With the Dow reapproaching a five-figure level, we have felt at least some temporary economic reprieve in recent months. But I have talked to many astute people recently (both Democrats and Republicans) who question the stability of the upturn. Some of the those who believe that this might be a dead cat bounce, or what economists term a double-dip recession, are pretty damn smart. Among them is Harvard University professor Martin Feldstein, who explained in a recent interview with CNBC that the massive stimulus is supporting the upturn and that support runs out by 2010. We may be in a precarious position by 2011.
Bill Achtmeyer, my long-time partner and Chairman and Managing Partner of the Parthenon Group, agrees that macroeconomics eventually win out and we should carefully brace ourselves for what might loom ahead — the next crisis in 2011.
Give us your perspective on what we have to look forward to, or not look forward to, in the next eight quarters.
Bill Achtmeyer, my long-time partner and Chairman and Managing Partner of the Parthenon Group, agrees that macroeconomics eventually win out and we should carefully brace ourselves for what might loom ahead — the next crisis in 2011.
Give us your perspective on what we have to look forward to, or not look forward to, in the next eight quarters.
I think we have six quarters that will be very promising between now and the end of 2010, and then I think we are going to hit huge headwinds in 2011 and 2012.
Why the headwinds in 2011 and 2012?
The key reasons are the aspirations of this congress and administration, while laudable, in terms of health care and global warming, there is the reality of the cost burden. The cost of putting both of these programs in place and the necessary requirements to fund them through tax increases is going to have a very dampening effect on our recovery.
Why do the next six months appear to be stronger?
Macroeconomics are inextricable. You get the benefit of lag times, and we are going to benefit from a combination of a lot of factors which I think will let us sail through in a positive way during this period of time. But things catch up. And by the time everyone sorts out what's being contemplated here it's going to rear its head in 2011 and 2012, and it'll be very hard to get in the way of that.
Macroeconomics are inextricable. You get the benefit of lag times, and we are going to benefit from a combination of a lot of factors which I think will let us sail through in a positive way during this period of time. But things catch up. And by the time everyone sorts out what's being contemplated here it's going to rear its head in 2011 and 2012, and it'll be very hard to get in the way of that.
You advise CEOs every day. Assuming you are CEO of a company today, what do you do?
I'd be extraordinarily focused on investments outside of this country. To the extent you have a global footprint, if you are not overinvesting in Asia and the developing countries, you are out of your mind because that's the source of growth.
I would also do everything I could within the Western countries to gain share in the next six quarters, whether through acquisitions, prices, or whatever it takes to get you in an extraordinarily strong market position. If you're not there, or don't think you can get there, then I would get out of those businesses. I think we'll find another consolidation hitting those businesses in 2011 and 2012 when we've gotten rid of the riffraff. We're definitely going to be getting rid of a lot of other things.
That perspective is great if you are in a position of strength. What about if you are someone is in the bottom half; someone who is likely to be part of the riffraff?
Great time to sell, particularly in 2010. Values are coming up. They will look to be pretty good relative to what you've had in the last 24 months. They won't look as good as they were in 2007, but they'll look pretty good, and they're not going to get much better.
And the debt availability to support that is going to return?
I think you will have debt availability during this time and then it may get tight a little later.
What about inflation?
Pretty low for now. It'll all come home to roost in 2011 and 2012.
Final thoughts?
It's comes back to relative market share. The stronger your relative market share — that is the more distance you can place between you and your nearest competitor — the better off you'll be.
Anthony Tjan