In the first half of 2007, we were on the up, up, up – collectively oblivious to the unsustainable proliferation of credit and the impending economic realities.
We were on a roll, ignoring those small voices of caution and believing that the economic miracle of the emerging economies would somehow alter the world order, guaranteeing increased profits and rising living standards for years to come. Back then it was even fun reading the newspapers.
Fast forward one year. We now know that the banks and financial markets got carried away, resulting in some startling fatalities. The bubble that was housing is still bursting, blowing away consumer confidence. Commodity price increases, caused by excess demand and a focus on alternative energy, have created unacceptable levels of inflation, leaving central banks in a quandary and interest rate policies on a seesaw of uncertainty.
For many, the end of the NICE (non inflationary, consistent expansion) period will be their first experience of a real economic downturn. So what's in store?
The answer is that, in the main, it will be business as usual. Yes, some sectors are particularly vulnerable. Yes, many businesses are bound to face difficulties increasing, or sometimes even renewing, finance facilities in a more hostile environment. Yes, there will be an increase in business failures.
Unfortunately, these things happen from time to time, often fuelled by excesses and the momentum of the herd mentality.
On the other hand, entrepreneurialism will flourish and businesses with sound strategies and good management will reap the benefits. They will seize opportunities, build their brands, increase their market share and make life-changing but affordable acquisitions. As Warren Buffett famously said: "Be fearful when others are greedy. Be greedy when others are fearful."
Ho hum. It'll all be the same in 100 years.
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