My current writing practice is to post approximately quarterly my current interpretations of the marketplace drifts – economics, politics, technology and demographics – to help CEOs of private companies produce new reflection and thinking for refreshing or reformulating their core offers, strategies, narratives and practices. I acknowledge the contributions of my network to my thinking, in particular Dr. Arthur Laffer.
The US is continuing to stabilize after the period of deleveraging being called “the Great Recession”. First quarter economic growth is estimated to be slightly below the fourth quarter of 2.5%. The Federal Reserve has begun tapering it’s bond purchases (Quantitative Easing or QE). I believe this will continue and that the Federal Open Market Committee (FOMC) will most likely begin raising interest rates eight to nine months after QE ends, or slightly longer than Chairperson Yellen has stated. I do not believe the US economy will vary much from current growth rates until/unless policies change to those more favorable to economic growth. For example, the recent passage in the Senate of a retroactive extension of unemployment benefits is antigrowth, providing incentives at the margin counter to encouraging increased employment.
Bank lending has increased over the past several months and debt appears to be more available. I anticipate a stable rate on the 10 year treasury through the end of 2015 and then rising rates, possibly rising rapidly. China may experience a deleveraging in the next few years. The rapid economic expansion has moderated recently with levels of consumer and business debt high enough to possibly cause a deleveraging. For an excellent primer on how economies work, and how deleveraging is triggered, see Ray Daiio’s Economic Principles.
“In return, society rewards those who give it what it wants. That is why how much money people have earned is a rough measure of how much they gave society what it wanted.” Ray Dalio
For several years I have been optimistic that the negatives of antigrowth policies and the international results of a weak US military and diplomatic presence would be sufficient to produce the required shift to tackle our economic challenges. I have been disappointed to date, yet I again see this as possible in the 2014 Senate elections. I see four political factions in the US: the liberal Democrats, the moderate Democrats, the moderate Republicans and the conservative Republicans. I think the battle for policy change is being fought in the middle. This means the country must elect a Republican majority to the Senate to balance the liberal Democrat in the White House. The President continues to demonstrate his lack of knowledge of economic reality with policies that ultimately harm the constituency he claims to seek to protect. I will go on record anticipating the Senate returning to Republican control in the November elections.
“Be moderate in everything, including moderation.” Horace Porter
Technology, or the invention of new human practices and artifacts to improve productivity, continues. Dalio refers to the Productivity Curve, which is continuously up and to the right, as one of the three fundamental economic forces. The increased productivity produced by new technologies obsoletes low-skill jobs and some common offers. The only strategy for living a decent life is to keep learning to the best of our ability throughout our careers. This dominant strategy is as applicable to the highly ambitious as to the unambitious. Reality’s Operations are indifferent. While politicians may be able to be elected on the promise of the equivalent of a free lunch for all, this is unsustainable and ultimately must fail. Continuously noticing, observing and assessing technology innovations, both in your direct marketplace as well as secondary and tertiary to you, is essential to anticipate changing situations and environments that require skillful action by you and your team.
The baby boomers are reaching age 65 at a rate of 10,000 per day. This large tranch of the US population, with most lacking sufficient savings and investments for financial autonomy, produces pressures through politicians to expend resources attempting to mitigate the lack of retirement savings. Ultimately as Milton Friedman taught, all government spending is taxation. We can anticipate continued pressure for increased government spending, an antigrowth force. How we as a society will resolve these challenges remains to be seen. For those with time remaining in their careers this situation highlights the unavoidable requirement to learn the required knowledge to earn, save and invest enough for survival first, freedom second and finally living a good life. Regardless of what action our government takes, there are not enough resources to provide a satisfactory life to the baby boomer generation that is unprepared and take care of the other concerns of the nation.
“You only find out who’s swimming naked when the tide goes out.” Warren Buffett
- If you use debt financing, can you increase lenders’ commitments and/or lock-in interest rates for three to five years?
- How will your business perform in a low-growth environment? What threats, obligations and opportunities are unique to this situation?
- What new offers, practices, narratives and strategies will increase the rate of growth of enterprise value in your firm?
- How is your business affected by economic conditions in China? What new thinking and actions are required for you to be prepared for the variety of likely possibilities?
- Are you learning at a sufficient pace to earn, save and invest enough to survive, be free and live a good life?
- Think through the consequences of our present economic and political situation. Are you satisfied with your participation in the process?
- Where in your business is new technology reducing the value of your offers? Where can you use technology to perform more effectively, strategically and competitively?
“We don’t get a chance to do that many things, and every one should be really excellent. Because this is our life. Life is brief, and then you die, you know? And we’ve chosen to do this with our lives. So it better be damn good. It better be worth it. ” Steve Jobs