Wednesday, March 27, 2013

Navigating the Current Macro Economic Landscape


A real charmer of the audience, Mr Kamlesh Jain kept around 120 students of IIT Madras quite captivated and enthralled by his presentation, here at DoMs. The students though mostly from the management department, also included a good number of B Techs and M Techs as well. As it happened to be so, Mr. Jain was an Ex-employee of Lehman Brothers and thus had the first-hand experience of the 2008 Economic crisis which had hit the world. He explained, along with funny titbits, how the world evolved and gave a bird’s eye view of the World’s Economic environment, thus justifying the topic he presented to the fullest using his excellent oratory skills.
Firstly, he shared his experience at Lehman brothers which had been a AAA rated company by various rating agencies. He shared how, on the day the company fell, he was still interviewing candidates from the IITs and how nobody, not even the managerial employees of the companies saw the downfall coming. This, as indicated by him, was the trigger of sorts for him to start viewing the world economy as a whole and observe the changes on a much higher level than before. He narrated how in 2001, the Global Bubble started, when the then US President George Bush Sr. and Mr. Greenspan, Chairman of the Federal Reserve, both mitigated this bubble using all that was within their grasp. But as was inevitable, the bubble burst around mid-2007. Global financial crisis, Sub Prime Losses and a stiff credit crunch was faced. The price of each share of the Lehman Brothers crashed from a whopping $157 to $2.  The 2008 events were encapsulated in the documentary: “Too Big to Fail”. Here, we saw Freddie Mac and Fannie Mae fall in the area of Mortgage Guarantee, as Sis AIG in Investment Exposure and finally we have the famous penny stock by Citibank. And Surprise, Surprise! America the world’s most ardent capitalist country whose economy is completely dependent on the fate of its markets, turned tail and transformed into a socialist frontrunner when the US government started its Bailouts. Ironically it was the Public sector saving the private sector in this capitalist economy.
In 2009, the Bailout bubble started, which was also the year of Obama’s famous change reign; as also the time when Bernanke fired his Bazooka and reduced federal interest rates down to 0% which over shadowed Greenspan bringing it down to 1% and Global Stimulus Package was launched. As a temporary solution the US did what it could do to save itself but in 2011, Europe was in trouble. The PIIGS were in a soup as they say and high inflation hit all who had been scoring through high debt.
 Here, now Mr. Jain took the opportunity to influence our young minds towards future technologies and potential future global GDP contributors. With the help of well-established pie charts and graphs he depicted how the BRIC nations had an important role to play and the economic roadmap of the future. Japan who had developed the first metro almost a hundred years ago now was predicted to have a stagnated growth in the future by most experts. The OECD alone today contributes 65% of the Global GDP. Thus in 2030, India is predicted to contribute 7%, china 28%, US 18%, EU 12% and Japan 4% of global GDP. The key players would be the BRIC nations and the Frontier Nations. The Sri Lankan and Pakistani Stock Markets have had 111% and 45% returns over the last 2 decades. Statistical proof of growth was given as: Dow 46%, Nikkei 3%, Hangseng 120%, Shanghai 42%, and Nifty 461%. Thus, in 2060, Global GDP contributors would be: India 18%, China 28%, US 17%, EU 9% and Japan 3%. It is the growth potential that drives the Indices and at $15Trillion the US has a debt hangover that could last a decade. Today and in the future, there is ‘More money and Less Value’ for all commodities like Dollar, Euro, Oil and Gold.
Mr. Jain predicts a structural change which is already in motion. Financial markets are at “The New Normal” and Investment bankers’ pay checks have slimmed down whereas recruitment pay checks have fattened he jests. The few ‘Game Changers’ are estimated to be Energy efficiencies, Technology Disruptors, Wars and even the Frontier Nations. New growth Drivers of Innovation, Positive demographics, Favourable climate changes, productive uses of oil resources, efficiently managed public finances; all of which seems a myth today shall be the key areas of turnaround successes in the future, he envisions.
He concluded by saying that the current on-going wait for that one change to occur, a change that would trigger the bigger change to improvements, should be over soon. It could be anything - EU triple Dip recession, A fight for Water..
Or the most effective one,         
                                          ‘The wait for the Dollar to fall’

Courtesy
Hakimuddin Rassiwala
Class of 2014

Photo Courtesy:
Arun Tilak
Class of 2014     

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