What’s the Hidden Opportunity in this Situation?

Retail consulting expert Howard Davidowitz, Chairman of Davidowitz and Associates, said in a recent interview on the Tech Ticker Show that “We’re in a complete financial mess and the consumer is smart enough to know it. If the consumer isn’t petrified, he or she is a damn fool.”

Davidowitz is a colorful speaker who doesn’t mince words. He supports his premise with three main points: 1) the shift to thrift 2) the fact that the government is borrowing its brains out and 3) his assertion that “the worst is yet to come”.

The Shift to Thrift
Currently the U.S. is losing 600,000-700,000 jobs each month, not to mention the millions of people that are underemployed and being pushed into part time work. According to Davidowitz, the consumer understands the severity of the economic downturn and has rapidly responded. How? Savings rates have jumped from -6% to 4.2%. This represents an increase of over 10%. When Ronald Reagan took office, the U.S. had a 9.9% savings rate. That savings rate will most likely be reached, and surpassed, as the economic crisis intensifies.

When income is tight and disposable income is non-existent, people and companies pull in their horns. As a result, optional items are the first to be discarded. When it comes to things like your mortgage, health insurance, food or buying “stuff” at the mall, which of those items will go by the wayside first? That’s right, “stuff” at the mall. Saving money is the antithesis of a consumer-driven society. However, consumers know what they must do to survive.

The federal government isn’t so disciplined. Uncle Sam is borrowing his brains out. The previous administration and the current administration are borrowing at unsustainable levels. Soon our GDP will equal our debt. We are borrowing to pay the interest on the debt. The big question is: Can we borrow our way to prosperity?

According to Davidowitz, all the bailout money is in the sewer and is gone. Banks are supposed to be deleveraging. Many banks are still leveraged at 25-to-1. Commercial real estate is about to enter into a depression and much of it will go back to the banks. Right now, there’s 21 sq. ft. of retail space for every man, woman and child in the U.S. We only need 12 sq. ft. All the talk about “green shoots” in the economy is designed to lure private money because banks and other institutions can no longer get TARP funds. It’s called the “greater fool theory.” In the end, it’s nothing more than accounting sleight of hand. Can you say “Enron”?

The deleveraging process has only just begun. The consumer is leading the way toward deleveraging (out of necessity) with a mammoth increase in the personal savings rate. Unfortunately, this new savings will soon be eaten up as inflation re-emerges.

Davidowitz believes the worst is yet to come for banks, consumers and the country. He forecasts a financial decline that could last up to 10 years and thinks living standards will decline as the debt grows.

A recent article by the Associated Press states that the U.S. Government will borrow 46 cents for each dollar it spends in 2009. Clearly this is unsustainable.

Against this backdrop of increasing chaos…

The one question you must ask yourself is: What’s the hidden opportunity in this situation? This is a hard question to ask, especially when a situation appears bleak. Just do it. Make yourself do it. Find an answer. Challenge yourself.

If you reach, search and dig for an answer to this question, you will begin to uncover solutions for problems that would have otherwise remained hidden.