A Word to the Wise
A word to the wise when reading the current business media. Like everyone, people who talk and write in the business media suffer from bipolar disease. When things are good, they can see nothing but blue skies. When things are bad they can see nothing but storm clounds. Right now things are bad so the media is depressed and can see little or no chance of recovery. Don’t get me wrong. There are some worrisome signs, but not enough to declare with no qualifications that little or no growth is here to stay. That would be a historically unprecedented development; something that takes more than two quarters of data to substantiate.
Remember Oil Prices?
To get some perspective consider what people were saying about oil prices in March, just five months ago. Based on three months of upward moving data they concluded that gasoline would be above $5 a gallon by year’s end. They ignored powerful supply and demand fundamentals that suggested a drop in oil prices once the shock from the “Arab Spring” wore off. You know what happened.
Wrong Again – What to Do?
So – reporters and politicians and economists are wrong again – what to do? The answer is simple, but it takes a little work. It requires you to become your own economist. 1- Read the press broadly, looking at a collection of data. Don’t assume a new trend until most of the indicators turn. 2- Wait a while before declaring a new trend. Use a rule of three. The data has to line up for three reporting periods to reliably produce a trend. 3- Look for commentators who same something different. After all, what you really want to know is when you have to change your strategy. That comes from unexpected outcomes in the economy. 4- Make your normal financial and operating plans from a known base case forecast, just like the ones you see on this web site. 5- Pick at least one upside and one downside market scenario and, using your basecase as a reference, consider what would happen if your alternate scenario were to come true. Make a rough guess as to the financial and operating implications and isolate those factors that would really change things for you. Finally, list the three or four things you would have to do to adapt to that event and pick the most likely economic data that would signal that your case is coming true. Yea, that all takes time – but it takes a hell of a lot less time than scrambling around trying to adapt after the fact.