Economy in 2009: What to expect?

The December 4th Best Practice program was sponsored by Bridgepoint which addressed the current economic crisis, offering information on how it is unfolding and the best strategies to cope and survive during these times. The festive room at Chez-Zee Bistro and Bakery, was filled with our members, interested local business professionals and entrepreneurs poised and ready to hear a presentation by Kit Webster, a Bridgepoint consultant that has over 30 years of senior management experience. Kit Webster has been the CEO and CFO of publicly and privately held companies. He has taught at the University of Texas at Austin and is currently teaching Business Process Excellence in the business school and he has successfully restructured numerous companies, led mergers, acquisitions and IPOs.

There were many questions and a lot of details providing insight and clarity to what has, is and will be going on in the coming months and years, but for those of you that were unable to attend, here is an overview of Dr. Webster’s presentation:

The world is in the midst of a severe debt deflation created by the mispricing of risk and the extreme leveraging of assets, particularly real estate and derivatives, in turn part of a financial mania. The impact of the resulting deleveraging and marking to market on the US economy, which is 70% reliant on consumer spending, will be profound and will take years to rationalize. The impact will reach into all aspects of the global financial system and its regulatory structure, having as great or greater impact on the rules of capitalism as the changes during the Great Depression. The Fed and the Treasury do not know what to do since there is no precedent, and are making it up as they go along. At the moment they are focusing on preventing systemic collapse; later they will focus on other issues, however their current actions will have significant unintended consequences including moral hazard and subsidizing those who should fail to compete against those who remain strong.

Managers should revise their expectations to focus on survival instead of growth, on preservation of cash and return of investment as opposed to return on investment. They should expect credit to be less available, to cost more, and to have significantly more onerous terms; they should expect equity to be very expensive, if it is available. They should nurture very close relationships with customers, investors, and bankers to ensure the maximum probability of survival. They should relentlessly cut costs and require a higher return on any investment of cash than they have in the past few decades. If possible, they should position themselves to take advantage of reduced prices on assets in the coming years.

The power point presentation is available for our members at www.austintechnologycouncil.org