Chaos Pavanred’s Blog ….. Exponential Eroor

How bad will the crisis be?

We can sit here and listen to the Finance Minister and the RBI Governor say its all going to be fine, things are under control. Should we believe them, should we not? They are obviously more qualified than we are and so in that sense I guess its better we take their word instead of making our own predictions about the economy. But, in a position they are, you can’t expect them to do anything differently either. For instance, let’s consider that the whole financial system is down, the banks are suffering a big blow, then these people at the privileged and responsible positions just cannot openly admit “yes, we are screwed” for the simple reason because that would inject panic and would send the system go tumbling down and obliterate any hope of recovery even if there was one.

So hearing the truth from the official sources is almost null or if that happens then we have already perhaps crossed the threshold or in common terms called as FUBAR (lol). In that case, perhaps the reassurances we are given are fake too.

Ok, then now who should we turn to for a humble and true opinion? We cannot turn to the media, for the simple reason that there are about some 10 different news sources covering the same crisis and each one show cases the opinions of a few economists, every one of them is highly qualified, but the opinions range from one end of the spectrum to the other. Choosing from all those opinions would be as good as taking our own guess.

The question really is “How bad is it?”

The reassurances kept coming, and in fact some were not even assurances but they were positives pointed out. I have heard it all in the media, ranging from “it’s a 1930 again”, to “it’s worse than 1930”, to “it’s the down fall of western world domination and rise of Asian and European economies”, to “India is not affected much, in fact China and India will emerge out of this crisis as the new super powers”, to “Transition from west to east” etc.

All these optimistic things are what that the majority of people believe or should I more appropriately say, the people force themselves to involuntarily believe even though the demon of the worst to come might be lingering all the time at the back of the heads. Its normal human tendency to cling on to any ray of hope; let’s face it, no one wants to see the bad or face the bad, so we start looking for the comfort zones to reside our fears in, even if its not coming from a very reliable source.

Even I believed that the crisis was not very bad and then USA started to shut down, slowly but surely. Now the same assurances were versioned to favour the current situation, it was said US was the epicenter and so it crashed. Our market indices keep falling but the word is that the market index doesn’t depict the overall economy, and we are reassured again, we are strong fundamentally and we are safe.

We are still being told we are fundamentally sound and there are just the mild momentarily fluctuations caused by the repercussions. And while this was happening, Lakhs of crores worth money was lost, and we continue to loose it everyday in the markets. Biggest in the business are suffering, there were stocks that lost 10% to 20% of their valuation in a day. And there were more than one such day. And how it affects the smaller players, a friend had a job consultancy, doing fine enough, he had hired a handful of employees and suddenly I hear from him today, the consultancy is shut down and the employees fired. Reason, a bigger bank owes money and haven’t paid and not many jobs in the offering in the market currently.

We were told the financial sector is hurt but the other sectors won’t be affected much, then the IT companies started the layoffs blaming the strong rupee. But in some strange sense it was fortunate for the IT companies that the rupee lost and fell rapidly relative to the dollar and so somehow there was some sort of decency brought into the quarterly balance sheets. Any way not much of the crisis would have been shown in this quarter results as the results speak about the quarter that went. What would be interesting is to see how the companies will do in the next quarter.

Along side to this, there were the reputed airliners that started layoffs, but there was this turn around overnight and a cheap sentimental show was put up as the employees were hired back. Now as it is speculated, its due to the fear and oppression of a political party.

The other airliner comes up with a newer scheme, 15000 employees are suspended. They remain employees but they won’t be paid. Now, what in hell does that mean?

I speak to a friend who is into the real estate property business and he says there are no buyers already. There are so many sellers of land but there are no buyers. Now I deduce a simple logic, the prices are going to drop, well is this sub prime that was rehearsed in the US of A a little earlier?

One commodity that has yet to show its vulnerabilities is Gold, people are investing with the belief that gold cant fall but I differ in my opinion. Just a brief search proves it evidently that, through the crisis gold ebbs but on the longer run it has lost.

Now if all this happen it is obvious every one feels the pinch and there will be a rise in unemployment and who knows how far it will go, perhaps a food crisis, inflation, commodity prices will shoot up. Buying power of the consumer will be limited, case studies such as iron ore prices or coke prices prove that they have increased out of bounds lately and such increases will affect manufacturers, commodities will be costlier, businesses will find it hard to sustain, layoffs.

We all rode on the bubble, with or without our knowledge, now the markets are re-evaluating everything. So if we get through, then we will be evaluated and will be put back to the place where we actually belong and what we actually deserve. The over-valued offset is about to be eliminated.

Tough times ahead.