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Historically, when 2 year US Security yields are greater than 10 year Security yields (2 year yield - 10 year yield > 0), a recession starts 10 months to 33 months later. The spread is not indicating that in August 2010. We're in a holding pattern with stagnant growth. |
Following a recession, consumers continue to increase their savings for some months to rebuild their buffer. Therefore the decision to build inventories anticipating the consumer is returning to the market quickly should be made carefully. The 1974-75 recession had many characteristics of the Great Recession, and it was a full 25 months from the point people began spending to when they had rebuilt their buffer and were confident they could spend on non-essentials.
The time and energy spent understanding your customers' needs always lead to new products or services. The first step is to have your customers talk about their business economics, where they are their business cycle and what do they need to do to grow. Often these conversations between your employees and your customers are hidden from senior management. The day to day interactions, observations, and "sharing the pain" chatter pass unnoticed. Over the next 12 months business leaders must shift their focus from defending core to creating demand.
A consensus emerging is in 2010 we will see a slow recovery, with a chance of a double dip. Company strategists, consultants and planning teams will be challenged to manage the pace of growth as they assess consumer spending patterns.
Scenario planning is an efficient, cost-effective method used to observe, understand and adapt to economic, social, technical and political developments that will impact your organization, community and region.
Spending on our homes is a fundamental driver of the US economy. A "driver" is a trend in the community, that as it builds momentum, triggers economic growth and creates opportunities for your business and your family.
The mid-March and April market rally suggests equity investors are anticipating the recovery. There has been good news. A text book recovery would see the stock markets react to the good news about 60% to 70% of the way through the recession as firms prepare for a rapid recovery. But, Warren Buffett and Charlie Munger disagree.
In my life experience , "a few bad apples spoil the barrel," and the ones with integrity trying to clean up the mess will be overwhelmed by reaction to the few who caused the mess. Cooler heads will suffer. My daughter summed it up: bummer.
The most important hints of the dawn of the recovery are in three areas: bank interest expense, reduced new housing start clearing inventory, consumer real discretionary income growing slowly.
Recession creates the conditions for a recovery. Excesses are cleaned up: inventories reduced, debts paid off, bad debts written off, savings increase, assess values drop, making them more attractive, and then folks star buying again. Trying to grow fast would be a mistake!
The coming months are going to be very difficult for the leaders who are trying to reposition for the recovery. It's our nature to try to move early into growth strategies to beat competitors. That is the wrong approach!
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