Two years ago I wrote one of my first APPA e-update columns about the predictions of one of the U.S.’s foremost economists, Dr. Brian Beaulieu, Executive Director of the Institute for Trends Research (ITR). At the time, he predicted continued growth for the pet industry, which I am happy to say was an accurate statement. All in all, he was pretty spot on about his predictions. Last week, I attended the 2013 Denver CEO Forum and heard Dr. Beaulieu speak for the third time about the future of the U.S. and World economies.
Highlights from his presentation:
U.S. Economy:
The US is the world’s largest economy, followed by China and then Japan. We are #1 and will continue to be #1. The opportunities are fantastic. There are currently 316 million Americans and we will grow to 420 million by 2050.
Brian says the next few years look pretty good, but in 2018-2019 there will be economic distress. He feels the rest of 2013 will be rock solid, by mid-2014 there will be some rough waters, but rising again in 2015. He wants us to make sure we are going into new markets and/or gaining market share.
One of the most compelling pieces of information he gave is he believes there is a 90% probability that the stock market will decline in 2014. Brian says that the downturn will be sharp and short – approximately 35%.
This leads me to think it makes sense to lock in our gains at the end of 2013/early 2014, then perhaps jump back into the market after it turns around – end of 2014, early 2015. He recommends being very light on bond fund investments for 2018 and 2019 and going into bond ladders instead of a straight bond fund.
Other tidbits on the U.S. Economy:
- He is not anticipating hyper inflation
- When it comes to taxation, Brian expects that taxes in the US will be going up faster then elsewhere because he doesn’t anticipate solutions to our budget and debt issues. (I wonder where he got that idea?…..) The #1 ways to deal with those issues is to raise taxes.
- Think about retiring or selling your business in 2017 and to start positioning it for sale now, because there will be quite a recession following 2017. The next opportunity to sell is 2029
- The competition for highly skilled workers will be fierce. Businesses will be hiring people away from other companies at record rates.
- Between 2030 and 2040, he thinks there will be a depression. Ways to avoid this:
- Buy hard, inflation proof assets like real estate and commodities.
- Avoid bond funds.
- Get into careers that are wrapped around people.
- In an age of inflation, pursue a career in harvesting and preserving natural resources.
- He suggests we learn three languages: 1. Proper English; 2. French – the language of the intelligence. 3. Dealer’s choice
GLOBAL ECONOMY
Brian is very high on Mexico, and urged us to have more exposure to the Mexican economy. Recently they have taken strong action to reduce obesity by considering a tax on “junk food.” Perhaps their new attention to healthy eating will extend to pets as well and will result in a surge in sales for the vast array of health and wellness oriented pet products produced by U.S. companies.
Brian thinks that exporting U.S. made products is one of the Top 10 opportunities in the next few years. The New and Improved Panama Canal will be opening in 2015, resulting in a significant increase in outbound and inbound shipping capacity. That, combined with a more competitive manufacturing environment and the surge in demand for U.S. made products makes this strategy a sensible one.
BUSINESS TAKEAWAYS
ITR predicts a 17-20 year trend of rising interest rates. They are only going to go higher from where they are now. In addition to buying inflation-protecting assets, he recommends that you borrow NOW! His tongue-in-cheek comment was: “If for some reason you sleep through the night, you haven’t borrowed enough. Borrow once now, then stop. But don’t go into debt if you are within 10 years of retirement.
Brian recommends finding a way to do business in the “counter-cyclical” or largely unaffected areas of:
• Energy Distribution
• Water Distribution/Conservation
• Exports from US
• Vocational Education
• Health Care
• Food
• Mexico
• Housing
• Funeral Services
• Alcohol
• Security
• 3-D printing
• Natural resources (harvesting/conserving)
• Entertainment
Finally, he is still very bullish on the pet industry. His advice is to focus on high end products with strong brands, strong IP, and solid margins versus a commoditized product. If you don’t protect your competitive advantage, you will get pulverized during the upcoming inflationary period because if your product is a low margin commodity, you won’t be able to support increasing prices even though your costs are increasing.
“It is not necessary to change….survival is not mandatory” – Jonathan Demming
Carol Frank of Boulder, CO, is the founder of four companies in the pet industry and a Managing Director with BirdsEye Advisory Group, where she advises pet companies in M&A transactions and Exit Planning. She is a former CPA, has an MBA, is a Certified Mergers and Acquisitions Advisory (CM&AA) and holds Series 79 and 63 licenses. She highly values and incentivizes referrals and can be reached at cfrank@birdseyeadvisory.com.