UN pro Keynes?

A new report from UN, “World Economic Situation and Prospects 2009”, indicate the bad future outlook for the world’s economy in 2009, where the financial crisis in the US and Europe effect the whole world’s economy negatively. According to the CFO of UN’s development- and analytical department, the global GDP will change -0.4% at the worst to 1.6% at the best. This will mean that the world economy start to decrease for the first time since 1930! When a reliable source such as UN releases a report like this, the continuation of the crisis is a fact. Comparing with the numbers of 2007 and 2008, with an increase of 3.8% and 2.5%, the situation is pretty clear, 2008 is not going to be a good year.

The UN report also highlights central deficits in the international financial system, and that developing countries expose themselves to risk by trusting the US Dollar as a reserve currency. Furthermore, the repost also encourage more financial support from IMF and The World Bank, improved international coordination regarding exchange rates fundamental reforms of the financial regulation systems.

In my point of view, to summarize this report in more concrete and understandable words, the economical systems that have existed the recent century are about to collapse and economic evolution and wealth is not going to be something to take for granted. Maybe it is time for a more controlled market economy á la Keynes?

The Obama-effect

America’s new president Barack Obama is appointing the rest of his staff this week, however, the finance minister was chosen last week; Tim Gaithner from the Federal Reserve’s headquarters in New York, a favorite by many Americans. Furthermore, Obama promise billions of Dollars in support, and jobs to the American people, he even promises to handle this finance crisis and recession.

The Dow Jones Index rose last week, and continues to do so for several days in a row. In Stockholm, the OMX Index rose 9.1% in only one day – the biggest raise for a day in 10 years. This is what I call an Obama- effect. However, if it will turn the stock market around is doubtful.

Possible Auto-merger?

Yesterday was a black day for the three CEO’s of the auto industry in Detroit; Ford’s Alan Mulally, GM’s Rick Wagoner and Chrysler’s Robert Nardelli met with the Senate in Washington DC to ask for help from the politicians. After a four hour long debate, where the three CEO tried to sell the idea of a crisis loan to the auto industry of 25 billion USD, the negotiations were postpone to continue tomorrow. “This is about so much more then only Detroit, it’s about saving the economy of the US from a possible catastrophic collapse”, was one of the things Rick Wagoner said in order to gain sympathy from the Senate. However, the three CEO’s did not receive much sympathy from the Senate; at one point during the questionings the Senate asked the Detroit CEO’s to raise their hand if they would sacrifice each of their private jets that they flew to the meeting with, none of them raised their hands. So are the three Automakers really so broke? Or do they only see an opportunity to get some money to invest in their companies? Maybe they have to reconsider their priorites a bit, soon they might not even have a private jet anymore.

Furthermore, there has been a rumor going around, whether there would be a merger between the big Automakers. What would the Senate think of that? And how would it effect the States? In my opinion I don’t think a merger would be the ultimate solution; it will just make their problems bigger, the logic goes that if they merged the combined company would control 36 percent of the US auto market which would prevent it from failing. Since when does combining two large companies, that are both incompetently managed, guarantee success?

The Auto industry seems to have been caught with their fingers in the cookie jar, just like the banks with the bad loans. They do not have a plan B for the future, just cars waiting to be sold.

Just a little thought that hit me. Look at this diagram, showing the yield for 10years American government bond; It is right now the lowest ever, meaning investors still are trying to escape investments involving any risk, such as stocks, to safer treasury notes. Many people say the bond investors are the world’s most competent investors, and to follow their investment strategies is wise.

We need to see a change in these investment strategy-patterns, in order to achieve a sustainable upturn in the stock market. The confidence does not exist in the more risky stock market as long as the investors choose government bonds. So when is it time to start investing in the stock market again? It will need a boost of capital in order to gain volume. So what will it take to persuade investors to change investment strategy? An upturn in this financial crisis would probably be the answer to that question, however when will that be? That’s a question with an answer we can only speculate about.

Time of growth for fashion chains

The stock market today is extremely volatile and not very reliable; several days with shortfall, some days a slow upturn. So who are the real winners that can make money in today’s financial crisis? I would say the people with a lot of capital, the ones that are able to influence the movements of the market, especially where they have big holdings of shares. Take two wealthy Swedes as a good example; H&M’s Stefan Person; the Swedish fashion chain’s sales rose 9% in October and Stefan Person’s fortune is growing bigger and bigger. The company has big plans for expansion towards the west in both US and Canada. Some analysts believe that H&M could eventually grow to have 1000 stores in the US. The company opened its first store in the US in 2000, and since then the US has become one of its fastest growing markets.

It seems that a time of recession is a time of growth for fashion chains; another example is the British billionaire Sir Philip Green, the owner of BHS and Top Shop. He negotiated to take over a debt estimated at one billion pounds from Iceland’s investment group Baugur, after they went bankrupt in October.
Green said for The Sunday Telegraph that he met with Cabinet officials and boards. He also said they were very constructive because they had the ability to react fast and avoid the financial failure of the financial crisis.

Corporate Social Responsibility

Corporate Social Responsibility (CSR) has been an important subject for businesses for many years; however because of the situation in the world today, with the environment, the Greenhouse effect, financial crisis etc, the subject is more important than ever. The controversies about the globalization process have raised a lot of questions regarding the management of both multinational enterprises and small businesses in both developed and developing countries, and whether some organizations are pursuing profits at the expense of vulnerable workforces, the fragile environment, etc.

Globalization has put a lot of pressure on businesses in the sense of development, and solutions such as liberalism and public ownership have become self-explanatory. The competition in the world’s marketplace has become tougher, not only because of the competition but also because of the pressure for stakeholders. The reactions to this kind of concerns have been that organizations have increasingly taken steps towards improvements of their social responsibilities and more and more started to demonstrate it. There are different reasons for implementing CRS within organizations, and different approaches and strategies to do so. For small and medium sized enterprises adapting CSR might become a high cost and they choose not to, or to only some extent.

CSR could be a way to solve major global problems like unacceptable working conditions for employees or increasing the level of unhealthy discharges for the environment. If not, the CSR movements made by organizations show that their responsibilities does not only lie in profit making, but in the process of how profits are being made. It can easily be argued that companies should focus on making profits, since that is one of most important measurements of success, and that development and other responsibilities should be up to the governments. However this would be an ineffective strategy for a company to take, since the market for profit maximization does not take into account social roles such as reducing unemployment, creating education possibilities and helping developing countries in their developing process. As I see it, developing countries have two options; they can either wait, and let the globalization turn the country into a socially responsible business area, or they can act; work from inside the organizations and build on an already existing, but weak, concept of CSR. They can follow MNE’s examples and improve their CSR standards in order to become a more international payer on the global marketplace.

To connect back to one of our first lectures in this module, the one regarding pictures and layouts for financial articles, I have during these recent weeks collected some interesting ones from different newspapers. It is interesting to see the always upcoming theme: disaster, depression and the color red.

The Swedish market


(www.di.se)


(www.e24.se)


(www.va.se)


(www.di.se)


(www.e24.se)


(www.e24.se)

In The UK


(www.ft.com)

In The United States


(www.fortune.com)


(www.forbes.com)



In the Arabic countries


(www.arabianbusiness.com)

Swedish newspapers mostly use pictures that are descriptive trough objects, not humans. In international newspapers the focus in on the individual. I believe the reason for this is because Sweden does not familiar themselves as a country with the crisis yet. They are affected by it, but I don’t think they consider themselves to actual be in it. The American Newspapers are the most dramatic ones, and nationalistic ones with the American flag in almost every picture.