Amid the general chill and dreariness, January is also prime time for economic forecasts – an especially dismal science this year. Based on three crystal ball sessions this week, I’m thinking about the recession and our job as investor relations professionals.
Some bits from the economists’ briefings:
The president of the Federal Reserve Bank of Kansas City, Tom Hoenig, said Wednesday that 2009 will first bring more pain – and likely a beginning of recovery in the second half. (See text.)
But don’t expect short cuts or painless solutions, Hoenig added. We spent more than a decade getting entangled in excess leverage.
“The hard fact is that the sharp deterioration of banking and credit conditions, the deepening slump in consumer and business confidence, and the ongoing housing correction must work its way through the economy,” Hoenig said. “While we must do what we can to mitigate the effects of this deleveraging process, to attempt to avoid its effects entirely is to repeat past mistakes and may sow the seeds for the next crisis.”
The Virtual Chapter of NIRI (National Investor Relations Institute) on Thursday offered a panel of three economists (hear replay). Outlooks ranged from recovery in the second half of ’09 to a US version of the decade-long collapse in Japan following the 1980s asset bubble.
When an IR person asked what companies can do to stabilize stock values, Scott Brown of Raymond James Equity Research said management should show it’s taking the downturn seriously, cutting costs, and positioning for eventual recovery. But he added, “At some level I think you just have to realize that you’re at the mercy of the broader economy.”
More bullish was Brian Wesbury of First Trust Advisors, a frequent prognosticator on CNBC. He told the Association for Corporate Growth and Financial Executives International in Kansas City today that the Fed has made monetary policy so loose – and Congress is spending so much – that all this stimulus can’t help but produce recovery, at least near-term.
“We’re going to have a rip-roaring economy in the next 18 months. We’re going to ride a wave of money – to growth and much higher stock prices,” Wesbury said. The slide in key indicators has been decelerating, with an upturn now in the works, he said.
The danger lurks further out in Wesbury’s forecast: A surge of inflation on the heels of that 18-month boom. He believes the Fed has cut rates way too low, just as it did earlier this decade – which Wesbury cites as the No. 1 reason for the housing bubble that got us into this mess. Inflation will whipsaw us back into monetary tightening – and then what? Whether that next phase of the cycle is mild or ugly depends on how Obama-era policies play out, he said.
As an Econ major in college, one of my key learnings was that economists are ambidextrous – “On the one hand this, and on the other hand that.” To put it mildly, current macro forecasts reflect a high level of uncertainty.
My philosophy on IR strategy is to disclose management’s view of where we are in the economic cycle now. And talk plainly about actions the company is taking to survive the recession and preserve value through the trough – whether the down cycle goes deeper, lasts longer, or turns fairly quickly into recovery.
We can hope for sunnier times to shine in the second half – but we should also discuss how we would endure a longer economic “winter.”