Goldman Sachs Sees Doesn’t see a Great 08Posted: January 9, 2008
Reuters just published a piece saying: “Goldman Sachs on Wednesday said it expects the U.S. economy to drop into recession this year, prompting the Federal Reserve to slash benchmark lending rates to 2.5 percent by the third quarter. In a note to clients, Goldman said real gross domestic product would contract by 1 percent on an annualized basis in both the second and third quarters. For all of 2008, the investment bank said GDP would rise by 0.8 percent. The unemployment rate will rise to 6.5 percent in 2009 from the current 5 percent, it said.”
We all hate to read pieces like this as they suggest we are set for a year where belts/purse strings will be tightened. Of course, the reality of markets is that some businesses will thrive during a period like this and some will truly suffer. The challenge we all face (assuming GS is correct) is how to make sure we are in the first category. At the end of last year I wrote a piece on what agencies should do when recessions loom. I’d like to reiterate the advice in that but I’d also like to add some other points:
1. Make sure your work is focused on the same things the board is worrying about. If you don’t know what they are worrying about you should be worried. You need to know. Now of course we are all aware that in many businesses getting to the board is tough. That said, there are always access points so make it your mission.
2. Worry about the small things. When markets are bad people get nervous and look for the mistakes. Avoid making them. Good agencies have their share of good detail process people, people who can spot a tiny mistake. Give these people a voice and make it clear that they need to be listened to.
3. Provide insight. Recessions are like fog. They reduce corporate visibility making it hard to plan and even more difficult for businesses to act. Keep clients aware of what is going on around them. Give them data and some appropriate analysis that helps them understand what is going on. Decision making in the good times is easy as it gets less attention. In tougher times, everyone questions everything. The more insight you can give, the more you can help people feel good about the decisions they are making.
Of course it could well be that Goldman has it wrong. Over the holidays I met a couple of investment bankers from Merrill Lynch and Morgan Stanley. Interestingly they both said they have several “chief” economists to make sure that they can never be wrong. In other words, as long as their economists don’t agree on the future one of them will be right!