Chain of Thought

Ignore Political Policies, Follow Currency’s Currents

Two pundits gave attendees of Hytrol's 2012 convention in Little Rock this week an intriguing juxtaposition of viewpoints. The first was a political take on the state of the U.S. and the other was an economic vision. The political punditry came from Fred Barnes, co-founder and executive editor of the Weekly Standard. The economic punditry was that of Alan Beaulieu, president and principal of ITR Economics. Their viewpoints diverged over the influence of the upcoming presidential election on the U.S. economy.

Barnes said there is between $2-3 trillion sitting on the sidelines waiting for the results. Business people want to learn the fate of the Buffet Rule which would impose a minimum 30% tax rate for the highest earners and of course they want to see where healthcare will go. "I'd wait too," Barnes said.

But Beaulieu said waiting to invest is the worst thing for businesses to do, and that the presidential election will have no influence on the state of the economy. The economy is governed by cycles, and if your sales force follows these cycles they can get ahead of them.

"After the election passes you'll realize the fear of the aftermath was overplayed and pent up demand will pick up until later in 2013 when things will start to get ugly," he said. "Plan on more business through early 2013. Don’t start thinking about really low margins just yet."

But when we get to the second quarter of 2013, you’ll need to incent and pay your employees differently, he suggested. At some point next year we’ll see oil reach $120 a barrel. This will impact transportation costs and employee pockets. The FICA tax will go back up and workers will pay higher food costs and discretionary spending will decline.

If you want to help employees, don't give them raises equal to the consumer price index, Beaulieu told the bosses in his audience. That’s a fixed cost you don't want to carry through 2018. He suggested following the Jack Stack open book management approach to quarterly bonuses. This is where a company selects a critical number to improve upon each year. This is an area the company is doing poorly in compared to the competition. They can then tie everyone’s performance in this area to their bonus, and give them a portion of that bonus on a quarterly basis as they demonstrate positive results.

Which businesses are likely to show the most positive results? Beaulieu said there will be a lot of machinery going into food and beverage plants through 2014. Wholesale business will also come back in 2013 and offer good opportunities for capital equipment providers.

The point is, such business cycles are predictable and sales forces can use such information to get a jump on the competition, Beaulieu said. Meanwhile, their bosses should be taking advantage of the low interest rates and borrow, borrow, borrow.

"Banks have cash and they want to lend," he added. "The Federal Reserve board says interest rates will stay flat through 2015. Then they’ll jump 400 basis points."

Bottom line about your bottom line: this is the time to invest in yourself. You still have time to secure the funding, implement it and increase your efficiency gains.

Don’t follow political cycles, Beaulieu concluded, look at economic currents.

"If you prepare the ship, you can adjust the sales for the storms, meaning you can maintain profitability."

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