Friday, February 20, 2009

Economic Situation

Things in the past 3-4 months have changed so drastically that it has become totally unpredictable. You will not know what can happen next. Global economies have become shaky, almost 50% of the global economies having already entered recession (formally), the remaining are as good as on a similar path, and growth has turned negative.

The once mighty organizations, institutions and even the High Profile/ Super Rich have fallen from grace. The change hasn’t been restricted to only the organizations or only few super rich, it has equally, if not more, impacted most of the commodities, stock markets, jobs, and so on. It is as if everything has been impacted in some way or the other. Even just the cursory analysis has thrown up these major observations;

1. Magnitude of Change -What baffles is the magnitude of this change. The crude oil not so long ago had climbed to an all time level of US$ 147 per barrel has come crashing down to US$ 36-37. That’s a whopping 75% reduction from the peak. The scale of change in other parameters is no different.

2. These changes were not triggered by any natural calamity - There was no natural calamity, which triggered these events. This was purely an effect of human actions or inactions.

3. The impact is Global - There is no country on this planet, which had the fortune of having escaped this downturn. The economies of the countries are so integrated that the impact has been far-reaching.

4. Pervasiveness - This is all too pervasive in its character. Not only the smaller ones suffered, the big and mighty ones have been the most sufferers. One might be tempted to say that the trigger has been the all-too greedy nature of the business practices employed by the Giants of the so-called World’s Top Financial Services Organization. Whether the over-leveraging of paper assets have been the trigger or the fundamental flaw in creation of a housing bubble in the US has been the trigger, no one knows. The impact has however been wide spread and every segment of industry is impacted to some extent or the other. I wonder if we can find something called as “recession proof”! Sure, there will be lesser impacts on some, but no one will be impact-proof.

5. It’s a great leveler - Whatever may be the root cause; the impact is far reaching and has acted as a great leveler of sorts. The mighty can no longer wield the same kind of power and the ones aspiring to be one will need many more years to get to that spot. Warren Buffet, the highly regarded Investment Guru, too has suffered in this downturn and admitted the mistakes he made.

No comments: