Executives evaluate recession

What does a macaroni-and-cheese dinner in a box have to do with the Great Depression?

It debuted in 1933 at the height of the Depression, said John R. "Jack" Nelson, executive vice president and chief technology officer of Altria Group Inc. "Innovation is key to being successful in this kind of environment," he said yesterday at a Virginia Commonwealth University School of Business event.

Nelson pointed to other success stories that came out of weak economies: Miracle Whip, also in 1933; Sports Illustrated, 1954; FedEx Corp., 1973; and Microsoft, 1975.

He was one of three Richmond-area business executives who participated in "Extraordinary Conversation for Extraordinary Times." The lecture was part of an annual Charles G. Thalhimer Family Executive-in-Residence Program.

The others were Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond; and Steven A. Markel, vice chairman of the Markel Corp.

Nelson talked about consumer angst -- how people are feeling poorer and more uncertain about their jobs in this economy. They are spending more time at home. They are more frugal and they are reducing spending on personal care.

They are in the market for more foods that replace the restaurant experience, over-the-counter treatments and at-home spas, he said.

Here are some highlights from Lacker and Markel:

LACKER: "We always come out of recessions. I expect it to happen by the end of this year."

The economy is showing signs that the pace of contraction is falling. "Universally dismal economic reports are being replaced with mixed economic reports," Lacker said.

Housing has yet to recover. "It has fallen 80 percent. It's hard to believe it will fall much further. It can't go to zero."

Fears of inflation, with prices for goods ramping up, turned to fears of deflation last fall with falling energy prices, Lacker said.

The banking situation is serious but not catastrophic, he said. Plus, the issue of tight credit is not as simple as it may seem, he said. "Banks are lending. They are making new loans and not just rolling over old loans. They are chasing all the good customers they can find."

Yet, with such factors as employment falling and manufacturing output contracting, "no one is as credit worthy as they were two years ago. . . . Banking is experiencing a fallout of real economic weakness, not the other way around."

MARKEL: "Everyone of us here today has felt the impact of this financial earthquake."

Markel Corp. is a specialty insurance company in Henrico County. It collects premiums and pays claims. But it also builds an investment portfolio from premiums.

While no investor has escaped the volatility in the market, Markel uses investment principles that may help others, he said.

Invest in good businesses with strong earnings, he said. Consider businesses with capable and honest management teams. Look at how businesses reinvests their profits and allocates their capital. Pay a fair price for the investment.

"The company is positioned to take advantage of the recovery, which we firmly believe will occur."

The underlying problem in the overall economy was too much leverage, he said. "And the biggest factor of all was too much greed."

Excesses will be corrected, he said. New rules and new ways of doing business will be adopted.

"While not perfect, our capitalistic system does work. . . . The government must find a way to return its ownership of businesses back to private hands."

The world needs solutions to the energy crisis and health care. It needs improvements to infrastructure and education. It does not need another financial engineer to reconstruct subprime mortgages, he said.

Contact Carol Hazard at (804) 775-8023 or .