What the stress tests mean for smart companies

OK, the big banks in the US have survived the visit from 35 bank regulators and only have to top up their capital in case the worst is yet to come.  

The Ben Bernanke and Tim Geithner show is pumping out optimism in the same way that they handed out funds for corporate bailouts and bonus payments.   So what does this mean for smart companies?

First, it means that a large amount of money that has been parked in safe havens overseas will be brought back into financial equities, and the major banks will start to lend money to medium and large enterprises that have good business and marketing plans.

Next we will see large paybacks of the guarantees so that these institutions can win back some freedom from oversight by the corporate regulators. Of course, this also means they will be able to regain access to exorbitant remuneration packages – expect a rush back from the golf courses and marinas to take up the deck chairs of the corporate boardrooms.

After that we will see a shift of funds into cyclical investments that have a genuine consumer base and a willingness to move towards offshore investment projects that generate medium to long term profits on assets that have been devalued by the global financial crisis.

Finally, we will see the consumer and household sector shift their saving and spending profiles from necessities towards valued selections that complete personal goals and objectives in the household sector.

At this stage the average household has not been convinced that things are going to get much better or much worse, but they expect that the Rudd/Swan/Tanner team to give more handouts to pensioners, veterans, the unemployed and the big polluting companies.

Gary Morgan’s Consumer Confidence Barometer has been hovering around the long-term average, up a tad one week and down a fraction the next, as consumers fail to see any significant job growth and find friends reducing their hours or heading for the dole queue.

In early May the weekly Roy Morgan Consumer Confidence Rating is down 2.3 points to 97.3, now 0.2 points higher than a year ago (May 2008, 97.1), based on interviewing conducted last weekend. People are watching the budget for rises in their alcohol and cigarette prices, new means tests on health and service benefits, cuts to superannuation taxation, and a long term risk of inflation leading to even further cuts over the next few years.

Now 58% (up 5%) of Australians say that we’ll have “bad times” financially over the next 12 months compared to only 12% (down 3%) that say we’ll have “good times”. In addition, 22% (up 2%) of Australians expect their family to be “worse off financially” this time next year compared to 33% (unchanged) of Australians that expect their family to be “better off financially”.

Gary Morgan says that there are no signs that the worst of this recession is yet behind us.  The falling weekly Roy Morgan Consumer Confidence Rating (down 2.3 points to 97.3) coinciding with the rising Roy Morgan unemployment and under-employment estimate (up 198,000 for April 2009 to 1.673 million) comes as Swan prepares to deliver Australia’s most important budget for the last two decades.

This budget will have an enormous array of investment opportunities, consumer benefits and services in the health, education and employment markets that enhance micro-measures for social inclusion, but will not be good news for those earning above $120,000 a year or large companies that cannot benefit from emission trading tickets of leave.

Smart companies will need to get beyond the tabloid headlines and read the small print in the budget papers about the deficit wipe-out initiatives that are the reality behind the Swan song.

Dr Colin Benjamin is Entrepreneurship and Strategic Thinking Consultant at Marshall Place Associates, which offers a range of strategic thinking tools that open up possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship. Contact: CEO Dr Jane Shelton. 

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