A new white paper from Seapine Software provides steps for weathering trying economic times through an increased focus on quality
Mason, OH—September 10, 2008—According to Quality-Centric ALM in a Down Economy, a new white paper released by Seapine Software, companies can survive an economic downturn by increasing their focus on quality.
Seapine’s research shows that many organizations cut back on testing and QA activities in the rush to develop and release products. Releasing products regularly helps maintain mindshare, but ignoring quality to push software out the door results in:
Avoidable labor costs
Increased baseline costs
Delayed sales and lost revenue
Diminished reputation and market share
Regulatory non-compliance
Findings indicate that software quality often suffers because of one or more of the following:
Organizations assume that testing will find the problems.
Time to market is the key measurement for success.
QA is not involved from the beginning.
Developers only want to work on new features and leave quality up to the QA department.
The white paper includes research from the National Institute of Standards and Technology (NIST), the Gartner Group, and the Seapine Software Quality-Ready Assessment. Along with that data, it provides ways to overcome the issues threatening software quality and thrive during a recession.
Thursday, January 8, 2009
Recession And Sentiment
BSE Sensex fell to below 10,000 levels for the first time since January, 2006. This crash to 4 digits is a big blow to new investors who have never seen the implications of the bear market. Don’t try to find the logic behind this fall. FIIs are selling out of necessity but domestic funds are not in a position to fully stop the fall. Only positive aspect is that unlike in January, trading was not stopped even for a single minute means buying is still there from some quarters.
Sensex below 10,000 in June, 2006: Good growth with optimism.
Sensex below 10,000 in October, 2008: Slow growth with pessimism.
Significant rumours:
1. RBI will cut repo rate on October 24. Source: Times of India.
If this is true, Stock Markets will stabilise above 11,000 levels over short term. Indian Companies will take a breather and mutual funds will inject some money into the markets. If RBI delays this decision, BSE Sensex will soon touch below 9,000 levels.
2. High Court will give judgement in RIL-RNRL case by November. This will have huge implications on many Companies. Sooner the better! Loser may drag the case by going to the Supreme Court.
3. 3G auction will be held in January. Bad news.
Must read:
1. Warren Buffett wrote a good article in the New York Times on “Why I am buying Stocks?” But how many of us have his vision and patience levels. We buy stocks today and watch their prices from tomorrow onwards. Investors spoilt due to the last Bull Run.
Positive news:
1. Government is planning to remove the 49-MW cap on Wind Energy projects. This move will attract more foreign investments into this emerging sector.
2. United Phosphorus announced acquisition plans.
Recession news:
1. American Real Estate: construction of single-family homes plunged to the lowest level in 26 years.
2. French mutual bank, “Groupe Caisse d’Épargne” suffered a loss of $807 million in derivative trading.
3. Spanish-based airline LTE International has suspended operations after telling Spanish authorities that it was in serious financial difficulty.
4. Confidence among U.S. consumers fell by the most on record. It fell to 57.5 this month from 70.3 in September. Situation in US is looking grim despite Government’s bailout measures.
5. German Parliament lower house approved $675 billion financial bailout package.
6. JSW Steel postponed its Power IPO plans. Big set back to investors who are already reeling under economic slowdown.
Quarterly results analysis: Contrary to popular perception, midcaps and small caps are announcing superb results in this highly unfavourable atmosphere. These are the stocks that were corrected by 60-80% in the last 2 months despite posting good results in the last 2 quarters. Long term investors should accumulate these scrips for better returns.
1. Tata Coffee reported 228% increase in net profit in September quarter but sales rose only by 26%. Tata Tea will also announce good results in the last week of October.
2. Compact Disc India: This animation Company once again posted bumper results. It announced 119% increase in sales while profits rose by 114%. Its shares are trading at a forward P/E of 0.5. Unbelievable valuations. That is bear market!
CMP: 34.8 (BSE); P/E: 1.4
EPS: 25; Book Value: 40.
3. Like all brokerage firms, India Infoline also reported very poor results.
4. Goa Carbon: Bumper results. Company posted a net profit of Rs 2.8 crore Vs net loss of Rs o.45 crore in Q2 of previous year. 1289% increase in 6-month net profit! Can it able to continue its high growth?
CMP: 65 (BSE); P/E: 2.3
5. Poor results: Elecon Engineering, Madras Aluminium, Finolex Cables, Kavveri Telecom, Sasken Communication, Novartis India, Ratnamani Metals and SBI Home Finance.
6. Mphasis and Satyam posted wonderful results. But will they keep momentum? I am negative on this sector because of “Obama factor”. But they will participate actively in short term rallies.
7. FAG Bearings: Company posted outstanding results despite operating in unfavourable conditions. It reported 34% increase in sales while profits rose by 42%.
8. Sanwaria Agro Oils: Company announced 58.9% growth in net profit. Rs 23 crore Vs Rs 14.5 crore.
How to revive Indian Stock Markets:
Why good Companies are falling even after announcing bumper results? Why no one is buying even good Companies at cheap valuations? This is because of sentiment. Unless sentiment turns positive, it is impossible for stock markets to make positive gains. As long as panic is ruling, no one cares about results, valuations and fundamentals etc. Government, RBI and Industrialists need to do take steps that will drastically change the sentiment of investors especially FIIs.
1. RBI should immediately reduce interest rates by at least 1%. This is the most crucial step. CRR cuts will not help any more.
2. Ambani brothers should stop quarrelling in Courts and find an amicable solution. Reliance Gas has the potential to change the energy landscape of the country. Unless Reliance stocks perform, Stock markets will never recover in a big way. This spat is sending negative signals to the international community.
3. Rupee fall: RBI should stop this slide to save Indian Stock Markets. Why do FIIs want to invest in a country with weak currency?
4. Inflations need to continue its downward march. Oil prices should stay below $80 per barrel level.
5. Oil ministry should decrease petro product prices to control the inflation and input costs.
6. Companies need to announce more buybacks and acquisitions to trigger economy in positive direction. Liquidity is the problem. Financial Institutions should support such managements.
My opinion: Unless RBI takes measures like rate cuts; current market has more downside especially in large caps. But stocks (especially mid caps and small caps) which had more FII holdings before October are now corrected heavily and trading at least 50% below their fundamental prices. Except ICSA and Glenmark, most of these stocks have not recovered due to lack of support from either promoters or funds. But ICSA was well supported by promoters while Glenmark was supported by big investors.
Where will you get investment ideas?
Investment is all about common sense, keen observation and finding value. Keenly observe surroundings and find the emerging trends. Whether people are depositing more money in PSU banks out of panic? Whether you are seeing any rise in hospital visits? Whether people are consuming more alcohol to forget their problems? Whether there is any decrease in visits to multiplexes or Restaurants or shopping malls? Whether people are cancelling their expensive travel plans?
Defensive stocks Vs Growth stocks:
People generally tend to buy defensive stocks like HUL etc during panic situation. But long term investors should not do this mistake. Why? Do you want to satisfy with dividends? What is the difference in HUL price in 1983 and 2008?
Sensex below 10,000 in June, 2006: Good growth with optimism.
Sensex below 10,000 in October, 2008: Slow growth with pessimism.
Significant rumours:
1. RBI will cut repo rate on October 24. Source: Times of India.
If this is true, Stock Markets will stabilise above 11,000 levels over short term. Indian Companies will take a breather and mutual funds will inject some money into the markets. If RBI delays this decision, BSE Sensex will soon touch below 9,000 levels.
2. High Court will give judgement in RIL-RNRL case by November. This will have huge implications on many Companies. Sooner the better! Loser may drag the case by going to the Supreme Court.
3. 3G auction will be held in January. Bad news.
Must read:
1. Warren Buffett wrote a good article in the New York Times on “Why I am buying Stocks?” But how many of us have his vision and patience levels. We buy stocks today and watch their prices from tomorrow onwards. Investors spoilt due to the last Bull Run.
Positive news:
1. Government is planning to remove the 49-MW cap on Wind Energy projects. This move will attract more foreign investments into this emerging sector.
2. United Phosphorus announced acquisition plans.
Recession news:
1. American Real Estate: construction of single-family homes plunged to the lowest level in 26 years.
2. French mutual bank, “Groupe Caisse d’Épargne” suffered a loss of $807 million in derivative trading.
3. Spanish-based airline LTE International has suspended operations after telling Spanish authorities that it was in serious financial difficulty.
4. Confidence among U.S. consumers fell by the most on record. It fell to 57.5 this month from 70.3 in September. Situation in US is looking grim despite Government’s bailout measures.
5. German Parliament lower house approved $675 billion financial bailout package.
6. JSW Steel postponed its Power IPO plans. Big set back to investors who are already reeling under economic slowdown.
Quarterly results analysis: Contrary to popular perception, midcaps and small caps are announcing superb results in this highly unfavourable atmosphere. These are the stocks that were corrected by 60-80% in the last 2 months despite posting good results in the last 2 quarters. Long term investors should accumulate these scrips for better returns.
1. Tata Coffee reported 228% increase in net profit in September quarter but sales rose only by 26%. Tata Tea will also announce good results in the last week of October.
2. Compact Disc India: This animation Company once again posted bumper results. It announced 119% increase in sales while profits rose by 114%. Its shares are trading at a forward P/E of 0.5. Unbelievable valuations. That is bear market!
CMP: 34.8 (BSE); P/E: 1.4
EPS: 25; Book Value: 40.
3. Like all brokerage firms, India Infoline also reported very poor results.
4. Goa Carbon: Bumper results. Company posted a net profit of Rs 2.8 crore Vs net loss of Rs o.45 crore in Q2 of previous year. 1289% increase in 6-month net profit! Can it able to continue its high growth?
CMP: 65 (BSE); P/E: 2.3
5. Poor results: Elecon Engineering, Madras Aluminium, Finolex Cables, Kavveri Telecom, Sasken Communication, Novartis India, Ratnamani Metals and SBI Home Finance.
6. Mphasis and Satyam posted wonderful results. But will they keep momentum? I am negative on this sector because of “Obama factor”. But they will participate actively in short term rallies.
7. FAG Bearings: Company posted outstanding results despite operating in unfavourable conditions. It reported 34% increase in sales while profits rose by 42%.
8. Sanwaria Agro Oils: Company announced 58.9% growth in net profit. Rs 23 crore Vs Rs 14.5 crore.
How to revive Indian Stock Markets:
Why good Companies are falling even after announcing bumper results? Why no one is buying even good Companies at cheap valuations? This is because of sentiment. Unless sentiment turns positive, it is impossible for stock markets to make positive gains. As long as panic is ruling, no one cares about results, valuations and fundamentals etc. Government, RBI and Industrialists need to do take steps that will drastically change the sentiment of investors especially FIIs.
1. RBI should immediately reduce interest rates by at least 1%. This is the most crucial step. CRR cuts will not help any more.
2. Ambani brothers should stop quarrelling in Courts and find an amicable solution. Reliance Gas has the potential to change the energy landscape of the country. Unless Reliance stocks perform, Stock markets will never recover in a big way. This spat is sending negative signals to the international community.
3. Rupee fall: RBI should stop this slide to save Indian Stock Markets. Why do FIIs want to invest in a country with weak currency?
4. Inflations need to continue its downward march. Oil prices should stay below $80 per barrel level.
5. Oil ministry should decrease petro product prices to control the inflation and input costs.
6. Companies need to announce more buybacks and acquisitions to trigger economy in positive direction. Liquidity is the problem. Financial Institutions should support such managements.
My opinion: Unless RBI takes measures like rate cuts; current market has more downside especially in large caps. But stocks (especially mid caps and small caps) which had more FII holdings before October are now corrected heavily and trading at least 50% below their fundamental prices. Except ICSA and Glenmark, most of these stocks have not recovered due to lack of support from either promoters or funds. But ICSA was well supported by promoters while Glenmark was supported by big investors.
Where will you get investment ideas?
Investment is all about common sense, keen observation and finding value. Keenly observe surroundings and find the emerging trends. Whether people are depositing more money in PSU banks out of panic? Whether you are seeing any rise in hospital visits? Whether people are consuming more alcohol to forget their problems? Whether there is any decrease in visits to multiplexes or Restaurants or shopping malls? Whether people are cancelling their expensive travel plans?
Defensive stocks Vs Growth stocks:
People generally tend to buy defensive stocks like HUL etc during panic situation. But long term investors should not do this mistake. Why? Do you want to satisfy with dividends? What is the difference in HUL price in 1983 and 2008?
Ad spends during recession results in higher sales
With corporate managers under enormous pressure to control costs and maintain liquidity in the current credit crisis, advertising budgets often
appear to be a dispensable luxury in the struggle to survive. Executives who succumb to that temptation, however, put the long-term future of their companies at risk, according to Wharton faculty and advertising experts.
“The first reaction is to cut, cut, cut, and advertising is one of the first things to go,” says Wharton marketing professor Peter Fader, adding that as companies slash advertising in a downturn, they leave empty space in consumers’ minds for aggressive marketers to make strong inroads. Today’s economy “provides an unusual opportunity to differentiate yourself and stand out from the crowd,” says Fader, “but it takes a lot of courage and convincing to get senior management on board with that.”
According to Wharton marketing professor Leonard Lodish, with demand slack for advertising services, the cost of these services goes down, making advertising expenditures all the more defensible in a bad business climate . “If your company has something to say that is relevant in this environment, it’s going to be more efficient to say it now than to say it in better times,” says Lodish.
Research shows that companies that consistently advertise even during recessions perform better in the long run. A McGraw-Hill Research study looking at 600 companies from 1980 to 1985 found that those businesses which chose to maintain or raise their level of advertising expenditures during the 1981 and 1982 recession had significantly higher sales after the economy recovered . Specifically, companies that advertised aggressively during the recession had sales 256% higher than those that did not continue to advertise.
For companies that do stay the course and continue to advertise into a recession or increase their promotional activities , the key is to craft messages that reflect the times and describe how their product or service benefits the consumer . For example, companies might be tempted to emphasise price in a recession, but that only works for companies like Costco and Wal-Mart that are built around a core strategy of providing low prices year after year, says Lodish.
He points to the current Wal-Mart campaign, ‘Save Money. Live Better,’ as a successful approach to the recession.
Dean Jarrett, senior vice-president of marketing at The Martin Group in Richmond, Virginia, which developed the Wal-Mart ads, acknowledges the campaign began in 2007 before it was clear a harsh recession was building. “We can’t claim we knew a recession was coming , but ‘Save Money. Live Better’ is dead on-point with who they are and what they want to be.”
Eileen Campbell, chief executive of the Millward Brown Group advertising firm in New York City, says that while companies should probably not dwell on the recession and scare consumers into hoarding their pennies under a mattress , certain products require a straight-up approach — such as financial services.
“If you are in the financial services category, to behave as you did a year ago is silly.” At the same time, however, many consumers are weary of negativity generated by the recession and would be receptive to a more upbeat message, she adds. “If you can put a positive spin on how you can genuinely help without invoking doom and gloom, I think that’s going to be more compelling.”
appear to be a dispensable luxury in the struggle to survive. Executives who succumb to that temptation, however, put the long-term future of their companies at risk, according to Wharton faculty and advertising experts.
“The first reaction is to cut, cut, cut, and advertising is one of the first things to go,” says Wharton marketing professor Peter Fader, adding that as companies slash advertising in a downturn, they leave empty space in consumers’ minds for aggressive marketers to make strong inroads. Today’s economy “provides an unusual opportunity to differentiate yourself and stand out from the crowd,” says Fader, “but it takes a lot of courage and convincing to get senior management on board with that.”
According to Wharton marketing professor Leonard Lodish, with demand slack for advertising services, the cost of these services goes down, making advertising expenditures all the more defensible in a bad business climate . “If your company has something to say that is relevant in this environment, it’s going to be more efficient to say it now than to say it in better times,” says Lodish.
Research shows that companies that consistently advertise even during recessions perform better in the long run. A McGraw-Hill Research study looking at 600 companies from 1980 to 1985 found that those businesses which chose to maintain or raise their level of advertising expenditures during the 1981 and 1982 recession had significantly higher sales after the economy recovered . Specifically, companies that advertised aggressively during the recession had sales 256% higher than those that did not continue to advertise.
For companies that do stay the course and continue to advertise into a recession or increase their promotional activities , the key is to craft messages that reflect the times and describe how their product or service benefits the consumer . For example, companies might be tempted to emphasise price in a recession, but that only works for companies like Costco and Wal-Mart that are built around a core strategy of providing low prices year after year, says Lodish.
He points to the current Wal-Mart campaign, ‘Save Money. Live Better,’ as a successful approach to the recession.
Dean Jarrett, senior vice-president of marketing at The Martin Group in Richmond, Virginia, which developed the Wal-Mart ads, acknowledges the campaign began in 2007 before it was clear a harsh recession was building. “We can’t claim we knew a recession was coming , but ‘Save Money. Live Better’ is dead on-point with who they are and what they want to be.”
Eileen Campbell, chief executive of the Millward Brown Group advertising firm in New York City, says that while companies should probably not dwell on the recession and scare consumers into hoarding their pennies under a mattress , certain products require a straight-up approach — such as financial services.
“If you are in the financial services category, to behave as you did a year ago is silly.” At the same time, however, many consumers are weary of negativity generated by the recession and would be receptive to a more upbeat message, she adds. “If you can put a positive spin on how you can genuinely help without invoking doom and gloom, I think that’s going to be more compelling.”
Financial turmoil results in recession in the US
The United States may face a recession from the ongoing financial turbulence in view of the impact of financial crisis around the globe over the past 30 years, the International Monetary Fund said on Thursday.
"The financial turmoil that began in the summer of 2007 has mutated into a full-blown crisis," the IMF said in part of its twice-yearly World Economic Outlook report, citing "a substantial likelihood of a sharp downturn in the United States."
The warning is in stark contrast to the Washington-based institution's projection in July that the United States will "contract moderately" in the second half of this year before recovering next year.
It also came as the US Congress works to pass a USD 700 billion financial bailout bill to prevent the economy from collapsing.
The report suggested the risk of recession is higher when financial turmoil is preceded by rising house prices and rapidly expanding credit, which was the case in the United States.
"The financial turmoil that began in the summer of 2007 has mutated into a full-blown crisis," the IMF said in part of its twice-yearly World Economic Outlook report, citing "a substantial likelihood of a sharp downturn in the United States."
The warning is in stark contrast to the Washington-based institution's projection in July that the United States will "contract moderately" in the second half of this year before recovering next year.
It also came as the US Congress works to pass a USD 700 billion financial bailout bill to prevent the economy from collapsing.
The report suggested the risk of recession is higher when financial turmoil is preceded by rising house prices and rapidly expanding credit, which was the case in the United States.
Wednesday, January 7, 2009
Four scenarios for the global economic downturn
Uncertainty surrounds not only the downturn’s depth and duration—though these are decidedly big unknowns—but also the very future of a global economic order until recently characterized by free-flowing capital and trade and by ever-deepening economic ties. A few months ago, the only challenges to this global system seemed to be external ones like climate change, terrorism, and war. Now, every day brings news that makes all of us wonder if the system itself will survive.
The authors of the article have therefore sketched out four scenarios to capture the wide range of possible outcomes. The scenarios are based on two critical uncertainties.
Severe global recession – Moderate global recession
Global credit and capital markets reopen and recover – Global credit and capital markets close down and remain volatile.
By plotting these two axes against each other, four future scenarios are created. You can read more detail about these in the article, but in summary:
Regenerated global momentum
In the most optimistic scenario, government action revives the global credit system—the massive stimulus packages and aggressive monetary policies already adopted keep the global recession from lasting very long or being very deep. Globalization stays on course: trade and capital flows resume quickly, and the developed and emerging economies continue to integrate as confidence rebounds quickly.
Battered but resilient
In the second scenario, government-wrought improvements in the global credit and capital market are more than offset—for 18 months or more—by the impact of the global recession, which leads to further credit losses and to distrust of cross-border counterparties. Although the recession could be longer and deeper than any in the past 70 years, government action works, and the global capital and credit markets gradually recover. Global confidence, though shaken, does rebound, and trade and capital flows revive moderately. Globalization slowly gets back on course.
Stalled globalization
In the third scenario, the global recession is significant, but its intensity varies greatly from nation to nation—in particular, China and the United States prove surprisingly resilient. The integration of the world’s economies, however, stalls as continuing fear of counterparties makes the global capital market less integrated. Trade flows and capital flows decline and then stagnate. The regulatory regime holds the system together, but various governments overregulate lending and risk, so the world’s banking system becomes “oversafe.” Credit remains expensive and hard to get. As attitudes become more defensive and nationalistic, growth is relatively slow.
The long freeze
Under the final scenario, the global recession lasts more than five years (as Japan’s did in the 1990s) because of ineffective regulatory, fiscal, and monetary policy. Economies everywhere stagnate; overregulation and fear keep the global credit and capital markets closed. Trade and capital flows continue to decline for years as globalization goes into reverse, and the psychology of nations becomes much more defensive and nationalistic.
The authors of the article have therefore sketched out four scenarios to capture the wide range of possible outcomes. The scenarios are based on two critical uncertainties.
Severe global recession – Moderate global recession
Global credit and capital markets reopen and recover – Global credit and capital markets close down and remain volatile.
By plotting these two axes against each other, four future scenarios are created. You can read more detail about these in the article, but in summary:
Regenerated global momentum
In the most optimistic scenario, government action revives the global credit system—the massive stimulus packages and aggressive monetary policies already adopted keep the global recession from lasting very long or being very deep. Globalization stays on course: trade and capital flows resume quickly, and the developed and emerging economies continue to integrate as confidence rebounds quickly.
Battered but resilient
In the second scenario, government-wrought improvements in the global credit and capital market are more than offset—for 18 months or more—by the impact of the global recession, which leads to further credit losses and to distrust of cross-border counterparties. Although the recession could be longer and deeper than any in the past 70 years, government action works, and the global capital and credit markets gradually recover. Global confidence, though shaken, does rebound, and trade and capital flows revive moderately. Globalization slowly gets back on course.
Stalled globalization
In the third scenario, the global recession is significant, but its intensity varies greatly from nation to nation—in particular, China and the United States prove surprisingly resilient. The integration of the world’s economies, however, stalls as continuing fear of counterparties makes the global capital market less integrated. Trade flows and capital flows decline and then stagnate. The regulatory regime holds the system together, but various governments overregulate lending and risk, so the world’s banking system becomes “oversafe.” Credit remains expensive and hard to get. As attitudes become more defensive and nationalistic, growth is relatively slow.
The long freeze
Under the final scenario, the global recession lasts more than five years (as Japan’s did in the 1990s) because of ineffective regulatory, fiscal, and monetary policy. Economies everywhere stagnate; overregulation and fear keep the global credit and capital markets closed. Trade and capital flows continue to decline for years as globalization goes into reverse, and the psychology of nations becomes much more defensive and nationalistic.
Some Scenarios for a Global Recession
I read these articles published on popular websites. My first feeling was: I need to sell everything I have. How am I going to save my money here? Pessimism is everywhere. Energy and commodities prices are going down. They will continue to do so as the global recession scenario unfolds. Emerging markets will be particularly hit. Equities are in a bear market. Forecasts for equities in some cases are so negative that are really scary also for experienced investors. Bonds should do fine, but are we sure?
Inflation is the new big enemy of this decade according to some analysts. Interest rates can only go higher in the long term, some say (including Greenspan). The US financial system is about to blow up according to someone else. Actually, the Fannie Mae (FNM) and Freedie Mac (FRE) stories and others (Lehman (LEH), Bear Stearns, etc.) are a pretty serious concern. Liquidity is shrinking, consumers are shaken.
The US has so far fueled growth in many areas of the world, becoming a big debtor. In the long term, the trend will continue, but it is likely that it will slow down. It seems that this cannot be sustained much longer and a rebalance has finally started. The US still has an important influence in the global economy. China will suffer a lot from the ongoing US simultaneous crisis in the credit and housing markets. Internal contradictions and the need to grow will create difficulties. This is true for other surplus and emerging countries.
Let's try to build a scenario. The US deficit will be reduced and the dollar will be relatively stronger. Commodity and energy prices will go down, helping to control inflation at least momentarily. I have recently noted a rebound of the stock market associated with a stronger dollar and weaker commodities and energy prices. This correlation should continue.
The US financial system will find a base to stabilize itself, although it will be much weaker than before. Also housing will at last stabilize. The problem is: how quickly will these adjustments occur? At which levels markets will attract new buyers? Do we have any elements to make some assumptions? It is quite difficult to predict. The tightening of credit is not helping and there is a vicious circle ongoing.
Geopolitically, we are seeing a long term growth of new and old regional actors. This is likely to continue. Money will continue to flow from traditional economies to frontier and emerging markets, but slower than before after that the current crisis will have considerably weakened the investors' appetite for these volatile and often unstable markets and countries.
In the short term we have to fear a shock in the markets. An event, although sometimes crashes occur without apparent reasons, that will ignite a global panic selling. No one can now whether this time it will happen or not. Hopefully, inflation will be controlled soon enough to allow central banks to act and lower interest rates timely.
There are and there will be buying opportunities. The timing is quite difficult. The recent rebound of the stock market has not been very convincing. I do not have the evidence, however, to say that the bottom has already been hit in July. I think that the key for a relatively stronger equity market will come from a turnaround of financials. we need to monitor this sector very carefully. Bad news will continue to hit the sector for some time, but this sector's bottom is key to bring some optimism into the markets.
I think that stocks eventually will benefit the most from a stabilization of the economies. Hopefully, the US will manage with the new President to start a path of control of the deficit. This would help a lot. It would also make the dollar stronger. And we could see stock indexes print new highs.
Inflation is the new big enemy of this decade according to some analysts. Interest rates can only go higher in the long term, some say (including Greenspan). The US financial system is about to blow up according to someone else. Actually, the Fannie Mae (FNM) and Freedie Mac (FRE) stories and others (Lehman (LEH), Bear Stearns, etc.) are a pretty serious concern. Liquidity is shrinking, consumers are shaken.
The US has so far fueled growth in many areas of the world, becoming a big debtor. In the long term, the trend will continue, but it is likely that it will slow down. It seems that this cannot be sustained much longer and a rebalance has finally started. The US still has an important influence in the global economy. China will suffer a lot from the ongoing US simultaneous crisis in the credit and housing markets. Internal contradictions and the need to grow will create difficulties. This is true for other surplus and emerging countries.
Let's try to build a scenario. The US deficit will be reduced and the dollar will be relatively stronger. Commodity and energy prices will go down, helping to control inflation at least momentarily. I have recently noted a rebound of the stock market associated with a stronger dollar and weaker commodities and energy prices. This correlation should continue.
The US financial system will find a base to stabilize itself, although it will be much weaker than before. Also housing will at last stabilize. The problem is: how quickly will these adjustments occur? At which levels markets will attract new buyers? Do we have any elements to make some assumptions? It is quite difficult to predict. The tightening of credit is not helping and there is a vicious circle ongoing.
Geopolitically, we are seeing a long term growth of new and old regional actors. This is likely to continue. Money will continue to flow from traditional economies to frontier and emerging markets, but slower than before after that the current crisis will have considerably weakened the investors' appetite for these volatile and often unstable markets and countries.
In the short term we have to fear a shock in the markets. An event, although sometimes crashes occur without apparent reasons, that will ignite a global panic selling. No one can now whether this time it will happen or not. Hopefully, inflation will be controlled soon enough to allow central banks to act and lower interest rates timely.
There are and there will be buying opportunities. The timing is quite difficult. The recent rebound of the stock market has not been very convincing. I do not have the evidence, however, to say that the bottom has already been hit in July. I think that the key for a relatively stronger equity market will come from a turnaround of financials. we need to monitor this sector very carefully. Bad news will continue to hit the sector for some time, but this sector's bottom is key to bring some optimism into the markets.
I think that stocks eventually will benefit the most from a stabilization of the economies. Hopefully, the US will manage with the new President to start a path of control of the deficit. This would help a lot. It would also make the dollar stronger. And we could see stock indexes print new highs.
Economists Weigh Recession Scenarios
It's hard for officials to even utter the word "recession." They have to keep a stiff upper lip and try to keep confidence high — but it's possible that battle is already lost. A new Associated Press-Ipsos poll reported Monday that 61 percent of Americans believe the country is already in recession. More and more economists are also moving into that camp.
"We do see the economy shrinking this quarter, and for the second quarter it's going to be very weak as well," says Bernard Baumohl of The Economic Outlook Group. "It's just going to feel quite awful. And it's going to result in the unemployment rate increasing and consumers cutting back on more spending."
Although he believes the economy is shrinking right now, Baumohl isn't quite willing to predict a recession, roughly described as two consecutive quarters of economic contraction.
"Well, if you're pinning me down, I will say that we will — by the width of a hair — formally escape a recession," Baumohl says. "But I don't think anyone's going to feel the difference between a recession and the kind of weak growth we're going to experience the rest of this year."
Many economists are firmly moving into the recession camp. Among them are forecasters at big Wall Street firms, including Merrill Lynch and Goldman Sachs — and at market intelligence firms like Global Insight, where economist Brian Bethune and his colleagues have just released a new forecast.
"For the first half of 2008, we're expecting a mild recession," Bethune says.
Employment will fall in housing-related industries, financial services and building material, Bethune says. Strength in export industries like aircraft, technology and software, and farm equipment will help keep the recession shallow, and the stimulus package will help keep it short, he says.
Global Insight also believes there's a 25 percent chance of a longer, deeper recession brought on by the failure of a large financial institution toppled by bad mortgage-based investments.
"That would be a very large domino. And we know what happens in the game of dominoes when a large domino goes down. It takes down a lot of smaller dominoes. That's the biggest risk," Bethune says.
What To Do About Credit
This meltdown in the financial system would likely cause credit to get even tighter, strangling potential growth, says Mark Zandi of Moody's Economy.com. He thinks a short recession is most likely, but he also thinks a longer recession is a real possibility.
Zandi says a recession could last well into 2009, or it could be what he calls a "classic recession" of declining activity through the summer and fall. "And then we have stop-and-go growth after that for the next couple of years where the economy just can't find its groove, similar to what Japan has suffered over the past decade — not to the same degree, but to a degree," Zandi says.
To avoid this scenario, Zandi believes policymakers need to think about creating a government entity to buy bad mortgages to clear up the picture in the financial markets so credit can flow again.
Zandi said that would be similar to the Resolution Trust Corp. that the federal government established in the early 1990s to resolve the savings and loan crisis and the credit crunch of that era. The RTC took over failed banks and auctioned off their assets. That effort cleaned up the banking system and saved taxpayers a significant amount of money.
"We do see the economy shrinking this quarter, and for the second quarter it's going to be very weak as well," says Bernard Baumohl of The Economic Outlook Group. "It's just going to feel quite awful. And it's going to result in the unemployment rate increasing and consumers cutting back on more spending."
Although he believes the economy is shrinking right now, Baumohl isn't quite willing to predict a recession, roughly described as two consecutive quarters of economic contraction.
"Well, if you're pinning me down, I will say that we will — by the width of a hair — formally escape a recession," Baumohl says. "But I don't think anyone's going to feel the difference between a recession and the kind of weak growth we're going to experience the rest of this year."
Many economists are firmly moving into the recession camp. Among them are forecasters at big Wall Street firms, including Merrill Lynch and Goldman Sachs — and at market intelligence firms like Global Insight, where economist Brian Bethune and his colleagues have just released a new forecast.
"For the first half of 2008, we're expecting a mild recession," Bethune says.
Employment will fall in housing-related industries, financial services and building material, Bethune says. Strength in export industries like aircraft, technology and software, and farm equipment will help keep the recession shallow, and the stimulus package will help keep it short, he says.
Global Insight also believes there's a 25 percent chance of a longer, deeper recession brought on by the failure of a large financial institution toppled by bad mortgage-based investments.
"That would be a very large domino. And we know what happens in the game of dominoes when a large domino goes down. It takes down a lot of smaller dominoes. That's the biggest risk," Bethune says.
What To Do About Credit
This meltdown in the financial system would likely cause credit to get even tighter, strangling potential growth, says Mark Zandi of Moody's Economy.com. He thinks a short recession is most likely, but he also thinks a longer recession is a real possibility.
Zandi says a recession could last well into 2009, or it could be what he calls a "classic recession" of declining activity through the summer and fall. "And then we have stop-and-go growth after that for the next couple of years where the economy just can't find its groove, similar to what Japan has suffered over the past decade — not to the same degree, but to a degree," Zandi says.
To avoid this scenario, Zandi believes policymakers need to think about creating a government entity to buy bad mortgages to clear up the picture in the financial markets so credit can flow again.
Zandi said that would be similar to the Resolution Trust Corp. that the federal government established in the early 1990s to resolve the savings and loan crisis and the credit crunch of that era. The RTC took over failed banks and auctioned off their assets. That effort cleaned up the banking system and saved taxpayers a significant amount of money.
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