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    The Call @ Hedgeye Plus

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A recent NY Times article expands on our “New Reality” theme as it relates to Investment Banking Inc. and broadens the theme to the auto industry, calling December’s declining sales trends the “New Normal.” The article says that the historic collapse of the new-car market raises questions about whether the auto industry will ever again see the pace of sales it did a few years ago. The easy answer is no, but Detroit will adjust and move. The “New Normal” theme goes beyond auto, however, and touches just about every industry. More importantly, the death of the consumer credit cycle will mean that there is a “New Normal” for nearly everyone.

The “New Normal” refers to the fact that the world has changed forever and those companies that are reluctant to change are doomed to fail. Those companies that do not adjust to the “New Normal” will be in purgatory for an extended period of time. Reducing capacity and capital spending are the order of the day and those that try to convince you that “we can grow” through the cycle are not in tune with the “New Normal.” Our “New Reality” is closely aligned to the debacle on Wall Street and the end of Investment Banking Inc. as we know it. The “New Normal” is closely aligned to the permanent shift in every aspect of consumer behavior. The most recent example of the “New Normal” comes from Lee Scott, the CEO of Wal-Mart, who believes that recent economic activity has caused a permanent and fundamental change in the behavior of the consumer in that the consumer will not have as aggressive a desire for consumption and debt. The question that remains unanswerable as it relates to consumer spending is what level of spending is the “New Normal?”

As far as the investment community is concerned, the “New Normal” is not levered long, and does not include concentrated, activist investing. Traditional Hedge funds and Fund of Funds are not part of the “New Normal.” Business models that provide leadership, accountability and trust will be part of the “New Normal” within the investment community. The game is changing every day and we are here to play. Welcome to the “New Normal.”

Ironically, in 2004, Roger McNamee authored a book called ‘The New Normal.’ At the time, he said The New Normal is a time of risk and uncertainty, but it also offers unprecedented rewards for the bold. He also says that back in the 40s, 50s, and 60s, it was fairly easy to plan for a secure future. People picked a career, a spouse, and a place to live, and those basic decisions put them on a predictable course for the rest of their lives, especially if they were lucky enough to land at a big corporation with great benefits and smart enough to buy stocks. In the 1990s and early 2000s, technology and global competition transformed the world, and the bull market lulled people into thinking they were in control of their lives.

Today, the new normal of the 40s, 50s and 60s is looking like a great place to be. The “New Normal” of 2009 is nothing like we have ever seen.