“What Will Happen Next?”
In my meetings with students and business executives around the world, a topic that frequently bubbles up is the global economy. When even companies like Apple, Alphabet (Google), and Amazon — the three top ranking companies in Fortune’s 2016 list of the World’s Most Admired Companies — are getting hammered in the stock market, many folks are left wondering: “What will happen next?” My immediate reaction is the same as when I was at Baxter and became the CFO more than 20 years ago: Anything anyone claims will happen next to the global economy should be taken with a grain of salt because frankly, no one really knows.
Think about the usual questions: What will happen to GDP rates around the world? Are interest rates going up or down? Is the dollar strengthening or weakening? Are financial markets in a bull or a bear cycle? There are several ways of thinking about these questions. Personally, I am a believer in the concept of “efficient markets,” and here’s my simple way of thinking about it: Markets may not always be right, but markets incorporate all of the information known at any given time. If you believe in some form of efficient markets, the only way to predict where the markets are going is to predict the next set of information. Trying to predict that next set of information means accounting for a lot of unknowns: What’s going to happen to oil prices? What is really happening in China’s economy? What is the real Chinese growth rate given that the Chinese market is not very transparent? What is the future of the European Union? What will happen if Great Britain exits the European Union? What will be the impact of the U.S. presidential election (I am tempted to make some comments on the surreal nature of the current U.S. presidential campaign, but I will hold myself back other than saying that if you tried to write about what is happening, you “couldn’t sell it as nonfiction” 😉 ) Given the tremendous amount of uncertainty, the only thing we can say for sure is that we are in for a “wild and crazy ride”!!!!!
“What Should We Do About It”
So, given everything going on in the global markets, what should business folks do about it? My opinion is we should look at the glass as half full, not half empty. Yes, there is a lot of uncertainty, but never forget that 1) we have survived times of extreme uncertainty before (you only have to look back to the earlier part of the 20th century with the Great Depression and two world wars) and 2) in uncertainty there is opportunity. With many assets down 15-20% from just a few months ago, and interest rates remaining at remarkably low levels, opportunities exist in many sectors. This is a good time for many businesses to seek potential acquisitions and/or internal capital investments. A good example is Stryker Corporation’s purchase of Sage Products. Stryker has had a stated objective of acquiring high growth businesses to add to their portfolio. Sage Products is one of our Madison Dearborn portfolio companies and a remarkable organization. It is one of the best examples of a true values-based organization. The healthcare company, based in Cary, Illinois, has consistently generated annual growth rates two to three times higher than industry averages. Stryker Corporation recently announced their intention to purchase Sage Products for $2.8 Billion.
Clearly, you need to assess the risks and figure out what makes sense for your particular business, both in the short term and long term. Yes, there will be many challenges, but as my grandfather always used to remind me when I would complain about issues and challenges in my jobs, “Harry, that’s why they call it WORK!!!!” 😉