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The New Normal

05/27/2009

I have been looking for a pithy analysis that properly addresses where our economy is headed over the next two years.  Most of the existing media coverage focuses on the very short term and is useless for planning purposes.  The enclosed article “The New Normal ” from the June 1, 2009 issue of BUSINESS WEEK is penned by the Chief Executive and Co-Chief Investment analyst of PIMCO.  PIMCO is one of the more successful funds around today.

        The next few years will be one of over-regulation by our government and slow growth.

        The Obama administration has already shown its propensity for adding new regulatory layers at every opportunity.  Some of this tendency is actually a good thing, but it appears as if too much of a good thing will result in a constricted economy.  Slow growth translates into:

    •    Lower housing prices for the next several years.

    •    2% or less annual growth in the GNP.  

    •    Range of 6%-9% unemployment for the next several years.

        I don’t agree with another premise of this article that wealth and “economic dynamism” will shift from the United States to Brazil, China and India.  I believe the United States will remain the chief engine of economic production in the world for the foreseeable future.

        What is a New York small business owner supposed to do with this information?

    •    Stay “lean and mean”.  Trim your expenses as much as you can.  Those who can survive these times will rise to great heights once the economy does turn around.  

    •    Keep monitoring your current business niche for opportunities to gain additional market share.  Many of your competitors are out of business or will soon be out of business.  The time to expand into some new, but associated, markets is now.

    •    Stay politically active.  Let your local business group and your neighborhood politicians know how you feel about the latest policies coming out of Washington or Albany.  If you don’t speak up, your voice will never be heard.  

        REAL ESTATE PICK OF THE MONTH: New York City commercial real estate prices will bottom out sometime in the last six months of 2010.  The “pickings” will be pretty good, so conserve your cash for the next six to twelve months and be prepared to strike at about the same time next year.              Edward E. Klein



 

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