January 25, 2008

So What's Going On In Davos, Anyway?

Posted By Rob Millard - 0 Comments - print this article

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There's been (un)surprisingly little coverage of the World Economic Forum's current summit in Davos, in a US media apparently besotted with a 0.75% drop in interest rates and a $600 per person tax rebate. Not so elsewhere in the world. Here is a link to a well respected South African financial commentator, Alex Hogg, CEO of Moneyweb, for whom this is the fifth summit that he has attended. An extract:

"Last night, US President George W Bush's right hand, Condoleezza Rice, tried hard to lift the gloom. Her official opening address of Davos 2008 was friendly and upbeat. Exactly the opposite of what we've been hearing from the Republicans here for the past few years. But such is the half empty perspective of delegates that due praise was subsumed by the complaint that the US Secretary of State should have been making these noises eight years ago when her boss took office, not now when he's about to depart from it.

The too-late and "asleep at the switch" refrain about the Federal Reserve kept reverberating in official sessions and private conversations. The few optimists hope this week's rate cut which arrested sliding stock markets will be more than a placebo. Most of those I've been exposed to worry that it's yet another symptom-addressing quick fix which only serves to make the eventually cold turkey even more severe.

That equity markets have become uppermost in minds is reflected in bookings for the various sessions. Rarely have economists been more popular in Davos. Any discussion dealing with the dismal science has a house full sign posted within minutes of bookings opening on the electronic system. Just about anything else on the programme is an easy walk-in."

I'd add to this a comment in the economics blog The Bayesian Heresy, about "what Greenspan would say." It quotes Alan Greenspan in 2001:

“It is important that the Federal Reserve not follow a flawed strategy. I fear that with a reduction of 75 basis points or even 100 basis points today, which as you know a number of people are suggesting, stock prices could still fall, leading too many observers to conclude that monetary policy is ineffective. This is a potentially dangerous view in my mind especially among the broad array of those who do not participate in the equity markets. If we do 50 basis points and stock prices fall further, as they well might today, it is the central bankers who may be perceived as intellectually inadequate, not policy itself. This is far less dangerous to the economy!”


Am I trying to be a deliberately pessimistic doomsayer? No, not in the least! I am simply deeply, deeply aware of something that I read in a book on survival in the jungle many years ago. That is: in  a "survival situation," the people that are most likely to survive are those that have the ability to "hope for the best but, at the same time, prepare for the worst."

If you haven't sat down and considered, seriously, what a significant drop in headline earnings this year would mean for your firm, then do so now. And then put an action plan together, to mitigate the risks (and seize the opportunities.) And then execute it.

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