This presentation is an economic review which puts the current recession into historical perspective, offers insight into the current US economic environment, then provides a global outlook through 2015.
10. A Global Catastrophe? Business schools have done too little to reform themselves in the light of the credit crunch So what should business schools do? The Economist, Sep 24th 2009
11. A Global Catastrophe? “More history classes would help. Would-be business titans need to learn that economic history is punctuated with crises and disasters, that booms inevitably give way to busts, and that the business cycle, having survived many predictions of extinction, continues to prey on the modern economy.”
14. Then: 1930s Depression July 9, 1932 was a day Wall Street would never wish to relive. The Dow Jones Industrial Average closed at 41.63, down 91% from its level exactly three years earlier. Total trading volume that day was a meager 235,000 shares. "Brother, Can You Spare a Dime," was one of the top songs of the year. Investors everywhere winced with the pain of recognition at the patter of comedian Eddie Cantor, who sneered that his broker had told him "to buy this stock for my old age. It worked wonderfully. Within a week I was an old man!“ New York's Sub-Treasury Building (now Federal Hall National Memorial), in the early 1930s. Hulton Archive/Getty Images
15. Now: Bailout Proposal Gets Hung Up Over Central Issue: Will It Work? A crowd gathered outside NYSE on Thursday afternoon to protest Bush administration's proposed bailout of Wall Street's missteps in mortgage crisis. WSJ SEPTEMBER 26, 2008
16. A Bubble is a Bubble, is a Bubble, is a Bubble,………………… Keynes argues that we have a system where speculators seeking short-term gains cause erratic movements in stock prices which leads to unstable investment. “Stock prices, which are partly based on prospective yields on capital, are determined by ‘a large number of ignorant individuals’ and ‘liable to change violently as a result of a sudden fluctuation of opinion due to factors which do not really make a difference to the prospective yield.” (Keynes 1936 p. 150)
17. A Bubble is a Bubble, is a Bubble, is a Bubble,………………… Keynes contends that these speculators can be seized by fits of optimism or pessimism he terms their ‘animal spirits’ which cause the fluctuations in share prices. This is consistent with the ‘greater fool’ theory of stock prices which states that individuals will buy stocks at perhaps greatly inflated prices as long as they believe that greater fools exist who will pay even more for stocks.
18. A Bubble is a Bubble, is a Bubble, is a Bubble,………………… During downturns stock prices collapse because there are no fools left to buy shares. Indeed, this behavior characterizes several of the famous speculative bubbles that have occurred throughout history, such as the 1720s South Sea bubble and the 1920s Florida land bubble.
19. The Drill: Winners & Losers Big stock market bubbles have typically been followed by crashes, then by recessions. During bubble times people’s hopes become unrealistic. The high returns cause people to save less and companies to invest more.
20. The Drill: Winners & Losers Post-bubble economies are hard to manage. They don’t respond well to falling interest rates. The greater the debt building the worse will be the subsequent pain and the more difficult the subsequent recovery.
21. Real-Time Look @ Economy NOW What is happening RIGHT now with the economy US monthly GDP, current macro components, policies, etc
25. Historical View Taking the current recession in context over a long history, we can see how deep the recession was as well as the length (solid fill)
26. Q3 will be positive Looking @ table, we see Q3 as being first month out of recession
27. What’s Ahead? Focus on manufacturing, inflation, other major factors Global overview Exports/imports outlook
28. Short-Term Outlook: US Lead Using leading indicator helps with short-term forecast and turning point identification US leading indicator has gone up 6X, growth rate above long-term trend
29. Short-Term Outlook: US Looking at growth in the US economy, we see a peak then growth to stabilize just under 2% through 2012
34. Trade Balance Outlook Trade balance of manufactures as percent of GDP will increase through forecast horizon
35. Monetary Policy on the Horizon Look for the Fed Funds rate to start going North
36. Global Future Outlook Looking @ major economic blocs and their leading indicators helps give an idea of turning points, which areas suffered more than others and which will come out of recession faster and stronger…
37. World vs. US The US moves with the world economy, usually the timing of recessions and peaks are the same
38. BRIC Attack BRIC continually outperforms the world and is moving out of recession much faster BRIC only experienced negative growth in the leading indicator for a brief time during last recession
39. Latin America’s Bumpy Ride Latin America’s economy fluctuates much greater than rest of world, still feeling negative effects and in negative territory although improving
40. Euro vs Non-Euro Area Euro area mirrors global economy, headed out of recession with the same timing and nearly same degree Non-Euro area is experiencing more growth than Euro area
41. Africa & Middle East Africa and Middle East moving along with world economy, reaching expansion to a slower degree
42. Asia Pacific Asia Pacific continues to show strength, on par with global recovery, most likely will move past world in next few months