Wednesday, January 07, 2009

What I was reading...

Some of you may know that I was out of the Kingman area for the holidays. My travels included a plane ride to the land of 10,000 ice rinks as I call it this time of year. As customary I purchase an issue of The Economist for reading on such trips that begin at an airport. This time I picked up the issue The World in 2009 special rather than the weekly issue.

As I read the various articles and opinion pieces I found the last paragraph of many interesting and perhaps telling. So I decided that when I got back to Kingman I would put together a post of some of my favorites to share.

All of the following can be found at the link above. Again, all the copied text is from the last paragraph of the articles.

The year of unsustainability

Governments and businesses alike have talked up their commitments to sustainability in recent years. In 2009 both will have to show whether they really meant it.

Come to order

After intervening on such a grand scale, the state must use 2009 to prepare for the day when it can credibly say that it no longer guarantees everything. And that, in turn, will call for a restoration of the balance in which investors are confident enough to lend their money, but fearful enough to ensure they lend it wisely. Just now, many people will criticise regulation for being too lax. But remember that regulation can also be costly and distorting. And who will suffer if finance works badly? One thing that became agonisingly clear in 2008 is that we all will.

The audacity of change

The biggest danger for the Obama administration is that, after an initial burst of goodwill, it will simply drift, lacking the money to deliver its promises, battered by tough economic and international circumstances, and torn between Mr Obama’s desire to adopt post-partisan positions and the unforgiving logic of Washington partisanship. Still, it would be a mistake to underestimate Mr Obama. In 2008 he took on two of the most formidable politicians in Washington—Hillary Clinton on his own side and John McCain on the other—and beat them. In 2009 we will see a remarkably gifted politician confronting a remarkably difficult set of challenges.

Pick your scenario

There is a third scenario: the collapse in confidence reverses as rapidly as it occurred. As liquidity returns, investors conclude most banks are solvent. Opportunists pounce on undervalued mortgage paper and bank shares. Credit-spreads narrow, lending resumes and pent-up demand for homes is unleashed. Growth is sluggish for a few quarters before briskly resuming. Implausible? The American economy has repeatedly surprised itself with its resilience to shocks. Perhaps it will do so again.

About 2008: sorry

The world is, of course, wonderfully unpredictable. Our biggest hedge a year ago was to stress that some of the most important events of 2008 would be entirely off our radar screen. How true.

No more business as usual

The mood in many boardrooms will be defensive, but 2009 will offer opportunity for some firms that take bold contrarian bets. It is often in tough times that the greatest fortunes are made. To the brave, the spoils.

A new economic order

In 2009 we may not know the absolute answer to the fundamental question of how the new map of economic power will be drawn. But the question is the most important of this relatively new century. We are living through a pivotal time in establishing a new economic order. What matters is that globalisation has started and in my view it cannot—and indeed should not—be stopped.

The upside of a downturn

Those victims of downsizing who do end up launching their own businesses will have no shortage of role models. Michael Bloomberg, Steve Jobs and Michael Dell are just a few of today’s business behemoths who were thrown out of a job at some point in their careers. Like them, some of 2009’s crop of corporate outcasts will go on to prove that triumph—and millions of newly minted jobs—can be born out of adversity.

Intensive scare

In sum, 2009 will be a crucial year for health reform. Not only will the politics of health care be taken up by the new American president, which is sure to disrupt business as usual, but emerging technologies and business models also promise to turn up the heat. Happily, all of these changes—cheaper pills, more convenient clinics and online records, and the option to save money by travelling abroad for care—promise to benefit the long-suffering patients even as they punish the dinosaurs.

No end of trouble

Amid the gloom, some will do better than others (see article). The gaps between strong and weak institutions will widen further. Stronger banks will attract more deposits and will have the pick of the strongest borrowers at favourable terms. At the opposite end of the spectrum, weaker banks will face a double whammy of higher costs and a deteriorating credit pool as their best customers migrate to competitors. Governments will help to accelerate this polarisation by making it clear which institutions they will stand behind and which they are prepared to see disappear. Bankers used to complain bitterly about state intervention. In 2009, the thing they fear most will be state abandonment.

Lessons from a crisis

Though it seems hard to believe these days, the market-based financial system has made a big contribution to global growth. Reverting to fragmented, nation-based and over-regulated banking markets is not the answer. What we need is greater resilience via sophisticated market participants, as well as stronger market infrastructure and supra-national structures for the regulation and supervision of the global financial system.

It is probably an understatement that 2008 was interesting and that 2009 will be more of the same. I spent $10 bucks on this particular issue of The Economist and read it cover to cover. The 3 hour plane ride was hardly noticed and I reread some of these articles again on the way home. I'm keeping this particular magazine to reread again towards the end of the year.

I'll have the December sales report up in a couple of days and the year end wrap up in the next couple of weeks. Besides reading, there's plenty of other stuff to catch up on for now.

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