call last week with a leading executive from Dow, I heard the word "growth." Yes, growth. What an adrenalin rush. I nearly fainted!

Time to feel better about things? Evan a tad? I know I did. Even got a burst of confidence when we sealed a nice new deal.

Just goes to show ... words are powerful.

Growth. Phones ringing. Sales.

That burst of returning confidence--which grew as the week wore on for me--offers a vivid example of what John Maynard Keynes called "Animal Spirits," the title of a lively new financial crisis book by George A. Akerlof and Robert J. Shiller.

The book explores how individual feelings and attitudes can affect the economy, building confidence--or not--and ultimately serving as the underpinnings of an eventual recovery. Shaping beliefs is what it’s ultimately all about.

You’ve heard the adage “pull yourself up by the boots-straps.” Well, you never heard a math equation pick up the economy. We do ... you and I ... by our actions.

"When people are confident they go out and buy; when they are unconfident they withdraw, and they sell," say the authors.

We at the NGA are not sitting idle; we're building confidence, bound and determined to lead our industry forward as countervailing winds try to alter our course.

You may have seen Phil James' recent note about how GlassBuild America is shaping-up, standing tall against those stiff headwinds. It's a must-read.

Buying and selling is still the name of the game. This Fall at GlassBuild America provides the perfect opportunity to seal some new deals, jumpstart 2010, and rejuvenate your spirits with solid learning and networking.

Don't hold back. Act with confidence. Jump back in the water again and start swimming. After all, many of life’s biggest decisions--“Should we have a baby?” “Should I buy Ford stock?”-- come "straight from the gut," to quote former General Electric CEO Jack Welch.

Remember, the engine that runs the entire economy is confidence. We shape that confidence each day with our customers, suppliers, employees ... and ourselves.

A must-read for these times: "Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism.”

Well, gotta run ... the phone is ringing!

P.S. Speaking of animal spirits ... head’s up: The card check issue we wrote about in an earlier blog is beginning to advance in the House, thanks to Big Labor’s influence. Stay tuned, and be ready to act. This is one animal whose spirit must be tamed.

—David Walker, Vice President of Association Services, National Glass Association

Help is on the way for small shops

President Obama’s latest plan will allow the government to spend up to $15 billion to buy small-business loans that are now stalling community banks and lenders. That, in turn, will allow those banks to start lending again to small companies to invest, pay bills and survive, according to a March 17 article in The Washington Post.

Over the past decade, small businesses have created about 70 percent of the new jobs. As their credit lines have dried up, they have started to struggle or die. The $15 billion will come from a bailout plan already approved by Congress to rescue the financial sector. The president’s aides say the plan will offer fast, direct help.

Other White House steps to help the lenders include bigger lending guarantees, reduced fees and quicker turnaround times for loans. Treasury Secretary Timothy Geithner has urged the banks to start lending to businesses again. He also has ordered the Internal Revenue Service to issue new rules to help small businesses, according to The Post article. One of them will allow businesses that make up to $15 million to claim losses for the past five years in the current tax year. That amounts to a rebate on taxes paid in previous years, according to the White House.

In the meantime, the Small Business Confidence Index of the Small Business Research Board has increased slightly during the fourth quarter. The construction and contracting industry reported an SBCI of 34 during the fourth quarter, a three point increase from the 31 recorded during the second quarter of 2008, according to an SBRB study co-sponsored by International Profit Associates.

The higher construction and contracting SBCI resulted from a positive outlook regarding the general economy in the next 12 months with 40 percent of the respondents reporting expectations of an improved economy over the next 12 months; this is an increase of 12 points from the second quarter of 2008. Also contributing to the higher SBCI is the determination that 27 percent of respondents plan to increase hiring in the next year. This is up three points from the previous study held in the second quarter of 2008.

I’m interested to hear from the small glass and glazing businesses out there. What is your outlook on the president’s plan? Do you believe this is going to help you in any shape or form?

By Sahely Mukerji, news editor/managing editor, Glass Magazine

Biggest billionaire losers—and some winners

Feeling down about the hits your 401K has suffered during the last year? Well, as they say in Minnesota, it could be worse … a lot worse.

March 12, Forbes released its list of the world’s billionaires. This year, the list sits at 793, down from 1,125 in 2008. “The typical billionaire is down at least one-third in their net worth,” said Steve Forbes, Forbes CEO. That includes Microsoft founder Bill Gates, who lost $18 billion—30 percent of his worth. Despite the losses, he did manage to reclaim the title of the world’s richest person with a total worth of $40 billion. Phew.

Forbes highlighted the biggest billionaire losers, including K.P. Singh, who lost 83 percent of his net worth. The driving Indian real estate boom made Singh the world’s richest real estate baron, a title he held for a very hot minute. The real estate market crash and the slowdown of the Indian economy caused Singh’s net worth to drop $25 billion during 2008. His current net worth is $5 billion.

Those sky-high metals prices that squeezed the glass industry during 2006-2007 gave a big boost to the net worth of Russian aluminum tycoon Oleg Deripaska. In turn, the sharp decline in demand for aluminum, nickel and copper as a result of the credit crunch and overall manufacturing slowdown caused Deripaska’s worth to plunge $24.5 billion to $3.5 billion.

The end of the Las Vegas building boom hit Sheldon Adelson hard. The Sin City property developer lost $22.6 billion during the year, falling to a net worth of only $3.4 billion, an 87 percent loss. Ouch.

Despite the economy, some rich managed to get richer during the year, according to the Forbes list of winners. Forty-four billionaires increased their worth, and 38 new billionaires made the list. The top three earners include: New York Mayor Michael Bloomberg, who managed to increase his net $4.5 billion to $16 billion; John Paulson, a hedge fund manager who predicted the U.S. economic plunge, doubling his net worth to $6 billion; and mathematician turned stock-market-algorithm developer, James Simons, who saw $2.5 billion in gains last year, bringing his net worth to $8 billion.

According to a National Public Radio report, Forbes and the magazine’s editor Matthew Miller offered some insight on what the winners did right. Location became a huge factor, differentiating winners and losers, Forbes said, as most billionaires that fell off of the list came from emerging markets such as India and Russia. The best place to live is “still in the United States,” Forbes said.

Miller added that the earners invested in the tangible, such as John Paul DeJoria who owns Paul Mitchell shampoos and Patron Tequila. “Liquor is something people like in a recession,” he said.

Forbes said future billionaires will be those who capitalize on the current economic situation and work to create something better.

—Katy Devlin, commercial glass & metals editor, retail glass co-editor, Glass Magazine

Alert: Cobra medical coverage credit

As the unemployment rate continues to rise, hitting 8.1 percent in February, more glass company owners find themselves having to navigate IRS instructions on how to claim credit for the Cobra medical premiums of former employees.

Under the American Recovery and Reinvestment Act of 2009, eligible former employees enrolled in their employer's health plan at the time they first lost their jobs are now required to pay only 35 percent--as opposed to up to 102 percent--of the cost of Cobra coverage, according to a release from the Internal Revenue Service.

So who pays the other 65 percent? You guessed it: the employer. If your company has a group health plan that is subject to federal Cobra continuation coverage or similar state law requirements, and you receive a 35 percent payment from an "assistance-eligible employee," your company is responsible for paying the remaining 65 percent of the Cobra premium.

The good news is that employers can claim these subsidies as a credit on their quarterly payroll tax return. The IRS will send Form 941, the revised "Employer's Quarterly Federal Tax Return," to about 2 million employers in mid-March for companies to use when claiming the new Cobra premium assistance payments credit.

Detailed information on the new law, in effect as of Feb. 17, is available at http://www.dol.gov/. For additional information on the Cobra medical coverage credit, in addition to an exhaustive Q&A on the subject, click here.

—By Jenni Chase, Editor, Glass Magazine

How much will the industry pay in Cap and Trade?

Climate Change and Cap and Trade have been the focus of the industry in the last few months. At Glass Association of North America’s fall conference last September, officials and members discussed the issues at length. Climate change will have a huge effect on the glazing industry, said Kim Mann, general counsel, GANA, at the conference. “The feds are taking it up, and California, not surprisingly, is in the forefront. What happens in California, won’t stay in California, it will move east,” he said.

The White House expects President Obama’s $646 billion Cap and Trade plan will begin generating revenue for the government in 2012. The plan is expected to bring some $80 billion a year from 2012 to 2019, according to a report in the U.S. News & World Report.

California has implemented the AB 32, or Assembly Bill 32, the state level Cap and Trade greenhouse gas emissions regulation, said Steve Farrar, director, Guardian Industries, Auburn Hills, Mich., at the GANA conference. Numbers wise, what’s been proposed could jeopardize the profits of the flat glass manufacturers, said Bill Yanek, president, GANA. “The Educational Committee will do a study on how much greenhouse gas the glass makers emit, how much can be saved on energy if, for instance, low-E glass is used in a project, and find the ratio. Europe has such a study, but the United States does not,” Yanek said.

The California Air Resources Board’s Glass Manufacturing Sector Survey for owners/operators of three glass sectors--container, flat, and fiber glass--is now online. The ARB requires all glass manufacturers to submit the survey to determine if a regulation is needed to protect public health and carry out its other statutory responsibilities. The ARB staff is evaluating the potential strategies that the glass manufacturing industry can implement to achieve greenhouse gas emission reductions.

On the other side of the ocean, the European Parliament in Brussels adopted the Climate Change package in December last year. The package confirms the EU binding target of 20 percent renewable energy share by 2020 as well as 20 percent reduction on greenhouse gas emissions and a 20 percent improvement on energy efficiency.

The European Commission’s emissions trading plan would lead to additional costs of an estimated $336.7 million to the glass industry in Germany alone, said Paul Neeteson, president, Federal Association of the German Glass Industry or Bundesverband Glasindustrie – BV Glas and glasstec 2008, at glasstec 2008 last October.

What is your take on Climate Change and Cap and Trade in the U.S.? What kind of carbon footprint do you believe the glass industry has? Should the industry be credited for its contribution in making a product green? How should such effects be quantified?

By Sahely Mukerji, news editor/managing editor, Glass Magazine