A slightly revised view of “The view ahead”
Thursday, January 3, 2008/
The venture capital vultures are hovering, and the bottom feeders expect a feed off an asset fire-sale. Make sure your business isn’t on the menu.
As we hit the bottom of yet another “market correction” and watch the US market struggle to turn recession into stagflation, the venture capital vultures and bottom feeders are still hovering over assets that they hope to get in a liquidity fire sale – but cleaning up the excesses of moral hazard is their sub-prime function.
Expect to see a further drop in the US sharemarket in the first weeks of January as the 6% fall in house prices across the US is factored into the financial market.
The new year will see an international realignment of currencies and pressure for larger and larger mergers and acquisitions as private owners scramble to recover from their debt positions. This is therefore a good time for companies that actually make something or provide some unique service or experience as against those that attempt to manage margins on speculative funds.
Every business leader should follow the pattern set by Andrew Scott who has maintained his optimism despite an 80% fall in value at Centro this week. Scott has quite correctly advised that the US crisis is just that, and that by 15 February we will see that there are many fine prospects for the new year.
Remember that St Valentine’s Day need not be a massacre if you have shortened your terms of trade, focused on your best prospects and avoided trashing your company credit cards on too good a time in the next couple of months.
We are seeing a major realignment of international financial interests away from Europe and America into the BRIC economies (Brazil, India, Russia, China). The managed fall in the US dollar and the transfer of funds management from domestic to a global operation of the fiscal gnomes is a necessary prelude to the shift of funds away from housing back into more productive assets. Every country will now be addressing skills shortages and service industries as their source of growth.
Despite the negative comments made in this column last year, I am quietly confident that the central banks around the world have decided that we are not going to repeat the 1929 experiences. They are clearly prepared to pump liquidity into strong markets while at the same time keep a firm foot on inflationary pressures.
Around the world consumers are spending as if there is no tomorrow, but the gap in consumer confidence between those who have done well in the last year and those who expect to do better next year is growing.
Last week’s oversubscribed auctions of $40 billion or so of funds for holiday lending between bank managers will ensure that the credit crunch does not fuel the fires of fiscal conservatism to the point that business comes to a halt. Bernanke, Stevens et al are well aware that the commodity boom and forward hedging in US dollars has reached its peak, gold is likely to come down a little as a flight to safety and treasury bonds are going back up as proof that the central banks are sensitive.
The intervention of the Dubai and Chinese investors propping up the collapsing JP Morgan and Citi funds managers is further evidence that we are not going to see a recession in the US in an election year. We will see a massive growth in anything that delivers a productivity benefit, lives off the emissions-trading and carbon-trading lottery and encourages a redress of the balance of trade.
All of these early trends suggest that medium scale businesses in Australia needs to get its skates on and find avenues to defend its turf against a much more aggressive US export drive and find niches in the Asian and European markets that will be seeking alternative supply lines.
The US Fed is likely to cut its rates again once or twice more to ensure that their domestic producers can cut it in this new international environment as our domestic RBA will be helping Wayne Swan remember that he is a fiscal conservative.
Sole traders and small businesses need to find ways to disaggregate the value chain of their customers to develop products and services that save time, improve performance and free up resources for expansion of companies that are looking for new market opportunities.
By the end of the year, the winners will be those who have become much more closely aligned with productive companies and in particular companies that are picking up infrastructure and skills supply contracts in health, education, transport and technology,
Take time over the holiday season to plan your expansion, write your marketing plans and make a time with your lending manager to ensure that you have the lines of credit that you will need to capture the great new year that we are all going to have to have. Best wishes for the festive season.
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