Week 10: Strategic Business Cycle Managing and Investing

Leading economic indicators: changes in advance of business cycle movements

Consumer confidence

Lagging indicators : changes after business cycle movements

unemployment rate

Using leading indicators to anticipate movements in GDP growth drivers and GDP itself.

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Why do we need to consider inflation in the model?

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Strategic Marketing (Pricing, Advertisement budget, Messaging)

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1) Pricing: cut price in recession and raise price in an expansion

The price elasticity is not immutable but changes over the business cycle movement. The price elasticity will rise when the economic in recession.

The price hikes in recession will reduce revenue rather than increase the revenue.

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2) Advertising budget: increase to seize the market further to increase MKT share, and build brand

3) Messaging: sell value in recession and sell style in an expansion

Operations and  Supply Chain Management (cut down production and trim inventory in recession)

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Capital Investment :

increase Capex to 1) be ready to be first to enter into market when the economy recovery, 2) build factories and facilities with lower cost. 3) replace with modern facilities.

Corporate finance

Debt/Equity Ratio: the relative cost of debt/equity change over business cycle

1) Debt financing (issue new bonds)

2) Equity financing (issue new stocks)

Credit Management

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Management Strategy and Strategic acquisition (acquire during recession and divest in an expansion)

1) Don't over pay for acquisition

2) Don't pay for acquisition with high priced debt

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Stock for expansion, Bond for recession

Gold: 1) hold values during inflation 2) with industrial application. Gold price will rise during the expansion.

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