Bear market begins?

January. Well, I'm glad that's over.

Why? No, not the wild swings in the equity markets which have cast a pall over economic forecasts for the current year. Not collapsing commodity prices including an oil price down 70% in just 18 months which has caused fear and distress across the globe; from the Aberdeen property market to social unrest in Venezuela and elsewhere. Not even huge budget deficits across the Middle East and US junk bond jitters. No, I'm not talking about those things. Nor the tremors caused by what appears to be a hard landing for a Chinese economy that has been the engine of world growth over the last ten years. Not even the depressing (for humanity) sound and fury of a terrifying US presidential (really?) election. I am, of course talking about the ridiculous concept of dry January…

Just as the post-Christmas winter blues creep in I stop drinking all forms of alcohol. Well, I tried to. I made it to around 1pm on the 1st. A bad start. Then a ’streak’ of seven clear days. Miserable days. Each night as the bear market closed in I went home to an elderflower cordial. On ice. With tonic. And a slice. Essentially pretending it was gin. After those seven days? Well...best not talk about that. Distinctly damp would perhaps be a better description. Never mind, maybe next year? 

But back to the turmoil. To quote a certain famous (infamous?) US presidential hopeful...'what the hell is going on'? In my view, what we are seeing is a world struggling to adapt to a new normal. Much is changing in our world. In developed nations, populations are ageing. New generations are a little different. Material things are less important. Indeed much of the economy is dematerialising...books, music, film, news, banking, travel, retail generally all involve less physical presence than they used to. Even IKEA, that purveyor of stuff we don't need, is calling the top. We may be hitting peak 'stuff' according to Steve Howard, the company’s 'sustainability chief'. Property prices globally are high and out of reach for a new generation for whom it is less of a priority, maybe because it is so out of reach. Rising inequality. Rising migration. High levels of debt, low levels of growth and interest rates nailed to the floor.

In this environment, working out what is valuable and what is not is difficult. Old certainties have disappeared. Normalisation as we know it (of interest rates, budget balances, inflation, wage growth) seem to be constantly postponed. The US Fed raises rates by 25 basis points (yep, one quarter of one per cent) and the financial press devotes acres of space to the debate. Japan dives into negative interest rate territory. Maybe normalisation has not been delayed. Maybe this isn't postponement. As certain commentators have argued what we have now is the way things are going to be for the next few decades. 

Growth of all businesses generally will be a constant challenge. Those businesses that can solve the growth conundrum for investors and large corporates will be handsomely rewarded. We've just sold a super business, Camden Town Brewery (CTB) to the largest brewing business in the world, ABI Inbev. Why was one of the world biggest and best companies interested in a relatively small UK business? Because CTB accesses a new generation of drinkers in a new way providing a fabulous platform for growth in a growth constrained world. 

So if things have changed for the long-term, how do we all need to adapt? Well, we all need to work smarter. Inflation won't rescue businesses from cost pressures in the way it used to. Consumers are cleverer and information is better meaning comparison between different suppliers is easier. We're about to go to market with a fabulous comparison business that is all about helping consumers make better choices. This sort of business is normal now; mainstream even but the consequences of our new way of doing things are beginning to accelerate. Stagnant wage growth in the UK, US and elsewhere is because of the increasing interaction between technology changing how we do things, and the impact of a billion new workers competing across China, India, and the Far East.

Our economies are changing; how they work, how they grow, how things interact. At RSM we're at the forefront of that change. We're here to help, to enable, to advise, to support. Come and talk to us; we're here to help you navigate a brave new world. 

Good luck in the year ahead. 11 more months until January. Cheers!