By Roozbeh Aliabadi

March 17, 2010, Pittsburgh, PA – The recession of 2008 has not yet been relegated to a page in the history books. Throughout 2009 and into 2010, the economy and markets have been in their recovery phase, which has led to greatly improved conditions. However, there is still more progress to be made before we—as consumers—feel like the return to growth is assured. In order for us to reach that point, we need to go through the next phase of the market’s road to recovery: what we call the transition to sustainable growth.
 
The transition to sustainable growth is an important phase that follows a recession but occurs early on in the market’s recovery where businesses and consumers begin to heal from a severe economic contraction and switch slowly from a strategy of conservative protectionism to one of investing to fuel future growth.  As optimistic sounding as it is to hear about “growth” in this phase, we must not forget that it is the word “sustainable” that is key.  This is because in order for the economy and market to truly have sustainable growth, they must be weaned from the assistance of central banks’ accommodative monetary policies and governments’ stimulus-inspired growth in favor of a market capable of creating and maintaining organic expansion without help. 

In order for the transition to unfold, businesses need to take over fueling growth as the government and central banks minimize their roles. We need to see companies commit to the recovery by loosening their grip on corporate expense controls and begin investing for the future.  Companies that significantly reduced spending in order to survive the recession, including cut backs in capital expenditures, inventories, dividends and workforce, now need to transition from protecting profits through expense management to protecting market share by funding growth initiatives. As businesses spend more and hire back more workers to fuel future growth initiatives, we consumers will then be able to play our part and begin spending more as well. Once business and consumer spending stabilizes, government and central bank assistance can be completely withdrawn, restoring an environment of economic and market growth that is well supported and sustainable.

 The steps that need to be taken to turn the page on this recovery in the economy and markets to be self-sustaining may sound simple and straight-forward. However, when the economy and markets are in a transitioning phase, volatility and a shifting landscape become the norm. As a result, different techniques and investment opportunities that may both benefit and help protect from volatility may be required to effectively manage portfolios.  However, with volatility and change comes opportunity.  We believe the successful transition of businesses from relying on governments and central banks to being independent drivers of sustainable growth will create value for corporate America and investors alike.
 
Roozbeh Aliabadi is an Investment Advisor with Alpern Rosenthal Financial Services, LLC. in Pittsburgh, PA.

This research material has been prepared by LPL Financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.