In 2008 we entered into what became known as the Great Recession. Its impact on consumers, markets and governments was the most severe since the Great Depression in 1930’s. One thing I will never forget is a quote from Warren Buffett, “When the tide goes out you know who is skinny dipping.” His point? It is (relatively) easy to do well when the economy is strong and there are prevailing tailwinds. The need for good leadership and management practices are much higher when markets are down. Did we learn our lesson? Do we prepare for the future—bad as well as good?
What the Economists Expect
Recently, I had the opportunity to listen to economist Alex Chausovsky from ITR Economics report on the near- and longer-term economic future. While sitting through economic forecasts are typically about as exciting as watching paint dry (for me) I did come away with some encouragement for the near term and some suggestions for the long term. To save you from the same thrill, here are the major takeaways:
Next few years:
- Several states in the US (California and Texas) qualify as having world-wide top ten economies. In other words, the US economy is very strong.
- We are shifting from tailwinds to headwinds over the next 18 months and market growth will slow but it isn’t expected to decline.
- Personal consumption is the driver of GDP as it represents 67% of all consumption; Government is 17% and Business Investment is 16%
- A declining tax rate will not equate to increases in cap ex
- The best growth opportunities do NOT come from following macro-economic trends. It pays to be granular.
- It is imperative to understand the leading indicators for your business (watch for a video blog on this topic in February)
- Now is a great time to catch your breath and plan! “It is not enough to do your best; you must know what to do and then do your best” (Edward Deming). It is time to call me!
Longer term:
- Debt to GDP is 120.5%. Last time our debt was at this level was WW2.
- Depression drivers are baby boomers retiring, healthcare cost escalation, entitlement growth, inflation, and the US National debt
- Bad times are coming by 2030. How to prepare (and if not for you, your next generation)
- Live below your means
- Learn a second language or skill
- Develop diverse revenue streams
- Develop long term wealth through cash flow in real estate (not appreciation)
- Build a business
- Choose careers aligned with growth opportunities (such as healthcare or technology)
- Pay off as much debt as possible
Don’t be a skinny dipper! Think ahead!