The last part of any trip can be the most dangerous, but also the most fruitful.


Business owners are people.  People can become complacent.  Careers and fortunes are made during these transitional times.

This is obviously the end of this economic cycle.  2023 will be ugly but with huge potential.  We’ve mentioned how many businesses are unprepared.  The end of an economic cycle is always marked by some large, well known business “going thru the windshield.”

Inflation will also stay high, though not as high as it is now.  Supply chain problems have been fixed as demand has slowed.  The next two years should see it 1/3 lower than recent levels.  The next thing to fall is per-unit prices.  Unfilled orders have already dropped to eleven year lows, and product deliveries times have shortened with them.


What about the aftereffects from the recession?


Bank financial levels for liquidity and capital appear reasonable, even when compared to the likely 2023 environment.  This is not 2008/2009, at least as of now.  Bank balance sheets are more conservative.  Reserves against loan losses are decent.  Weak customers (there are always some) are being pared back in size or let go.  J.P. Morgan Chase, led by Jamie Dimon, has been doing a great job and the regulatory community as used them as a benchmark for other banks operations.  Social “preferences” such as ESG (Environmental, Social, and Governance) are getting push-back from companies and pension attorneys, in favor of factors that impact the top and bottom line more. The banks have been truly focusing on their home turf for once.  Anti-business political actions have slowed.


Now the good stuff!


After we get through the recession, there’s going to be the largest capital expenditure cycle in peacetime US history.

After decades of both malinvestment and under-maintenance, the birds come home to make repairs to the nest. Roads, bridges, rails, factories, semiconductor chip factories and supply chains are all going to get funds and attention.  Money will be spent, both public and private funds will be provided. We especially believe that the government will guarantee the loans to do the repairs, but not fund it (the banks will do that).  The productive and delivery capabilities that we outsourced to the rest of the world are coming home.  That means they will be rebuilt here in the US in highly automated factories and warehouses.

While Californians have become used to being the leader in business after the technology boom of the last 30 years, this time it will be the Midwest.  Land, power, water, and labor are still cheap there. Factory-needed skills are plentiful.  A truck driver can get to almost any part of the continental US in under 24 hours.  It would not surprise us to see a fourth of all industrial activity in California shift to there.


What does that mean for a California business owner?


Design and other so-called creative employees will probably stay here, as will companies with asset-light business models (such as services i.e. accounting and legal).  Trade/Export services will also stay. Both will also increase in size and employee count, as young people continue to be attracted to the coast.  But the cost of manufacturing will be high relative the Midwest, so smaller/low volume operations can make it but not the large/more price sensitive ones.

It will be a very interesting time to watch, and for us to fund it.


“Her insight and pulse on financial information influences my decision-making.”

~ Daniel Stover  –  Founder & CEO at Ensight Partners



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