Taking Stock — Part One
— by Inya Ivkovic, MA
We all couldn’t wait for the second half of 2008 to finally end. Entering 2009, we knew it was going to be tough. But at least we entered with a fresh perspective, albeit a humble one, or the market would have humbled us quickly enough. And, as the first quarter in the New Year has just ended, it is time to take stock again. So, what did we think, talk and shout about in January and what, if anything, came out of those thoughts, discussions and laments?
Well, in January, it was rather clear that Americans came out of disasters of 2008 — well — gloriously pissed. The public’s disgust with Wall Street and its greed-induced wealth, and subsequently with certain inhabitants of Main Street as well, had reached almost epic proportions by the time Christmas rolled around, when the benevolent influence of the merry season somewhat calmed that gangrenous anger.
Come January, however, anger no longer merely festered, it erupted. Some observers even thought it might result in global social unrest and geopolitical conflict. The age of public outrage has definitely arrived in the first quarter of 2009 when far too many straws broke the camel’s back, from AIG bonuses, to attacks on the private home of the Royal Bank of Scotland’s former CEO, to North Korea threatening Japan with a war! No doubt about it, our world is enveloped in lots of anger, which sort of culminated during the G20 summit this week in London.
But public unrest is merely glossing over real issues, as this crisis travels from the financial to economic to social realm. Stopping globalization now would be the wrong move. Yet, protectionism is gaining momentum, despite many world leaders, including the still infallible President Obama, claiming otherwise. Worse yet, protectionism is misdirecting the force of public policy towards what is going to impede recovery in the long term, instead of pinning it on the systematic and methodical elimination of debt.
Another theme that never left us in 2008 was an initiative to overhaul hedge funds, perceived by many as the source of all evil. The perfect storm that converged during 2008 not only expedited the need for radically changing how hedge funds are managed, but also led to their almost extinction. Analysts estimated last year that, by the end of it, about half of all hedge funds would simply disappear from massive redemptions, an abatement of risk appetites, or inevitable scandal fallouts; such as the Bernie Madoff scandal.
Considering that most hedge funds require anywhere from a 30-day to 60-day notice for redemptions, we are not likely to know the full impact of all these factors this early after the end of the first quarter. But to say that this sector is under a lot of pressure would be the understatement of the year — and the pressure will only intensify, potentially even bringing this once-proud sector to its knees.
And who can forget the unemployment conundrum? Let’s hope we don’t hit the 25% unemployment rate achieved during the Great Depression. But it doesn’t take a rocket scientist to predict that it will be many months of continuously declining employment rates before things get even moderately better. I’ve used the word “conundrum,” and you might ask why. Perhaps the word “conundrum” is the wrong one. Perhaps a better word would be “irony,” because the twist in the unemployment theme is that it is those who have kept their jobs who will feel the actual pinch. Many have already seen it: pay cuts, no bonuses, no incentives, doing more with less, etc. Yet, getting out of this situation cannot be helped easily since basically no one is hiring.
