Rough going ahead

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Over the next 12 months, markets could experience sharp volatility swings. This is part of the economic cycle correction, speculative and short-term investing, and the global ripple effect.” –Med Yones, president, International Institute of Management.

Sorry everyone – it’s back to calamity and doom again for the most part today … yet not completely. So while excerpts from the paper below published by the International Institute of Management (IIM) based in Las Vegas, NV, paint a very gloomy economic picture for the days ahead, it also provides some very useful insight into HOW we got into this mess in the first place – so, hopefully, we don’t go getting ourselves into a similar mess in the future.

You may not be familiar with Med Yones, IIM’s president, but he’s one of the naysayers that waved a lot of red warning flags back in 2007 about the economic glide path we were on as a nation and as a global community. He was in the minority back then – now, however, Yones is mainstream. So it’s worth trucking’s time to give a thought to Yones’ economic analysis and see where his take on things can be of benefit to this industry’s bottom line.

Information leads to knowledge and knowledge, as we all know, is power. So maybe some of Yones’ projections here be put to good use by truckers large and small to help navigate the tricky economic waters in the months ahead.

OK, first: how did we get into this fix?

“The U.S. economy got here due to spending money we do not have and not producing enough to pay back the credit,” says Yones. “It’s like luxury-living on credit cards, at some point the lenders want their money back. Not to forget that in a new open global economy, the U.S. does not have a competitive monopoly on knowledge, technology, manufacturing, or marketing anymore. Therefore, the growth rate of US production (cars, airplanes, electronics, IT …) is not keeping up with the growth rate of the debt.”

Yones also believes most economic and financial experts missed the crisis because of the “groupthink mindset”, plus the lack of information and misinformation in the mainstream media. “In such environment, few have the insight and the courage to tell it as it is, and risk being ridiculed by other industry experts,” he says.

OK, next: how do we get out of the current mess?

“As for the rescue plan, the current economic stimulus package will cost taxpayers more than a trillion dollar over the next two years, and there is no guarantee it will achieve its goals. The plan will more likely soften the fall but it will not correct the economy, it is merely delaying the correction, and therefore, the recovery too,” Yones believes.

“The most cost effective and quickest method to stimulate the U.S. economy is to support job creation through US small businesses and innovation development. U.S. Census Bureau statistics show that 98 percent of all U.S. firms have less than 100 employees. These 27 million small businesses create over 85 percent of all new jobs and employ over 56 percent of all private sector workers. So the main focus of development programs should be innovation development, export and employment support.”

He thinks this solution would lessen the burden on taxpayers and can be implemented without too much new legislation, plus would have a much faster positive impact on the economy. It can also be based on existing federal programs designed to direct federal funds to small businesses, such as the Small Business Reauthorization Act of 1997 that stipulates that a minimum of 23 percent of all federal prime and sub-contracts be awarded to small businesses.

“Oversight is critical to the success of the implementation of any rescue program. Effective and efficient program execution is necessary to avoid waste, fraud, and the abuse of loopholes to divert these funds to special interest programs,” Yones stresses.

“If the objective of President-elect Obama is to lead the economic recovery through the middle class, the job creation initiative through small business and innovation development, would be hitting three birds with one stone (sustainable job creation, middle class support, and increasing US businesses competitiveness through innovation development),” he adds. “This initiative would have a significant and immediate positive impact on the national economy.”

Yones points to the European Commission as an example, which invested hundreds of billions of dollars in innovation and enterprise creation since 2002. The result of their innovation and small enterprise creation initiatives is that they quantum-leaped US companies in Telecom, Aerospace, and several other industries. As a result, the Euro today is almost 50% more valuable than the U.S. dollar, compared to 2002.

OK, so when does the U.S. economic slump end?

“The timing of the economic recovery depends on several factors, the most important are the effectiveness of the new economic policies in establishing trust in the U.S. economy (such as reducing budget and trade deficits, etc.) along with the performance of corporate America – profits, job creation, etc.,” says Yones. “The markets need at least two consecutive quarters of business growth and profits, so that CEOs, investors and consumers will establish the confidence to invest again and reverse the negative cycle. However, we will not see the hugely inflated stocks and real estate prices anytime soon.”

So here’s Yones outlook for 2009:

“Over the next 12 months, markets could experience sharp volatility swings. This is part of the economic cycle correction, speculative and short-term investing, and the global ripple effect,” he explains. “Most people tend to underestimate or overestimate the growth and decline cycles. Our analysis indicates that 2009 will have mixed results for different industries, and the hardest hits will be in the financial, real estate, auto, retail, construction, advertising, and disposable income industries –tourism, gaming, hospitality, and travel. The relatively unaffected or growth industries are the export industries, food, alternative energy, education, new technologies, and healthcare.”

Yones says the general economic decline cycle will bottom in 2009 and we could see stability sometime late 2009 or early 2010, then we will be back to modest recovery in late 2010 or early 2011. However, the real estate, construction and financial Industries will bottom out in 2010, the recovery could start in 2011.

OK, so what could go wrong? Lots of things, says Yones, for he’s a realist. The risks include, but are not limited to:

• The deflation of U.S. treasuries and other assets

• New waves of home foreclosures from variable rate mortgage loans that are set to reset in 2009 & 2010

• New waves of major consumer and business bankruptcies (especially for large industries) in 2009 and 2010

• Double digits unemployment rate

• Wrong economic policies (uncontrolled spending deficits and higher tax policies)

• The sharp devaluation of U.S. dollar

• National political unrest

• Wrong foreign policies (increased instability and decreased global collaboration)

• Geopolitical and security risks

“The combination of some of the counterproductive policies and bad news, can further damage the investors' confidence, thus sending the economy in downward spiral and resulting in another ‘great depression’ period with a 25% unemployment rate,” he says. “This would be the worst case scenario, however. Based on the current media coverage, in our opinion, the new administration has the knowledge and the tools to mitigate those risks.”

Let’s hope so.

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