Happy New Year! You're Fired

It's time for a new truism, Fools: "The bigger they are, the harder they fire."

All across corporate America, we've been reading about layoffs in recent weeks. The "redundancies" (as our British cousins so delicately term the phenomenon) hail from sources both expected -- Harley-Davidson's (NYSE: HOG  ) 1,100 pink slips -- and surprising, such as Microsoft's (Nasdaq: MSFT  ) first-ever mass dismissal, of 5,000 souls.

This morning, three of the nation's biggest employers announced a total of 35,000 layoffs. Telecom giant Sprint Nextel (NYSE: S  ) announced that in an effort to cut $1.2 billion in expenses from its budget, it will lay off 8,000 workers across "all levels of the company." Sprint's also suspending 401(k) matching funds in 2009, canceling tuition reimbursement for those workers lucky enough to keep their jobs, and freezing salaries.

In retail, Home Depot (NYSE: HD  ) revealed layoffs nearly as big -- 7,000 employees, including "a 10% reduction in the Company's officer ranks." (So let's hear it for the workin' man.)

But these two "right-sizings," combined, don't hold a candle to what happened at Caterpillar (NYSE: CAT  ) . The industrial giant reported miserable earnings this morning, and knowing that misery loves company, let 20,000 employees go.

The song remains the same
Nor will the cuts end there. Also today, Pfizer (NYSE: PFE  ) confirmed that it's paying $68 billion to buy Wyeth (NYSE: WYE  ) . But pharma employees have little reason to cheer the news. It's been said that Pfizer plans to cut 10% of the resulting company's workforce, if and when the merger goes through.

Doom and gloom ...
Now, there are two ways to interpret all this bad news. Doom-and-gloomers will tell you that our economy is slouching toward an economic Gomorrah. Laid-off Sprint workers are going to have a hard time paying for cellular service on their unemployment checks. Home-less Depot officers won't be buying a lot of lumber. And pretty soon, Pfizer's fears that patent-less Lipitor sales will suffer could self-fulfill, as the unemployed masses seek cheaper generic drugs.

... and boom?
And at first, I expect all this will prove true -- and more. The global economy is clearly slowing, and each new round of layoffs will tap the economic brakes a bit harder. But I refuse to buy fully into the pessimistic worldview, Fools. Long-term, I think we're laying the groundwork for a new cyclical boom.

Consider: From the corporate perspective, we see companies busily trimming fat, cutting unprofitable operations, and focusing on how best to maximize their profits. Far from punishing the companies for their failure to "grow," Wall Street this morning rewarded Home Depot for wielding the ax and certainly didn't punish Sprint at all. Clearly, investors believe that eliminating redundancies is going to be good for these companies -- out with diworsification. In with focusing on your core competency.

But what about the workers?
Things are going to be tough for the newly jobless, no doubt -- and I feel their pain. Fact is, I lost one of my own two jobs just this year. But as a result, I now get to spend more time doing the work I really love -- investing, and writing about investing.

So my own personal experience tells me that American workers, laid off by corporate America, will -- to quote one notable person who just lost one job and found another: "pick ourselves up, dust ourselves off, and begin again the work of remaking America."

Foolish takeaway
So here's my prediction, America. The next few months -- maybe the next couple of years, are going to be rough. But as time goes on, those workers laid off by corporate America are going to discover themselves increasingly free of all the negatives that comes with: Corporate red tape. Stifling of creativity. Conformity. They'll find new jobs, better jobs -- or start companies of their own.

Somewhere out there, I'm convinced, is:

  • an ex-Harley employee who's always wanted to open his or her own shop, tricking out bikes;
  • a Home Depot suit whose first love has always been cooking, and who will take the severance check and plow it into a small-business loan to open the next Chipotle;
  • a Caterpillar mechanic who's sick of building excavators for oil sands, and has a great idea for how to improve the efficiency of solar panels -- and was just waiting for the kick in the pants to get down to sketching it out;
  • maybe even a Wyeth worker who will one day cure the common cold -- and keep the patent to themselves.

In short, the recession is not forever, Fools. Given time and gumption, and finally unshackled from their cubicles, these miniature engines of economic growth will lead us back to the boom times. And then the great cycle of economic growth will turn north once again. Invest accordingly.

Fool contributor Rich Smith never really liked being a lawyer anyway -- and he's enjoying the freedom to write, and invest, with fewer fears of "conflict of interest" getting in the way. Speaking of which, he does not own shares of any company named above. Speaking more of which, The Motley Fool has a disclosure policy.

Pfizer is a Motley Fool Income Investor selection. Sprint Nextel, Pfizer, Microsoft, and The Home Depot are Inside Value picks. The Fool owns shares of Pfizer. Chipotle is a Motley Fool Hidden Gems and a Rule Breakers pick.


Read/Post Comments (7) | Recommend This Article (30)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 26, 2009, at 4:31 PM, FinancialFellow wrote:

    I think its really just part of the natural economic cycle. Older business models will fail and new better ones will rise in their place. I'd refer to it as the natural selection of the business world.

    All this doom and gloom has caused me to think more about money - or my fear of not having enough. It has also caused me to wonder what I'd do if I had more: http://financialfellow.com/2009/01/24/what-i-would-do-with-1...

  • Report this Comment On January 26, 2009, at 6:14 PM, babypoop wrote:

    "Somewhere out there, I'm convinced, is:

    an ex-Harley employee who's always wanted to open his or her own shop, tricking out bikes;

    a Home Depot suit whose first love has always been cooking, and who will take the severance check and plow it into a small-business loan to open the next Chipotle;

    a Caterpillar mechanic who's sick of building excavators for oil sands, and has a great idea for how to improve the efficiency of solar panels -- and was just waiting for the kick in the pants to get down to sketching it out;

    maybe even a Wyeth worker who will one day cure the common cold -- and keep the patent to themselves."

    Yes there are plenty of banks that would be willing to lend capital to unemployed people for their new projects.

    Good call, Fool!!!

  • Report this Comment On January 26, 2009, at 9:50 PM, redclaymud wrote:

    The way the article reads, those involved in the layoff had better get their creative juices working. Maybe a few will, but probably most won't. It's hard to get enthusiastic about new opportunities when the economy shuts down.

    I have to admire the optimism of Rich Smith, but I've also put him on my list of people I won't listen to for investing advice.

  • Report this Comment On January 26, 2009, at 11:58 PM, lrm21 wrote:

    Yeah..umm.

    I don't know if betting your savings on starting a business in the midst of a once in a generation economic downturn is a good thing.

    And like another fool, says. Nothing screams credit worthy to a bank like unemployed.

    But I agree in the long run its for the best, creative destruction is the engine of capitalism.

  • Report this Comment On January 27, 2009, at 12:32 AM, dgmennie wrote:

    There are always clever and motivated individuals around with good ideas and the gumption to see them through, regardless of economic conditions. The problem with any wave of mass layoffs is that the VAST MAJORITY of those affected have no real chance of picking up and starting over, especially when credit is not easily available. (And thanks to Bush we now have even tougher bankruptcy laws on the books that make borrowing by individuals a total disaster should anything go wrong.)

    Much of the blame lies in our present culture and educational system that essentially grooms young people to be EMPLOYEES. This works fine so long as Corporate America is hiring. But when the business model shifts and the good jobs are suddenly cut or sent overseas, what is going to happen? Well, given most people's overextended lifestyle built on the promises that Corporate America has just decided not to keep, one guess should be enough.

    Another huge problem is the over-reliance of US workers on municipal and government employment and on entitlements. We cannot all have "jobs" paid for with tax money. Who, pray tell, is going to pay the taxes if private sector workers are sacrificed on a grand scale?

    Any economic recovery plan that does not address these issues has no chance of success, and will only make things worse for everybody. Look for political leadership that can see beyond the next election, and business acumen not driven by quarterly profit/loss statements.

    Workers of all stripes need to understand that the "good employee" business model of yesteryear will not suffice for the future. Everyone needs to find multiple ways of generating income while remaining much more independent and self-sufficient.

  • Report this Comment On January 27, 2009, at 6:16 AM, bmialone wrote:

    "We cannot all have "jobs" paid for with tax money. Who, pray tell, is going to pay the taxes if private sector workers are sacrificed on a grand scale?"

    Not sure why you think public sector jobs are in any way responsible for corporations sacrificing workers in search of higher profits for their international shareholders, but remember, government employees pay taxes too.

  • Report this Comment On January 27, 2009, at 3:22 PM, dgmennie wrote:

    Looks like "bmialone" has intentionally missed the point of my discussion. The fact is that public sector jobs have been insulated from reality for much too long. Layoffs are few and far between while the medical benefits and pensions exceed anything offered in the private sector today.

    Yes, government workers do pay taxes, the poor things! But they would (mostly) be pounding the pavement tomorrow if it was not for the river of cash they extract from those whose jobs are now being eliminated by the tens of thousands every week.

    Does the word "unsustainable" mean anything to you?

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