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World Economy – a New beginning ?

September 21, 2008 Leave a comment Go to comments

Here we are at the cusp of a new beginning, going forward to a new way of doing business – the sunrise of ethical, fair and honest business practices? –  however until the sun does come up, we will have a lot of trials and tribulations to experience in the next 1–2 years possibly longer – subject of course to how competently this is handled.

By now if you have been reading my blog entries you would have discovered that I have a problem with how a word is used in the corporate word – “expediency” – to me this is the biggest bail out for ethical business practices – it demeans the goal and the organisations and the people within those organisations –  I say this as it leads to a win at all costs mind set – leading to business being carried out with no ethics, little honesty and a what we can get away with mentality – far from a win-win mentality.

Business has been living on hype, hot air and make believe in the corporate world for at least ten years probably longer, with no thought of where these practices were going, they were just riding the roller coaster and hanging on like hell, the ride is over guys and girls and life and reality, an oncoming MAC Truck has hit us all fairly in the face.

This gung ho, aggressive, winner take all approach to business that has been so defined by the players in the business world – are soon to discover, if they haven’t already, what it is like to be involved in irrevocable change, they have no control over – a change that doesn’t care about them as individuals – this huge correction is going to affect their dreams, deflate or completely obliterate their homes (perhaps too highly geared), their current investments as well as those for retirement / Superannuation, their bank accounts and their prospects for the future.

Do you think anyone will really trust the Financial / Banking sector again ?

Last Friday – the market was up, did you feel relieved, that things are going to get better – my suggestion would be to use this temporary hiatus in the market to reduce your exposure and cash out or go into blue chip stocks – personally I would just cash out – nothing is safe – (actually some are, relatively) safety is very much a relative term at the moment, the whole system is badly infected and will need to be reborn with a new structure and concept and then rebuilt, however this new structure may have little in common with the past.

My only suggestion so far as my perception of stable companies in the investment area is Charles Swabb – they have always seemed to have a conservative outlook on investments – so they may be a good port in this storm to seek some advice – (incidentally I have no interest in this company, and it is just my opinion). Mind you I would think that there are hopefully a number of realists in the market that could offer you specific advice for your personal or business position, but please find someone competent in light of the current and future financial climate.

The next roller coaster ride will probably be more personal, with the fallout in personal debt, credit cars and car finance, in the past you could perhaps reorganise your debt, into a lower interest loan by consolidating with your mortgage or other personal loan – this is going to be near impossible, as the banking system is incredibly sick and is not in a position to loan money. This is going to have a very detrimental effect on those companies that rely on cheap and easy credit, cheap energy and of course cheap oil –transport for instance. Further, these changes are going to reflect in the general economy with a marked changes in the availability of credit, lower job security and reduction in activity with a marked downturn in retail sales (this is happening now), travel, and in high end or capital goods such as cars as well of course in luxury goods.

Then we have on the horizon a test – Carbon Emissions Trading System, do we do the right thing and enact worldwide changes to the way we use energy and deal with emissions or do we take the easy way out and continue as before? – the reasons I say this as it will be an extra charge, a cost on not only countries but every business and person worldwide, unless you are on the proposed trip to Mars. It is going to exacerbate the hurt. Bite the bullet – lets start afresh.

In this race to reduce corporate leverage (I wish we could somehow slow this de-leverage process) – assets are going to be sold at fire sale prices just to cash out, assets  are going to deflate, there will be fewer buyers, and they will be looking for the best price – corporate capitalisation will be lowered as well as cash reserves, this will be exacerbated by their reduced stock exchange value due to low confidence, this will further reduce the effectiveness of corporations to respond to opportunities.

Dealing initially with the USA, their Government will activate the printing money press – this is going to devalue the US dollar, which you may not consider to have an effect, but it will – due to the long term effect of the flawed strategy to import food and energy.

Importing value added and manufactured products from overseas (in particular China and Asia) will become more expensive, for instance consumer goods, raw materials, but mainly energy and food (lets change the use of oil based plastics especially in packing).  There will come a tipping point (in the short-medium term) where citizens of countries will choose the local product to save costs, as it should be the cheaper product, as costs associated with importing products will have increased due to energy, transport costs, exchange rates – this will lead to a dramatic reduction in the number of imported goods over time.  The flow on effects to manufacturing economies worldwide in the medium term is going to be profound.  World Governments may do the absolutely wrong thing, by introducing import duties and excise – sprouting exceptional times – wake up guys – this is really false– you need to encourage trade – for your own industries – talk to your citizens, ask them what they think, what they need, you might be surprised.

The historical strategy of closing down essential and non-competitive manufacturing industries internal to a country that produced the essentials of life and living to me has always been a flawed strategy, I have previously touched on it before, the essentials of life and the support of your citizens should be the absolute priority of any countries administration, and at the forefront of their priorities.

But what are the essentials of life, I hear you say, clean water, good food, shelter, what we breathe – for now what about energy I hear you say – Yes I think so, as transport to and within countries which are geographically diverse, what else are the other essentials of life today – what do you think? Communications?

Defence – you have got me here – I would prefer none – but let’s be real, we could reduce it – any reduction would seriously help our deficits that we have to finance – any specific incursions or invasion could be handled by a body such as the UN (with teeth) rapid response group – I would like all the world to be peaceful and altruistic – it would certainly be cheaper, but at the same time – its a dream – but I believe no armed forces are in the long term the only way forward. Again what we need here is an UN (with teeth) – no full time security council members for a start – fully supported, not just put up with, that way we have a chance (only a chance though) of a fair decision with again some honesty, integrity and ethics in the process to negotiate any disagreement before it ends in conflict.

I have never liked the idea of importing basic essentials, such as food, and or energy – however those countries that were looking for the best price and not the best strategic alliance will pay for this as countries take advantage, for instance – this speaks to me of the former Soviet Union, however they might remember they are only in this position whilst they have someone to sell the energy to, if would be a opportune time for them to consider this point.

We are a world market – financially almost one, this already is a World problem, it is likely to become a worldwide disaster unless a single systematic approach for action is formed, considered and acted upon – I know that what I am asking for is not normally something I would expect from people let alone different countries all with their own agendas – but how about it Ladies and gentlemen – would you like to work together to form the basis of a new beginning, as Roosevelt said so long ago – a New deal, or a worldwide depression with tens of millions more disenfranchised, marginalised and penniless people, truly we cannot comprehend the full consequences that may result – perhaps even you may be one of the new poor – such a mass obliteration of wealth may result in perhaps a real blood and guts revolution.

This may in the long term mean the formation of a new economic unit – similar –  but certainly not such a behemoth and bureaucratic monster as the EU – but a common worldwide currency may be a good place to start. It may be time to start living in this world as a one financial community – with STRICT laws and unforgiving penalties for those cowboys of the future, as there will be those who will always try it on. I wouldn’t be surprised it there are organisations even now who are trying to carry on illegal or at least immoral practices – their time will come.

Finally if you are in business, change is here big time, your suppliers and customers are in or soon will be in a frantic, desperate attempt to stay liquid and of of course solvent – you must respond to the current business climate, as it deteriorates and changes so rapidly, trust and confidence are falling, margins will be eroded. How about thinking about a future where you run your company along ethical and honest lines with a win-win mentality – you will survive – all other things being equal.

Don’t even get me started on these programs that are using agricultural fields to grow corn and other cereal crops for Bio-Fuels. This has two direct results, firstly increasing the price of food essentials and secondly perpetuating a technology that we know is old and will soon be dead, why not invest in new technologies and speed up their development and roll out.

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