Subprime Mess: Is that a Mushroom Cloud in the Distance?

If you are like me you are having a difficult time getting your arms around the subprime crisis. I am not sure how bad it is; what it is going to do to me; and what action I should take, if any? I hear all of the problems in the news, but, as of yet, it hasn't affected me. Finally, I after much agnst I came up with an anology that helps me visualize the situation and how I should react.

Picture yourself standing outside your home. Fifty miles away, in the distance, you see a mushroom cloud from a nuclear blast rising into the atmosphere. Once you get over the initial shock you realize that it is far away from you. In fact, the sun is shining and everyone is going about their business.

The second thought that comes to your mind is: "I wonder which way the wind is blowing?" Is the nuclear fallout coming towards me or away? How bad is it going to be? For those individuals at ground zero it is pretty bad!

I visualize the subprime mess as a nuclear bomb that has exploded in our financal system. Personally, I don't have any direct contact with industries affected by the crisis. The sun is still shining on my business and we are making money. But I am keeping an eye on that mushroom cloud in the distance! I know that as it spreads through the economy some fallout will affect me. In the meantime, we are spending causiously, hiring selectively and marketing aggressively.

It's Coming

Despite the public efforts of the Fed and the Bush Administration, last week the Dow fell 507 points. The S&P 500 Index is currently down 9.75% for the year through last Friday's close.

Today, markets from Asia to Europe are dropping like rocks in anticipation of the US economy heading into recession.

Is your firm recession proof? How's your liquidity? Have you been letting your receivables age a little bit too well and have you been paying your vendors too fast? Are your major customers looking shaky?

Looking for a light at the end of the tunnel and hoping it's not a train? Well, start here.

On the Cusp of a Recession?

In December, the US unemployment rate rose to a two year high of 5.0%, the worst since 2005. That increase was also the largest one month increase since April of 1995. A scant 18,000 jobs were added to payrolls in December, per the US Department of Labor. 2007 was the worst year for US job creation since 2003.

Now is the time to think seriously about how a recession might affect your firm. How are your major customers faring? Would they be able to weather a major economic downturn this year?

Would you?