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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

June 12, 2009 at 9:47 AM

What kind of businesses will thrive in this new, new economy?

Top of the News: An entrepreneurial reader asks what kind of business might prosper if we’re headed into a period of inflation.

Historically, the answer is fairly easy: Something connected to real estate, energy, precious metals and certain commodities. Stuff that will keep its value, or even rise, as prices increase and the dollar has less purchasing power.

But that might be advice that’s so ’70s. For example, given the huge distortions left over from the housing bubble, real estate investing is only for the well-capitalized and very patient. And inflation in the 1970s occurred in a world without China as a big player — this time China’s actions will change the game, especially if the Chinese bail out of dollar assets.

The deeper question is whether severe inflation will materialize. The Fed doesn’t think so, for the downer reason that recovery will be so slow and sluggish. Some inflation hawks think otherwise, given the trillions in new money the Fed has created to fend off its bigger fear: a lethal, 1930s-style deflation.

Recent history gives entrepreneurs some clue: Unless you’re a big bank protected by taxpayers, keep down debt, have a strong business plan, be well capitalized — back to basics stuff. Building off the stimulus is nice work if you can get it. But these are unprecedented times, bringing not only risks but opportunities. I’d be interested in the advice readers would give.

The Back Story: Chinese exports declined in May by the most severe rate since statistics became available in 1995. The 26.6 percent year-over-year drop compares with 22.6 percent in April and was worse than analysts expected.

Before the crash, China was Washington state’s largest trading partner, to the tune of $10 billion in exports and big import business for the ports. Could China trade have hit bottom? Maybe. Still, RGE Monitor analysts predict that “recovery could drag and be sluggish given weak external demand.” E.g., the in-debt American consumer.

Meanwhile, if you didn’t see it, check out this fascinating report from the New York Times on China’s strategic stockpiling of commodities. There are a variety of reasons. One not discussed: A hedge against the potential of war on the Korean peninsula.

Today’s Econ Haiku:

Big Tobacco lost

Its clout. Insurers and banks

Are still smokin’ hot

Check in at noon for the weekly haiku poll — vote for your favorite or write your own.

Comments | More in Entrepreneurship, Inflation, Trade

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