b'EconoIUic Change: Profiting froIUTurbulence By:Sanford Kahn With the results ofBraxton Industry Assessment to be announced very soon at the MRCA theConvention, this article by Sanford Kahn, Economic Consultant and Registered Investment Adviser, is pertinent to your analysis of economic oonditions facing your company in the 1990\'s. We hardly think ofsatisfiedbyrepayingtheoutstandingprevailing interest rates and willstay in the U.S. economy as a machine.Most likely we probably thinkamount.Inthe past 30 years, this repaymenteffect eventhe rate of asinflation begins to of it as a large unorganized monster withbas been accomplished with cheaper dollars,diminish. no discernible direction.But a machine iti.e. inflation. The other methodsatisfying of is;with definiteinputs and outputs.debtisby default or bankruptcy.ThisUnfortunately, as business peopletend we latter method of repayment increases theto direct our attention to pasteconomic The output oforrisks oftrends without realizing that no trend lasts the machine is,should be,lending, and creditors will demand to efficiently produce the goods and servicesahigher interest rate to help compensateforever.This will have an impact on our thatoursociety desires.The standardfor these increased risks.financial decisions.This leads us to focus inputstotheeconomic machine aretheour attention on the so-called bottom line; three factors of production:that is, land,By their very nature, credit economies arethatis,net earnings or earnings per share. laborand capital.There is also anothermore volatile than money base economies, input that is equally important, especiallyand this volatility tends toIn the future economic environment, paying shorten business at our current economic juncture, and thatand financial time horizons.Fortoo much attention to the bottom line will exam\'ple, ;s the availability and cost of20 years ago it wasn\'t unusual for individualsbeamistakeforbusinesses.Asour credit. andbusinessestolook out 15 or moreeconomic/political system starts to shift to Understa.ndingtheforcesthatdrive ouryearstothefutureintheireconomicfavorwork and saving more than leisure economy requires an understanding ofplanning.People had a "feel" as to whatand consumption, the top line, sales and the differences between a money economy vs.the economymightbelikemanyyearsmarketing, willbe of increasing concern acrediteconomy.Amoneyeconomyinto the future. Astomanagers.In previousinflationary credit economies mature, implies there is some hard backing behindindividuals lose this "feel" and can onlyperiods, managers,inorderto increase the currency. This backing could be gold,project short term in their planning.Thisearnings (bottom line), could simply raise silver, pork bellies or some other commodity.creates a feeling of uncertainty about theprices. Traditionally, though, this backing of thefutureamong lenders,andreal interest centralgovernment\'s currency hasbeenrates must rise to help compensate for this.Keen foreignanddomestic competition gold.Goldwas selectedthousandsofwillnotpermitmanybusinessesto years ago occausc of its rare nature andLastly,crediteconomies leadtorisingdramatically raise prices to improve their durability.The last trace the United Statesinterest rates because they tend to favorprofit margins.No matter how effective a had to a money economy ended in August,leisureandconsumptionasopposedtobusiness is in managing their cost of sales, 1971 when President Richard Nixon closedsavingandinvestment.Thiscreatesathese costs have demonstrated a long-term thego]dwindowininternationalstimulateddemandforcreditbybothrising secular trend.Therefore, spending transactions.Since 1971 the U.S. bas beenindividualsandbusinesses.Sincetoomuch time inreducing your cost of operating based on a credit economy withproductivity isnot emphasized,thistypesales without paying attention to capturing strong implications for future growth andofofmarket share will invariably lead to thinning environment leads to increasing rates policy.inflation.At first creditors subsidize thisprofit margins.The important point is that demandforcreditbycharging interestunlessabusinessisconcernedabout Itisimportanttounderstandthatourrates that are too low in proportion to theexpanding its market share or developing economic systemoperates on credit, theinflation rate. Rates are low because lendersnewproducts,its futureprofitswillbe amount of whichcouldbeincreasedorarelooking atpasthistory andnottheunder attack no matter how effectively the anyevents due to a lax credita decreased attime by the Federal Reserve.future course ofconcern is managed.This is the result of l:istorically, credit economies tend to leadpolicy.Ittakes time for lenders to becomegraduallong term shift in our society to o rising levels of real interest rates for a"educated" astothe effectsof an easyfavor policies that willreward work and few reasons.First, credit is debt and allcredit policy.But, once they do, then thissaving. debtbasto besatisfied.Debtcan beinflationpremiumwillbefactoredinto Page3'