“Conventional wisdom” never spotted the imminent arrival of the Great Unwinding. Sadly, therefore, the past 3 months have often been a repeat of 2008 for many businesses and investors. Many executives and investors clearly understood and accepted the logic of my August forecast that oil prices would collapse and the US$ strengthen.
But sadly, once again, most found it impossible to act on the forecast. Instead, they found themselves up against massive internal inertia caused by “consensus wisdom”. This “knew” oil would stay at $100/bbl and the US$ would remain weak. Today, 3 months later, the cost of this failure is heartbreaking.
But the good news is that Boards and investors now have a second chance to change course. As the old proverb says:
“Fool me once, shame on you; fool me twice, shame on me”
I believe it is absolutely vital that businesses now urgently develop alternative Budget Scenarios for the 2015-17 period, based on a non-consensus view. The direct impacts of today’s move into the New Normal are easiest to identify:
- COMMODITY MARKETS, how low will oil go over time? There seems little to support prices above $50/bbl in 2015, given the obvious energy glut in oil, gas and coal markets
- CURRENCY MARKETS, how much higher can the US$ go? The yen is already down by 1/3rd versus the $ since Premier Abe took office, and now the euro is sliding too
But the indirect impacts should most concern businesses, as these are the real challenge to “conventional wisdom”:
- ASIA, how will China’s new role as a major exporter of products such as smartphones and chemicals play out?
- MIDDLE EAST, how will countries adapt to the energy supply glut?
- EUROPE, how will politicians adapt to the continuing economic slowdown?
- N AMERICA, how will companies react as the delta between gas and oil returns to normal levels?
Hopefully, my recent Budget Outlook will be helpful in this process.
Businesses also need to approach these issues with two timescales in mind – short-term survival and long-term growth. I will look at these key areas in more detail tomorrow and on Thursday.