Monday, June 9, 2008

When the going gets tough, the tough might have to get more active

Jeffrey Sachs, in the current issue of Fortune, writes that he sees many disturbing parallels between today's U.S. and global economic picture and the economic downturn of the 1970s. Indeed, striking similarities exist: rapid increase in the price of oil and other commodities, the U.S. fighting a costly and unpopular war, a weak dollar, among others. The result, back then, was 15 years of slower global growth. Should the scenario recur, it certainly will hurt retail investors looking (nervously) at retirement, but it also will make things harder for hedge funds and mutual funds seeking growth in a stagnant, albeit probably volatile, market.

In low-growth or stagflation the business-as-usual mindset of corporations, clearly, won't cut it. Hedge funds might have to increasingly turn to activist tactics to convince companies to unlock value and pursue unconventional growth strategies.

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