The Road Ahead: Nixon-Carter Redux, Part 2

January 16th, 2010

If this isn’t a repeat of the 70’s it sure is close: high unemployment, tight credit, government intervention, wars, consumer fears, and so it goes.   And then what?

Business is cutting costs, drawing back, tightening controls, holding cash, and guarding capital.  That tactic will have the same result in this decade as 40 years ago: it ain’t good.  All that is missing is high interest and inflation, but not for long.

Our specialized insights serve best those unreasonable owners [they don’t think or act like others] who make things, who are in old, established, and capital-intensive industries.

I started my business in a recession.   Four years on, I found myself in another and finished the decade in a third.  It was disruptive for me, and highly advantageous.  Two of my most successful acquisitions and startups occurred in the face of 20% prime and a chorus of doom.  Those two clients had too little capital–so I was told.  They had no management training, almost no experience.  I found that they had something better.

If you make things, the weak dollar will bring inflation, but not to your assets.  Weak dollar and inflation will bring a bubbling of opportunity.  Knowing what it means helps you seize and keep the advantage.

I said we like companies that make things.   Such industries are usually established—they have histories, traditions.  They have proven ways of how things are done.  They will be stuck in the past and present and blind to change.  Our kind of owner, often called unreasonable, is not stuck.  With our economic foresight, that person is never blind.

Doubt economic foresight is possible?  Think about this: If the causes of a crash are knowable afterward, they are also observable before.  Still, observation beyond the common field of sight is hard.  But that is what we do, and do exceptionally well with an “unreasonable” owner.

I also said that we like capital-intensive industries.  It is fair to say most will take a hit in these times.  Later on, high interest rates will devastate profits earned by industry convention.  Inflation will hide the damage until it is too late.  It is the opposite side of this we major in.