Editor's Letter - Saving for a Rainy Day

As I write this, it is the middle of March and there is roughly 2 feet of snow on the ground. While this time of year may find many people waxing poetic about the upcoming baseball season, I instead start to think about saving for a rainy day, planning for the future and preparing for the unexpected. Maybe it is the fact that April 15 is around the corner, and I needlessly have been avoiding the unpleasant job of adding up all those expenses, deducting all those other items, etc., so I can get my taxes done.

For the recycling industry, it might also been a fortuitous time to start saving for a rainy day, which, in this case, is the inevitable downturn in the market.

In the future, if you talk to just about anyone in the industry who has been handling secondary metals and paper for longer than a couple of years, they may describe the current market as the halcyon days when you couldn’t help but make money. Prices are high, demand is strong and increased interest by outside parties is resulting in more deals, whether they be mergers or acquisitions.

Many companies providing equipment to the scrap industry also are enjoying these salad days, as scrap dealers are looking for more equipment to process more material. Extended backlogs of orders are not uncommon right now.

And, sniffing some great opportunities, more private money is investing in the scrap market, resulting in a sharp jump in mergers, acquisitions and joint ventures.

But, as in everything, there will undoubtedly be a time when the "easy" money is no longer around. Prices may not plummet to the levels they were at the earliest part of this decade, but demand for the raw material could abate, making moving material more challenging.

For smart operators, investing to strengthen an operation during both good times and bad makes wise sense. To accomplish this requires prudent investments, not just when markets are robust as they are today, but at regular intervals. Further, often when markets are strong and money seems to be abundant, many people can throw caution to the wind, taking risks that may be a bit too foolish, expanding into areas that appear to be "hot" today, but that cannot survive long term. The history of the recycling industry is littered with companies that felt that prices would go on the way they were forever.

As an eerie parallel, many people who jumped into the real estate market for easy money are now finding out that there is a price to be paid for forgetting the old saw, "All good things must come to an end."

When the downturn comes for the recycling industry, make sure you aren’t the one stuck holding the bad hand.

As for me, I am going back to hunting for deductions on my 2007 taxes.