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?
