Management: Economic outlook

Long-respected Vistage speaker and honored economist Brian Beaulieu believes that we’re just beginning to see an economic up-cycle through April 2010.

This will be despite the fact that unemployment will remain high and consumer spending will remain in the doldrums.

Beaulieu says the signs are here that “we have to think differently about how we run our business.” He believes 2011, not 2010, will be a strong year – something he said five years ago. This music sheet has not changed. His advice for U.S. businesses is:

  • Start selling your products and services abroad. There should be plenty of opportunities in 2010, and more in 2011.
  • Plan for strong growth in 2011. If you have cut back on marketing, research and development or workforce training, reinvest and expect a bigger workload in 2011.
  • Be prepared to increase prices and payrolls inasmuch as we will see a rise in inflation through 2012.

Higher inflation

He sees inflation jumping to 6 percent over the next two years, and to 7.5 percent by 2012. Here’s how TEC companies can protect themselves:

  • Buy value-based inventory before inflation accelerates.
  • Put a lock on expense escalators in future leases.
  • Consider inflation when creating 2010 budgets.

Inflation will remain the ugly two-edged sword it always has. Increasing wages and prices by 6 percent seems astronomical by recent standards. But three decades ago, we raised them more than 20 percent, virtually across the board. Those of us who remember that picture know that it wasn’t pretty at all. 

Like taxes and death, we can be assured that with higher inflation, our country will absorb even higher debt. It has already reached obscene levels that even a fifth-grader can comprehend.

Collapse of the dollar

With impending high inflation and rampant, irresponsible trillion-dollar debt, what about the potential collapse of the dollar?

Beaulieu says this won’t happen through 2012. He believes that both China and Japan wouldn’t let it happen because they want to keep their largest market healthy. China won’t give up on treasuries until another emerging market – India, for example – develops a consumptive market that is larger than that in the United States.

By the way, a true collapse would lead to much higher interest rates, commodity inflation, and money would trend toward real estate and gold. Turmoil at the global level would be catastrophic, and that might be an understatement.

A look at the crystal ball

  • We have started a “U” recovery and will be bouncing along the bottom for the next 12 months.
  • Expect the recovery to pick up briskly in 2011 and flatten out in 2012.
  • Home values will rise in late 2010.
  • The dollar value will continue declining in 2010 and 2011.
  • Unemployment will rise by more than 10 percent in 2010.
  • Bank lending will be up in 2010, but with tighter lending rules.
  • Commodity prices will be up in late 2010 and into 2011.
  • Inflation will ramp up to 6 percent in 2011 and 7.5 percent in 2012.

Recommendations for business

  • Expand your business in the beginning of 2010. 
  • Borrow and spend money on expansion.
  • Borrow as much as you need in 2010. Borrowing will be harder later.
  • If you lease, lock in rates now!
  • Get your best talent before 2011.
  • Invest in customer service now.
  • Beef up marketing and advertising.
  • Prepare your workforce to handle more work, with more demands on the work.
  • Seek out resilient sectors: energy, “green,” “water,” health care, funeral services, alcohol, security, legal services, food distribution, water purification, electricity, natural gas distribution, distance learning, pet products and leisure.
  • Sell to foreign markets. They benefit from a devalued dollar.
  • Position your business toward green.
  • Communicate your company’s future clearly.
  • Learn to project your firm’s “12/12” rate of change.

Action items for investments

  • For inflation protection: buy a first or second home with a fixed mortgage. This is the best time to buy real estate in our lives. Low prices and low interest equal true bargains.
  • Commercial real estate will be a terrific buy in mid 2010.
  • Select stocks in green, energy, commodities, food, security, technology and those that benefit from infrastructure spending.
  • Post 2010, avoid bonds. They’ll have long-term negative pressures.
  • 2012 may be the best time to sell a business, in spite of rising capital gains taxes.

I admit this is a mouthful. For one, I’ll put my bets on Brian Beaulieu. He hasn’t missed with his TEC prognostications since 1999. And you know what? When you meet this guy, you really, really like him.

Until next month, keep prospering, and maybe Brian can help just a bit. 

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