Prosperity in an Age of Decline

October 9, 2014 Published by
Post Categories: HSS Blog

Brian Beaulieu visits Toronto Accounting Firm Hogg, Shain and Scheck to discuss econemies and investing. On September 25, 2014, economist Brian Beaulieu presented a talk on prosperity in an age of decline. Sponsored by Hogg, Shain and Scheck Professional Corporation, this event was an informative presentation that examined what to expect from today’s national and international economies and even offered some investment tips. We’ve compiled a list of some of the highlights of the presentation and we would like to extend our thanks to Brian Beaulieu once more for joining us.

WHAT TO EXPECT- GENERAL

  • Brian indicated the economy is recovering, so don’t be pessimistic.
  • Strong infrastructure is key to growth, reinvest in capital infrastructure for competitive advantage
  • Expect 2018-2019 downturn: main sign would be interest rates going up
  • As long as B2B activity is healthy and the consumer is healthy, we are going to see growth in the economy. The one caution is that the unfilled orders trend is ballooning very quickly; we are butting up against capacity ceilings.
  • The stock market is likely to grow until 2018, so until then, divestiture of stocks is not recommended.
  • Home prices will be leveling off and may be due for a correction, but there will likely be no crash
  • Interest rates
    • Expect increase of 25 basis points until 2018
    • 2018 may have 300 basis point increase, which will likely lead to a decrease in GDP

GDP and GROWTH EXPECTATIONS through 2019

  • The Canadian GDP moves with the US GDP
  • Canada has a better than average growth, where 10 year average in GDP is typically 1.9%, last year was 2.5%
  • GDP is growing steadily, therefore it is imperative to increase working capital now to expand and take advantage of the favorable economic growth in the coming years (2015-2017).
  • The strongest growth will be in 2016, and will begin to slow from there.
    Expect 4.3% growth in North America as a whole until 2019

PREPARING FOR THE BOOM: 2015-2017

  • Change starts from the top; consider leading by example. Positive culture leads to positive behavior
  • Invest in market research, understand the values and needs of your customers
    • Understand, review and uncover your key competitive advantages
    • Spend money on new products, services, marketing campaigns
  • Labour turnover is high. Avoid the costs associated with high turnover by investing in better training programs (people, process, internal metrics).
    • Studies show the vast majority of learning occurs on the job.
    • Invest in staff, particularly sales staff, and hire top people.
  • Improve efficiencies with investment in technology and software.
  • Do not get too close to the production ceiling, or create a lot of unfilled orders, as this may negatively impact growth.
  • If you are experiencing a large number of unfilled orders, it is likely due to one or both of the following factors:
    • Insufficient Resources
    • Under-pricing products and services
      • If the latter, you may wish to consider raising prices, but not by large amounts all at once; small increments of 1% a month or less are recommended.
  • Lock in costs to improve predictability.
  • Work on “what’s next”.

FUTURE OF NORTH AMERICA: 2019 and Beyond

  • Employers are paying skilled and semi-skilled labour more in order to prevent turnover. This is an early sign of cost-push inflation.
  • Low inflation at present, but expect increasingly severe inflation in the future.
  • Growth in employment has slowed considerably in Canada. The annual average is only up 0.8%; that is a market deceleration from what was going on in the past.
  • 3-D printing will have as large an impact on manufacturing as the internet did on communications
    • If your firm is not yet in a position to take advantage of this technology, you need to take steps to ensure that it is.
  • Manufacturing may be leaving Canada, but the jobs are still in North America.
  • The 2020s generally look upbeat; do not expect anything catastrophic until the end of that decade.
  • There is a looming problem with government debt loads, not in Canada, but in the US.
  • If we do not see a reversal in current trends, expect a serious economic depression in the 2030s due to unsustainable American Federal Government debt.

TAKE HOME MESSAGE

  • There will be growth until 2018-2019, it is important to invest now to grow until 2018. This may entail borrowing money to ensure growth. Do so while interest rates are still low.
  • Interest rates may increase 300 basis points, or 3% over 12 months from 2018-2019.
    • This is trouble for the small business and entrepreneur.
  • Invest in real estate in the U.S. as it will be prosperous
    • Specifically, invest in single-family units within an urban area, or with waterfront (provided they are at least 3 metres above sea level)
    • Do not invest in American suburban housing
  • Invest in Canadian bonds, not bond funds. Buy the bonds that yield to maturity. Also invest in Australian and Swiss bonds, but to a lesser degree.
  • Borrow money while it is still cheap and get involved in industries such as housing, electronics, 3D printing, entertainment, natural resources, and food.