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.

Iceland - A small country with big problems

Iceland has suffered to a great extend in the financial crisis today, and it is not over for them yet. Last week the Icelandic Financial Supervisory Authority took over the national banks Kaupthing, Glitnir and Landesbanki. The fact that Kaupting also has operations in other countries such as Sweden and Finland makes the situation even more complex.



Just after the Icelandic bailout, The Swedish Central bank ”Riksbanken” decided to lend 5 billion Kronor to Kaupthing Bank in Sweden (app. 525 million Euro). According to the Riksbanken, this loan can be used either to pay depositor with accounts in Iceland or Sweden, or to depositors and other creditors in Kaupting Bank Sweden. 1.7 billion Swedish citizens have got shares in Kaupthing Edge, and according to the Riksbank, this solution will prevent Swedish investors from losing any of their capital, this can even make them till winners of this crisis. (http://www.riksbanken.se/) And the Riksbanken will not lose either, the Swedish subsidiary of Kaupthing will be sold.

This quick bailout made by the Swedish Central Bank show that the Swedish government is really taking responsibility in the financial crisis. Furthermore, I see no need for bailouts like this one to Swedish banks in the near future; they have a considerably stronger economy than many other banks is other countries, and it looks like the Swedish Financial Supervisory Authority has control over the situation.

Food prices

The shoppers in Chongqing, China, died in a stampede for discounted cooking oil at a Carrefour store in November last year. At the same time in Morocco, dozens of people were hurt in clashes with police at a protest over high food prices. Around the world, the soaring cost of everything from milk to bread to meat is stocking inflation, threatening the poor with hunger and prompting politicians to impose price and export caps. The United Nations Food and Agriculture Organization’s global food price Index jumped 24% last year, the biggest gain since 1990. Donald Coxe, a global portfolio strategist at BMO Capital Markets has tracked commodities for over two decades, he recommends buying the stock. He also says that here will be another year of skyrocketing food prices and consumers all over the world will be hurt. “History as shown that when people have problems with food, governments can fall”. (http://www.financialpost.com/story.html?id=213343)

With stockpiles of grains including wheat and rice at the lowest in three decades, a scarcity of agricultural land in China and India surging demand for food in emerging markets, prices may keep rising even higher in the future. According to the International Monetary Fund, last year, as much as 40% of the global gain in soybean and meat consumption came from China. However weather also plays a part; drought in Australia, the world’s third biggest dairy exporter, hurt milk supplies. According to CMA (A German agriculture marketing firm) the amount dairies in Germany pay to farmers for a liter of milk rose 22% last year.

With the biofuel boom, which diverts corn used for food and animal feed, is making goods such as Mexican tortilla and American meat more expensive. US ethanol production alone counted for about 60% of the global increase in corn consumption in 2007 according to the International Monetary Fund.

Global food inflation is being driven by this strange attempt to take the food out of the tables and give it to the cars. Rising crude prices mean that customers won’t find much relief buying imported goods. In some nations, where some people may spend more than half their income on food, a small jump in prices may mean more hunger, which Governments might rush to impose caps. In India for example, the Prime Minister announced a plan in the end of last year to set aside more land for grain after higher prices for onions and wheat cost. In Russia the Government has proposed limiting grain exports, and Venezuela ordered its state oil company to plant soybeans and build food processing plants.

Food prices are clearly adding to the stress in developing countries today, on top of the other financial crises. We need to be more prepared for an agricultural point of view.

Thoughts on Oilprice vs Climate Change

When the price of crude crossed $139 a barrel in June, it was the highest sign that the end of the Age of Oil was on the horizon. Hydrocarbons have had a remarkable run, fueling more than a century of economic expansion that has spread from the Old World to the New World, to the emerging powers of Asia and beyond. Geologists and economist may argue over exactly when global production of oil will peak, but few disputes that the era of cheap oil is over. Some say the peak is expected to happen within a couple of month, some in year 2012.

No companies will feel the dislocation more intense then the carmakers, and they have been slow to adjust. Their recent enthusiasm for hybrids and other fuel saving vehicles cant mask their continued obsession with gas-guzzling trucks and sport utility vehicles. “The car-based culture, the business-as-usual of building cars and trucks, is going to change dramatically” said Toyota Motor Corporations executive Bill Reinert earlier this year in an interview with Bloomberg.

The scarred earth will never recover from all the damage that humans have made trough driving cars and other vehicles. And as the price of oil rises, the cost to the planet in terms of environmental degradation also spirals unavoidably higher. Can car companies follow this?

Last year Environment was put as a subject in some school’s timetables around the United States, despite that fact, America is one of the worst countries when it comes to environmentally friendly policies and developments.

Can Al gore, and other politicians, with thier pro-environment policies help to recover the world’s environment? And can a result of this be lower oil prices?

A solution for the Financial Crisis in the States?

Last Friday, the American Treasury Secretary Henry Paulson told the world he had a solution for the financial crisis in the States: that the American government is to buy all the bad loans. The congress has decided that there is an urgent need for a strategy like this one, in order to protect the taxpayer’s money and release the tense in their financial system. He also stated that it is important to let the money flow to the consumers while this is I progress. However he believes that this program will need plenty of money in order to get the best and maximum effect, maybe hundreds of billion dollars if it’s needed. Next wee the congress will make the more precise decisions.

There are many different aspects in this matter, and it raises many different opinions about the outcome this program might get. One way of looking at it is that the taxpayers will have to pay for this. Even tough Mr. Paulson states that it is important with credit flows and that the money that will go into this program will not be the taxpayers’, the money has to come from somewhere, and they FED can’t take all the reserves. The States all ready has a National debt of 9,5 trillion. This will eventually affect the taxpayers. At the same time there is an election coming up soon: Bush talks about cutting taxes, Obama talks about better medical aid, care and social security and Mc Cain talks about building up the army.

However there is another way to look at this financial salvation program. I believe it is highly unlikely that the FED will loose more money then they can win in the long run if nothing is done about this crisis, and it has to be done soon in order to prevent recession. However it is of high importance that these financial arrangements should aim to prevent the “sellouts” of the money market.

So the question to ask is whether the U.S. government is big enough to take on this whole problem themselves? Well, they have to start somewhere.