What are the possibilities ahead of United States of America, since the current recession is almost eating up every business done here?
– This is one certain question, which is catching up the minds of most people all around the world. You either choose to call it a “fear factor” or an “intuitive break down”… all that we say is that… it’s getting on, to make people think ahead, with more caution. Based on how, history of the earlier recessions were handled by the world… we have drawn few probabilities, which can help you all to get more views to think ahead of times.
Consumer Spending: For any kind of a boom, to begin all over again in the market … the first thing you need to find out is, are there any buyers… who can buy what you sell. If yes, What can they buy & how much can they afford to buy? Until now, most consumers in USA used their home’s equity as an ATM, are finding it out of cash now. And now they’re strapped with big payments they can’t afford. And let us tell you, with home values cut in to half in some parts of the country, most people aren’t able to get more money into their pockets which can be spent, even if they want to. Some will lose their jobs and will have to give up their homes too. If were to do little bit more of straight talking then we would say, it’s only now that US consumers have started to get the message of “saving for a rainy day.” Unfortunately, only because it’s raining now this rules out a possible boom any time soon in Consumer Spending, which is the key recession liberator.
Manufacturing Boom: Every day, we read about another company laying off workers, in response to a drop in its business. It’s not too surprising, given the slowdown in consumer spending, the virtual shutdown of automobile sales, and the lack of consumers and businesses buying “stuff.” It’s very likely that unemployment percentages will reach double digits later this year nationally. In some regions it’s there already.
Hey but hold on, there are few other sectors in US which is more often ignored by most analysts across the world. Going by the developments seen in US FDA norms the health care industry looks more attractive to us ahead of times.
Which country will be the first to bounce back post this recessionary trend? What’s your view on emerging markets?
– This is one certain question which is purely perception based. As you all may be knowing, all economic trends of countries purely moves based on interpretation of available facts & is 100 % speculative. It’s more of “it may be” factors that leads to more of “it can be” which later transforms to “yes, it is” kind of thinking. So we would wish to channelize your thoughts towards, our view about existing markets … so go on, project the trend for your self based on your interpretation.
Talking about the current trend, emerging markets are in deep trouble because most of their economies are so dependent on exports. Mind you, if we are doing much of the talking about US, it’s only because US is the largest consumer of most goods sold in the economy i.e. you need a buyer, for what you export… so its US that was the biggest consumer all these while. Meaning that, as goes the U.S., so go these markets. And as we’ve seen, it’s not going so well for the U.S. So when ever you spot a country which has high exports, don’t jump in saying “ this is the next super power” … but instead try to see who is buying the goods from them.
Now coming to Asia, if you analyze history the Asian markets have had their problems from the in the late 1990s, because they have borrowed very heavily in dollars and other hard currencies. And when things have started to come to terms now, their currencies have collapsed. So, they not only had huge debts, but they have got bigger, and their local currencies have fallen against the dollar and other hard currencies. The problem in Asia now, is their too much dependence on exports. Directly or indirectly, we estimate over half of them go to the U.S. consumer, and the U.S. consumer is in the tank. And for every 1% decline in U.S. consumer spending, the imports go down 2% to 3%. That’s just the nature of the beast, you see..
Few Key Observations:
1> The key factor that decides the growth of any country post this recession period would be, its respective government spending habit. Any country, that exhibits maximum intelligence in its government spending policy that it would undertake during this recessionary period, can be categorized as an emerging economy in terms of growth. If you could turn few history pages in the back ward direction, it clearly tells … it were these revolutionary thoughts that reformed most economies of countries during the times of great depression.
2> Once again, we wish to re-iterate that, it’s purely a myth if you just believed … a country with high exports stands a better chance to get through as a winner during recessionary times. Japan, during the last 10 years, they’ve gone from about 30% of GDP in exports to 50%. China has been our favorite on this too. As a matter of fact, getting to know who would be their consumer if a country exports, holds the key. Let’s face it, the U.S. is no longer going to be there. And it’s going to be interesting to know how does world perceive this fact.
3> Why do most people believe China has the potential? – There are about 110 million people in China who have over $5,000 in income–and that’s what it takes to have meaningful discretionary spending. And those are the people that can support the economy domestically. But 110 million is only 8% of the Chinese population. But as a matter of fact, going by the general savings policies of people across the world, it’s the Asians who stand most intelligent of the lot & has been seen that it’s the people of Asia who have potentially saved more money by spending less & interestingly it’s still safe in their pockets.
As we have been known for, we would like to endorse only views, that can help everybody think. Interpretation of information, is purely a subjective matter & can change depending on how an individual perceives it to be…
Why has China become so special off late? Why the entire world is looking at it now?
– Our emphasis on Chinese economy, in yesterday’s Asian market section saw many queries coming in from readers across the world asking us to explain our view point better about China. Yes, those who all have their thinking caps “ON” about China, you certainly have caught the pulse of the market. Suddenly entire world markets seem to believe, what is good for China … is good for the world.
If we were to quickly note few points for you all about China, it would be these.
Prime source of occupation: Around 3/4th of Chinese economy is driven by manufacturing sector, while the US & Europe are more service dependent. Good Example: If US & Europe thinks about manufacturing new cars, they outsource it to China because of cheap labor. Now a Chinese company gets money from US & UK & manufactures cars according to given specifications. Now this is called as manufacturing sector. Later once the finished product or car is ready, it gets shipped to client’s destination i.e. US or UK. Once these cars gets sold, there comes a need for providing after sales service. US & UK employs it’s own people, to satisfy all service oriented job requirement. This is what is called as service sector.
Advantage: Simple, now apply the “Old School” analytical thinking. It’s only when a product gets manufactured & assumes a finished product look, it can be traded in the market & accordingly a service can be provided to prospective customers. Now if you knew, how to manufacture the product… you know how much of control you have over the entire industry. Your client’s may change, your orders may come from a different country but you know how to get order completed at the best cost. It’s the technique, where all the tails end.
Above point is just one of the points that we have put across, reasoning why the world is now envying China. People, who wish have concrete understanding about more factors or have specific doubts in mind, keep us posted with your questions.
Why are Indian economists so excited when Stimulus packages are passed in foreign countries, is there any ways India could benefit from those packages?
The economists in India, certainly have reasons to get excited when stimulus packages gets through in foreign countries. Even though the benefit might not be directly linked, it definitely has behind the scene implications. Take a look at the below example, which explains my point better.
Guess most of you are aware about the news of $300 billion bail out package, which is expected to be announced shortly by US presidential candidate Mr.Obama. Now try doing this simple logical analysis of this situation. You must be knowing that, any bail out package released into the economy … is just to increase the spending power of the companies, so that their businesses become more profitable in the long run & this ultimately helps in stabilizing the over all economy. Now you surely know that, the money will be spent by companies… your next task is to analyze on what those companies will spend on.
During the recent cabinet meet, there was news from government spokesperson in US, suggesting that $300 billion would be spent to revive housing related companies. So now the spending power lies with housing companies. India is the prime supplier key metals such as aluminium, copper & steel to the US housing companies. Now this news is certainly positive for Indian companies such as Hindalco, Sail, Sterlite Industries, Tata & Jsw steel … as they are the leading producers of the required metals for US housing companies. J The equation looks simple, but carefully mapping it & establishing links between all sectors in an economy … is something that can prove a little daunting at times & most often all the time.