Volatility and its Discontents [2008]
Just when I was worried things were going to get better – leaving my Time of the Hunter research as a relic of some brief detour on the road to prosperity – down they plunge again. I feel a bit like an undertaker at a massacre, but thanks Lehman Bros – if there’s anything I can do for you, just let me know.
In fact you may have done a little more that you really needed to. You too AIG.
The research we’ve done so far has shown our clients what they have to do to respond to the new consumer mindset that has emerged over the last few months.
Already about a third of the population has had their discretionary income reduced to practically nothing, while another third is having to review their priorities and decide what really matters to them. The rest of us are pretty sweet, but finding it hard to summon the energy for rampant consumption – evidence of herd behaviour in the networked society I guess.
So that’s where we’ve got to just with the effect of a marked increase in consumer prices, the end of house price growth, a summer drought and turmoil in non bank investments.
Dramatic enough, but with little evidence of job cuts and still reasonable access to credit, both for individuals and businesses, there hasn’t really been that much of a decline in personal mood and personal confidence.
Individually we feel we can cope – with a little vigilance, some frugality and increased practicality. Hunter values.
This may all be about to change. Try throwing in a little unemployment and the worst financial crisis since the Great Depression and see what happens.
David Hargreaves of www.businessday.co.nz compares the current crisis to that of 1987 with a bomb analogy – he says the 87 crisis was “like an explosion in the middle of a building - a hell of a lot of glass blown everywhere and heaps of visible, showy damage” whereas the latest events “more closely resemble what happens when you put a bomb under the foundations of a building”.
His talk of crumbling foundations and ultimate collapse brings up associations with the World Trade Centre. Yuck.
But good to have in mind. You only had to notice the speed with which the US government bailed out mortgage firms Freddie Mac and Fannie Mae to realise something serious was up.
It brings to mind Helen Clark's epithet about firms who privatise their profits and socialise their losses. Socialism is not something they generally like to do in the US of A.
Now the Federal Reserve, the Bank of England and the European Central Bank are going all out to get the train back on the tracks.
The effects of the toppling of these houses of cards will be surprising and diffuse. Volatility is certainly here to stay and as a country we’re not going to escape.
Fonterra is forecasting that the turmoil will extend to dairy products – our staple export income. Our other trump card, tourism is likely to be hit – especially if Deputy Sherriff Australia follows the lead of its mother land and has a few collapses of its own.
And even China, India and the Asian growth engine will notice if some of their most voracious consumer markets suffer a setback.
But actually volatility is our best hope. Earlier this century when the US was suffering a recession after September 11, New Zealand was actually part of a counter-cyclical growth trend which drew its energy from returning migrants and increased commodity prices.
Being safe and far away was our greatest asset then. And we are little. It doesn't take much to make a difference to us.
Our confidence grew – along with our debt I’m afraid – and we began to improve our perceived standard of living – looking forward to the next new thing and the latest upgrade.
Over the past few years our growth hasn’t been driven by one source but by many – taking it in turns – some consumer-driven, some export-led, some planned, some fortuitous.
It all added up to something that even as it turned down, we thought would be a “soft landing” before a gradual new upswing.
Now our best hope globally is that the body may take so long to realise the head’s been cut off, there may be time to grow a new one. [Sorry – it seems like the time for graphic mental images]
I mean that Asia may be able to feed its own engine for a while – with increasing living standards fuelling the demand for consumer goods and lower prices continuing to keep them competitive in the world.
I’m kind of hoping we are the smart little country we think we are – which can turn on a dime and float through the gaps – and that we’ll go all out as a country to make ourselves safe and keep ourselves going.
Avoiding downward spirals – for example the debilitating effects that flow on from job losses – must be a core aim. It’s far better to cut hours than jobs – households can cope much better with less money coming in than no money.
Being necessary is also a useful aim. With more and more of us dividing our expenditure into the categories of necessity and indulgence, it’s important to be on the right side of the equation. And be aware that the bar is lowering.
Being kind and considerate to hard pushed customers will also pay dividends. This isn’t a society where you can play hardball with customers and get away with it – well not if they have internet access.
And apparently around 86% of us do according to an article from the Media Counsel in the latest Idealog.
Windshift has been out there over the last few months talking to people about how they’re dealing with things so far – and what we find is a lot of savvy people – from all walks of life – who viscerally understand feast and famine and are ready to adapt to the new situation.
For business right now it’s a matter of reading the signs they’re giving you and playing a long game.
Meanwhile, channel your inner Balclutha! Or Raglan. I am.
Cheers
Jill
Jill Caldwell is Director of Windshift Communications Ltd.
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"I’m kind of hoping we are the smart little country we think we are – which can turn on a dime and float through the gaps"
