Stan golomb

Nature abhors a vacuum. Recessions create vacuums. There is no question that we are in the heart of a recession and there is no reason to think it has bottomed out.

Wall Street did not tell you to stop buying stocks at 80 times earnings, which in normal times would take a lifetime in returns to recover your investment.

Right now they are telling you that the recession has bottomed out. However, logical thinking, with companies going bankrupt in droves and financial reports in question, tells you otherwise.

I don’t profess to be a stock market analyst, but I do listen to those who have proven they know what they’re talking about. “The Oracle from Omaha,” for one. Warren Buffet has always said that people cannot expect to get a 25 percent compounded return year after year. The bubble has to break someday when reality sets in.

Good investors, according to Buffet, can expect about 6 percent return on safe investments except when hysteria reaches a point that people start buying overpriced stocks.

We’ve had bubbles before that reached outlandish prices before they were pierced, such as the famous Tulip Bubble, the South Sea Bubble and the 1929 Bubble.

The Tulip Bubble is a great example of the mass hysteria of easy money which took place in Holland in the early 1600s.

I think it’s worthwhile reading about this bubble, as it typifies the greed and hysteria that sets in when people see easy money.

In the Tulip Bubble In Holland during the early 1600s, it was not stocks but tulip bulbs that made investors rich beyond their wildest dreams. It also ruined thousands when the Tulip Bubble burst and threw the national economy into major depression.

Yes, we are talking about a flower here — the tulip. Not just any plain, old tulip, but those with the mosaic virus which produced petals with contrasting colored strips. These bulbs were called “bizarres.” These infected bulbs became all the rage in Holland and the more bizarre a bulb was, the more it was worth. Speculators began buying bulbs just for the purpose of reselling them at a profit. They became rich doing this so more speculators wanted in on the action and easy money, which just produced more demand for the bulbs, further pushing up their prices. Soon anyone could make lots of easy money buying and selling tulip bulbs — full-blown tulipmania.

Tulip prices rose steadily then wildly as nobles, farmers, maid-servants, and chimney sweeps profited from the madness. The normal industry of the nation stopped as everyone engaged in profligate speculation in tulip bulbs.

The Tulip Bubble was in high gear as valuables, such as land, jewels, and even once an entire house, were traded for a single tulip bulb.

An option market in tulip bulbs even developed, allowing the Dutch to leverage their ability to speculate on bulbs.

One sailor, thinking the red bulb on a tavern owner’s counter was an onion (it was a valuable tulip bulb), carved it up as topping on his herring. He was thrown in prison charged with a felony.

And then one day, bulbs quit rising in price when there was no one left to pay a higher price for them. All the buyers had been taken out of the market. With no supply of buyers left to bid on bulbs, they began to fall in price and economic panic set in. Government officials assured the public that everything would be all right, but dealers went bankrupt, as did speculators and the general public. A severe depression set in for years with the crash of the Tulip Bubble.

Every now and then investors think they see a way to become rich and they buy stocks at higher and higher prices, even if the company has no chance of making a profit for years to come, if ever.

Eventually reality sets in and these stocks collapse under the weight of their financial debt. Our most recent classic Bubble was the Dot.Com Companies.

Trillions of dollars were lost including, in many cases; retirement and college funds which went down the drain. The value evaporated due to the greed that sucked investors into buying stocks with no chance of a pay off.

Bill Bonner, the famous publisher of a myriad of financial publications, called Amazon.Com “The River of no Return.”

Okay, with that out of the way, we know that the economy started downhill in March of 2000. But what are the ramifications of an economy in recession?

For one, companies close, people lose jobs, consumers eventually start to pull in their horns and sales in many industries start to tank. But even in bad times, some businesses flourish. For example, the after auto parts companies have flourished.

Auto repair shops will do better than ever as it’s no longer wise to buy a new luxury car when your present car, with maybe 20,000 miles on it, can be brought up to like-new at a relatively low cost.

The shoe repair industry will grow, as will alterations and tailoring, because people will not be anxious to invest in new, expensive clothing.

Unfortunately, traditional drycleaning is taking a beating. Drycleaning is a service that is primarily used by people with discretionary income. Many essentials for spending come in ahead of drycleaning, such as food, housing, and automobile expenses. However, drycleaning will still continue, as people want to look good and will spend some money on maintaining their wardrobe.

They just won’t spend as much as they did when times were good.

This is not a new phenomenon for the drycleaning industry.

We have seen sales decline time and time again and, as always, plants will go out of business and money-making companies will become marginal. However, eventually the survivors will be stronger than ever.

Large numbers of cleaners go out of business when there is a drop in sales.

In 1955, it was Wash N Wear.

In 1961, it was Coin-op Drycleaning

In 1972, it was a combination of polyester, leisure clothes, and a bear market, followed by massive inflation.

March of 2000 was the beginning of a bear market that eventually brought us to the present. They call our present economy a recession. I see no reason for it to turn around anytime soon, no matter what Wall Street would have you believe.

So what’s this bit about a vacuum?

I expect at least 20 percent of existing drycleaners to close their doors before this recession is over. The reason is that those who are carrying a large debt service and operating marginally cannot exist with a 20 percent loss in sales.

So what happens to the customers they were servicing that represented 80 percent of their volume at the time of their demise? They become available for the strong and aggressive who will be far healthier when the dust settles.

The vacuum is in the form of millions of drycleaning customers who no longer have a drycleaner. There is a void, a vacuum, and the aggressive operator will quickly fill that vacuum.

Those who are well financed and not aggressive will be able to continue to operate with 20 percent less volume and when things turn around, their volume will come back.

If you are in a solid position financially, with little or no debt service, I have a plan for you. My plan will show you how to fill that vacuum by bringing tons of work into your plant.

Nature cannot accept a vacuum and neither can business conditions. The vacuum will be filled by someone and it might as well be you, if you qualify. Just contact me by phone, e-mail or letter but be sure to give me your name, plant name and mailing address.

Then I will reveal my plan to you.