Business Corner
STRATEGIES & ANALYSIS
BY DAN WATSON
CONTRIBUTING EDITOR
WATSON@CHEMARKCONSULTING.NET
Is the sky really falling?
What is
happening
with the
economy?
What does it
mean? What
can we do
about it? What
does Chemark
tell its clients
to do?
Somewhat akin to the infamous Chicken
Little fable that many of us remember
from our childhood or have read to our
own children, it would appear that various segments of our economy are running in fear of the
“economic sky falling.” There is no doubt that
the U.S. economy is not its normal, robust self
these days. In fact, it is reeling from the riveting
blows of mortgage crisis, foreclosures, falling
home values, higher energy cost, rising unemployment, a faltering stock market, weakening
U.S. Dollar and a genuine fear of inflation. What
we are experiencing now is the true impact of
the economic trickle down theory. In other
words, the real impact of higher crude oil cost
has now saturated our economy at all levels. As
consumers, we feel this impact every time we go
to the grocery store, purchase any item that
requires shipping or has a crude oil content,
arrange for travel on any airline, pay our electrical utility bill, and of course, fill up our automobiles with gasoline. In other words, everything we purchase or use that has a crude oil
content has exhibited significant increases in
price over the last few months and that is likely
to continue into the future.
In the coatings community (i.e., raw material
and formulated product manufacturers, retail
paint outlets, etc.) price increase announcements seem to be happening more or less on a
daily basis. For most companies, competing in
an economy that is already weak from a variety
of maladies is difficult for even the strongest of
companies and if your company was already
experiencing financial problems it can take on a
nightmarish appearance. What the coatings
industry has seen over the past few months is a
higher than usual level of activity in the
alliance/joint venture and acquisition arena as
more companies are unable to cope with the cost
of doing business in today’s economy.
One of the interesting concerns that have
been noticed by some economists is a phenomenon referred to as “waiting for the good news.”
In other words, waiting for the economy to
revert back to the way it was. Fortunately, a
number of companies have decided that what
we are experiencing isn’t a temporary or transient happening but rather “this is our new life,
get used to it.” Other, less enlightened groups
appear to be stuck in denial and rather than
take positive action to ensure that they survive
in this new economy they are waiting for a
return of the good old days.
Surely by now it’s not news to anyone that the
U.S., and the world, has an energy problem.
Contrary to current political finger pointing, our
energy crisis isn’t an overnight happening. We
have had this problem for decades going back to
the administration of Richard Nixon. Even then
our politicians were talking about energy independence or at least significantly reducing the
U.S.’s dependence on foreign sourced oil and gas.
Unfortunately, for the most part, talk has been
about all that has happened. The simple fact is
that we are where we are because of inaction at
a time when we could have made a positive
change to our future.
Market conditions are not going back to
where they once were simply because today’s
world is much different, it has changed. Today
we live in a time where the population of China,
like the U.S. population of the 50’s, has discovered the automobile. As a result, China has
become a net importer of crude oil. Similar happenings are occurring in other countries such as
India and Russia. All of a sudden, the U.S. isn’t
the only country that requires huge quantities
of crude oil to keep its population and its economy on the move. Some economists refer to the
decline of the U.S. economy and the
growth/expansion of the economy of other countries—China, India, Russia, Brazil—as “
decoupling.” Call it what you may, the simple fact is
that because of this so called decoupling there
isn’t enough crude oil and current refinery
capacity to fulfill everyone’s needs. Hence, the
old law of supply and demand comes into the
