What In The World?

Now would be a good time to see your favorite tax advisor.

Troubles in Greece, and by extension the EU, started coming just as businesses in the United States were becoming more and more convinced of the reality of a recovery. We encourage you to keep looking for the recovery to last. Strategic initiatives and elevated goals should remain front and center on your list of things to do.

We are not sanguine about the troubles in Europe and Greece. The news is certainly not encouraging.The yield premium on Greek ten-year bonds soared to amazing heights, and loan activity in Europe was way off. The euro is slumping and hearts are thumping. The good news is that the EU has put together a credible and broad-based aid package and there is upside cyclical momentum in the macro economy in general (the UK and Italy are of concern). Having favorable leading indicators and upside cyclical momentum in the macro economy bode much better for a favorable outcome when contending with all of the EU credit issues versus Europe on the verge of cycling down.

As regards the issue of sovereign debt and therefore credit risk in the EU, we think the global recovery will continue, but there are certainly going to be some anxious months/quarters ahead for Europe.

Domestic Concerns
The S&P 500 pushed higher and higher in what looked to be an unstoppable rise. The Index had risen 61.4 percent above the bear market’s February 2009 low. We have been warning many groups across the country to be leery about how much ascent is left to go in this segment of the rising trend. More rise lies ahead, but not in our immediate future, and most likely not at the same blistering pace through the long term. Why not? Higher taxes, downward pressure on corporate profits from burgeoning inflation and the corresponding increase in interest rates and demographic trends.

Regarding the short-term US stock market trend, it needed cooling off. The precedents for this kind of rising trend were fairly clear. We could either continue to see an overbought market continue blissfully but fearfully upward, or we could experience a period of consolidation and a bit of a reality check. The former leads to nasty declining trends where the market becomes oversold; the latter provides for a flat to mildly negative trend with the market heading back up for 2011. Having the stock market weakness now, rather than later, decreases the chance of a recession in the latter half of 2010 and in 2011.

Taxes will be going up on high-income earners in 2011 as the Bush tax cuts become a memory. Additional tax increases coming from the new healthcare legislation should also be part of your cash flow planning. Tax increases should also be anticipated from federal, state and local governments as budget constraints become worse beginning in the near term and continuing in the years to come. Now would be a good time to see your favorite tax advisor. What in the World?

Inflation will become more of an issue later in 2011. It is important to keep in mind that interest rates will generally be going up because of inflationary pressures. The advent of interest rate rise means that all of us should lock in our debt as best as we can for as long as we can. The classic pre-inflation maneuver is to use today’s powerful pre-inflation dollars to buy inflation adjusted assets, like real estate or equipment that will increase the efficiency of your business in the years to come.

Some Good News
Interestingly, few folks seemed to know about some good news, like the increase in U.S. employment (let alone the gains in manufacturing employment). People are being called back to work. The turnaround in employment hasn’t hit the financial sector or the IT/communications fields yet, so many parts of the media may have understandably missed the good news.

It is important to note that there are benign interest rate trends going on in most economies outside of Greece, Spain, etc. In terms of U.S. interest rates, the leading indicator input from Corporate Bond Prices is one of relatively steady growth for the economy in 2011 (perhaps diminishing growth), no recession in sight.

Some Specifics
Nondefense Capital Goods New Orders is a great measure of business-to-business activity. While it’s true the New Orders 12MMT is 10.9 percent below the year-ago level, the rates-of-change are positive, and the 12MMT is moving higher. Plan on more business-to-business activity to provide more opportunities for GAWDA members.

We are seeing positive trends in other Nondefense New Orders on a 12MMT basis, such as Communications Equipment and Aircrafts & Parts. These are all encouraging signs of year-over-year growth in 2010.
Metalworking Machinery New Orders outperformed our expectations in the first quarter of 2010. The 12MMT is moving higher, indicating more opportunities for industry participants through the rest of this year. The rates-of-change are overtly positive, indicating more gains ahead. Our general economic outlook suggests that the good news will last into 2011.

Energy prices are expected to be moving up in the latter half of 2010 and going forward as the global economy recovers and demand increases. The 12/12 for Natural Gas Futures is rising, and we maintain our expectations for price increases to take hold over the next few months. We are projecting an average price range between $4.50 and $5.16 per MMBtu in the second half of the year.

Management Objectives
Be entrepreneurial. Entrepreneurs work smartly and creatively. They also work hard and don’t let others tell them what they can’t do. They set goals and reach them.

Move quickly and decisively. Take a “can do” attitude. Even though the market is soft, find ways to use its sluggishness to your advantage.

Don’t be self-limiting. Look for opportunities and don’t say, “That’s not our market.” Instead, ask, “How can I get into that market?” Don’t state, “We don’t have the right person. Instead, declare, “Let’s go out and get the right person.”

Gases and Welding Distributors Association
Alan Beaulieu Meet the Author
Alan Beaulieu, author of the book Make Your Move, is president of the Institute for Trend Research, located in Boscawen, New Hampshire and at www.ecotrends.org.