I look around every day and what I see often depresses me. It’s what I fear is still to come. Consistency.

In the past consistency meant things getting better, people making more money, things thriving. What I fear, and what I see around me are models failing every where around me.

What am I talking about?

Typical for any business or project is a financial model that justified it. For a local coffee shop, they’d project out the cost of rent, labor, supplies/product, average number of customers, and average amount spent by customers. Profit margins are usually thin, say 10-15%, so a change to any variable can make a business unprofitable and destroy it. What scares me today, is that I fear that almost every single model is wrong now. If you were a credit card company a key input for your financial models would be the unemployment rate to determine the delinquency rate. No ones model had the unemployment rate going to 10% and showing no signs of stopping. People are losing their jobs in a scarily fast fashion. These same people, who have on avererage borrowed a ridiculously high amount of money, now also can’t borrow since no one wants to extend them credit. So they have bills they can’t afford, no job, and no credit to get them there. Then you have most people who are seeing this happen across the country and it freaks them out. They worry for the future. So they spend less. They save more. Other people, the wealthier ones with a lot of savings? Even if nothing else has changed in their lives, they’ve probably lost anywhere from a third to half of their net worth in the bloodbath in the stock markets. So they don’t feel as wealthy as they once were and so they spend less.

All at once, everyone is freaking out, and spending less. No model is built for this massive combination of job losses, deleveraging, and increases in the savings rate to replenish losses. Whether you’re a coffee shop, a media company, a packaged goods company, or the local barber shop your model just got torn to shreds. We crave consistency. Except the bad kind.

I haven’t posted in a while, and on my entire drive home (and for the past months) this thought has been eating at me. So I just wanted to post this and I hope I can let it rest.

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