For the bold, opportunities abound: Strategies for managers, employees, investors, consumers, and borrowers
Up Shot By Nima Heirati
As those doughty Brits (1940) demonstrated, fortune favors the bold. As long as you’re not overleveraged, scary times like the current recession can present a perfect opportunity to make calculated bets. That’s true whether you’re a manager, an employee, an investor, a consumer, or a borrower. With markets gyrating from day to day and the financial system still seeking its footing, no one can be sure what will happen next.
How much worse might things get? Possibly a lot. Nariman Behravesh, Global Insight’s chief economist, forecasts a mild recession, but he sees about a one-third chance of something more-a 1.5% to 2% contraction in U.S. gross domestic product in 2009 as a whole, which would make this recession nearly as bad as the back-to-back downturns of 1980-82, which were the deepest since World War II. And the post-recession recovery could be painfully slow. Even after the mild 2001 dip, it took four years for employment to regain its pre-recession peak.
Credit crunches like the current one (except milder) contributed to all three of the last recessions. In 1980, the Carter Administration tried to cool off the economy with government-imposed credit controls and succeeded all too well, contributing to the sharpest quarterly downturn in real GDP growth in the past 50 years, a nearly 8% annualized decline, says JPMorgan Chase economist Robert Mellman. JPMorgan predicts the current squeeze will cause GDP to decline at an annual rate of 2% this quarter and the next, though the bank expects a healthy recovery in the back half of 2009.
Expect the biggest hit to the sectors that most depend on credit availability, including the already depressed housing and auto markets. Consumer spending will suffer as Americans lose access to lending and attempt to rebuild their savings. Private, nonresidential construction, which remained strong long after the housing market tumbled, is headed for a crash of its own, predicts Global Insight’s chief U.S. economist, Nigel Gault.
Government spending, by contrast, will increase to prop up the economy. Manufacturers (outside of autos) should continue to do comparatively well, despite the dollar’s recent uptick and the slowdown in foreign markets. Stuart Hoffman, chief economist at Pittsburgh’s PNC, predicts the unemployment rate will reach 7.5% to 8%, about as high as in the ugly aftermath of the 1990-91 recession, though not as bad as the 10.8% peak of the 1980-82 slump.
A grim picture, yes. But look on the bright side. As in most recessions, inflation is falling because of slack demand for resources and labor. It’s a great time to pick up bargains, and not only on Wall Street. Brad Sugars, an Australia-born executive coach and author, says he’s building a 20,000-square-foot home in the Las Vegas suburb of Summerlin and “it’s insane how cheaply I can build this for today.”
If you’re an employer, the recession can be a great time to prowl for talent. “People are saying, ‘I’m looking to replace my B and C players with A players, and this gives me an opportunity,’ ” says Mark M. Anderson, president of ExecuNet, an executive networking organization in Norwalk, Conn. If you’re an employee, Anderson advises spreading your name around while you still have a job: “You want to rebuild your network as quickly as you can, so people know what you do.”
No question, there are real risks in hiring, shopping, or investing aggressively in a recession. If you overextend yourself, you could be wiped out. That’s why Richard Bernstein, chief investment strategist at Merrill Lynch, advises people to be realistic about their own risk tolerance. If you’re sleepless over losses you’ve already suffered, you’re a poor candidate for raising the bet-because if you do fall further behind, you’ll be tempted to sell at the worst moment. Bernstein advises playing it safe in U.S. Treasury debt and developed-market stocks while staying away from emerging markets, though others disagree. Mohamed El-Erian, co-CEO of Pimco, the huge bond investor, recommends any sector that’s getting government support. “Bank debt,” he says, “is a very good place to invest right now.” Steve Leuthold, chief investment officer of Leuthold Group in Minneapolis, advises clients who have gotten out of the market to add steadily to their stock holdings because prices are well below normal compared with long-run earnings.
Recessions are unpredictable, as the wild fluctuations in the stock market show. Since no one knows what will happen next, it pays to be adaptable, says Michael J. Swanson, an economist at Wells Fargo Economics. He wrote recently: “Having the right attitude and fortitude trumps any forecast or plan.” That’s as good a strategy as any.recession,
