The gold standard

Uncertainty about the future economic environment and likely economic conditions for small business extends way beyond our national borders.

Rating agency Moody’s has issued a global warning that there are major risks associated with the debt and binge hangover that forms the basis of Tony Abbott’s WHK endorsed mantra.

In its Sovereign Monitor, Moody’s states, “Genuinely adverse debt dynamics were only expected to materialise in 15 to 20 years. The crisis has ‘fast forwarded’ history, eroding all the time available to adjust.”

Under these conditions, no matter how much better Julia Gillard may claim we are all off, the reality is that banks are going to be pushing for a substantial rate rise to cover rising costs of capital, even if Glenn Stevens holds his nerve until we have a new Australian government.

The clearest indicator of this emerging credit crunch is the gold standard. Gold prices are once again heading to record levels, albeit with some volatility. The haven for money that does not trust the equity markets and believes that corporate bonds are not looking good after a poor earnings season. Watch for falls in the cost of government bonds as investors seek the safety of guarantees and assured income streams for the next few months.

JP Morgan economist Michael Feroli points to the fall in durable goods orders as a particularly worrying omen as this has previously been the strongest, most reliable sector of the US economy in the past year. Professor Nouriel Roubinim, who forecast the GFC, expects US growth will continue to falter and puts the odds of a double dip recession at 40%.

While the number of US home foreclosures is edging down, the number of families that are falling behind in house repayments is already on the rise. The Obama administration is caught between a rock and a hard place by the pressures to cut the debt and begin the jobs with growth stage required to cut unemployment levels that threaten the mid-term elections.

Smart companies will recognised that our Reserve Bank does not accept that we are playing on the same fields because of the flood of funds that are coming into the economy from the mining boom, the success of the emerging Asian economies and the continued flow on effects of government funding.

For this reason they will encourage a break on inflationary pressures and support tight controls by the domestic banks. Lenders are going to become much more demanding of detailed estimates for up to three years of cashflows, suggest that investment policies are taken in a series of bites rather than bold visions and request close reporting against business projections.

So the gold standard for good business development will be to hang onto your cashflow, try to extend terms of trade and spend the next three months on building the quality and quantity of your forward order book, while maintaining a close look on both inventory and great service staff.

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Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship.

Email dr.colinbenjamin@marshallplace.com.au
Contact: CEO Dr Jane Shelton, Phone +61 3 9640 0099