On Friday, 12 September 2008, the Dow Jones
Industrial closed at 11,422. That Sunday night, the
word was out about Lehman’s bankruptcy. From Monday
morning, everything began to collapse everywhere. By
Monday, 9 March 2009, the Dow closed at a low of
6,547 — having wiped out almost 43 per cent of its
value in 121 trading days.
In the meanwhile, on a bitterly cold but sun
drenched day in January 2009, Barrack Obama became
the 44th President of the USA. That itself was a
cause of hope, especially after years of poor
governance under George W. Bush. He then managed to
get the US Congress to approve a huge $800 billion
bailout package in February 2009. Come March, some
commentators started talking of a change in the air.
The markets, too, seemed to sniff a change. Between
9 March 2009 and 3 April, the Dow Jones industrial
rallied to gain 22.5 per cent. Even Ben Bernanke,
the chairman of the US Federal Reserve, said in his
first ever TV interview to Scott Pelley of the CBS
that the ‘green shoots’ of economic revival were
evident in some sectors of the economy.
Are we witnessing the green shoots of an early
spring? Is this the beginning of a US turnaround?
While I would certainly pray so, I think not. Let me
The positive is that, in all likelihood, the
financial sector turmoil is a thing of the past.
However, the facts regarding the real sectors are
not at all encouraging. Let’s begin with home
prices, whose value is the basis for financing
discretionary consumption spends in the US. As on
January 2009 — the month for which the latest data
is available — the Case Shiller 20-city index was
continuing to move south, and ruled at 29 per cent
below the peak levels attained in July 2006. In
other words, for a very large number of US
homeowners, there just isn’t any slack in their
consumption budget — the stuff that creates the
demand to bring about a sustained uptick. Moreover,
I don’t see home prices flattening out very quickly.
Despite promised relief from banks, the number of
foreclosures are still far too high. January 2009
saw 274,399 foreclosure filings in the US — a small
decrease compared to December, but still the 37th
consecutive month with a year-on-year increase.
Thanks to additional properties entering the market
due to almost 3.5 million foreclosures between
January 2008 and January 2009, the chances of home
prices firming up quickly seem very remote.
Retails spends continue to fall. The latest data
shows that retail sales, including food services,
for February 2009 were 8.1 per cent less than a year
ago; auto sales were 26 per cent lower; and
furniture and home furnishing 10 per cent less.
Consumer confidence is still taking a bashing. The
Conference Board’s Consumer Confidence Index for
March 2009 was at 26 (1985 = 100), compared to 61 in
September 2008 — a fall of 57 per cent in six
Then there is rising non-farm unemployment. In March
2009, it stood at 8.5 per cent — the highest since
November 1983. In the net, some 663,000 people lost
their jobs in March 2009; which came on the heels of
651,000 in February and 741,000 in January. In the
first quarter of calendar 2009, therefore, over 2
million people were thrown out of work in the US.
Add to that another 1.7 million net job losses in
October-December 2008, and the number totals a
staggering 3.75 million that have been put out of
employment since October 2008. States like Michigan
— of Detroit fame — have an unemployment rate of 12
per cent. What it means is that approximately one in
eight of the non-farm labour force in Michigan is
Is all this what the Financial Times has recently
christened ‘pessimism porn’? The state were you
layer one bad news over the other to see how much
more of it can you heap with sadistic glee? Where
the mantra of darkness and gloom is determined to
snuff out even the slightest ray of hope?
There is no doubt that the US has been making the
right policy moves, especially under President Obama.
And the G20’s concerted $1.1 trillion bailout, of
which $750 billion is earmarked to enhance the
International Monetary Fund’s capital will help in
turning the tide. All these are the good news. But
it no less important to recognise that it is still a
long haul for the US, the UK, Europe and Japan. To
see green shoots in a bear market rally is like
pretending that it is spring in the middle of a long
and terribly cold winter.
To be sure, animal spirits will come out of
hibernation. For the US, that’s somewhere in
mid-2010. Later, perhaps, for the UK, the Euro zone
Published: Business World, April 2009