2 Weeks of Economic Information Overload Followed by Market Turmoil! What does this mean to our organizations and where are the OPPORTUNITIES?

It has been Economics 101 over these last few weeks at PEO with us featuring some of Canada’s brightest economics strategists and investment business analysts. The timing could not be better as the markets continue to show significant instability and the possibilities of a recession continue to overshadow our current business performance. Yes things are beginning to slow, BUT as leaders we need to continue to look through the turmoil to identify where our next opportunities may exist. With every downturn a new generation of great leaders emerge and let us not forget a whole new set of extremely wealthy individuals.

So what did we hear? Could we summarize it below in 5 key messages? To be quite frank the message is unclear, but we’ve done our best to consolidate some of their thinking below. We’ve also attached the two presentations that were given to the leaders of PEO – (1) Na Lui, China and Commodity Strategist for Scotia Capital and (2) David Rosenberg, Chief Economist and Strategist Gluskin Sheff & Associates. Here is what we could decipher:

1. China’s GDP will continue to shine above the western world. Over the last 32 years the average GDP has been 9.9%. We are leaving the construction era and now entering the era of domestic consumption. However don’t be fooled leaving the construction era implies another 3 years of solid growth because of commitments by the Chinese government in projects. With an entrance into the consumption era….we will see a tremendous increase in household income. Between now and 2020 – an estimated 250MM Chinese households will move into the middle class to upper affluent categorization. Think about how many cars this represents. We want to figure out how we can sell into these developing countries now!
2. Europe is a disaster! Europe will have an impact on the rest of the world. If a country defaults overnight what happens to those payables owed to other countries around the world – settlement defaults….chaos in many countries. Everyone rushing back to the US greenback the Canadian dollar begins to decline once again below parity. Think about your budgeting for next year.
3. Mild or no growth in the US. 5 Economists (see previous blog on September 8th) estimated US growth at max 2%. Take a look at page 8 of the Gluskin Sheff Report – Rosenberg suggesting what growth. We are in a recession right now. How are we dealing with inventory, planned hires and M&A activity. Could earnings multipliers be on the downtrend both on public and private companies during this period?
4. It’s all still about the US Consumer and Housing. All indicators are showing that the US consumer is saving like never before. The psychology of the US Consumer has shifted…it’s all about saving and debt retirement. If the US consumer doesn’t spend…Corporate earning s begin to diminish….the stock market continues a downward trend. This is not to say Corporate Balance Sheets are not flush with cash….wealth management suggests investing in Corporate Bonds for a decent return.
5. There is no simple fix here! This recession will last approximately 16 months. There is an expectation of a continued downturn in the Stock Market estimated at approximately another 10%. Today, September 22, 2011 the market fell almost 4%. Who knows where the bottom lies.