is the party still on?

imagine a party in full tempo.

loud music, everyone drunk and dancing...

and suddenly someone pulls the plug on the music.

everyone is jolted out of his and her senses and rhythm.

dancing stops.

now imagine the music turned on again, within a minute.

everyone overcomes the rude jolt of the pause, and resume the dance. party resumes.

now imagine the music not resuming for several minutes...not before the party mood has evaporated.

sure, the party resumes. but not with the same tempo and with same participation.

that is exactly what can happen with the economy as of now.

corona has pulled the plug on the economy's party. the music has stopped and the silence deafening while the world is still intoxicated with an overwhelming hangover.

everything depends on when the music resumes.

if it takes longer, the party may not be left with much of a celebration.

are we heading towards recession or depression?

experts are saying "yes".

but the reality and the answer have many layers to it.

first, it is a matter of when the normalcy returns. the longer it takes for the economy wheel to restart, the lesser the damage. any restart of business activity in April or May will do only limited and temporary damage.

second, not every country, every sector, every business will hit a recession.

while the world as a whole or a country as a whole may experience a recession (or depression) the extent will vary a lot depending upon which products and services we are talking about.

eg, while agriculture, pharma, FMCG, telecom may experience little or no recession (in fact boom), sectors like oil, hospitality, aviation, tourism may be hit.

so, everyone need not fear.

--

in the event it does take a worrisome time for the businesses to resume, what would that mean for businesses, especially small ones?

many small businesses would see their savings eaten up in this crisis towards bearing the fixed expenses such as rent, EMI's, interests of loans, salaries, dead inventories, canceled orders, etc.. while this is a big set back, this may not be the end of the world for them. one or two good years (depending upon when the lockdown gives way to normalcy) may fill their savings back. however, working capital is likely to have been stuck or lost for most businesses. they would need financial help by way of easy long term and cheap loans for the same.

anyways, businessmen would need to have the heart to bear some one-time loss.

thereafter, everything depends on whether and when the demand for every product or service starts. if only "when" is the question, it is good news. but it is the "whether" which is the big worry.

it is expected that while the demand for the "essential" products and services will spring back to early levels (or even more), the demand for "non-essential" products and services would have to wait. businesses of those products and services are likely to have extended pain period. as far as "luxury or fad" products and services are concerned, those businesses and people associated with them are likely to get hit hard. e.g. while big fat weddings will still take place, those will not be as big and as fat. people will stop throwing money for a long time till that casual air in the economy returns.

so, the real worry is for those businesses which fall outside the essential or priority realm.

rest all businesses would have to get into the "get over it" and "accept the setback" mindset and get on with it. this period will remind or teach every businessman the importance of cost control, prudent business decisions and efficient management.

it is expected that businesses will be ruthless in reducing all operating expenses including lay-offs, salary cuts, rental space surrender, closure of unprofitable or unessential operations, etc. every expense head is likely to get the attention. new recruitment will be unthinkable for a good time.

those who are in the "essential and priority" demand zone would still need to have a lot of patience while every broken piece in the supply chain network boots up and gets repaired. there will be a pipeline effect. the water will take time to emerge from the end of the pipe after the tap is turned on the other side.

the real concern is those people or countries which produce no product or service for which there is demand. even for the rest, competition in terms of price, quality and supply reach will be no less threatening. people, societies that produce and sell less and consume more are at a serious handicap for the emerging times.

while the overall demand for manpower with the required skills will drop, those with no skills or skills not matching the demand will add to the burgeoning unemployed and under-employed universe.

closure of small businesses because of financial or demand-supply issues will be to the advantage of well managed bigger business houses which have a bigger chance of survival and access to resources.

those who adapt to the changing times and challenges will survive and thrive at the expense of the others. the time is trying to tell us something. things will never be the same in the world. new world order will emerge and no one will be unaffected by it.

5 predictions of trading nostradamus

as on 6 april 2020

1. OIL (brent crude) will stay below $50 for the rest of the year and the bottom still some months away. (cmp $33.35)

2. Gold is starting its 5 year Gold run (cmp $1688 per ounce)

3. Indian Rupee is going up (vs USD) and not falling this year (cmp 76.20)

4. Nifty will go below 7500 before attempting old glory (cmp 8083)

5. India Vix one shoot up pending in April series (55.30)

the judgment day

imagine a giant heavy wheel of stone moving like a potter's wheel on an axis

that is the economy of any country. the weight represents the number of people in that country dependent on that economy. the speed of the wheel is the size of the economy.

there are 4 principal thrusts moving that wheel

1) agriculture

2) production

3) trade

4) services

for a country which stops producing because of cheaper and better imports from another country, it loses the "production" thrust and is thus reduced to mere trading activity for that produce. and since the margin and control in trading is much lesser than that of production, the economic surplus and resulting prosperity dips drastically.

this is exactly what is happening to us in view of the production surrender to china. an overwhelming percent of producing hands have been reduced to the role of traders. even that is threatened by the online retail portals which are concentrated in the hands of just a few.

all this results in an increase in unemployment and underemployment besides a fall in the standard of living.

on top of this, any demonetization kind of shock further slows down the economy wheel. and if you add the corona lock-down situation there is a real threat of the economy wheel slowing to dangerous levels if not stopping altogether.

also, it must be kept in mind that less-enterprising, inefficient, non-leveraging and non-innovating countries/individuals produce much less than their fixed consumption (necessities plus luxuries). this results in a standard of living much less than those countries/individuals who produce more than they consume.

the current situation caused by covid-19 is leading us into an unpleasant chapter where our production and other economic activities are threatened to be disrupted beyond the slowdown already existing.

someone's income is someone's expenditure and someone's expenditure is someone's income. any stoppage in this circular system with infinite interconnections and multiplication results in serious damage to economic activity due to demand and supply disruption.

our sins of not innovating, surrendering production to imports, disturbing economic activities instead of strengthening them, not making helpful policies, not developing our human resource etc are pushing us fast towards the judgment day.

slowing or stopping an economy is easier than cold starting it because an economy is a complex balance of zillion of interconnected interdependent activities.