ECONOMIC RECOVERY€¦ · It’s the old 80/20 rule: you probably get 80 percent of your profits...
Transcript of ECONOMIC RECOVERY€¦ · It’s the old 80/20 rule: you probably get 80 percent of your profits...
SEPTEMBER 18, 2020 S P O N S O R E D C O N T E N T S1
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P R E S E N T E D B Y
Although the future is unknown,
the panelists provided insight on
how a business can help navigate
the uncertainty. It begins with
improving communications with
employees, customers and vendors.
Also recommended was the need to
be ready to pivot as circumstances
change; learning how to listen to
customers and employees and deal
with their stress; working with their
organization’s bankers, lawyer,
accountant, insurance provider,
suppliers and clients; and developing a
crisis management plan.
The past six months were filled
with unexpected twists, turns and
changes at a dizzying pace. Few
expected that the outbreak of
COVID-19 would lead to hundreds
of thousands of deaths, significant
shutdowns in society and the negative
impact the coronavirus would have on
employment and business across the
nation.
However, the good news is that
there is reason for optimism for the
future, the panelists said. The virtual
event was moderated by Bruce
Alexander, President & CEO of Vectra
Bank, Colorado, which sponsored the
event. The TOE panelists included Mark
W. Williams, equity member, Sherman
and Howard Law LLC; Kreg Brown,
audit partner, CPA, CGMA, Plante
Moran; and Ryan Detrick, senior vice
president and chief market strategist,
LPL Financial Market Strategies.
ALEXANDER: Ryan, you often speak to the national media. What’s going on in the stock market? How do you look at things?
DETRICK: In the big picture, we just
released our mid-year report, “The
Trail to Recovery.” In March, when the
recession officially started, we had a
ten-and-a-half-year expansion. It was
the longest expansion in our country’s
history. Obviously, we’ve been in a
recession for more than five months
since then – the most vicious recession
we’ve ever seen in our lifetimes.
During that 10-year expansion, stocks
went up a lot. Even during those
best years, the GDP had only about
a three percent growth. It was a long
and steady growth period. With this
recession, why did it happen? We know
about COVID-19 and all the damage
it has caused. What really caused the
recession was the government telling
everyone to stay inside. Although I
agree with that, as it did make a lot of
sense but caused a lot of devastation.
Second-quarter GDP number was
down close to 34 percent, the largest
drop we’ve seen. Consumption was
down significantly, which was not
surprising because people were told to
stay inside.
Now, we’re starting to see some
signs of improvement – no question
about it. Some of the big names, such
as Facebook and Amazon, had some
very solid earnings because people
stayed inside. Looking into the future,
so far, corporate America has had
really positive things to say. The sad
truth is that this recovery is going to
take a long time. If you look at jobs,
we’ve lost more than 20 million jobs.
They will be coming back; it will just
take a long time. Certain industries
have been decimated and it’s going to
take a long time. It took seven years
for jobs to fully come back following
the 2008 financial crisis. It took four
years for jobs to come back after the
CONTINUED ON PAGE S2
W hat’s ahead for business during the remainder
of 2020 and early 2021?
The truth is: nobody really knows. However, the two most
significant factors that could drive a rapid recovery are increased consumer
spending and the arrival of a COVID-19 vaccine. That’s according to a
consensus of professionals who discussed scenarios for economic recovery
during a Denver Business Journal Table of Experts panel recently.
Q& A
This Table of Experts is available at https://bizj.us/1q62cv
WATCH ONLINE
T A B L E o f
E X P E R T S
ECONOMICRECOVERY
F O R E C A S T A second half outlook
S2 S P O N S O R E D C O N T E N T SEPTEMBER 18, 2020
tech bubble/accounting scandal during
the early 2000s. We don’t think it’d
be absurd to think it will take several
years for jobs to fully come back this
time. However, one of the big themes we’ve laid out at LPL Research is we think it will be a relatively short
recession. Are we out of the recession right now? Maybe we’re a month or two away. I think this will be one of the shortest recessions of all time but the key will be what’s the shape of the recovery? Will it be V-shaped or W-shaped? Our opinion is the recession will end sometime in the second half of this year but is quite
unlikely we’ll have a booming economy once again. Another thing: the shortest recession we saw was in the early 1980s – six months. This one might be right around there. Back then, inflation was high and it ended up to be a double-dip recession. We think there’s a high probability of having a double-dip recession a year or two from now.
In the early 1980s, the government caused the recession by hiking short-term interest rates.
I’ve been doing this for 20 years. This is one of the toughest environments to forecast in because much of it revolves around COVID-19. Low interest rates are here to stay for a while. The truth is the road to recovery depends a lot on COVID-19. In our report, we said it all revolves about COVID-19 and whether we can get a vaccine. We expect earnings to improve the second half of this year. Earnings could be down 25 percent on the S&P 500. Next year, they could be up 30 percent. So, it is likely there is a recovery coming and that’s what the stock market has been sniffing out recently. However, it’s going to be a rocky road. It’s been an unbelievable situation recently in the differences between Main Street and Wall Street. The recession could be over soon but it’s going to be a rough, rough recovery and it might take years just to get back to where we were in February 2020, when everything peaked. There are two worlds out there – there’s the stock market and the real economy. We’ve probably never seen a period where the stock market, since the recession started, has gone up four months in a row and, clearly, millions of people have lost their jobs. Honestly, what’s going to help the economy the most? A vaccine.
-35
-30
-25
-20
-15
-10
-5
0
5
10
15
20
30%
-40Q1’18
Q2’18
Q3’18
Q4’18
Q1’19
Q2’19
Q3’19
Q4’19
Q1’20
Q2’20
Q3’20
Q4’20
2.5% 3.5% 2.9%1.1%
3.1% 2% 2.1% 2.1%
-5%
20%
7.8%
-34.5%
Change in real gross dometic product (quarter over quarter, annualized)
Projections
Second-quarter economic contraction may be followed by second-half snapback
CONTINUED FROM PAGE S1
Bloomberg consensus expectations called for a dramatic Q2 contraction. Beginning in Q3 a strong, second-half rebound in economic growth is projected as more of the economy opens up. However, this recovery is unlikely to be strong enough to get economic activity back to 2019 levels by 2020 year-end.
SOURCE: LPL RESEARCH, BLOOMBERG, 06/30/20. GROSS DOMESTIC PRODUCT (GDP) PROJECTIONS ARE MEDIAN BLOOMBERG CONSENSUS FORECASTS.ECONOMIC FORECASTS MAY NOT DEVELOP AS PREDICTED.
P R E S E N T E D B Y
Ryan DetrickVice President, Chief Market Strategist, LPL Financial
As Vice President, Chief Market Strategist, Ryan is a
member of the LPL Financial Research tactical asset
allocation committee, responsible for directly impacting
the portfolio decision-making process, as well as a
member of the market insights team, developing and
articulating equity and general market strategy. In
this role, he is a frequent presenter to clients, industry
peers, and the national media on emerging and
developing market trends.
Kreg BrownPartner, CPA, CGMA, Plante Moran
With over thirty years of public accounting experience,
and numerous equity offerings under his belt, Kreg
specializes in audit, tax, merger and acquisition, and
consulting. As the manufacturing and distribution leader
for the Rocky Mountain region, his industry expertise
includes domestic and international M&D, mining,
transportation, technology, and energy.
ECONOMIC RECOVERY FORECAST EXPERT PANEL
Bruce AlexanderPresident & CEO, Vectra Bank
Bruce Alexander took the helm of Vectra Bank Colorado as president and chief executive officer in March 2000. Prior to leading Vectra, Alexander was executive director of the Denver Urban Renewal Authority (DURA), which helps drive Denver's economic growth and urban vitality. He spent the previous 20 years leading and managing other financial institutions across Colorado.
Mark W. WilliamsEquity Member, Sherman & Howard L.L.C.
With 35 years of experience, Mark Williams
represents clients on wide-ranging litigation, general
business, and transactional matters. He provides
strategic business advice and conducts legal audits,
risk assessments, internal investigations, and
litigation analysis. Mark takes a proactive approach
to manage risk and help clients achieve economic
predictability, value, and results.
SEPTEMBER 18, 2020 S P O N S O R E D C O N T E N T S3
That’s what we truly need to see the economy totally open back up.
ALEXANDER: Kreg, as a CPA, what kind of advice to you give your clients on how to navigate all this variability?
BROWN: We’re middle-market focused and not with the Fortune 500 companies. I’ve got clients in manufacturing who can’t make their products fast enough. The mining companies are seeing gold at around $2,000 per ounce right now, so they’re able to raise money. The telecom companies can’t find enough bandwidth to get everything done. On the flipside, I have companies making discretionary products that are getting hit pretty hard. As advisors, the thing we do is to listen. Every company, like every person, has different values, different value propositions, different client bases and different customers. We seek to understand, so I have to listen to hear where their pain is. I try to listen and figure out how we can help. Some of the common things I hear about is liquidity and confidence in liquidity. People have started flipping every stone to look at cash and it’s a key concern. We have a lot of companies looking at their 13-week cash flow. There’s a lot of uncertainty right now. Everyone’s crystal ball is murky. You’ve got to be able to pivot – to pivot quickly, hard and be adaptable. Looking at a 13-week cash flow can help tell the story internally. You have to look at your revenues, expenses, cash on hand and the potential need for liquidity.
ALEXANDER: Many of the companies we’re seen have experienced dramatic decreases in their revenues. Were people cutting expenses or creating new ways to generate revenue? It there a trend that you’re mostly seeing?
BROWN: A lot of companies are looking at ways to help their clients. It’s the old 80/20 rule: you probably get 80 percent of your profits from the top 20 percent of your clients. You have CEOs asking the other CEOs what they need and how they can help. We’ve seen some manufacturers retool their operations so they could make Personal Protective Equipment (PPE) masks and other things because they were needed. They heard there was a need so they pivoted hard to do that.
At the end of the day, you’re only as good as your people. I don’t know of an organization that runs without people. I don’t think they exist. In a time of uncertainty, it not only creates stress at a corporate level but at the individual
level as well. We spent a lot of time talking to our clients and listening. The rule is communicate, communicate and communicate. You’ve got to reassure people through communication.
ALEXANDER: Mark, you have clients. What kind of advice, from a legal perspective, are you giving them?
WILLIAMS: We’re giving triage advice. We’re telling customers to look at the nuts and bolts fundamentals of their business. To see what they may have to do to revamp it and to look at risk management. Like Ryan and Kreg said, I tell clients to look at liquidity. It’s important and can drive legal aspects. If you have significant liquidity, it can help last a while. If you don’t, it may help drive other decisions. The first thing to talk about is your employee base. Your people are your most important thing. If you’re flush with money and need to hire people, that’s a great consequence. Do you need to bring on key employees? Do you have to have covenants not to compete or non-disclosure agreements you need to work on? Conversely, do you need to deal with legal ramifications from a bad employee? If you have vendors, you have to talk with people up and down the chain. It’s important to understand what kind of supply you’re going to have or if you’re going to have to get more supply. What kind of contracts are you going to need to do that? Will you have to renegotiate the contract with your current vendor if you have liquidity issues? It’s important to talk with your trade vendors thoroughly and to plan.
It’s incredibly important to talk with your banker early and often because you want to make sure your financial covenants are in ship-shape, that you’re following them and you’re not having any issues. If you have problems,
it’s better if you’re talking to them early. Next, it’s important to talk with your customers. If they are hurting, how will that affect your liquidity? If you have contracts, you may want to look at them. We’re finding out a lot of our clients have realized that they should’ve looked at their contracts a year or two ago – for a whole host of reasons, not just because of COVID-19.
Finally, you may need to revamp your business. You may need to pivot it
to some degree and need to learn what that entails, from a governance standpoint, an employee standpoint and a financial standpoint. What we’ve seen is, that by doing this triage, our clients have seen opportunity for positive growth.
ALEXANDER: One of the things that scares me to death is the massive
Serving clients since 1924.Our audit, tax, consulting, and wealth management experts offer comprehensive solutions customized to your unique needs. We’re prepared to help you address any challenge and leverage every opportunity.
Make themark. plantemoran.com
Kreg Brown [email protected] R E S E N T E D B Y
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Real GDP Growth Forecasts (YoY) 2019 2020 Bull Case 2020 Base Case 2020 Bear Case
United States 2% 2% to 3% -3% to -5% -5% to -8%
Developed ex-U.S. 1.3% -4% to -5% -5% to -7% -7% to -10%
Emerging Markets 4.3% 2% to 3% flat to 2% flat to -3%
Global 3.5% -1% to flat -1% to -3% -3% to -6%
SOURCE: LPL RESEARCH, BLOOMBERG, 06/30/20. ECONOMIC FORECASTS MAY NOT DEVELOP AS PREDICTED.
The trajectory of the economic rebound is uncertain, but based on the depth of the contraction and a multi-staged recovery, LPL's GDP forecast calls for a sizable contraction in 2020. Second-half growth that may linger well into 2021 suggests a swoosh, or check mark shaped recovery (a quick, sharp decline followed by a small snapback then a gradual recovery over the next 12 to 18 months). This characterization assumes a COVID-19 vaccine will not be widely available for another year or so.
COVID-19 has had a significant impact on global economic growth
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debt level this country has taken on. From your perspective, relative to the market and economy, do we have to worry about it and will it tip us toward an inflation risk?
DETRICK: That’s the ultimate question. Our national debt has been soaring this year as we continue to have fiscal plans. Let’s think about this: In 1971, the U.S. dollar was pegged to gold but that link was severed. John Connolly was the treasury secretary at the time (under President Nixon). In a room full of economists, he was reported to say, “It’s our currency but it’s your problem.” That’s been our United States opinion of debt since then. I don’t like the idea of continuing to build debt. If you think about the last decade, we had that 10-year expansion, but all that debt helped bring that expansion back a little bit. Stocks and bonds fell in March. If I had to describe the U.S. Dollar, it would be that we have the cleanest shirt in the dirty laundry. The fact is we have the global reserve currency. March was a serious reminder of that. Yes, the U.S. Dollar was pressed lower. One of the few things Washington agrees on is being tough on China and leveraging debt with low rates and low inflation makes sense. We haven’t had a lot of inflation. It’s running at about two percent right now, which is really low. We haven’t seen any signs of runaway inflation yet. With all the stimulus we’ve seen, inflation is a potential worry.
ALEXANDER: As you’ve seen the number of pandemic infections rising in recent weeks, how are your business models operating, in terms of space, staffing and other kinds of issues?
WILLIAMS: A lot of them are looking at their strategic plans and what they need to put in place. Like many of us, they’re trying to predict when they can go back to having a full office – if they can – and what will the workplace safety issues be when they go back. We spend a lot of time with clients talking about what to do. Clients are also looking at their real estate needs. Do they have to reduce the size of their lease space for their office or warehouse? Some are actually expanding their warehouse space. It’s a constant thought process on how they’re going back to their office and the fundamentals of their business models.Regarding liability, the key thing is risk management. Companies that manage their risk the best will make more profit and reduce the liability by having workplace safety protocols programs. They have to be thoughtful about who and when to bring back people, how to do it and the space that they will need. From a perspective of
working from home, how do you deal with HR issues? It’s all a complex set of issues.
ALEXANDER: Google announced they won’t be bringing their employees back to the office until next summer. When you think about your clients in such a murky environment, how does all of that play into risk?
BROWN: I agree with Mark, in terms of risk management. I sit on Plante Moran’s board, so part of our firm’s governance is risk management. Out of an abundance of caution, we’re having people work from home. We’re not saving lives or making things at our company. We can meet very effectively via Zoom or other conference-calling systems. We’ve learned that if we can keep people safe, it’s our number one responsibility. Our people are working from home right now. We will open up eventually but we’re going to wait until things settle down. We’re just going to lay low. If Google is going to wait until 2021 and there’s continued risk, people will continue to work from home. One of our competitors in San Francisco found that their employees are getting 2 to 3 hours of their time back daily because they don’t have to commute to work. Think about the quality of life – people can use that time in other ways. I’m a sports guy, so I’m going to make a game-time decision based on trends and caution.
ALEXANDER: So many of our banking clients tell us they want to go back to their offices because that’s where you build that’s where you build culture and teams. Others say they can do things at home and be very productive. I think we all have to anticipate doing things differently, whether its robotics or different types of risk management. You really can’t live by the status quo. You have to pivot and maybe reinvent yourself.
ALEXANDER: Is there a biggest lesson learned from all of this period of time? Perhaps the way you look at your clients or run your own business? One of my clients told me that he’d never, ever take anything for granted
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ever again. What is your biggest lesson learned or piece of advice?
WILLIAMS: The biggest thing I’ve learned is the need for a disaster recovery plan. I’ve been surprised by some clients who seemed sophisticated but didn’t have a disaster recovery program in place. Obviously, many larger businesses do but smaller ones don’t always have such plans. I’d say it’s never too late to start one because we don’t know what’s going to be coming in the near future. Someone should take stock of each element of their business. I think good technology will help some companies pull out of this recession. The reason is because if you think about how you can use technology, you can think about how to make systems more productive
and efficient. It’s important to have a disaster recovery plan in place or a crisis management plan. I’d encourage everyone to do that and spend some time putting that plan into place.
BROWN: I look at what happened to us. We had an all-hands partner call a Saturday in mid-March, telling us that every office was being shut down. We have over 30 offices nationwide. We said we’d all be working from home by the end of the day on Monday. I wasn’t sure if we could do that. We didn’t have monitors and I didn’t know if we had enough bandwidth, but we pulled it off. I went to the office Monday morning, got some things and was out of there by noon. Our IT team worked all weekend to help make it happen. I was impressed by how willing our people were to adapt and change. Uncertainty creates stress, anxiety and fear. I’ve been asking my staff, “how are you feeling,” not “how are you doing?” When I asked that to one of our middle managers, there was silence on the other end of the phone. For a moment, I thought I’d been disconnected. Our manager was very emotional and vulnerable, saying he was feeling stress, anxiety and fear. I read recently that 40 percent of American people are seeking help for this from psychologists. We have to connect. I try to set up weekly video meetings to check in with my people to see how they’re doing and how they’re
“Out of an abundance of caution, we’re having
people work from home. We’re not saving lives or
making things at our company. We can meet very
effectively via Zoom or other conference-calling
systems. We’ve learned that if we can keep people
safe, it’s our number one responsibility.”
KREG BROWNPartner, CPA, CGMA, Plante Moran
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feeling. People want to know that you care. At the end of the day, as I said earlier, we’re only as good as our people. You want to make sure you’re listening and helping in any way that you can so we can work through this together.
DETRICK: At LPL, we do research for 17,000 financial advisors and literally millions of different families. One thing we learned is to communicate and the second is to have a plan. Back in March, when the economy was crashing and the stock market was going down, people were very concerned about their money and their livelihood. That is perfectly normal. What I saw from our advisors was that some of them were out there communicating, whether by writing a blog, writing a letter, shooting a quick video or having a website update. Whatever it was, they were out there and out front, even if they were saying they didn’t know what was going on. They were being honest. They tried to communicate and say, “we’re here for you.” The
lesson was to over-communicate when you’re in times of stress. That will help you connect. Secondly, the idea of having a plan is important because stress changes the way our brains work. There will be more market pullbacks and there will be more recessions, so it’s important to have a plan in place before anything happens. It’s good to have a long-term plan in place because when something bad happens or stress comes, you probably won’t make good investment decisions. The time to come up with a plan is not when you’re in the eye of the storm – the time to make a plan is after the storm goes or before the storm is here. In the eye of a storm, you kind of huddle up and survive, then make a plan.
ALEXANDER: This is a Denver Business Journal event. It is such a wonderful publication. I get a lot of the news about the Colorado economy, business trends and business people. With all the news and fake news going around, what advice would you give people as to where else they should go to find information about the economy and their business?
BROWN: I’m a voracious reader and hit all kinds of news sources. If you’re locked into one news source, you’re locked into one set of bias. Every news station or paper is going to have some kind of bias. I see Bloomberg, The Wall Street Journal, the Post, the Economist and others, so I can pull in as much as I can. I take it in and filter it as much as I can. I also read the DBJ to learn what’s going on locally.
WILLIAMS: I pull up the DBJ on my browser every day and I read the printed issue on Fridays. It’s a good place for Denver-based information. I read a lot and always come back to The Wall Street Journal. They have good and factual writing. I’m also a big fan of history because I think we can learn a lot from that. I’ve read about the 1918 pandemic with the Spanish flu. It’s interesting how there are so many similarities between what was said in the press then – about mass social distancing and closing businesses – and how it parallels today. To some degree, we didn’t learn those lessons or have forgotten them. By reading history, hopefully we can make plans to avoid those same mistakes in the future.
DETRICK: On a national point of view on this, you know what Yogi Berra would tell us, “Baseball is 90 percent physical and the other 50 percent is mental.” The key to all of this is mental. I follow a lot of news because that’s what I do as a market strategist. I try to be aware of what’s going on. I also try to read history because if you don’t follow history, you’re doomed to repeat it. In 1918, during that pandemic, the stock market pulled back 34 percent. During the pandemic of 1968, the stock market pulled back 35 percent. During the pandemic we’ve just had, the S&P fell 34 percent. Without reading history, I really wouldn’t have known that. Reading history tells the story and helps you create something to connect to people.
ALEXANDER: That’s great advice. I think we can get so sucked into the negative news, the COVID-19 news and political news. I think we can balance out our perspectives by doing things like reading that are enjoyable and gives you context and the real meaning of life. Here today, we have an economist, a banker, CPA and lawyer to lead with your heart, lead with your connection with people and learn to communicate. I think that’s such wonderful advice. The other word I heard a lot today was pivot. As a businessperson, you need to survey things and learn to adjust quickly. You need to be flexible and to do things differently from what you used to do before. You should be disciplined and have risk management in place, so you can anticipate crises yet to come. I think we all need to be students of the economy and learn monetary policy, fiscal policy and see how those trends could impact our business. The bottom line seems to come down to communication. I’ve always believed the best business skill anyone can have is the ability to listen. I believe we should ask very thoughtful questions and learn how to communicate.
Vectra Bank, which sponsored the Table of Experts event, has more than 35 locations for personal and business customers throughout Colorado.
- Edited by Don Ireland
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GETTY IMAGES
“It’s good to have a long-term plan in place
because when something bad happens or
stress comes, you probably won’t make good
investment decisions. The time to come up
with a plan is not when you’re in the eye of
the storm – the time to make a plan is after
the storm goes or before the storm is here.”
RYAN DETRICKVice President, Chief Market Strategist,
LPL Financial