Chatting with a brand manager at a Consumer Goods/ Beverages company recently, I got the sense that the consumer was focused on value and was still buying. So I took another look at the news to put the conversation in perspective:
A. Did someone say "green shoots"?
1> US consumer confidence reports has interesting, and intriguing numbers, this week:
2> Economists are turning optimistic about the economy as well:
3> Even Roubini has mentioned that we are in the trough phase of the U shaped recession. While he still stands by the possibility of a "perfect storm" in 2010, I am inclined to call this positive news.
B. Are we there yet?
For contrast to the signs of Spring we see above:
1> Dr. Altman recently demonstrated, backed by research, that corporate defaults had hit 8 percent in January.
2> He also pointed out that many creditors are in no position to take companies through a bankruptcy.
3> Additionally, on the consumer front, credit card defaults are still a concern.
Now that we have a contrast between most economists and Doctors Doom and Gloom, what does the impressive rise in consumer confidence mean? 70% of the economy is consumption- so a rise in consumer confidence may, at best, be good news in the short term. So, based on this recent news, we seem to have the right economic tools at work to "salvage" the situation and those tools seem to be having an effect.
However, I still think of this as a zero sum game when it comes to investing (bailout) in pulling the economy from the brink. Here are some thoughts:
1> In 2001, the US government took some steps to "salvage" the situation, that eventually led us to 2008. What are economists suggesting needs to be done to prevent us from ending up in an downward spiral of increasingly severe recessions? Could Roubini's W shaped "perfect storm" really be plain old speculation about "when", not "if", the next storm lands at out doorstep?
2> How will the world pay for this? Could an effect show up in international finance, where some countries pay more for this rebound that others?
While I hope economists continue to huddle to figure out options and tools that will solve some of the problems, these questions give you the context to make decisions that steer you and the enterprise through the storm.
What will you do?
P.S. This note is based on a post on a macroeconomics forum on the morning of 05/31/09.
I later found some interesting articles that provide more structured and well thoughtout arguments. The leader here is Nouriel Roubini:
Also, Fareed Zakaria's GPS episode, dated 05/31/09, will give you more food for thought, besides the added bonus of seeing Kissinger talk about US options in NE Asia.