The shape of things to come: V, L or W?

Now is not the time for smart companies to believe that the worst is over and that the flood of funds into large-scale corporate capital, the release of Windows 7 and the sale of a few uranium mines is going to lead to a dramatic turnaround for their business. Don’t be talked out of hanging onto cash and your best sales staff, as we are going back to the big dipper over the rest of this financial year.

As the European Union points out, access to finance is the first obvious issue: with credit becoming scarcer and more expensive, small businesses are finding it hard to finance not only investments, but also their day-to-day activities. In America, the end of day postings show that earnings are falling behind expectations and revenues are well below optimistic forecasts.

The year-on-year improvement in consumer confidence in Australia, Canada and the US follows media talk of the worst being over and the rate of growth (sic) in numbers of unemployed slowing, asserting that the world has narrowly avoided entering a technical recession or worse according to Ben Bernanke. A plummet into recession that could only be saved by a trillion dollar taxpayer bonus to executives and Goldman Sachs profits.

Westpac’s chief economist, Bill Evans, says the avoidance of a technical recession, as well as the Government’s cash handouts, are probably the key drivers of the optimism. The last time the Westpac-Melbourne Institute Consumer Sentiment Index bounced so strongly over a two-month period was when Australia was coming out of recession in 1992.

“This is now the highest level of the index since December 2007,” says Evans. “It is 38.5% above its level a year ago and at 109.4 optimists decisively out-number pessimists for the first time since December 2007. The unexpected resilience” of the job market has helped. Over the last two months the unemployment rate has remained steady.”

“It appears that firms which only a year ago were nominating a shortage of quality labour as the major constraint on their businesses are now hoarding labour,” says Evans.

Gary Morgan says: “The weekly Roy Morgan Consumer Confidence Rating (114.4, up 0.4 points, to the highest level since February 2008) has advanced in a positive direction in the past two weeks, amidst rises in the Australian dollar (now close to US82c, up over 30% since early March) and the All Ordinaries (now above 4,000 and back to the levels of October 2008) and much commentary that Australia will now come out of the ‘Global Financial Crisis’ unscathed.”

The chartists are in dispute as to our current position – are we on the upside of a ‘V’ shaped recovery, reflected by a 20-30% improvement in consumer sentiment over the same time last year or are we in an ‘L’ shaped steady state with more consumers contemplating that things are not getting worse and considering major household items.

The reality is that the earnings season reflects an equity boom arising from the number of job cuts that have maintained high executive salaries for the remaining decision makers and a continuing slump in revenues that are “not as bad as the Board expected”.

The media tends to suggest that a big rise in the stock market from day to day reflects “green shoots” and justifiable optimism.

Any bad news is buried in the back pages that would suggest that consumers around the globe are worrying about the return of inflation, the rising levels of unemployment and the huge profits and executive payouts to firms that have been bailed out with taxpayer funds. The question that conservative forces around the globe are asking is: “Where are the jobs?”

Smart companies will appreciate that the financial pages and the stock market index reports are about the big end of town that relies upon government guarantees to the big four banks. Brokers are back in business, trading on their capacity to increase market velocity if they cannot achieve an increase in market volumes.

The real issue is not what has been spent on the cash splash to see us through to an early election, but how we are going to cope with a bumpy ride as governments not only turn off the stimulus tap, but start to have to manage both monetary and fiscal policy, whilst restructuring the health, tax and ecological cost increases for small business.

Every small and medium enterprise should follow the lead of the CEO, Yong Nam of LG who says that his company is seeking to increase its rate of innovation while taking out costs and non-essentials from its non-premium consumer product range.

Despite the return of the risk taking equity players and the $10 million a week payout from Goldman Sachs to Warren Buffett, most consumers are still concerned about the year’s impact on their financial situation.

Even business leaders are cutting back on their gastronomic demands, accepting wine from Dan Murphy’s in lieu of their Penfold’s Grange.

Under these conditions, we will most likely be in a ‘W’ shaped environment for the next few months, with the prospect of an early election before the roller coaster goes into a series of big dips and short rises until the next financial year.

Dr Colin Benjamin
Entrepreneurship and Strategic Thinking Consultant
Marshall Place Associates, www.marshallplace.com.au

Marshall Place Associates offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship.

Email dr.colinbenjamin@marshallplace.com.au
Contact: CEO Dr Jane Shelton, Phone +61 3 96400099  

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