GFC – who’s to blame

On March 29 Radio National’s Background Briefing program had a very interesting program on how “they’re beginning to say that narcissists with Harvard MBAs killed Wall Street”.

Something happened to management culture decades ago and now being a Master of Business Administration, especially from Harvard, is rather on the nose. MBA, it’s being said, can also stand for ‘Mediocre but Arrogant’, or ‘Management by Accident’

The show had interviews with professors from the major business schools who have been warning of the problems of managers who only have MBA’s and no “domain knowledge” of the companies that they manage. Continue reading

Glimmers of Hope?

Now that he’s got the puppy ensconced in the whitehouse, US President Barack Obama is walking the delicate tightrope of attempting to inspire confidence in the US economy while still warning of tough times ahead.

Yesterday, he announced that there was a “glimmer of hope” on the horizon for the American economy but warned that the nation was “by no means out of the woods just yet”.

In a 45-minute speech delivered yesterday at Georgetown University in Washington, Mr Obama said that his $787 billion (£529 billion) stimulus package, housing proposals, car industry bail-outs and bank capitalisation plan had started to “generate signs of economic progress” by saving jobs and beginning to free up the frozen credit market.

Rejecting criticism that he has been spending with “reckless abandon”, Mr Obama said: “History has shown repeatedly that when nations do not take early and aggressive action to get credit flowing again, they have crises that last years and years instead of months and months – years of low growth, years of low job creation, years of low investment, all of which cost these nations far more than a course of bold, upfront action.”

He also rebuked critics who said his refusal to nationalise banks was another example of Washington “coddling Wall Street”.

The President pointed to schools and police departments cancelling redundancies, clean energy companies and construction firms re-hiring workers and homeowners re-financing at lower interest rates.

However, he went on to temper the optimism by warning that more unemployment and home repossessions would come over the next 12 months.

US stocks were hit yesterday by an unexpected drop in retail sales, leading the Dow Jones industrial average down 137.63, or 1.7 per cent, to 7,920.18.

However, Goldman Sachs posted higher-than-expected first quarter profits, and pledged to raise $5 billion (£3.36 billion) to repay government bailout money.

Mr Obama said: “There is no doubt that times are still tough. By no means are we out of the woods just yet. But from where we stand, for the very first time, we are beginning to see glimmers of hope. And beyond that, way off in the distance, we can see a vision of America’s future that is far different than our troubled economic past.”

Invoking the Sermon on the Mount, comparing the American economic system to the parable of the man who built his house on a pile of sand, Mr Obama said: “It is that house upon the rock. Proud, sturdy, and unwavering in the face of the greatest storm.”

Ben Bernanke, chairman of the US Federal Reserve, also also offered a “fundamentally optimistic” assessment yesterday, using a speech in Atlanta to highlight recent data on home sales and consumer spending as “tentative signs that the sharp decline in economic activity may be slowing.

He said: “A levelling out of economic activity is the first step toward recovery.”

Locally, views are still mixed as to whether the Australian economy is on the road to recovery or will experience tougher times ahead. Certainly we are beginning to see our own “glimmers of hope” in our own share market, however this is tempered by the spectre of increasing unemployment.

Perhaps one of the most positive news bites for the Australian economy is that China’s stimulus package of some $808 billion (Australian) appears to be delivering better than expected results.

Last month, China’s industrial output growth jumped 8.3 per cent, up from the 3.8 per cent rise of the first two months, as domestic demand continued to improve, Chinese Premier Wen Jiabao said.

He described the figures as “better than expected”, according to an interview published in the China Securities Journal.

But he warned that the international financial crisis “has not yet hit the bottom”.

Financial analysts in China, however, are increasingly confident that the country’s slowing economy has bottomed.

“We believe the trough of sequential growth is already behind us, and China is heading into the initial stage of a recovery in the first quarter of 2009,” said Goldman Sachs Guo Hua analysts Helen Qiao and Yu Song. “In our view, China has already come out of the long winter featuring the sharpest and most severe growth slowdown in the past 30 years.

“Green shoots of strong domestic credit expansion, together with higher-than-expected fixed asset investment (FAI) growth are signalling the arrival of a spring season with rising upside risks to domestic demand growth.”

While I have maintained that no one can accurately predict what will happen tomorrow, next week or next month, it appears, that just possibly, the market has finally bottomed and we might just be beginning to witness the seeds of recovery.

The downside is that these “glimmers of hope” may take months if not years to be reflected in a broader resurgence in the Australian economy.

Lowest Interest Rates in 49 years.

The Reserve Bank is due to announce whether it will move on interest rates at 2.30pm this afternoon. The jury is out as to whether it will slash rates by a further 50 basis points or leave them on hold.

Certainly there’s arguments for either outcomes. Some are saying that we should take a wait and see approach as to whether the current round of stimulus programs will have the desired effect before resorting to further stimulatory action by the RBA.

On the other hand, the official unemployment figures are due out this Thursday and by all accounts the prognosis is not good. Job ads fell 8.5 per cent last month, taking the annual decline to 45 per cent. This marks the 10th consecutive fall.

Everyone now accepts that the forecast of 7 per cent unemployment for next year is too low and we should be adjusting forecasts to 8%.

The Government is also due to lay down it’s Budget in May, which is expected to include large rounds of cuts, including cuts to “middle class welfare” as we have been warned. What does seem pretty clear is that this budget will have to be a mix of tough cuts and more targeted stimulus.

While there may be “green shoots” emerging in China, it seems that we’re still heading for worse economic times ahead – particularly in terms of unemployment.

The Opposition has accused the Government of spending money irresponsibly without measuring or evaluating the effects of such stimulatory measures.

The Government argues that the ground is moving so quickly, that it’s almost responding to challenges on a monthly if not weekly basis.

Failure to respond appropriately could have disastrous consequences for Australian businesses and the economy while over-spending also carries with it its own set of ramifications.

This week will be an interesting week in politics..

Disclaimer: The author of this post once lived in a rented flat.