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Larry Summers was Right about Inflation – So Keep Reading

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Archives, Commentary, Global Trade Daily, Uncategorized

Larry Summers was Right about Inflation – So Keep Reading

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Consider the following years – 1937, 1945, 1948, 1953, 1957, 1960, 1969, 1973, 1980, 1981, 1990, 2001, 2007, and 2020. Some of us are old enough to remember a majority of these. Others, not so much. In summary, these were not fond times in American history. This is a list of the county’s recessions since 1937. Since 1857, when reporting on recessionary periods became commonplace, the US has experienced 34. A recession is defined as two consecutive quarters of decline in GDP (Gross Domestic Product) growth. A widespread contraction in economic activity takes place and monetary tightening (a rise in interest rates) typically precedes them.

The US economy is not in good shape. Economists, pundits, and analysts of all stripes fear another recession is upon us. Larry Summers is one such thinker, the former Treasury secretary who correctly predicted the inflationary period we are suffering through at the moment. The Fed already hiked the interest rate by 75 basis points and more are expected moving forward. While most of Summers’ colleagues (including current Treasury Secretary Janet Yellen) posited that inflation would be transitory, Summers was adamant in his prediction of rising prices for an extended period of time. 

Bringing down inflation is the Fed’s primary objective. To do that, Summers expects increases in the Fed funds rate and an unloading of its balance sheet. The consequence of this will be financial bubbles, predicts Summers, that will ultimately be unsustainable leading to an economic crash or a recession. At this point, there are quite a few economists on board with Summers’ prediction. In fact, many argue that the only thing to tame inflation in the current environment is extreme tightening and a recessionary period. But the recession aside for the moment, Summers has some additional thoughts, as any good former Treasury secretary would.  

In the aftermath of the 2008-2009 recession, interest rates were held down by increased savings from an aging population. Coupled with overall uncertainty, people were reticent to spend. This also resulted in less investment which ultimately ushered in a period of secular stagnation. The term “secular stagnation” initially appeared in the 1930s during the Great Recession. But it was Summers who revived it following the 2008 financial crisis. The recovery during the then-Obama presidency was the slowest from a recession in the history of the country. The word “secular” in this context means long-term. Increased savings and a lack of an aggressive government fiscal policy cause stagnation. Opponents, however, argue that the true culprit of stagnant economic growth is increased regulation and fiscal intervention. Summers is not without his detractors. 

Some economists feel that Western governments will be more willing to open their coffers and spend than in the 2008-09 recessionary period. In 2010 a contingent asserted the stimulus was too small and central banks had assumed an overly cautious posture. President Biden likely took note of this and swung in the opposite direction. Yet, when the focus eventually shifts to unemployment (from inflation), repeating post-financial-crisis mistakes will certainly be avoided.

Treasury inflation-protected securities remain priced for impending secular stagnation. This is one signal that the market appears to concur with Summers. Summers was right about inflation. It has been anything but transitory. He isn’t a soothsayer, but paying closer attention might do us all some good. 

 

         

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Archives, Banking, Global Trade Daily, Special Reports

Why Investors Need to be Wary of the Investment Herd Mentality

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The past year has been one of exceptional volatility – volatility for personal lives while dealing with COVID restrictions, volatility in job markets due to government-mandated shutdowns, and volatility in markets as economies collapsed and began to rebound. After a drop of over 10,000 points from February to March 2020 at the onset of the COVID crisis, the Dow Jones Industrial Index entered a strong recovery. Investors flooded back into the market, driving prices to new heights in early 2021.

Much of this new investment came as investors responded to positive news about the launch of COVID vaccines and the prospect of world economies reopening. Markets began to show the effects of herd mentality investing as investors pursued profit opportunities. While herd investing may lead to profitable spikes, it is also capable of causing sudden drops with accompanying losses for the herd. 

Understanding the herd

Humans are naturally prone to herding. While perhaps originally a protective measure against predators, herding spread through every facet of human life. Throughout their lives, people join any number of herd groups – social groups, religious groups, political groups, sports groups and others. They rely on the mutual support found in these settings and the information sharing that occurs in the group.

Herd investing behavior has many underlying causes. Some seek to achieve the same wealth and status as the successful investors they see in the news. Many people who know little to nothing about investing but who also want to take advantage of investing in markets rely on the herd to provide them with information about investment opportunities. Many investors just have FOMO – the fear of missing out on a good thing. 

Frequently, it is uninformed investors, and those with the most to lose, who form the bulk of the investing herd. Trying to get rich quickly by following the example of successful traders, they wind up losing everything. 

But even with post-COVID volatility roiling markets, there are good opportunities in the markets for informed investors who pursue sensible investing strategies.

The dangers of following the herd

Unfortunately, herd mentality all too frequently results in the herd running off a cliff together. The history of markets is replete with examples of investors driving markets drastically upwards, only for herd panic to crash those markets. 

The dangers of herd investing first appeared in the 17th-century tulip buying craze in the Netherlands. Tulipmania, as it is now known, was the first market bubble. Just before the bubble burst, the most sought-after tulips were selling for upwards of 5000 florins. 

To put this in context, at the time, you could buy four oxen (and not just any oxen, fat ones) for 480 florins. A thousand pounds of cheese was 120 florins, and the equivalent of 65 kegs of beer was 32 florins. The cost of tulips grew to exceed annual salaries, and the most expensive tulips cost more than a house. 

Using margin contracts, buying on credit, leveraging assets, investors did whatever was needed to get their hands on tulip bulbs. But prices began to fall, and the market quickly and completely collapsed, leaving many investors bankrupt.

History has repeated itself several times since the beginning of the 20th century. The Great Depression of the 1920s, the dotcom bubble in the late 1990s and early 2000s, and the subprime mortgage crisis culminating in the housing crash of 2008 are all examples of herd-driven bubbles. 

Herd activity drives market volatility

Herd investing appears to be increasingly driving market volatility. The past year alone has seen several glaring examples of herd-created bubbles.

The herd creates crypto bubbles

A more recent example of herd investing is the explosion of interest in the cryptocurrency markets. From October 2020 to April 2021, the price of Bitcoin increased sixfold, from $10,000 to over $60,000. Since that time, it has lost a third of its value. And this is the second crypto bubble in less than five years. In early 2018, Bitcoin lost 65% of its value in a single month. By the end of 2018, cryptocurrency markets had seen a larger percentage decline than the stock market did during the dotcom bubble.

Cryptocurrency is an attractive investment. But it is notoriously volatile, and the crypto investing herd quickly responds to even minute suggestions about price direction. Tesla founder Elon Musk’s support for dogecoin helped its price skyrocket in early 2021. But when he made a joke on Saturday Night Live about dogecoin being a “hustle,” the price quickly plummeted.

Robinhood and GameStop

The GameStop price rollercoaster in early 2021 is a particularly alarming example of herd investing because it involved an intentional manipulation of the herd. A group of investors decided to punish investment firms that were relying on shorting stocks by driving up the prices of those stocks. They then promoted the stocks on an investment board on Reddit. GameStop became the poster child for their efforts, but other frequently shorted stocks also began to rise.

GameStop’s price skyrocketed as social media-based investors followed the Reddit group. Trading volume increased as well, with GameStop becoming the most traded stock on the S&P 500 at one point. Once again, Elon Musk got involved, sending out a tweet about GameStop that exacerbated the frenzy, causing the price to nearly double shortly after the tweet. 

GameStop quickly fell again after the Robinhood trading platform and others suspended trading. The fallout from this event is ongoing.

Fears about post-COVID inflation

At present, the herd is spooked about the prospect for significant inflation as world economies rebound from the COVID crisis. Consumer prices have been rising, even more so than expected at this point in the recovery. And, despite reassurances from the Fed that the inflationary spike is temporary, the fears of the herd have made themselves known in the markets. 

The fastest increase in the consumer price index in nearly fifteen years caused selloffs in the markets. At the same time, yields on treasury bonds have been rising. Home prices are also experiencing rapid upswings, leading to fears of another housing bubble.

The herd may be edging towards its next cliff.

Don’t get trampled by the herd 

Knowledgeable and prudent investors can still take advantage of hot market opportunities while avoiding suffering substantial losses by simply following the herd. Portfolio diversification is one important tool savvy should employ to counteract the effects of market volatility. Balancing risky herd-friendly investments with more stable options like bonds, mutual funds, or even gold helps portfolios avoid wild swings from market volatility.

There are also positive herd-style options, such as investment funds, that take advantage of the knowledge of investment experts. According to London-based financial advisor Alex Williams of Hosting Data, investment funds are a collection of capital that is owned by a conglomeration of investors. 

“These investors collect shares together, while each member remains in full ownership and control of their own individual shares,” says Williams. “The benefit to investment funds is that you have a wider selection of investment options and opportunities. You can also get access to better management expertise and there’s less commission than you’d be able to get on your own.”

And for those investors who do want to rely on social media, like the Reddit GameStop investors, without risking the downsides of herd investing, there are more well-founded options. Social investing platforms (distinct from socially responsible investment platforms) allow inexperienced investors to benefit from the knowledge and insights of experienced traders through copy trading and mirror trading.

Conclusion

With a bit of effort and prudent selection of a range of investments, even the most novice investors can take advantage of a booming stock market while protecting themselves from the whims of the herd.

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Archives, Global Trade Daily, International Trade

Mexico Faces a Slow Economic Recovery After a Steep Recession

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Mexico’s economic performance deteriorated steeply in 2020 which may be largely attributed to the COVID-19 pandemic and slow government action to curb disease spread. GDP contracted 8.5%, mainly due to steep declines in consumption and investment.

Atradius economic analysts predict Mexico’s GDP will partially rebound in 2021, increasing by 6.1%. The coronavirus pandemic exacerbated an already weak economic situation. Mexico entered 2020 in a mild recession, due to fiscal tightening and falling investments on the back of rising policy uncertainty.

Government leaders face growing concern over health and economic policies

Due to the severe spread of the coronavirus pandemic and the resulting economic downturn, the handling of the crisis by the government has drawn harsh criticism. Compared to most other countries in the region, Mexico took less stringent measures on a national level to contain the spread of the disease.

Some of the poorest countries in Latin America—including El Salvador, Guatemala, Honduras and Venezuela—were among the quickest to respond, most likely in recognition of the extremely limited capacity of their healthcare systems to deal with a protracted public health crisis.

While President López Obrador’s popularity has subsequently dropped, approval rates remain high, at about 60%. This is due to some popular measures taken since his inauguration in December 2018, such as raising the minimum wage, reducing government salaries (including his own) and advancements in several high-profile corruption cases. The president’s party thus remains well-positioned for mid-term elections in June 2021. General disillusionment with traditional parties underpin this expectation.

High crime rates and endemic corruption continue to undermine the business environment and state functions in Mexico. The economic repercussions of the coronavirus pandemic particularly hit workers in the informal sector, who amount to about 60% of the total labor force. Consequently, rising poverty could become a major social and political issue if government action is not taken.

Limited fiscal measures in place to counter the downturn

Mexico’s high vulnerability to the lasting effects of the COVID-19 pandemic stems from its relatively weak healthcare system, the close synchronization of its economy with the U.S. business cycle and its relatively high dependence on the services sector. These factors make Mexico more susceptible to external shocks, especially with the stagnant tourism sector.

The 2021 outlook for most sectors in Mexico ranges from fair to bleak, with particular difficulty ahead for construction, engineering, and steel. The automobile sector, Mexico’s leading source of exports, suffered from a sharp fall in external demand and severe supply chain disruptions over the past year.

To help mitigate these impacts from the COVID-19 pandemic, the central bank cut interest rates several times in 2020, to a still relatively high 4% in February 2021, while the probability of further monetary policy easing has declined. Inflation is expected to remain at the upper end of the central bank’s 2%-4% target range, mainly due to higher fuel prices and shortages from supply-side disruptions.

A protracted recovery expected in 2021

Due to meager fiscal support and comparatively high-interest rates, Mexico’s economic recovery is expected to be protracted, and GDP will likely not return to its pre-pandemic level until 2024.

Other issues include persisting economic policy uncertainty, concerns about contract enforcement and rule of law under the current government, which may continue to have a negative impact on business confidence and private investments.

Exports in the manufacturing sector should receive a boost from higher U.S. growth prospects, while an infrastructure plan may contribute to a partial recovery of investment. However, this recovery expectation remains subject to a timely containment of the pandemic, including the speed of the vaccination campaign. The government debt ratio is expected to level off in 2022 despite weaker government finances.

The peso exchange rate against the USD sharply depreciated in March 2020, which may be largely due to high capital outflows and the deterioration of the oil price. However, it appreciated again since May, and by the end of 2020, it had almost recovered its lost ground. While the exchange rate is likely to remain volatile in 2021, it is expected to continue its appreciating trend, supported by a global recovery in manufacturing.

There are glimmers of hope for Mexico’s economic recovery in 2021, aided by accelerating growth in U.S. markets on the back of massive fiscal stimulus and vaccination rollouts globally. As long as Mexico can stay on a path toward growth, a partial economic rebound could be possible in 2021.

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Greetje Frankena is a deputy chief economist at Atradius based in Amsterdam.

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Archives, Global Trade Daily, Special Reports

In Tough Times For The Unemployed, Franchising Might Be Their Answer

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With millions unemployed and numerous industries struggling due to the coronavirus pandemic, some people who are out of work are considering a new career.

As positions dwindle in the fields they are familiar with, people are finding themselves forced to go outside their area of experience. And for some, that Plan B could be a blessing in disguise.

Owning a franchise has gained popularity in recent years, even in times of economic prosperity, as individuals have looked for a “second act” in their professional life. Franchise sales often do well in a down economy because unemployed people are tired of the lack of control they have in a corporate setting and are ready to become their own boss. Of course, there are also the additional dangled carrots of potentially more income and freedom.

In my world of franchising, pest control, we are seeing some people who have been furloughed in other industries becoming interested in being franchisees. The restaurant, hotel, oil and gas, and airline industries have been hit particularly hard in this COVID-19-caused recession. Some jobs in these and other fields may not be coming back.

But the good news is that many of the people whose jobs have been eliminated or reduced have the skills associated with running a franchise successfully. Those skills span the spectrum from leadership to business experience, discipline, technology knowledge, and communications. For many of these displaced professionals, franchise ownership may be a natural fit.

Becoming a successful franchisee takes hard work and some up-front money. Getting business loans can be tough in today’s economy. Franchise ownership is more attractive to those with a nest egg or a nice severance package that affords them the flexibility to purchase a franchise. It’s also important to note that “freedom” is a relative word when owning a franchise; in addition to long hours while getting the business established, remember that it was somebody else’s business idea, and you have to follow the script of operating the franchise.

But more and more, franchising is something out-of-work individuals with money to risk and a desire to run their own business want to consider. It requires a lot of research and intense due diligence before signing on the franchisee line. Facing life after a layoff and looking for your next move, it’s vital to do your due diligence when investigating a franchise opportunity and to clearly understand what your role will be as a franchisee.

Some of the top benefits of owning a franchise:

Experience is optional. How many times have you seen a job posting that interested you, but the experience required didn’t match up with your work history? You don’t have to worry about that as a franchisee. The franchisor provides the training to help you gain the skills to operate the franchise. A major part of what makes a franchise successful is an easily replicable system.

Minimal startup work. One of the most difficult parts of owning a business comes in the startup stage, which involves, among other tasks, writing a business plan and doing market research. But buying a franchise allows you to skip this often painful stage and hit the ground running. The template is in place, the market research for the region has been done, and the business model is well established.

Risk reduction. When someone decides to buy a franchise, rather than start a business from scratch, they have reduced their risk of failure. For one thing, consumers are already aware of the brand name, and that awareness puts the franchisee ahead of the game. The product and the system have been tested and shown to work, and the franchisee’s access to corporate guidance is a big asset in growing their franchise.

Additional support. Along with training and ongoing advice received from the franchisor, franchisees can get support from other franchisees in the company’s network. Additionally, the company itself does marketing and advertising on a wide scale that by association helps promote the franchisees’ locations.

Help in negotiating operating costs. Typically, someone starting a new business as an independent owner is out there alone trying to negotiate prices for items to get their business off the ground. But as a franchisee, often the franchisor already has relationships with vendors, giving franchisees the ability to purchase goods at discounted prices.

If you’re a displaced worker or executive, the franchise industry may be the opportunity you’ve been looking for. It could make life after the layoff better than you imagined.

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Chris Buitron is CEO and president of Mosquito Authority® (www.mosquito-authority.com), a nationwide leader in mosquito control with franchises serving communities across the U.S. and Canada. Buitron has an extensive background in franchise industries. He was chief marketing officer for Senior Helpers, vice president of marketing for Direct Energy (home services division), and director of marketing for Sunoco Inc., where he supported the company’s 4,700 franchised and company-owned rental facilities across 23 states (over $15B in annual revenues).

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Archives, Global Trade Daily, Special Reports

Could COVID Kill Entrepreneurship? How to Make Sure It Doesn’t

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It’s no secret that the COVID-19 pandemic has left many existing small businesses struggling, and the continued economic uncertainty threatens to kill the ambitions of entrepreneurs who planned to launch new businesses but now must put their dreams on hold.

“This crisis will end up being much worse for small businesses than the 2008-11 sub-prime mortgage crisis,”  says Andi Gray, president of Strategy Leaders (www.strategyleaders.com), a business consulting firm. “That 2008 crisis mostly hit banks, mortgage, insurance, automotive – all of which were primarily big, publicly owned stock companies. The only small business dominant category was the construction sector which was devastated for years.

Today’s crisis hits and potentially harms nearly every type of small business.

“During that 2008-2011 period, for the first time, the number of business starts fell below the number of business failures. In other words, more businesses were killed off than were launched, and many people wondered whether we had killed entrepreneurship itself. It took five years or more for the small business community to recover from that. The COVID-19 pandemic impact is so much larger and deeper.”

And when a small business takes a hit, the country as a whole suffers, she says.

“Small businesses make up 50 percent of the gross-domestic-product and also employ half the workforce,” Gray says. “What happens to them determines what happens to the overall economy. We as a country cannot afford to fail them.” So, what steps should small business owners take to make sure they come out on the other side of the current crisis in good shape? Gray suggests a few questions for them to consider:

How is your online game? If business owners aren’t already thinking of themselves as all-virtual, e-commerce sellers, they need to be, Gray says. “That’s how your customer of today and the future is going to want to buy and receive products and services,” she says. “You may need to update your website. Evaluate how good you are at social media communication and promotion. Rethink how you can get orders, track delivery, and receive payments virtually.”

What’s happened to banking and access to capital? In recessions, banks shut down their credit lines, and reduce capital access if they have any concerns about a customer’s ability to pay down debts on time, Gray says. “This will get worse before it gets better. That means you may wake up one morning to find your business is facing challenges with access to capital,” she says. “To keep your credit lines open and approved, it’s essential that you put in the time and effort to work with your bank.” Without access to the proper amount of capital, she says, your business may not be able to function.

How have employees been affected? Businesses must be prepared for challenges that impact work production, Gray says. She points to a study by Microsoft that showed employees’ brains are measurably more stressed working remotely than in an office. It’s harder for remote workers to process information and they get fatigued more easily. “And that’s just one aspect of what our employees are dealing with as the world around them changes so rapidly and dramatically,” Gray says. Build in as many communication and interaction tools as possible.

Is your supply chain stable? “Get prepared for more disruptions as COVID continues to emerge and reemerge and some vendors fall away,” Gray says. “And with hurricane season followed by winter weather, many poorly funded state and local support structures could struggle.” Look at how your supplies get to you. If you’re part of the supply chain, look at how you deliver supplies to your customers. “Explore alternate shipping solutions and routes – trains, planes, cars, trucks, boats,” Gray says. “Now is the time to investigate all of them. Build-in redundancy.” Staying in business is difficult even without a major crisis, Gray says, as three out of four businesses fail in every 10-year cycle.

“The good news is that small business owners are known for being nimble, flexible, and resourceful,” she says. “Many of them are finding new opportunities by solving problems that didn’t exist, or weren’t priorities, at the start of 2020. If we can buy them some time, they’ll be able to retool, market their new services and products, and keep good people employed.”

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Andi Gray is president of Strategy Leaders (www.strategyleaders.com), a business consulting firm. Gray’s career started in sales, marketing and new business development at Xerox, American Express and Contel. Gray earned an Executive MBA from Columbia University while conducting research on success and failure drivers for entrepreneurial businesses. Gray writes a weekly column called “Ask Andi” in which she provides practical advice to business owners. She also authors a monthly column in Chauffeur Driven Magazine. Gray is also the co-founder of the networking group BOHCA (Business Owners Hemp and Cannabis Association), where she helps industry-specific owners grow their business through strategic planning.

Archives, Banking, Global Logistics, Global Trade Daily, Stories

An Economic Recovery From COVID-19 in 2021 Is Possible – But Massive Uncertainty Remains

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COVID-19 has had a devastating effect on human life. But it has also caused widespread economic upheaval for both advanced and emerging market economies as countries shut down to try to stop the spread of the virus. The U.S. for instance is set to see the most severe economic downturn since GDP was first tracked in the 1940s.

This means deep hardship for many businesses of all sizes and across all industries. Shutdowns caused many firms to entirely cease operations for a time. Now, they are grappling with plummeting demand as a result of rising unemployment and uncertainty, on top of supply chain difficulties and uncertainty as to financing resources.

Bad Timing for a Global Crisis

Although there is no “good” time for a pandemic to strike, business conditions in 2020 were already a little shaky prior to the outbreak. At the beginning of the year, the global economy had just finished its weakest year since the Great Recession, global trade was turning sour, trade finance had become more restricted and continued uncertainty from the U.S.-China trade war weighed on businesses everywhere.

If the outlook was stormy at the beginning of the year, it’s now outright bleak. Atradius economists are now forecasting that global trade will decrease approximately 15 percent in 2020, while global GDP will decline about 5 percent. The U.S. will perform below average, with a 6.1 percent decrease in GDP – largely due to its lag in controlling the virus and subsequent record high in number of COVID-19 cases, in addition to soaring unemployment as well as pressure on incomes, leading to a drop in consumption.

Will Government Intervention Be Enough?

Governments and central banks the world over have enacted measures to counteract the pandemic’s economic devastation. Early in the crisis, for instance, the European Central Bank put in place a Long Term Refinancing Operations III program, while the U.S. Federal Reserve increased quantitative easing.

Countries have also put together aid packages, such as the U.S. CARES Act and a number of packages from individual EU economies and the UK. Similarly, China is providing tax relief, state-backed credit guaranteed, and delayed loan and interest payments. Altogether, global government stimulus measures amount to approximately 9 percent of global GDP, or around $7.8 trillion.

But will this be enough? Atradius economists suggest not – not unless countries also enact vigorous policies to revitalize the economy at every level. The EU Pandemic Fund provides a good example: the $750 billion initiative will bestow loans and grants to the areas and sectors hardest hit by the pandemic, allowing for a more even recovery rate across the entire EU.

Although stimulus measures are necessary, soaring government debt levels are also cause for concern – even before the outbreak, many countries had worryingly high debt levels. The most recent baseline scenario from Atradius economists has the U.S. federal budget deficit, as a proportion of GDP, increasing by more than 10 percentage points this year. The UK will fare even worse, seeing a 13 percentage point increase in deficit growth rate. China and India are the only major economies likely to maintain moderate debt ratios through the pandemic.

All that said, low interest rates will likely stick around through the end of 2021 at least – this should help offset some of the concerns over high government debt levels. Moreover, central banks like the Fed and ECB will continue purchasing government bonds, suppressing any financial market stress.

What’s Next?

While the global economy is under undue strain at the moment, Atradius economists predict a recovery could begin as early as this year, continuing into 2021. Our baseline scenario has global GDP rebounding by 5.7 percent in 2021, with the U.S. coming in just under that, with GDP growth of 4.2 percent.

This scenario, however, is shrouded in uncertainty and hinges on a few key assumptions:

-That researchers are able to develop a successful vaccine in the near-term

-That lockdowns will be limited throughout the remainder of the outbreak

-That oil prices will remain low

-That the U.S.-China trade war will remain at a standstill

-That the rise in financing cost for firms, if any, remains limited

Should these assumptions not play out, the global economic recession could be much worse than anticipated – contraction rates could be twice as damaging as those currently predicted, with global GDP contracting 12.2 percent in 2020 and U.S. GDP seeing a 7.9 percent drop. Recovering from a contraction of this size would be a slow, painful process, although we would expect 2021 to see similar growth rates.

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John Lorié is chief economist with Atradius Economic Research. He is also affiliated with the University of Amsterdam as a researcher. Previously, he was Senior Vice President at ABN AMRO, where he worked for more than 20 years in a variety of roles in commercial and investment banking. He started his career at the Dutch Ministry of Foreign Affairs. John holds a PHD in international economics, master’s degrees in economics and tax economics as well as a bachelor’s degree in marketing. 

Theo Smid is an economist with Atradius Economic Research. His work focuses on business cycle analysis, insolvency predictions, thematic research and country risk analysis for the Commonwealth of Independent States. Before joining Atradius, he worked for five years in the macro-economic research team of Rabobank, focusing on business cycle analysis of the Dutch economy. He holds a master’s degree in economics from Tilburg University.  

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Archives, Global Trade Daily, In The News

5 Tips to Help You Lead & Experiment During Crisis

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As a leader, during COVID-19 (or any crisis) it can be hard to find your feet and to feel confident in your path. You may feel inadequate, unsure, and out of your depth. That is to be expected. This is leadership like we have never seen before. So many businesses are closed or trying to find new ways of doing things. I believe almost every organization feels like a start-up right now. Uncertain times need new kinds of leadership. We don’t have the answers, only questions, and still, we are asked to be leaders. Being experimental in your leadership approach will help you try things, learn from them, and figure out your next experiment.

These tips will help you find a new center for yourself as a leader:

You are not responsible. It should go without saying, but this is not your fault. This is a global challenge that doesn’t have clear answers. Your people may want you to have answers, but you won’t and you can’t. They will want certainty about their jobs, their income, and their lives. You can’t promise them the future. Encourage them to do their job today and let them know you have compassion but cannot be the answer to their future. Give up being an all-knowing leader and be human. Practice compassion and be collaborative to help your team makes sense of the crazy.

Get bad news out of the way fast. If you have lay-offs and reorgs to do, do it quickly. Make a plan–even if it is a bad plan and clear this from your “to do” list. You will be a better leader with clarity. Kudos if you can be compassionate while you do it. There are some businesses that will not survive this. Don’t hide your head in the sand like an ostrich. Embrace information and communication even if it is bad news. Work on being a good leader in bad times. Figure out what being a good leader means to you. Kindness goes a long way when you are delivering bad news.

Think about a timeline. What is important 1 week from now? What is important 1 month from now? What is important 1 year from now? Some organizations need to be extending their timeline (How will we emerge from this crisis?) while others are busy changing to meet day to day needs (What do our clients need today?). Make sure to orient your thinking daily and consider multiple time frames. Make time to consider your leadership path before you face a day of decision making and are faced with the feelings and challenges of others. Find your own true north as a leader.

Be kind and firm. Your team members may be spinning and scared. Be empathetic and then ask them to get back to their jobs and produce good work. Having meaningful work is a privilege in these times and you can ask them to be achievers right now….today. You can deliver groundedness and purpose as long as they are working. There can be compassion for the challenges they face (kids at home, new environment, etc) but don’t let them off the hook. They are being paid to provide work. Your insistence on them delivering work is part of the work of leadership right now.

Practice extreme self-care. You are your own strongest asset. Experiment to strengthen your physical, mental, emotional, and spiritual health. Reach for the salad and smoothies instead of the martinis and chocolate cake. Exercise. Sleep. Meditate if that works for you. Journal or sit and think. Pause. Ask for help and love from friends. Schedule a virtual happy hour with friends or colleagues. Try and go deeper than you ever have before with your self-care. You have never needed to care for yourself as you do today. Experiment with giving yourself what you need.

You will get through this. You will learn from this. You will do your best and you will do your worst in this. As an experimental leader, it is important that you stay engaged in the struggle of leadership. Try and fail and dust yourself off. Figure out the change you want to see and what the barriers are. Figure out an experiment. Collect data. Figure out what you just learned. Ask, “What is my next experiment?” Go experiment again.

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Melanie Parish is a public speaker, author, and Master Coach. An expert in problem-solving, constraints management, operations, and brand development, Melanie has consulted and coached organizations ranging from the Fortune 50 to IT start-ups. She is the author of The Experimental Leader: Be A New Kind of Boss to Cultivate an Organization of Innovators. For more information, please visit, www.melanieparish.com, and connect with her on Twitter, @melanieparish.

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Archives, Global Trade Daily, Special Reports

Is It Time To Play Defense with Your Investment Portfolio?

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The bull market has been charging ahead for more than a decade now, but financial professionals are starting to wonder whether the good times are about to come crashing down on the American public’s prosperous portfolios.

That means it could be time to become a bit more defensive with your investments, says Dr. Joseph Belmonte, an investment strategist and author of Buffett and Beyond: Uncovering the Secret Ratio for Superior Stock Selection(www.buffettandbeyond.com).

“People will talk about having good luck or bad luck in the market, and you never want to depend on blind luck,” says Dr. Belmonte says. “But another definition of luck is when opportunity meets preparation. And if a recession is coming, as so many people fear, then you want to make preparations.”

One suggestion for doing that, he says: Stay away from cyclical stocks, which are stocks that perform well when the economy is humming along, but struggle when things turn sour. These are companies that provide something that’s not essential to daily living or that consumers can at least postpone purchasing when times are tough.

Examples are car manufacturers, higher-end retail stores, and mortgage companies. Specific examples are Ford, General Motors, Caterpillar and Macy’s.

With the potential for a recession looming, Dr. Belmonte says, it’s vital that you review your portfolio, examine whether you have cyclical or non-cyclical stocks, and decide whether you need to make adjustments.

He says a few things worth remembering as you shift your portfolio to the defensive mode include:

-Look for efficiency. The companies you seek for your portfolio should be efficient. “They must have a relatively high return on equity and a consistent return on equity,” Dr. Belmonte says. “If the ROE is high and consistent, we know the firm has the capacity to create value because it is already doing so.”

-Examine a company’s history. Dr. Belmonte says that Warren Buffett likes to look at a company’s average return on equity over a 10-year period, most likely because over any 10-year period the economy goes through recessions and also economic expansions. “As the economy goes through these cycles, expectations about a company’s future will rise and fall with the mood of all of us,” Dr. Belmonte says. “Buffett probably feels that over a 10-year period, we see the average of at least one complete economic cycle, and of course, the ensuing mood swings that accompany both the good and bad times.”

-Consider value. Price follows value, Dr. Belmonte says, so invest in stocks that increase their value “every minute of every day.” He says McDonald’s is one example. The stock’s price may drop in tough times, but eventually the price catches back up to the company’s overall value. To find such companies, he says, look at how a stock performed during the last recession from June 30, 2008, to March 30, 2009. Value-added stocks didn’t fall as far as the overall market, and recovered much more quickly.

-Focus on businesses you understand. A company might sound good in theory, but if you don’t really have a good grasp of what it does and how the market for it might develop over the long haul, then it could be a risk for you. Dr. Belmonte suggests looking at businesses you have a good understanding of, so you can make an educated guess of where they likely are headed. “If you take a business you understand, and that company has a high and relatively consistent ROE, you are probably looking at a pretty good contender for your stock portfolio,” he says.”

“I always tell people to remember the good, the bad and the ugly,” Dr. Belmonte says. “The good stocks should be in our portfolios; the bad stocks should be in someone else’s portfolios; and the ugly stocks should be in nobody’s portfolio.”

 

 

Dr. Joseph Belmonte, author of Buffett and Beyond: Uncovering the Secret Ratio for Superior Stock Selection (www.buffettandbeyond.com), is an investment strategist and stock market consultant. He is fond of saying, “If you want to live on the beach like Jimmy Buffett, you’ve got to learn how to invest like Warren Buffett.” Dr. Belmonte has developed hedged growth income strategies for family offices, and has lectured to numerous professional and investment groups throughout the country. His weekly video newsletter is sent to thousands of investors, money managers, and academics both nationally and internationally.

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Japan’s Trade Deficit ‘Narrowly’ Declines in October

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Los Angeles, CA – A weak yen and lower oil prices combined to boost Japan’s export volume and cut the country’s massive energy bill, narrowly reducing Japan’s trade deficit in October.

The development was a bright spot among otherwise gloomy data, including recent GDP figures that showed the country – the world’s number-three economy – had slipped into recession.

Japanese exports, led by mainly autos and steel, jumped nearly 10 percent last month with imports climbing by a modest 2.7 percent.

All in all, the new activity translated into a monthly trade deficit of $6 billion.

According to the new figures, the value of shipments to China rose 7.2 percent, while exports to North America climbed 8.5 percent and those to the European Union were up 5.4 percent.

The October boost in exports, say analysts, could be a flash-in-the-pan as Japan is facing tepid growth in the European Union and an overall slowdown in China’s economy, both key export markets.

Last week, the government released figures showing that Japan’s gross domestic product figures contracted 0.4 percent for the second straight quarter after suffering a 1.9 percent contraction in the previous three months.

11/24/2014

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Brazil’s BRIC Cracks on Disappointing Growth Figures

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Los Angeles, CA – There’s a serious fissure developing in the BRIC wall as the latest government figures show that Brazil has slipped into recession, with the Latin American giant’s gross domestic product (GDP) contracting for a second consecutive quarter.

According to the official government statistics bureau in Brasilia, the country’s GDP stands at about $567 billion, down 0.6 percent from the previous three months, while revised figures for the first quarter showed a drop of 0.2 percent.

The government had initially had reported first-quarter growth of 0.2 percent.

The country last experienced a recession in late 2008 and early 2 009, when a world economic crisis slashed demand for steel, minerals, farm goods and other key Brazilian exports.

The BRICS – Brazil, Russia, India, China and South Africa – together represent 18 percent of the world total, are all experiencing slowdowns in their once fast-paced rates of growth. Exacerbating the economic difficulties is Russia’s volatile activity in Ukraine, which has sparked a rash of sanctions on Moscow by the US and the European Union.

Last month, leaders of the five countries met in Brazil and decided to create their own development bank as a counterweight to what they perceive are “western-dominated financial organizations like the US-based World Bank and International Monetary Fund.

The new development bank will reportedly be based in Shanghai and is expected to be functional within two years. It will be capitalized at $50 billion, a figure that could grow to $100 billion to fund infrastructure projects. The fund would also have $100 billion at its disposal “to weather economic hard times.”

08/29/2014