I am proud to announce that I am now a contributor on Forbes.com’s Investing Channel. Below is my first post, which can also be read here on Editor Stephen Schaefer’s Exile Wall Street Blog. Your thoughts are welcome.
A key driver in most businesses is a sense of urgency. It forces management to kick up the thought process to think about risks whether real or perceived, and in a compressed time frame. Complacency kills businesses.
The current state of our economy has created a dangerous sense of stability. That stability is encouraged by seemingly intractable problems such as high unemployment, low GDP growth, low interest rates, and a general sense that things will not change. I believe that thinking this will always be the case, is a mistake.
It has been typical that when we are in a prolonged period with a unidirectional focus, passive inertia sets in. Shock occurs when things change, most probably in a somewhat violent and unpredictable manner.
A good example of this is how most business owners and consumers today are not concerned in any way about the direction of interest rates. Today, we will likely see low numbers for New Home Sales and tomorrow’s FHFA House Price Index will likely show prices are still low. It’s clear that homeowners do not feel a sense of urgency that interest rates may rise, and also sense that home prices will continue to fall. This situation cannot continue indefinitely. Rates are artificially low, with the Federal Reserve working overtime to keep them there. Home prices remain depressed mostly because of overbuilding and oversupply, coupled with a shadow inventory of foreclosure units. Both of these events have created one of the most favorable entry points for those looking to buy a home…So why isn’t there more excitement around these facts? It’s because a sense of urgency is missing. No one believes that current conditions will be changing anytime soon.
But let’s look at some of the facts. Interest rates can rise, and may do so despite all the efforts of the Fed. With the crisis in Europe, a real possibility exists that European Banks will no longer be buying U.S. Treasuries. Add a slight increase in GDP growth, and the 10-year U.S. Treasury Bond Yield could be substantially higher than today, which could in turn lift mortgage rates. Additionally, the latest data show that building permits for new homes actually increased over 10%, and some markets actually saw increased prices in housing costs.
Some small business owners seem frozen in their fear with respect to the condition of the economy even though they have been able to not only survive, but actually grow in this environment. Some of the worry may be about matters outside their control, and may in fact be needless. Many business owners we speak to are so consumed with the goings on on the national and global scene that they leave no time to consider the issues important to this dynamically changing environment. Complacency and fear are a dangerous combination.
A genuine sense of urgency would clearly help the general economy as potential homeowners would move off the sidelines, and business owners would start to lean into upcoming growth by hiring ahead of the growth they are experiencing instead of managing for as long as possible in an understaffed position.
So, let’s not be lulled into this negatively-biased complacency, and instead look at the changes that are occurring around us, and employ a sense of urgency in all the decisions we make. There are many positive developments beginning to surface in this economy, and those prepared will be best positioned to take advantage. The rest will be stuck playing catch up…