— by Mitchell Clark, B. Comm.
When it comes right down to it, it’s better to have all the economic shakedowns happen all at once — as quickly as possible. This year, 2009, is the year for restructuring. From housing to banking to manufacturing, the only way to fix the economy for the better is quick, strategic restructuring that puts individual businesses in a healthy state. Get rid of the bad assets and keep the good assets. It’s the only way to prevent a long-lasting depression.
As one of the world’s most astute and public investors, Jim Rogers’ view of things seems to me to be as correct as it is attainable given the current situation. In a free market, the business cycle exists that, when things go bad, poorly managed businesses must be allowed to fail. Only then will well-managed businesses come in and rescue the good assets and reinvent the business model, and a new enterprise moves forward. Rogers’ contention is that an economy cannot sustain itself if the policy is to send good money after bad. He continues to profess that propping up bad businesses is worse than letting them fail. A bankrupt business has already failed and the process of bailing it out with borrowed taxpayer money only delays the inevitable and, in doing so, creates a worse fundamental backdrop for the economy over the long run.
Everything is coming to a head right now in the Main Street economy, and it’s going to be a rocky road over the next few quarters. There are going to be a lot more layoffs and wage concessions in a multitude of industries. Also, 2009 first-and second-quarter earnings season is likely to be an eye opener for investors. When economies go into recession, profits dry up and I’m not quite sure that the Street is currently pricing in the upcoming weakness in earnings. Clearly, investment risk remains high and the S&P 500 Index is vulnerable to retesting its lows once again.
So, we have to prepare ourselves for more bad news in the very near future, but I’m hopeful that if we all take some tough medicine right now, the economy will turn around as early as next year.
As an analyst, I like to go around the world to find the best opportunities for investors. As a consumer, I’ve changed my spending behavior quite a bit. For months now, I’ve been writing about how the right investment strategy for the future is to go back to the basics, reflecting the investment themes that are taking shape in the Main Street economy right now. Now is also the time to apply this same thinking to spending habits. Of course, the vast majority of people already do this. They work hard, pay their mortgage and their taxes, and support their local businesses. Not like some people in government and on Wall Street.
In order to turn this ship around, we as consumers have to go back to the basics, and I’m not afraid to say that I’m proud to do so. This economic ship has to be turned around as fast as possible or we risk a sustained period of economic stagnation. In order to get it done, we have to vote with our own pocketbooks. The “Bimmer” is out and the “Bowtie” is in.