I know that we don’t want to face it but rather manage our lives by hope. Point in case is the current stock market insanity. Two decades ago, companies were mainly valued based on profit with much lower valuations. Then came the idea of a much greater weight on growth, which turned itself into some sort of a self enforcing, ever-increasing woodoo financing system with valuations that I never really understood. Nowadays, I read the news and see that investors have returned to sanity and refocus on profitability. The only difference is that the valuations are back to where they used to be with the concept of growth. Hence, I don’t get it either. What I do understand is that JP Morgan Chase and Goldman Sachs did each net over $3 billion in the third quarter and that they are about to pay out bonuses that are almost twice as juicy as before the crisis. They make their doe in the banking casino of stock trades, derivatives and high-frequency scams. I also understand that the U.S. government, e.g. the taxpayer, now guarantees the downside while the hot shots rake in the profits. I had thought that nationalization of banks was a bad idea and could not imagine that there would be an even worse concept: nationalization of the banks’ debt and obligations while keeping the profits private. To say it bluntly, I have never seen a dumber concept signed off by an American President at the cost of the taxpayer. Not even Bush could have come up with that. Those banks that are engaged in the traditional banking business did not fare so well in the third quarter. Citi and Bank of America were pulled down by huge write-offs in commercial credit and in the credit card businesses. 

Many businesses are currently managed for cash, cutting the hell out of the operations until revenues bottom out. The key question is whether the storm is over or whether we are sitting in the calm of the eye of a hurricane. I had pointed out in earlier articles that many businesses may face a crunch when it will come to refinancing their overleveraged debt load. If we get really, really lucky, the fourth quarter will come in with a slow growth compared to last year’s sobering experience. The good news is that many sectors show positive signs of life, while others are still shrinking. If the hoped for recovery hits home, we will have a party. If it doesn’t, then businesses will have to think about cutting even deeper. But the low hanging fruits are now all gone, leaving many companies with fewer options. Cutting costs further may prove a mighty task for many.

Let there be no mistake. The fundamentals have changed dramatically – to the worse. Unemployment in the U.S. is at 15 million; the national debt has ballooned; the federal and state budgets are in mind boggling deficits round about; more mortgages are foreclosed; credit still contracts; more businesses crash under their debt load; and the banking casino is merrier than ever. Meanwhile, the banks resist any regulation and respond to any attempts with cutting off political support. Quite frankly, should Obama dare to bring forth meaningful regulation, I have a feeling that he might not find a place to hide.

The only way out? A swift recovery. I have a feeling that we have learned absolutely nothing. I had maintained that we might be in for a double digit decline over 2009 and 2010. Despite the signs of a weak ‘recovery’, I am not going to follow the crowd.       

H.R. Tschudi, economist and entrepreneur, Vancouver