Now its official. Andrew Liveris, Dow CEO, told CNBC last week that the “pre-2008 economy was a bubble“. And exactly mirroring the analysis of Boom, Gloom and the New Normal, he went on to add that “for a couple of years after 2008, we had a head-fake that the growth might have returned, but it didn’t.”
So there we are. After 5 years, the New Normal analysis has become the consensus. Liveris didn’t actually highlight changing demographics as the cause of the dramatic change over the past 5 years. But that moment is surely not far away.
The key point is that Liveris was very clear about recent developments:
“Most of us should now just dismiss the pre-2008 economy as a vestige of history, that was a bubble. .. We’re living in a slow growth world. Its still a world economy that’s very spotty. You have to have targeted growth.
“This post 2008, 2009 period - for a couple of years we had a head-fake that the growth might have returned, but it didn’t. We’re having world event after world event. We have this very uneven global economy. The 5% world economy, I think, is very much in the past. If we’ve got a 3%, 3.5% world economy, we’ll all be very happy.”
Liveris was also very clear about the growth potential of the US economy, despite his belief that Dow’s home market has the best prospects:
“The US is the economy I feel best about,” said Liveris. “But its still 1.5%, 2%, 2.5% growth – it’s still not strong enough for all of us.
As a result, he noted that Dow has “had to readjust our operating template. If you don’t focus in on cost, capital and cash in this economy, you won’t grow margins now, no matter what your innovation agenda. You’ve got to do both. And that’s a very hard act to pull off.”
This is exactly the message that the blog has been presenting, along with co-author John Richardson.
And as Liveris went on to add, in response to a question about developments with the self-styled activist investor, Third Point, “You have to run the company for those investors who are staying, not for those who are leaving. That’s the balance, how to actually release value this moment, versus release value in 5 years time.”
This dual-focus on today and tomorrow is not optional. Companies who don’t invest in new products and services for the future, to meet the radically different needs of the New Normal, probably won’t have a future.
Sadly, an upcoming study in the Harvard Business Review suggests companies in the US S&P 500 instead paid out 91% of their earnings in share buybacks and dividends between 2003 – 2012 (54% in buybacks, 37% in dividends). And it concludes:
“That left them with little potential patient capital (for investing in the future) and even much of that was held, tax-sheltered, abroad“.
WEEKLY MARKET ROUND-UP
The blog’s weekly round-up of Benchmark price movements since January 2014 is below, with ICIS pricing comments:
US$: yen, down 3%
Brent crude oil, down 2%
PTA China, flat. “Due to prevailing weak downstream demand in the polyester markets, end-users showed strong resistance, as they cited difficulties in passing down such additional costs to their end-markets”
Naphtha Europe, up 3%. “Supply pressures coming from falling US gasoline blending demand and sluggish domestic petrochemical markets”
HDPE US export, up 7%. “Most US prices are too high to generate much interest from global buyers, with traders saying that Asian and Middle Eastern material is supplying Latin American markets.”
Benzene, Europe, up 8%. “Strong resistance to continued price increases ahead of August, which is traditionally a slow month owing to the summer holidays”
S&P 500 stock market index, up 8%