I've spent the last two years listening to experts and watching the trends, and I'm now convinced that people just get stuck in a talk track.  Whether it's the political statements like "small business won't add jobs until they know where their tax rates are headed", or "this economy isn't going to turn around until jobs come back and the consumer starts spending again".  Talking down just about everything is just too easy right now.

But consider the contrarian view and I think we might just start looking at things with a little more balance.  We are now in a phase when a sustained period of low growth is likely.  Slow consistent growth is good and will likely lower the risk of inflation.  The move to more conservative and pro-business governments is good and will likely drive the restructuring of entitlements and lower the risk of significantly higher taxes.  Once again, good news.  The reversal of the fall of real estate and the rise in unemployment has begun. Once again good news.

In addition to the positive aspects of slow and steady, the emerging markets will continue to grow at above average rates for many years.  This is good news for global companies and counterbalances the gloom and doom in the US and Europe.  Capital is poised to invest as private equity investors have $1 trillion to invest over the next couple of years, and profitable corporations engage in strategic M&A.  This flow of capital will drive value creation and the exodus from bond funds will find it's way to the equity markets.  You can see it in the eyes of the private equity guys; they are talking down valuations while also racing to put their money to work.  Once again...all of this is good news.

Finally, we are just at the beginning of the next wave of technology enabled innovation.  With the emphasis on mobility and the shift to cloud computing, technology is once again going to change everything.  Today, the gadgets are seen as toys and not productivity levers, and the global computing environment is still built around the old model.  As technology tools and applications are delivered like electricity from a utility, productivity will once again go through the roof.  As I said eighteen months ago, technology will lead us out.  The upside is impossible to measure and the rate of change and investment will accelerate quickly. 

While most people today seem to enjoy talking things down, others are charging ahead with confidence.  Solid growth based on fundamentals, global markets and innovation is right around the corner.  The smart money knows it, and they will benefit the most while the vast majority keep whining about the past.

9/20/2010. 

With all the bad news and worrying these days, it's sometimes hard to look on the bright side.  People have the tendency to believe that what's happening today will happen again tomorrow.  So, the double dip recession talk and the gloom and doom dominate the news today.

While timing the market and predicting what will happen tomorrow is best left to the gamblers, the truth is that things change and cycles come and go.  What goes up must come down and the momentum of large scale change typically shows us where we're going.  I was reminded of these simple truths the other day when a private equity investor likened the current change in direction to the power of the flywheel.

Let's face it; the financial market meltdown and the crash in the real estate market created the momentum on the downside.  The effects were severe on a global basis and the speed of the collapse surprised nearly everyone...the flywheel was in motion.  Today, the flywheel is beginning to spin in the opposite direction, and the speed of the recovery might just surprise us on the upside.

Consider this...the emerging markets of China, India and Brazil are growing at 8-10% in spite of the fact China is trying to slow it down.  Interest rates have been held at artificially low levels on a global basis for a very long time, and financial institutions are much stronger.  The private equity industry is more active than they have been since late in the last cycle and more than $1 trillion will be put to work over the next couple of years.  Productivity is way up and wages have been held down for a sustained period of time. 

What does this tell us?  I fundamentally believe it tells us that a solid recovery is right around the corner and that inflation is unavoidable.  This is clearly not the conventional wisdom these days as most predict a flatline economy for the foreseeable future, but the fear of inflation is overblown.  A little inflation will intially be good.  The momentum of the flywheel should drive growth and improve the prospects of lowering unemployment and reversing the fall in real estate for the foreseeable future.

The momentum is shifting.  Valuations and stock markets will rise, companies will make investments, and senior level executives and investors will do well.  The only thing for certain is that things change and I for one am trusting the flywheel.

9/9/10.