Deal with a Slow Growth World

Dennis McCarthy – (213) 222-8260 – dennis@monarchbayassociates.com

When I posted, “Living with no growth”, I suggested that we rethink some of our widely held assumptions, which are based on continued growth.

At that time, the most common response from viewers was denial, “no growth, not my world”.

And, to be fair, there’ll be pockets of growth, no doubt, but, in general, the global economy is slowing. There’s no denying it.

So, if you run a company facing this slow to no growth environment, how do you respond? 

Specifically, how do you deal with Wall Street when earnings growth is hard to come by?

The first response of many companies is to cut costs.  Many companies, however, are already running lean and mean so there’s not much room to cut costs any more, and some costs, for example, health and workers comp insurance, just keep rising.

The related response, raising prices is probably a non-starter in the face of today’s softening demand and increased competition.

So how do you keep Wall Street happy? Here are a couple more ideas.

One. Many public companies are initiating or increasing their stock buyback programs.

Last month, companies announced $45 billion in new or expanded stock buyback programs.

Two. Initiate or increase a dividend on your stock.  As I reported in my post Offer Yield Securities – What Investors Want”, increasingly, investors look for current yield if there’s slow or no growth.  And you know, with today’s low interest rate environment it doesn’t take much to offer an attractive yield. 

Three.  Your company could increase its financial leverage.  Your company could raise debt to grow or buyback equity. Borrowing rates are at record lows so you may be able to put the money to work efficiently to make this move pay.

Four. Get economies of scale by combining with another synergistic company.

If you can acquire or merge with a company at a reasonable price, you may be able to give your bottom line a boost by eliminating duplicate costs.

So, the message is, once we recognize that our environment has changed, that global growth is slowing, we can focus on practical responses

I can help you to evaluate your options and take the best actions.  Contact me now.

No Growth? Not Us!

A frequent response to my post “Living with No Growth” focused on the argument that the US will benefit from continued growth in Asia, particularly China, to escape a slow to no growth world.

While the optimist in me hopes this is true, the message I’m getting from reputable sources in China is that its economy is experiencing stresses which may result in a “harder landing” than had been hoped.  The benefit to the US, therefore, may be less than expected.

One of my sources on developments in China is Patrick Chovanec whose Bio and bloglink is below:

Patrick Chovanec (程致宇) is an associate professor at Tsinghua University’s School of Economics and Management in Beijing, China, where he teaches in the school’s International MBA Program.  His insights into Chinese business, economics, politics, and culture have been featured by international media including CNN, BBC, Time, Newsweek, Wall Street Journal, Financial Times, Bloomberg, New York Times, Washington Post, Forbes, Foreign Policy, The Atlantic, PBS, NPR, and Al Jazeera.  He is a regular guest commentator on Chinese Central Television (CCTV-9) and China Radio International (CRI), and serves as Chairman of the Public Policy Development Committee for the American Chamber of Commerce in China.

Blog: An American Perspective From China

Thank you.

Dennis McCarthy

dennismccarthy@ariesmgmt.com

213-222-8260