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Look who’s got front-row seats to the birth of a rebound

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Been Down So Long It looks Like Up To Me was the title of a novel written in the 1960s by the late Richard Fariña, perhaps better remembered as the husband and musical partner of Mimi Baez Fariña, sister of folk singer Joan Baez. Too bad the title is already copyrighted. It might make a great description of the current economic outlook, particularly by the more optimistic.

By late February, many in the ferrous scrap and steel industries had written off March and said they were hoping that April and the second quarter would bring a recovery. Their pessimistic critics didn't share the belief that the market might rebound soon.

Even with the $787-billion economic stimulus package approved by Congress and signed by President Obama, economic recovery may be a long time coming. It takes time to get even "shovel-ready" infrastructure construction projects started. In any case, a new bulldozer pushing dirt around and workers with a few more bucks in their pockets aren't likely to make this nation's battered economy do an about-face overnight. Something fundamental has been severely damaged—trust.

The public's trust in banks, both commercial and investment, is one example. Instead of safely watching over our savings, they were betting the house on highly leveraged mortgages and hoping that the flimsy house of cards would not fall. With trust has gone consumer confidence. Home foreclosures, job losses and personal bankruptcies have weakened the foundations of the economy. Those facing personal financial crises have no money to spend, while those who still have a home and a paycheck may be figuring they'd better hold on to all they can.

What's needed is not simply a government spending plan or a tax cut, but a renewed belief that those at the top can be trusted and are not driven just by avarice; that like the sermons they preach to stockholders and employees, they also want their companies to grow and prosper; that motivation isn't driven simply by stock options, year-end bonuses and a corporate jet; that rewards (monetary and otherwise) come to those who do the job well, not simply because they occupy a corner suite.

The late Ken Iverson, former chairman and chief executive officer of Nucor Corp., Charlotte, N.C., once explained that his steel company had a bonus program for its employees. When business was good, managers and blue-collar workers benefited by varying degrees. When the market was doing badly, the company had another program. Iverson called it "Feel the Pain" and said, in brief, that higher-paid employees like him would face steeper pay cuts.

Analyst Michelle Applebaum, managing director of Michelle Applebaum Research Inc., Chicago, wrote recently that the U.S. steel industry has managed to survive what were some of the toughest times any industry has faced. Applebaum was taking on the critics of the "Buy America" provision in the economic stimulus package, but in her argument she also pointed out that the industry has revived itself from near death in the past decade and is now one of the most competitive in the world.

"To the casual observer," she wrote, "the American steel industry most probably looks like the boy who cried wolf; the import-whining has been going on for 50 years. The casual observer also most probably believes that Japan is still the low-cost producer and our steel industry is a rust-bowl dinosaur. Hogwash and ancient history. Today, America is globally acknowledged as one of the world's lowest-cost places to make steel; witness the dozen or so American steel companies acquired with rubles, rupees, yen and euros over the past half dozen years?.?.?.?"

There is one thing we can safely lose in this economic downturn the arrogance that afflicts some who climbed the corporate ladder. These "success stories" often regard all below as lesser creatures that don't deserve what they have attained.

Not too many years ago, while attending an industry conference, I was dismayed—but not surprised—by the remarks of a corporate executive. He complained about a demolition contractor who had bid for a job dismantling one of his company's abandoned factories. The guy showed up at his office driving an expensive 4?x?4, he said with an air of utter shock in his voice.

Knowing that most scrapyard owners and demolition contractors spend a lot of time outside in their yards or on-site at a dismantling job, I thought it probably was well earned and perhaps one of the few rewards that a demolition contractor could bestow on himself. Today, many own 4?x?4s and if you've ever driven through a scrapyard you know why—the gullies and ruts can do a number on the average car's axles.

Also, when scrap dealers reap rewards it's not in the millions of dollars. Most are still small family owned and operated companies. If they have a corporate jet, it probably was bought at a Defense Department scrap metal sale and will soon be turned into feedstock for a secondary aluminum smelter.

Fortunately, though, the scrap industry often is the first to feel a strengthening of the nation's industrial activity, a bellwether that economic times are improving. Former Federal Reserve Board chairman Alan Greenspan was fond of tracking scrap metal prices and saw them as a leading indicator of economic recovery in hard times.

Perhaps a scrap dealer driving a gas-guzzling 4?x?4, rather than Wall Street's financial wizards, will be best able to tell when the economy truly is on the rebound.
MICHAEL MARLEY


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