Are Global Markets Moving Closer to Meltdown?
A significant part of the Edge International Managing Partners Strategy Summit in Washington DC last week was devoted to Dan DiPietro of Citi Private Bank's Law Firm Group's sombre view of the economic outlook for the US economy in general and US law firms in particular in 2008/9, and what firms might do to "recession-proof" their strategies.
Since then, in just the past few days, the Dow Jones has broken below the 11,000 mark and global stock markets have plunged on fears about the impact of weaknesses in the US Economy. See a CNN commentary Market panic as world stocks slump. See also Bloodbath in Indian Stock Market, where Monday saw the greatest crash in Indian history.
When the United States catches a cold, many other parts of the world catch pneumonia. By only the 14th trading day of 2008, shares in Europe's main markets are now down between 12 to 15 percent on the year, reacting to the rout in Asia and other emerging markets.
During the market gyrations of 2007, sharp falls were often followed by sharp rises. There is no evidence of that yet in 2008. Will a 0.75% drop in interest rates in the USA and $145 billion in tax cuts be enough to reverse the trend? One hopes that this will not be seen by the markets, after the inevitable short term positive adjustment, as being tantamount to jabbing a sick horse with a cattle prod. As I pen this post, world leaders are gathering in Davos in Switzerland for the 37th annual meeting of the World Economic Forum. High on the agenda must be: how to insulate the rest of the world from the US's economic woes.
How does this translate into action for professional service firm strategists?
Ships do not install lifeboats because they expect to hit rocks; they install them in case they do. Even if you are optimistic that the worst is past, if you have not taken a close look at your firm's strategy and your business plan for 2008/9 in order to work through the "what if..." scenarios that could play out during a major economic recession, then you should waste no more time before doing so.
A key part of this is entering into a proactive, meaningful discussion with your most important clients about how a recession would impact them and how their needs will evolve. Clients become more mobile in recessions, so you want to do this before your competitors do. This possibility has moved from being a mere contingency, to now being a real and present danger.
Edge International's January 2008 edition of our Strategy Newsletter will go out in a day or two and is firmly focused on this issue. I'll post it on this blog as soon as it is released, too.