Trends for the year ahead
Thursday, January 17, 2008/
Now is not the time to bury your heads in the sand; rather it is a prime opportunity to consolidate your base for a renewed burst of entrepreneurial energy later in the year.
Last week’s column has raised eyebrows among some of my readers, who suggested I was having a bob each way on 2008.
While it is true that the ASX has shown a steady trend towards a longer term bear market (deemed to be a 20% reduction from the last peak) there is no basis for mirroring the Wall Street patterns.
The exit of a number of US and Australian company heads who bet their company on an earlier turnaround should not be seen as grounds for belief that Australia is heading for a recession any more than the false belief that the US will not achieve a turnaround before its November presidential elections.
Although there is a worldwide downward trend in consumer confidence due to the $US100 barrel of oil trigger, rising interest rates as financial institutions struggle to get back their losses on overseas bonds (backed by the foreign banks who sold them short) and concern from regulators about rising inflation, there is no evidence that the BRIC economies are going to slow down markedly.
The weak retail sales over the holiday season, the cut backs in car sales and the decline in house prices in lower socio-economic areas should not hide the reality that there is a huge and growing gap in the level of investment and expenditure of the affluential families and those associated with innovation and new technology (the “visible achievement”, “socially aware” and “young optimism” segments in the Roy Morgan Values Segments survey).
What we are seeing this year is an economic transformation away from speculation in the equity casinos towards an investment in companies that can demonstrate longer-term contracts and strategic relationships with overseas producers.
There are many emerging opportunities for small and medium enterprises to disaggregate the American value chains and find niche opportunities based on our proximity to the Asian markets that will pick up cheaper US exports of technology to expand into India and Russia.
Consumer sentiment is being heavily shaped by the business media reporting the corrections in the sharemarket, but there is much less comment on the reasons that Treasurer Wayne Swan and the RBA are really more concerned about the inflationary impact of tax cuts and the flood of cash unleashed by the Howard era of pork barrel portfolios.
Older people are cutting back their expenditure and going back to saving as they always have in times of uncertainty, while younger households are starting to look at the interest rates being gouged by banks that are cutting back their home loan options for those on fixed incomes.
Taken all together, that is why this blog has suggested that everyone will be more bearish in the first half of the calendar year and begin to review business and marketing plans that assumed there would be a built-in escalator that had no upper limit.
It is also the reason that it was suggested that small and medium business owners should cut back on the costs of doing business and put funds aside for a strong first half of the next financial year.
Our commodities boom is locked in for a few more years. Our agribusinesses will recover very significantly in the second half of the year. Education and health services expenditures will grow in the next financial year and state infrastructure projects will bite.
Small businesses that can find a service niche and help the big end of town outsource and downsize will therefore find reasons to support the conclusion that we are reaching the bottom of the pessimists’ well.
Now is the time to come to the aid of your company. Even the big end of town is just cutting back to expand operations in the second half of the year. Despondency and depression are not the cause of recessionary behaviour and are not justified by the RBA’s fears of an overly rapid rate of investment by those with a longer-term vision.
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