Jose Thomas

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WALK DON’T RUN
Friday 26th October, 2012



     

 

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Dear friends,

I have written in the past about my New York City experiences and the stories about my start up days here in America. When I came here in 1986 and established the U.S. operations and unwittingly opened office in New York City, surrounded by the world’s financial giants, in and around Wall Street and as I sit in my office looking at the Manhattan skyline dreaming about new ventures, suddenly I thought about the possible threats that lie ahead of me and all of us. As usual, I dream a lot. Today as I write this blog, I thought more of “Don’t run, walk slowly”

My thoughts graduated to the point that the world believes, everything is beginning to look good with the global economy and there are also some who believe that the European crisis are behind us, which I am not very convinced of. According to me still major economies in Europe are struggling. Economies are all surviving by trading bonds. I do not want to make any conclusion here but continue to gather some information around this given situation. The American presidential elections is soon going to be a reality and many are speculating who will be the next President. Let us not forget one fact, that the danger still looms large over most of the nations and when finally the U.S. treasury does the balancing act and arrives at the debt of nation, you bet, all are in for surprises and the world will take another turn, rather spin, towards more of an unknown direction. Some may disagree with me, but this is my view. As we all know various world economies depend on the U.S. to sell their goods, from shoes to clothing, food stuff and anything of a consumable nature. Take a look at the Chinese economy – it’s going the other way around. The same is the case with India. Indian exports struggle to kiss the Dollar 300 billion target and with imports still growing beyond Dollar 450 billion. Look at the trade gap in India. Trade deficits are in the range of 18 to 20 billion every month. If the United States of America does not fix the deficits and show substantial reduction in unemployment and GDP growth, the “Rest of the World” is slowly going to walk into serious issues.

Look at what’s happening to the BRIC countries? Why aren’t we talking about it anymore? I wonder what’s going to happen. Some of the economies in Europe have an unemployment rate hovering at about 25%. World patterns are changing, and are impacting various industries and putting pressure on the currencies of various nations. What’s happening here is difficult to predict? Isn’t it? But all I am saying is – let us be cautious. 2013 is going to be a very challenging year, unlike 2012. There are lots of corrections required to fix the world economy and it is not really happening. Do not bet too much on real estate and stock market. I am able to see some kind of crash happening in the real estate and equity markets.

After the Euro created artificial booms and busts in the euro zone, as well created a competitiveness issue for the South, Europe is simultaneously saving and pushing a hugely expansionary monetary policy, which will not work. The difficult situation in the EU is complicated by the fact that the leaders of its countries have no unified plan on how to bail out of the crisis. They seem to be trying to arrive at an agreement, but the results of their negotiations are not impressive yet. The last EU summit did not bring any tangible results. There were no specific decisions on the European Banking Association, or the fate of Greece.

But what is the wonder line factor of the world economy? Every country is trying to hide facts, trying to find their own way of increasing their domestic trade, some fixing their currency by under valuing or overvaluing, some trying to sell bonds and so on but according to me all this is only short term. What is the long term solution, especially for America – “Raise taxes and cut expenses”?.



A country's debt is similar to that of a companies P & L. If a company has growing deficits, there is only one solution – “increase revenue and cut expenses”. Financial markets are bringing further erosion to existing net worth. Look at the way people dreamed about Facebook. In less than six weeks, 40% of their stock got eroded. Banks are still fighting shy, not lending. Nobody wants to lend money unless you really qualify. Even the best of companies are finding it difficult to raise debt funds



I am concerned about all this and this is why I am working harder trying to lead my company to a more safer environment. . We are doing everything we can to contain our expenses and increase revenue and this is how we play the game. I wish every nation did this without just making empty promises to the people for gaining votes. Long term correction is going to be very painful and that is what is to be done. But there is no escape to this painful correction. We all have to face it. Be prepared!

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