Thursday, August 06, 2009
I do - but I'm a democrat!
For 20 months now, we CFOs have weathered intense pressure to push past the daily cascade of negative economic news and help our companies survive this recession, although I feel this one has not lasted as long as any of us anticipated. Few of our financial decisions have been easy. . . or fun (are they ever?).
Recently, President Obama stated that we are experiencing the beginning of the end of the recession. Other critics argue that the recession can't possibly be over with unemployment rates so high.
Contrary to popular belief, I believe employment rates are exactly where we should expect them to be.
Tatum's monthly Survey of Business Conditions - which looks at the past 30 days and forward to the next 60 days of current business and economic trends - clearly indicates that employment is a lagging indicator of the health of an economy. Unemployment didn't rise significantly until several quarters after the recession officially began in December 2007, so we shouldn't expect to see employment rates returning to normal for several more months.
The Tatum Survey, which predicted a recession several quarters before it became official, also confirms that the economy is slowly but steadily heading toward a recovery, despite a month of stagnation back in July.
More important for us (and it really is all about us, isn't it?), how can we as CFOs lead our companies and communities toward gaining strength and preparing for the future? Sure, many of us have created cash flow forecasts, restructured staff, attacked costs and renegotiated with vendors, but those are survival techniques.
My colleagues and I have shifted our focus to growth and we're seeking ways to raise capital and prepare for future M&A activity while valuations remain low. Planning for 2010 starts now or we'll be behind the curve.
What are your ideas on finishing 2009 strong and preparing for 2010? Can we help "lead" out of this recession?
Labels: Capital Restructuring, Cash Forecasting, CFO Mentoring, CFO Roadmap, Equity Investment, Financial Consulting, Financial Projections, Merger and Acquisition Services, Raising Capital
This month's survey looks like you were right to be optimistic!
September 9, 2009 11:24 AM
I don't know, looks like the Turnaround guy disagrees!
September 10, 2009 2:16 PM
I hope so, but deep in my heart of hearts I don't think so. In fact, I am concerned that the worst is yet to come. If we are seeing a bounce at this point, I'm convinced it is only that -- a bounce --to be followed by another, deeper slide. My reasoning includes the following:
1. The most recent economic report from the Fed indicates that inventories FELL again last month. Any recovery will have to be fueled by growing inventories.
2. Unemployment continues at very high levels and no one holds any hope that this will turn around anytime soon. Historically, employment gains lag all the other indicators. Some of the economic predictions I've read don't look for significant employment gains for as much as three years. It could well be longer.
3. With high unemployment, there is much consumer anxiety (if not outright fear), so consumer spending is likely to remain muted for quite some time to come.
4. I'm told by my banking contacts that they have 18 month or longer backlogs in processing home foreclosures -- so, despite the fact that homes are selling (mostly for circumstantial reasons), prices are likely to be depressed for years (and years?).
5. Despite TARP and the other programs, banks are NOT lending -- at least not in my area of the country. I spoke to a highly placed executive in a large bank just recently who confided that they had only seriously entertained 3 commercial loan applications since January 1 -- and had only funded 1 of them. And this was for the entire region, not just a locality.
6. Still dealing with commercial loans, my bank contacts in the Special Assets Groups (i.e.,workouts)tell me that they continue to get a steady flow of new cases to work. One of the major banks in my region has had to hire 75 additional people into their SAG.
7. The massive government spending commitments have (or will) cause us to print money -- as our credit worthiness with the rest of the world is about shot (i.e., nobody wants to hold our debt any more). The end result will be either rising interest rates or inflation (or both). Those are both killers of economic recovery. Best case, we may be looking at what Japan got themselves into --two generations of "stagflation".
8. The subsidization of the auto industry through the "cash for clunkers" program only stole from Peter to pay Paul. It in no way contributed any long term economic value.
9. Taxes will undoubted rise -- yet another damper on any possible economic recovery.
I could go on, but I think this conveys the drift of my thinking.
September 13, 2009 1:24 PM
I would like to agree with you but I have spoken to some banking friends of mine that said some of the largest balloon loans they handed out are going to come due in 2010 and this will not be a good time. Definitely agree on unemployment...and let me ad the government can not create real jobs and frankly they should not try.
October 26, 2009 3:55 PM
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