The Global Financial Meltdown...

The global financial crisis…catastrophe…turmoil...meltdown...whatever terminology one wants to connote it with, is a reality. The US sub-prime mortgage crisis left a lasting impact on the world economy and the depth of the economical destruction it has caused is unfathomable. The year 2008 will be remembered for the death of the once indestructible IB giants such as Lehman Brothers who filed bankruptcy (I had aspired to work for LB some day!!!), Merrill Lynch & Countrywide Financial being acquired by Bank of America, Bear Stearns being acquired by J P Morgan, Goldman Sachs and Morgan Stanley revoked of their status of Investment Banks!!, Government take-over of Fannie Mae and Freddie Mac, by placing them into “conservatorship” and the failure of AIG, whom FED bailed out later and Washington Mutual who filed for bankruptcy & was later taken over by J P Morgan.

Over US$700 billion have been invested into the US economy as bail-out packages and these have left the country in its highest national debt ever. The Dow Jones & the NASDAQs of the world have fallen by over 20 to 25 % from their earlier highs; these have a cascading effect on the European and the Asian indices which have also fallen prey to the global turmoil. The share prices of the once inaccessible blue chips have touched rock-bottoms, almost. Corporate layoffs have left lakhs of people jobless at the helm of such a financial peril that has rocked even the world’s strongest nations. This has directly impacted larger industries such as automobiles, petrol, airlines etc which has experienced a fall in sales and consumption. The world’s most powerful country goes into elections amidst the country’s worst economic times and the candidates in contention, Obama and McCain respectively, campaigns promising a resurrection of sorts & guarantees on rescuing the country from going through another “great depression”, last experienced in the US during 1929.

For millions of people the slump directly translates to lost fortune.. a million dreams had come crashing down along with the free-fall of the stock markets. Stocks that were held as long term investments had to be sold at the current low prices for immediate liquidity to cater for their imminent sustenance and the decline of the housing prices left the people with lesser “wealth”.

But for lots of others this is the period to make money.. to rake in the moolah aplenty. For an average individual this recession could be the well paved path for making their dream fortunes.

The stocks of blue chip companies are sold for a song.. The global financial gurus predict a USD 10,000 investment in such stocks to turn into at least USD 30 million in the long run. It is the right time to invest in such stocks and gain from the revived growth that these companies will see in the near future. If one understands the Warren Buffet way, it is easy to notice the similarity in his pattern of investments. He invested about US $ 5 million in Goldman Sachs and about US $ 3 billion in GE during the slump instead of in their prime!!

The Real Estate is fast moving into a slump across most the developing countries, such as India and China. The US sub-prime mishap has woken up local banks in many of these countries who are now on a pre-empted corrective phase to set right their home loan segments before the inevitable crisis rudely wakes them up. Banks have tightened their loan-lending policies, doubled up the check on the loan applier’s eligibility and credit worthiness for loans and stringent loan recovery measures have been initiated. In such times of hard credit in the market, there is lesser number of people available to buy houses. The number of homes available for sale far exceeds the number of ready buyers. The once bullish real estate market is slowing seen losing its steam and has started on its downward journey. In a couple of months from now, it becomes the best time for people with good credit-worthiness and repayment ability to bite a juicy chunk of this sector; get their dream home at affordable prices!!

The enviable yellow metal has also yo-yoed along with the fluctuating market. It is however tried and tested that the price of gold will rise alongside inflations and it is one of the most preferred avenue for long-term investments. An article on investment by Emanuel Balarie, clearly explains the journey that Gold has traveled in terms of its value and its ROI, “In 1934, an ounce of gold was priced at $35; in 1973 it was priced at $42.22; and in 2006 it hit a high of $720. The general trend has been higher gold prices over a prolonged period of time.” The price of gold has currently fallen and hence it paves way for average investors like me to dip my fingers into it and stay put for a long period of time.

The BFS (Banking and Financial Sector) organizations in countries such as Hong Kong, Singapore, India etc are now able to recruit very knowledged and experienced talent at lower salaries than they were available for a couple of years earlier or their abhorrent current market value in the west. These job-seekers who have been evicted from their earlier plum jobs have headed to Asian destinations are more than willing to take up these jobs and contribute with their knowledge to the development of these organizations.

We do not know if this crisis is the beginning of the fall of the mighty US or whether the US will emerge like the phoenix from the ash, with all its might. With a new government days away from coming into power and the new economic policies and plans that it promises to bring in, one can only wait and hope that the current recession that the great economy is now experiencing do not fall further to see another depression.

Picture courtesy: TOI