Home > Economics, Future, Opinion, World > 2009 – first Quarter and beyond…

2009 – first Quarter and beyond…

If you have paid any attention to my blog over the years, you would have pulled you money out of the stock market and put it into cash and gold ages ago.  Now of course with the absolute free fall we are in with the stock market and the resulting pressure for corporations to be liquid, there are some incredible deals out there, with Real Estate and even some good investments on the stock market.   From where I sit looking at the share-holdings and the stock market,  it is way too late to liquidate for anyone, those people who bought into the dream of borrowing against their real estate to funds their life style or their investments are in, or soon will be in a desperate state of affairs.  The Dow is less that 50% of what is was… and although I feel we are perhaps not in free fall anymore, and will soon be entering a trough stage, which I feel will continue for probably 2–3 years. The USA and the World in general will not retain any of its former financial position for years, depending on Obama and what he is allowed to do.  I think he gets it, the seriousness of it, but the Republicans and their vested interests still have a really stupid outlook on economics in a macro sense.

I am wondering if there is a way out of this mess inside a generation. The reason I say this is that much of this mess has little to do with structure, but a lot to do with human nature. Human nature is not something that will change overnight. We need a dramatic change in the human mind, a complete Paradigm shift in attitude towards business in general.. Change Management applied to the Corporate World… dead loss… me thinks… thats why I think we are talking about change over a generation – thats why I don’t think we shall see the USA and the G7 in particular get back any of their former financial clout for 10 years possibly longer.  I think over the next few years (2–3 minimum) American growth will become positive (real growth in GDP and jobs – as opposed to government sponsored growth), but low numbers 2–3% maybe… however as a major World Economic & military power, the USA is dying, as all empires have died over time… thanks for this can go to the Republicans and in particular the total lack of inspiration and leadership of George. W. Bush.

The thought is – this is a problem we are experiencing, what have we learnt from it ?  Will we learn from it…?

Even after the first payments had been made to the ailing corporations, and still these corporation paid bonuses to people, when the company itself was losing money. I know that some of the structured bonuses are about individual sales performances, however to pay a bonus to a ‘C’ level executive under any circumstances when these corporations are in receipt of Tax Payers money is such bad management… when the thoughts on Wall Street are about ‘what can I get away with’ and the thoughts on Main street USA is all about watching their standard of living, what they are passing onto the next generation, their health, the future for their children… much to do with the sale job of the ‘Wall Street’ moguls… who enticed Main street America to borrow against their only asset, their house of those people who weren’t caught up in Mortgage Backed Securities (Sub-Prime) fiasco.  I been through this before…

However I think the only function that a government should have in a situation such as this is to make sure that the infrastructure – the banks and other mission critical organisations such as Fannie Mae, Freddie Mac etc, and to a point the major insurance companies (AIG) have to remain sound and therefore must be financially backed, Yes even if that means Nationalising them, which is effectively what is happening to AIG, Royal Bank of Scotland, and soon Citigroup, the rest of the companies, will need to live or die as per their own abilities and resources dictate.  Without access to money, corporate America will die in any case… In the manufacturing area, many corporations have stopped building and are just selling inventory – many others have gone to the markets and issued more shares to get their necessary working capital, they cannot get from the banks.   

The reason that the banks failed was their chasing market share at any cost, to basically make themselves a difficult take over target, whilst everyone’s pays their loans this is fine… but not enough due diligence went into the quality of their clients, and then of course we have the Sub Prime… which may have been the catalyst for these actions, for the corporate banking seeking ROI as the catch all, if the banking sector had not been so highly geared and the amount of capital that the Federal Reserve demanded they keep with them was a realistic level and not the petty cash it appears, this crash would never have happened to this extent.  Sure Merchant Banks would have gone under, as well as highly geared companies in general, once the funding providers started to call in their loans to cash up.. but this whole crash would never have gone to this extent…

A major reason that greed ran a muck and unchecked was the changes made to US Banking law… see here http://en.wikipedia.org/wiki/Glass-Steagall_Act with the repeal of the Glass Steagall Act of 1933 over the years with the final repeal of the act being in 1999, in the final throws of the Clinton Administration. Or you can view a article I did on the act in a previous blog posting here.

 

So what happens when the interest rate set by countries Federal reserves hit 0%…. how can the government influence the market and give financial institutions and other large corporate players cash… what about the traditional way, buy shares, or perhaps give them money backed by say bonds or such like, payable in say 10 years, perhaps a minimal interest, which is in some way tied to the companies health.

 

 

 

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Categories: Economics, Future, Opinion, World
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