There were some very key changes while we slept on the global stage:
1. The UK “AAA” debt outlook was downgraded from stable to negative.
2. The Dollar and more important the U.S. ability to finance 15% negative debt to GDP (now < $13.3 trillion GDP projected for 2009 against a growing deficit) is looking more and more risky.
3. The Canadian SWF’s (Sovereign Wealth Funds) / pensions are also apparently limiting ther buying of Sovereign “paper” from heavily indebted countries (e.g., USA).
4. The U.S. debt auctions continue to be anemic to poor placing reoccurring pressure on the Fed to purchase its sister agency debt (now estimated to be in excess of 1.5 trillion).
5. The growth models that propelled the world markets for the last 25 years are done – the U.S. consumer made Asia and the Middle East SWF’s rich and flowing in trade surpluses and dollars. The 4th version of global trade has reached its end.
I could go on but the potential implications are becoming clear (not facts, not yet):
1. The ability of private industry to finance debt in the second half of this year may come under significant pressure – aka higher costs to borrow if it is available at all.
2. If Sovereign debt and the ratings of EU developed nations continue to fall, so will the fragile bottoming we are seeing. Who will buy debt backed by “hope?”
3. The result might be new corporate costs cutting initiatives across the board regardless of industry. Question is how are they measured and are they enough?
4. Anyone recording profits in dollars will experience profit and currency conversion pressures.
5. M&A’s will be “survival” driven (i.e., little if any premiums), while the credit freeze for medium to small institutions already struggling for funding will drive may to close.
6. The lack of analytical discipline and rigor will lead many to make uninformed decisions and experience “unintended” consequences
7. We could be in for a “third” shockwave starting in Q3 2009.
8. Those dependent on high volume U.S. markets (e.g., outsourcers, manufacturing, B2C, …) will have to radically change their arbitrage business model and strategy or watch others take over their position of dominance.
9. If unemployment passes 12% (forget the 10% upper control limit), then government intervention may reach a disequilibrium – for globally interconnected economies at these levels we do not have any models or experience with this circumstance (this is beyond the localization of the Great Depression).
10. Whilst economists want governments and consumers to “spend money” they don’t have there is only so much reality within this tattered dogma.
Much more could be said…if there is such a thing as an “offensive defense” then this should be the approach for many leaders. Non-conventional revenue growth may be a key to future success.