We're entering some very strange territory in this country as it becomes more apparent every day that the extremists on the right and on the left are gearing up for a major fight.  While Obama won by running to the middle, the debate over the last few weeks on healthcare is fanning the fires on both ends of the extremes.

As a fiscal conservative, I, like many in this country, have difficulty relating to the extremists on the right and the left.  I'm not as socially liberal as the base of the Democratic Party and I'm not as radically "conservative" as the base in the Republican Party.  Importantly, I'm not alone as the vast middle in our country share these same views.  Having said this, the views expressed in the media, and increasingly the banter amongst my friends and colleagues, reflect the extreme view of the moment.  Just as the Democrats believed they could do no wrong after the election, the Republicans are now "doing the happy dance" as healthcare reform looks like it could in fact be Obama's Waterloo.  While disappointed in the current situation, far too many people are almost gleeful to see Barack fall in the polls.

Clearly people are angry that they've lost money in the market and their homes are not worth nearly as much.  The middle class in the country see nothing but rising costs and reduced benefits in the future and they blame the financial irresponsibility of our government.  These concerns are most clearly seen in the light of healthcare reform.  Nevermind the countless elements of any healthcare package that will have positive effects, it is clear to most people in this country that we'll get less, it'll cost us more, and the government will have a bigger say in our lives.  That means healthcare reform is a big loser for the Democrats and a big winner for the Republicans.

At the end of the day, the debate over healthcare will prove to be cathartic.  We'll move past the debate and the economy will eventually improve.  We'll likely swing back to the right and eventually find the middle again, and the big issues won't change.  Namely, that America isn't the center of the universe anymore.  This is the "Asian Century" and we'll look more like Europe as the century progresses.  The day or century of reckoning is here, and the sooner we face it the better off we'll be. 

Instead of engaging in the daily "one upsmanship" that fuels our debates these days, I hope we'll find a more moderate middle ground.  If the politicians in Washington would be a little more humble in victory and gracious in defeat, perhaps the vast middle in our country could find a voice.

When will Americans take back this country from the politicians and the media?  Let me know your thoughts.    

After meeting with a variety of private company owners and private equity investors this summer, I've been surprised by the tentativeness in both camps.  While I'm a firm believer that M&A activity is poised to pick up and is a leading indicator of a recovery, I have to ask, "What are they waiting for?"

We have all heard the same comments from small and medium sized business owners who say they've weathered the storm and feel the worst is behind them.  They reflect on the anxiety they experienced during the crash, and the vast majority of those still standing feel they were fortunate to have saved the business.  While clearly relieved, they also express cautious optimism for the future with a lack of conviction of how quickly things will noticeably improve.  I then ask if they've considered selling the business, and almost to a man I hear, "the private equity guys have disappeared, but that's OK because I sure wouldn't want to sell anything right now if I didn't have to".

As for private equity firms, they've been busy fixing the companies in their portfolio they can save and calming investors.  They've also taken a look at potential deals, but they're extremely skeptical of the future potential of any company that is on the block right now.  As the private company owner says, "Why would anyone want to sell anything right now unless they have to?"  There we have it.  It really isn't about a lack of capital or leverage, it's really about a lack of confidence and unrealistic expectations.  Sellers still haven't adjusted their expectations on valuations to address the risk private investors still see in the market. 

For the buyers, they continue to wait for that magical day when valuations appear more reasonable.  For sellers, they're keeping their fingers crossed that their businesses continue to improve and that private equity buyers will come back.  While it seems like a standoff, I believe the buyers will come rushing in when they feel they may miss the window.  Buying good companies at a bit of premium is going to look a whole lot easier than buying marginal companies at a discount and trying to turn them around.  You get what you pay for.

So, where are the private equity guys?  What are they waiting for? 

Let me know your thoughts. 

As I've been traveling the country this summer and talking with leaders from many different walks of life, the conversation has inevitably drifted to our assessments of when things will noticeably improve.  Back in March, I wrote a short piece on when things will start turning around so I thought I'd revisit the question.

Aside from the slowing rise of new unemployment claims, the 40% rally in the equity markets, and Q2 earnings reports which generally met or exceeded analyst expectations, the mood in this country is cautiously optimistic at best.  Interestingly, when the market corrected a bit this week (which is healthy and to be expected) it was somewhat surprising to hear some predict that the sky is falling and that we may retest the bottom.  It's clear that the fear and pain is just below the surface, and people will get scared quickly if a major correction occurs.  Having said this, almost everyone feels that things will get better in 2010.

But what are the triggers to get us moving?  In March, I pointed out that we watch two trends to predict improvement in the executive search business; namely CEO turnover and M&A activity.  Interestingly, CEO turnover has been reported to have increased 20% this past month, and while a month does not make a trend, it is the first sign that CEOs and Boards are ready to move on.  In addition, the private equity firms and investment banks are preparing for a healthy resurgence in the IPO market.  Lazard just hired a senior banker to lead their activities and private equity firms are preparing for IPOs to show returns for their investors.  Without exits and leverage, the deal market has been dead, but the signs are there for a significant increase in transactions over the next 12-18 months.

While these trends drive management turnover which is good for my business, they are also the signs that value creation opportunities are in greater abundance and that visibility is improving.  These leading indicators of a turnaround are improving, but two additional things need to happen to really clear the decks for growth.  First, the US Government needs to move past healthcare and demonstrate a unified focus on jobs and economic recovery.  Obama has tested our patience and more government spending will only postpone a recovery at this point.  Secondly, the government's role in the financial markets needs to be curtailed.  As one real estate investor told me, "There are great deals out there, but investors will not invest if they think there is another government subsidy or regulation coming out."

With Obama's poll numbers slipping and the timing for a vote in Congress quickly approaching, my bet is on a grand compromise to move past healthcare in the Fall.  Obama will work to improve his approval rating, and consumer confidence should improve; perhaps not in time for the holiday season but probably in time for the spring.  As a result, we should see solid growth in 2010 as long as these trends continue.  Whether the growth can be sustained to avoid a "W-shaped" recovery is a debate for another day, but I'm cautiously optimistic we'll be "breaking out in 2010".

What are your thoughts?  Do you see other key trends to watch?

With a summer rally underway in the equity markets and glimmers of good news coming out of Corporate America, the pendulum is getting ready to swing.  Just as we suffered from the reversal of irrational exuberance and the speculative excesses in the financial and real estate markets, we are poised for a positive upswing that may surprise some people.

I've been saying for quite some time this recession is likely going to be longer than most of us are prepared for, but I'm beginning to feel like I'm following the herd.  Conventional wisdom at this point suggests that we will technically come out of the recession in Q3 and certainly by Q4.  It is also believed that growth will be modest and primarily driven by inventory restocking rather than consumer spending as unemployment continues to rise and people continue to save where they can.  As a result, the expectations for a noticeable rebound are relatively low and 2010 is not expected to produce big upside surprises...this is the conventional wisdom.

Having said this, the acceleration of the global recession on the downside suggests we may see acceleration on the upside as the economies around the world recover together.  This momentum may create a "V-shaped recovery" which was talked about and then discounted by most over the last few months.  But the market move from 660 on the S&P to 1,000 during this same timeframe suggests that investors have become increasingly worried about missing the upside rally.  As a result, Goldman's prediction of the Dow rising to 10,000 by year end appears highly probable, and the pessimism of the day may give way to optimism early next year.

The holiday season could be the next big moment.  While expectations will be low given the current pessimism, the potential for surprises on the upside is there.  If inventory levels are once again diminished and the consumer proves to be more resilient than is currently expected, the momentum will shift and an impressive rebound in 2010 may take place.  As a result, don't be surprised if the equity markets hold onto the gains from this year and rise another 20% next year.  We would also see unemployment start to come down and the long, drawn out period of stagnation to give way to much improved and growing economies around the world.

So, get ready for the pendulum to swing and watch the Fed.  Higher interest rates and inflation are just around the corner if the optimistic scenario plays out.  This will require just as much expertise by Bernanke to control inflation as he has demonstrated in shoring up the financial system.

What are your thoughts?  Are we overly pessimistic or do you believe that our problems are so big that we'll have trouble recovering for years?