Well, it sure didn’t take CNN long to get the 2010 Fear Mongering Bandwagon rolling. Check out The Buzz from January 2 on what could go wrong in 2010. (That’s right, Saturday January 2nd. They couldn’t even wait two days for the first work week to start!)
According to the article,
- we’re in for part two of the double-dip recession,
- the US currency is likely to be debased,
- the housing market could still hit bottom,
- the market is in for a lacklustre year, and
- the job situation is not going to improve.
Wouldn’t it be great for a change if the media focussed on the positives and instead of spreading more FUD, talked about the lessons we’ve learned and how we can use them to right the economy?
After all, this is the 2nd major recession in less than a decade, as the the tech bust of 2000 was still a little less than 10 years ago. And a number of other global economies have had similar downfalls in the last 10 years. Should it not be obvious by now that:
- out-of-control growth will be followed by a rapid contraction,
- when you flood your country with government paper you decrease the value of your currency value,
- house prices cannot increase in value at a rate above inflation forever as they quickly reach a point where no one can afford them,
- high double-digit returns year-after-year-after-year are not sustainable (and anyone who says they are might be another Madoff in the making) in the long term, and
- it can take a long time to recover from a recession.
Once you’ve learned these lessons and go back to the old-school of business (which takes the long term view that most of Corporate America seems to have forgotten since the turn of the Millennium), where you plan for steady, incremental growth, hire in a controlled fashion, and don’t make, or price, products out of reach, I see no reason that you can’t, once again, do just fine.
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An article this summer in Canadian Business by Jeff Sanford on the Burden of Truth referenced Bob Farell’s top ten market rules which have a a lot of bearing on supply management. Bob Farrell was the Chief Stock Market Analyst at Merrill Lynch for 25 years and knows a thing or two about the market.
- Markets tend to return to the mean over time.
So if you beat up your supplier when times are tough for them, don’t be surprised if they do the same when times get tough for you, which they eventually will.
- Excesses in one direction will lead to an opposite excess in the other direction.
Thus, a market surge for your product will likely be followed by a rapid market contraction. Make sure you’re not stock-piling inventory, because early warning signals may only come weeks in advance in today’s fast moving markets.
- There are no new eras — excesses are never permanent.
A rapid market expansion will always be followed by a rapid market contraction, and the longer the excess goes on, the worse the contraction will likely be.
- Exponential rapidly rising or falling markets usually go further than you think, but they do not correct by going sideways.
A miracle will not happen. You have to be ready to ride it out.
- The public buys the most at the top and the least at the bottom.
No matter how many price cuts you make, you won’t create a surge in demand or increase market size. So while you will have to be competitive to maintain your relative market share, don’t bankrupt yourself trying to serve a market that isn’t there.
- Fear and greed are stronger than long-term resolve.
If they weren’t, we wouldn’t be in this mess!
- Markets are strongest when they are broad and weakest when they narrow to a handful of blue-chip names.
So don’t believe all the hogwash the big vendors are spewing about how good “consolidation” is as they buy up all the little guys and end support for the new, innovative, offerings the little guys were offering.
- Bear markets have three stages — sharp down, reflexive rebound and a drawn-out fundamental downtrend.
This says odds of a quick turnaround are not in your favour — so don’t bank on one.
- When all the experts and forecasts agree — something else is going to happen.
If markets were predictable, we’d all make money in the stock market all the time. But they’re not — and they’re least predictable when everyone seems to agree. So if everyone says gold is going up $50 an oz tomorrow, don’t bank on it.
- Bull markets are more fun than bear markets.
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