‘We can beat this business cycle’

By Paul Diamond, for BizTimes

Recently, noted economist Brian Beaulieu of the Institute for Trend Research shared his firm’s economic forecast in a special webinar to Vistage members. The information Beaulieu conveyed was geared to help members make informed decisions based on a clear view of the future.

While many of Beaulieu’s economic projections were not exactly uplifting, the bottom line was two-fold: 1) Businesses that have prepared for this downturn will be able to make money in this downturn; 2) CEOs with the intestinal fortitude to make tough decisions can move into fresh markets and take market share away from both weaker competitors and companies not traditionally thought of as competitors.

Among Beaulieu’s insights:

Economic projections

  • We are now in a recession that will not bottom out until Q3 2010.
  • U.S. housing markets collectively will decline through Q1 2010, when the housing industry hits the trough of its business down cycle.
  • Disinflation (a decrease in the rate of inflation) is likely in 2009 and 2010, while inflation returns by 2013-2014.
  • Credit conditions aren’t necessarily going to improve in the near term; however, 2010 will be a good time to borrow money.
  • Commodity prices will go down in the near term.
  • The U.S. unemployment rate will go up in 2009.
  • The automotive sector will be down significantly for the next two years.

Actionable advice to business owners

  • If you have future cash needs, draw down your credit lines and hold the cash.
  • Use CDARS (a network of FDIC insured banks) as a way to protect your cash.
  • Take all necessary actions to maintain a positive cash flow.
  • Retool your management objectives with the understanding that this business cycle has a rise on the other side of the recession.

Position your business for the next ascent.

  • Lead with confidence and optimism, with the attitude that “we can beat this business cycle.”
  • Find clients in these resilient sectors: health care, food distribution, water purification/distribution, electricity, natural gas distribution, consumer non-durables, education (community colleges in particular) and exports.
  • Expand internationally, and don’t overlook growing markets in Brazil and Chile.
  • Always give your clients a compelling reason to buy from you.

Stock market projections

  • The S&P Index will fall another 10 percent from its current level (projection made when the S&P 500 was in the 900-1000 range.)
  • Markets in Russia, France and Netherlands will be particularly weak.

Actionable market advice

  • For those who have held onto their mutual funds/portfolios: Don’t panic, but do get more defensive — work your way into a new strategy. There is no great rebound on the other side of this downturn, only a long, slow climb out.
  • Rather than buying broad-based mutual and index funds, focus on specific sectors or companies you’re willing to invest in for the long term.
  • In the post-2010 world, avoid bond funds, as they will be under long-term negative pressure.
  • Borrow as much money as you can in 2010, as conditions may not be as favorable in the years to follow. 

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