We do business in a fairly sheltered industry. While turmoil rages in Libya and Japan digs out from under what is possibly the largest tsunami in that country’s history, we continue to operate for the most part, unabated.
Certainly there has been some fluctuation in all of our portfolios based on the market’s response to these events. Some companies have experienced some delays in shipping and certainly gas prices are going higher based on the uneasy relationship between the west and the oil-producing countries in Africa and the Middle East. But beyond this, customers are still buying, producers are still producing and sellers are still selling. The problem is not particular world events, but the uncertainty that these world events bring with them.
Uncertainty is a key component in the downturn and eventual demise of any business or industry. Indecisiveness on the part of any large corporation all the way down to a small one-man operation can cost a company a huge amount of revenue. But what happens when uncertainty is thrust upon an organization? What happens when external uncertainty is greater than internal uncertainty?
In finance, there are two types of risk- firm-specific risk and market risk. Proceed with caution is the watchword for most companies at this time not because of the lack of ingenuity or creativity or a lack of desire to increase production, (firm-specific risks) but because of uncertainty (market risks). The United States has had its share of uncertainty over the course of the last few years. A financial system meltdown caused by unsustainable subprime mortgages, a waffling government, crazy legislative agendas and activist courts locking horns in a power-grab pandering to their respective, lucrative political bases. Add to the fire a number of seemingly inexplicable missiles fired into Libya for a cause no one is quite sure about, a healthcare bill that looks to overhaul the 1/6 of the economy. Two wars in Afghanistan and Iraq still have citizens scratching their heads over what plans for the two countries lie ahead and who will be paying their bills. In the meantime trillions of dollars have been pumped into the economic balloon that still seems too big to inflate in any meaningful way.
As a somewhat practical reminder of how all these events came upon us like a tidal wave, a real one, a tsunami, hit Japan a few weeks ago. And while no one in the U.S. suffered anything close to what the Japanese people endured, it reminds our businesses that disasters take many forms and none of them are at all predictable.
We get questions quite often from several companies about when we think business will begin to thrive again, when we think unemployment will drop below 5%, when do we think certain industry segments will begin to grow, etc. None of these answers are easy as long as there is this incredible amount of uncertainty within our current business sphere. And while we cannot prevent popular uprisings in the Middle East, or violent civil wars in North Africa or tsunamis in the Pacific Ocean, we can take a few steps towards easing the uncertainty in our own environments. While putting these things in place for your own business will not take the country into an economic boom, it will help you cope with the uncertainty in this economic timeframe.
[….our next post will include a Business Uncertainty Toolkit that will allow you to focus on new ways if thinking about cash flow, savings and investing during uncertain times.]
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