Some say the economy and markets will heal themselves in time; markets climb a wall of worry. That may be true, but how do we know? The answer is that no one truly knows what lies around the next corner during this unusual period in economic history. All we can do is prepare for unforeseen events by managing our businesses carefully and be conscious of business risks we take.

Asset managers who manage their firms strategically, with an eye toward judicious growth and thoughtful expense management, are likely to be the survivors of a variety of potential economic and market scenarios.

In our view, asset managers have begun to adjust to this new reality. Although they are still cautious about the environment, as they should be, they are making decisions and moving their businesses forward. This is a healthy sign. They are not as frightened by these events as they were during the most intense period of the financial crisis. They seem to be looking soberly at the situation before them and trying to make thoughtful intelligent decisions.

The best managers realize that this will be a time when strategic decision making, effective execution of those decisions, and persistence will pay off. They should keep their antenna up for the next aftershock, but stay the course.

These factors all fit within the typical scenario for credit induced downturns which tend to be much more difficult to recover from than cyclical downturns. This “new normal” environment will require management to follow careful and thoughtful strategies, and executive crisply and flawlessly. Executives will need to be on the top of their game. However, those that differentiate themselves from the pack could enjoy excellent success.

Dorothy, we are not yet out of the poppy fields. Let it snow, let it snow, let it snow!

While, in absolute size, this event is not large, it seems to be reigniting some fears of contagion. As I wrote recently, market sentiment moved from fear to greed quite quickly in less than a year. This creates an environment which is ripe for disappointment. Further, since we do seem to be experiencing an extended period of deleveraging globally, Dubai provides a reminder that there is much work to be done before we get the all clear signal that conditions are relatively normal again. Indeed, as I’ve written before, we seem to be in a “new normal” environment which will be unlike the recent boom times.

For asset managers, as well as managers of other businesses, the events of Dubai remind us that we must manage our businesses with the very best practices in order to succeed in the “new normal” environment. We need to move forward, but in a cautious way with great respect for unknown risks and events which could appear without warning. A well managed business is the best way to overcome such events without losing significant momentum.

What will change this behavior? Continued market rallies? Clearer economic recovery? Just more time? Or, will we be in a new environment, one in which industry dynamics continue to be sluggish for a prolonged period? In any case, managers are being forced to be more strategic in their decision making as they navigate through uncertain waters.

Unemployment continues to rise while earnings improve. Is this just the typical productivity led recovery, or is something else happening here? Is it possible these jobs won’t come back and technology will pick up the slack? What are the global implications, and where will the U.S. land on a relative basis?

As I talk to asset managers, I get the feeling that things are picking up a bit. Many are beginning to grow again, and they are hiring judiciously. But there remains a high degree of caution. Most that I talk to don’t quite trust what is happening, but they can’t explain it. There remains a high degree of uncertainty.

Is this the usual wall of worry that the market is climbing, or is there something else truly happening? What about all of that debt??? What are your thoughts?

We are transitioning from a secular increase in leverage and debt to a secular reduction in such leverage. This transition will ultimately override shorter turn moves in the economy and markets. Such a transition does not occur in a few months or even a couple of years after the previous secular trend took place over a generation. It will dictate the “new normal” in the economy and markets which will be characterized by muted growth and uptrends, depressed profitability, and false starts.

In this environment, companies and their executives will need to differentiate their performance from their competitors in order to succeed. The best firms will excel. Many of the rest will struggle. Best practices across all functions will need to be adopted if firms are to grow and prosper.

Somehow it just doesn’t feel right, though. Everything seems a little out of whack. Aren’t we just propping up the system with all of this liquidity? The market crashed because of too much debt, right? Aren’t we just creating more debt? When will we create real things again? I think I will feel better then.

Someone tell me I’m wrong!