Summary
Third quarter growth was strong. Much of the strength was influenced by government stimulus. The "new normal" environment will be characterized by muted growth.
Analysis
We are transitioning from a secular period of increased debt and leverage to a secular decline in leverage. This transition does not occur in a few months or even a couple of years, when the previous period took place over a generation. We are in for a prolonged period of muted growth and uptrends, characterized by profitability pressures throughout the economy. The recovery in employment will be very gradual as firms are reluctant to add fixed costs. Variable cost solutions will be in vogue, including an increase in outsourcing of a variety of functions.
In this environment, executives must adopt best practices across all functions in order to succeed and excel. Those that don't will trend toward failure. The investment management industry will experience a compression in profit margins that were extraordinarily high for a generation. Many managers succeeded despite poor business models in the past. Only managers with the best models will succeed in the "new normal" environment.
