Monday, January 21, 2008

The fall of the All Mighty

The markets today, on January 21, 2008, showed signs of fear and anxiety about the impending US recession. The TSX lost 604.99 points at the close of business representing a downfall of 4.75%. Why are investors so worried? What caused this selling frenzy? Who is behind this market volatility? The short answer to that is: the United States.

Some say that the US economy is heading towards a recession, some say this is in fact the start of a recession and some other say that we are already in a recssion. Quite frankly, at this stage, this determination, in my view, is more theoretical than anything else. Whether we are in a recession or not, the economy's vital signs are demonstrating hints of fatigue and slowdown and we have already experienced, in concrete and quantifiable terms, some form of a economic setback.

In todays economic global village, several other countries have graduated to the big leagues and now playing with the big boys: China, India, and others such as Russia. The US economy, the once feared and the All Mighty, has been crippled over the past few years further to several major events, inter alia, September 11, Irak war, liquidity crisis, astronomical deficit and the outlook is not very promising. One interesting twist in today's economic juncture is that the purchasing power of Americans has dropped and will continue to drop but most likely the oil prices will remain at the current levels, because it is no longer the US who's sustaining the oil consumption of the world but countries such as China and India. China and India will keep the oil prices sky high and this will have a very devastating impact on the US economy.

What this means is that if I was George Bush, I would ensure that I take a few introduction courses on economics and implement policies and programs designed to immediately mitigate some of the economic damages. It is quite tragic to see a country, such as the United States, showing off record surpluses and economic strength not even a decade ago but now struggling to prevent a recession, or to make it theoretical again, get out of a recession already in motion.

As for our poor Canada, there's good news and bad news. The good news is that there are other countries with great economic prospect and potential hungry for our products worth capitalizing upon but the bad news is that all the industries closely tied to the United States will either disappear in some cases and shrink in others. Bottom line: Canada, in the aggregate, will not be as badly punished as anticipated as a result of the US economic slowdown because we now have other big players to play with. We can now afford to sell our products to other economies able and willing to purchase our goods and services. On the long run, our industries will adapt themselves to this new global economy and rely less on the United States. If I remember correctly from business school, this is what we call "diversification"! Let's hope that Canada can land safe in this economic turmoil...

No comments: