KPCC's business analyst Mark Lacter recaps how Southland companies did on Wall Street in 2011; he also talks about what the most important thing a business can do in 2012.
Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, 2011 marked a wild year on Wall Street for many southland companies. What’s the recap?
Mark Lacter: Well, if you group all the public companies that are based here Steve, there was a small loss in 2011, about one percent. That's similar to what happened with the Standard & Poor's 500 Index, which is probably the best reflection of the overall stock market. The Dow Jones Industrial Average was actually up 5.5 percent, but that's a little misleading because the Dow is made up of very large companies, and large companies fared a little better than the smaller ones. Southern California has mostly mid-sized and smaller companies. But the really wild thing about the year was the swing in stock prices, sometimes within the same industry.
Julian: So, by way of example, what can you point to?
Lacter: You had shares of True Religion, the jeans maker based in Vernon, going up more than 55 percent in 2011, but you also had shares of American Apparel falling almost 57 percent. You had the film company Lions Gate up 28 percent and you had DreamWorks Animation down 44 percent. And you saw this pattern with banks, and real estate firms, and videogame companies. Frankly I can't remember a year when there were so many ups and downs in the same industries - and it's a good illustration of the economy being in such transition.
Julian: So, overall numbers are no indication of individual performance…
Lacter: That’s right, because the overall numbers were so inconsistent: Up a few hundred points, down a few hundred points, and traders seemed more interested in the big-picture stuff, like the debt-ceiling debate in Congress and what was happening in Europe. In that kind of environment, the economy was in kind of a stutter-step mode, and companies performing badly really had no place to hide. If they had poor sales or kept piling up debt, they weren't going to be able to slide by, and their stock prices tended to fall quite badly. Conversely, the strong companies were able to stay strong, and it was reflected in their stock prices. And it could be much the same situation in 2012 - actually, we're seeing signs of that in the retail world with Sears having had such a poor holiday season that it's closing up to 120 stores (at least one of them locally), while a chain like Macy's apparently had a strong showing.
Julian: What's the most important thing a business can do in 2012?
Lacter: Really comes down to that old cliché called confidence. Business owners have been living in a crisis or semi-crisis mode for more than three years now, and it's knocked the stuffing out of expansion plans, hiring plans - the sorts of things that help grow the economy. You really see this
by looking at a huge drop in business loans, going from more than 13 million in 2007 (right before the recession) to less than 5 million in 2010 (that's according to a compilation by federal regulators). Now, some of this is the result of banks putting a clamp on lending activity, and some of it is due to businesses not wanting to borrow more money and take on additional debt.
Julian: There must be exceptions –
Lacter: Sure, the L.A.-based retailer Forever 21 keeps opening stores around the world and we still see startups, especially for anything that involves social networking or Internet marketing. But as a rule companies are still either unwilling or unable to transition from crisis to normalcy. In some ways it's understandable, given how severe the recession was. And don't forget that the investors who own these companies might be wary of their CEOs taking any unnecessary chances.
Julian: Can companies grow by being on the defensive?
Lacter: Not very well. And an economy that's only 60 or 70 percent recovered is far more susceptible to becoming sick again, which is one reason economists are so tentative about 2012. It reminds me of the movie "Moonstruck" when Cher slaps Nicholas Cage in the face and says, "Snap out of it!" Sooner or later, businesses have to find of way of snapping out of it.
Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.