Italy and Greece Meltdowns Won't Hinder US Industrial Growth…Yet

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If you’ve been a regular reader of MetalMiner, then you’ve surely become familiar with our consistent coverage of the Beaulieu Brothers.

Both chief economists at Institute for Trend Research (ITR), Brian and Alan Beaulieu are the “Car Talk guys of the economic analysis and forecasting world and not just because both teams are brothers, are innately funny, have their own radio shows and are from New England (the Beaulieus are based in New Hampshire; the Tapper Brothers of “Car Talk in Boston).

It’s because both pairs of brothers know exactly what they’re talking about, and can put their money where their mouth is.

Turns out these guys analyze their own analysis and have delivered 96% accurate economic forecasts at three quarters out, and 90% accurate forecasts at six quarters out.

I attended a live presentation by Brian Beaulieu at the All-City conference held by Vistage outside Chicago, and the long and short of it is this not too much has changed in their forecasts since we last covered the Brothers’ outlook in a May webinar. But wait, you say, what about the European sovereign debt debacle? What about Greece’s government going down in flames? What about Italy’s fiscal situation and the fears that it will take down the global economy?

I wondered this too, walking into the presentation. But I should’ve anticipated Beaulieu’s response:

“Stop worrying about Greece defaulting, he said exasperatedly and with a roll of his eyes. “France and Germany won’t let that happen due to their own personal self-interest.

Also, Italy is not like Greece, Beaulieu pointed out, saying it’s the eighth-biggest economy in the world, having positive cash flow and a healthy export market. So, he said, it shouldn’t worry us for 2012. (But for 2013, though¦)

And that’s what ITR’s forecasting comes down to. They want to equip manufacturers to be aggressive and “beat the business cycle when times are (relatively) good, instead of clinging to austerity for fear of repeating “the pain of the past. To summarize, Beaulieu’s important points for you, our readers, still hold true:

  • Growth Outlook — 2011 has been pretty good. 2012 will be even better. But beginning mid-2013 and through most of 2014, we’ll get another recession. However, it’ll be relatively mild, and the “perfect storm conditions of 2008/09 will not be seen again
  • Commodity Prices When the world is on the upside of the cycle in 2012, expect commodity prices to be going up also copper, aluminum, and other metals. October 2010 is likely to hold as the commodity price “low which means buy forward today to protect your margins, Beaulieu stressed
  • Keep an Eye on Costs — Perhaps Beaulieu’s most fervent point: inflation will be huge, especially in terms of labor costs. Those will continue to go up, as will federal taxes. That, sadly, is the only way to attack these trillion-dollar-plus yearly deficits the government will be running out to 2017 and beyond, no matter what the Tea Party tells you
  • Housing Starts — Residential construction generally will be in the dumps for years but commercial construction looks to be showing an uptick
  • Bullish on India, Not China He threw his weight behind shorting China, saying that he’s concerned about China’s ability to grow beyond 2018-2019. Other “winning demographics: those in Brazil, Indonesia, and Canada. Losers: Europe, Japan and Russia.

Some quick-hit actionable pieces of advice:

  • Be on leading edge of extending credit to your customers (banks are lending again, there’s enough liquidity in our system)
  • Get to know why your customers like you and why they come to you; that way, you can get your price increases to stick

For all the above forecasting, ITR is looking mostly at the short to medium term. Beyond 2020, a different picture lies ahead for people in my demographic. With public debt the way it is, decaying social safety-net systems and a global labor and trade market changing the face of the financial future in the US, Beaulieu had one sentence for it:

“For those under the age of 40 it sucks to be you!

–Taras Berezowsky


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