Friday, June 19, 2009

Does FIFO Apply to Companies in Trouble?

I had lunch with a very successful OC entrepreneur yesterday. He made his fortunes in OC real estate. As is customary these days, we started talking about the economy. He wasn't very happy with what the President is doing to stimulate the economy. He thought longer-term individual and business tax breaks would be substantially more effective in helping the economy restart. But that's a topic for another blog entry.

I pitched an idea to him: Does the concept of first-in, first-out (FIFO) apply to troubled companies in this economy? What I meant was whether the companies that entered the recession and had to contract early on, would then show growth ahead of others? The idea, in general, seems to make sense. After all, these companies likely went through the necessary restructuring, cost-cutting and lay-offs much sooner. As a result, they have already figured how to eek out more productivity and efficiency from their remaining resources. They're lean and ready for growth.

So, as the economy begins to bounce, likely sometime later this year, they'll be in the perfect position to rebound quickly. Compare this with the professional services sector, for example, that's only now beginning to contract. These companies have only begun the process. Their restructuring, like others, won't just involve how many employees they need to retain, but cuts in travel & entertainment, employee events, supplies. They have only begun to address lowered company morale and changing their employee mindset on how to spend where.

My lunch companion thought about this for a few minutes and then told me of some title/escrow and loan processing companies that he personally knows and how their business has increased over the past few months. This, he said, is especially true for loan processing. They're knee-deep in re-financing applications. On the title-escrow side of business, the many foreclosures have begun to generate substantial business for companies like First American. So, given these industries were the first to enter the recession and suffer the consequences, we have a few local examples of FIFO in action.

On the national front, the Wall Street Journal had an article this week on how the finance sector is beginning to hire again. The article claims this is a result of "improving financial markets and increasing investor confidence." So, may be this is not just a local phenomenon.

I see two potential employment opportunities here:
  1. Those looking to work in finance can start applying again
  2. Those with solid restructuring experience can search for companies that've only now begun their contraction

Who said there are no opportunities in this Great Recession?