The Economic Storm Ahead

With the dry season turning our tropical paradise into a parched island, an occasional rain shower is a welcome relief. However, many are sensing something in the air that is making them nervous – if not downright fearful. Like dark, ominous clouds that announce the coming presence of a storm about to be unleashed, some individuals are bracing themselves for a storm that will leave them more than soaked and unsettled.
Letters to the editor and articles in the media about economic uncertainty have been showing up more often. Like modern-day rainmakers who shoot silver iodine into the air to stimulate rainfall, the U.S. government rainmakers have shot billions into federal and financial programs and institutions to stimulate spending and create an economic windfall …but it’s not working as planned, and here’s the reason why.
Last month I listened to an interview with Harry S. Dent, an economic business and trend forecaster who has a good track record. Twenty years ago, when many “experts” were hawking their books and seminars on the coming great depression, Dent and his team were saying that the economy was going to be stronger than anyone thought. He based his forecast on the fact that Baby Boomers (people born between 1946 and 1964) were going to earn more and spend more during that time.
Dent predicted years ago that around 2008 the economy would start to slow (that’s when our leading-edge Baby Boomers started to turn 62), but now he states that the recovery is not going to continue and not going to sustain because the government cannot stimulate individuals in their 50s and 60s who don’t have children at home; instead, they’re going to be savers. The average family spends the most at about age 46, and then spending slowly starts to diminish. The kids are grown, finishing college or on their own so the focus is to prepare for their Golden Years.
The U.S. doesn’t just have $13.1 TRILLION in government debt; it also has $1.4 TRILLION federal budget deficit spending, $55.7 TRILLION in total business, government and private debt, and $109 TRILLION in unfunded liabilities for Social Security and healthcare – and it’s all growing at an alarming rate [see http://www.usdebtclock.org]!
Dent believes we’ve seen the greatest real estate and credit bubble in history. When a credit bubble deleverages, the private credit contracts faster than the government credit to try and stimulate growth and there is a deflation in prices. Businesses that see and prepare for this economic “storm” will also see their unstable competitors get blown away. He predicts we will see a big change in the next three to six months, and the slowdown is part of a four-stage cycle that’s going to determine the long-term business leaders in each industry or market segment.
Those businesses that are poised properly will not only survive, but will also inherit more market share. Here are several strategies for businesses offered by Harry S. Dent:
1. Step back and refocus your business by examining where you really dominate. What are your strengths and where do you want to grow in the future?
2. Then reposition your business to take advantage of your strengths and opportunities, while stepping away from or selling those components where you cannot dominate.
3. Do not make big capital expenditures by expanding stores or buying buildings. Instead, invest right now in things that will expand your market share and increase cash flow, such as effective marketing and sales techniques, tools, and resources. Also, examine your costs and reduce your overhead to improve cash flow.
4. Businesses that are able to increase market share and cash flow will be in an excellent position when all of this deflates and their competitors are in trouble. Now it will be easier to take more market share and even take over competitor’s assets at much cheaper prices.
According to Dent, the financial storm is not a matter of “if” but “when.” The clouds have gathered and most people feel something imminent is in the air. By the end of the year you will be able to look back and say that you followed a strategy to dominate your market and improve your cash flow, or you will be one of the many businesses looking to get out and sell your assets for cents on the dollar to those competitors who weathered the storm.
What this also means for the CNMI government is that it will be forced to make more budget cuts on top of the cuts it already has in place. More budget cuts will mean forced austerity measures on top of looming layoffs to survive. Those government organizations that have the ability to generate revenue (CUC, CHC, NMC, etc.) will need to become more fiscally viable by raising prices, reducing overhead, and/or finding effective methods to market their organization to increase cash flow. If not, the storm ahead will only make a bad situation worse.