Consumer confidence in Scandinavia

It now seems that a lot of data is coming in from how Q4 2008 was. It seems as if the consumer confidence has hit a record low (Bloomberg). At the same time, the Swedish chief of the central bank, Stefan Ingves, assume that the Swedish economy will see an increase in GDP in the beginning of 2010 (DI).

I must say that I see a large differences between how the consumers feel in the EU and Scandi. Some issues that I believe will impact the Swedish economy in 2009 - which I believe will force the Swedish economy to see a long recession (unfortunately).

(1) Risk of inflation - the low interest rate allows consumers to borrow more on future income. More monetary funds are inserted in the economic system. If (more a question of when) the interest increases, in order to cap the price increases and lower the demand for money, the central bank will increase interest rates rather rapidly (to prevent what happened in 2004, 2005 and 2006).
(2) Consumer gearing - A variable that is very much interrelated with (1). When the interest rate goes up, and the demand for return-for-risk goes up, the Swedish consumers will have to cut down their consumption to manage to repay their coupon payments.
(3) Jobb losses in the service sector - Sweden has not yet seen large job losses in the same way as the US. Of course, the Swedish economy is in a better shape than that of the US; but the economy will be affected. Old business models will die (SAAB for example) which will force down the demand for labor, and in the end - services.

(This situaiton would mean a stagflation) Who are then the winners? The people who are sitting on stablie assets (whichever these are, Swedish krona not included) and people who can afford to pay their debt coupons! These will probably see their large debt positions get eaten up by inflation and sail into the future, with less debt and smaller debt burdens for studies. The loosers? everyone else and people who will get squeezed out from the housing sector.

It's not over, until it is over - well, it IS over

It now seems as though the Swedish car manufacturer SAAB is finally heading into a restructuring phase - very similar to what in the US is called Chapter 11. The Swedish government is currently arguing a couple of loans. The public perception of the upper management of SAAB is in my opinion something to laugh about. The mismanaged Swedish "world famous SAAB" is soon dead.

Read a good article about it here - in Swedish.

Witness to a game-changer

This is the finest piece of article that I have read so far about the financial melt-down, it is called "Wall Street lays another easter egg" by Niall Ferguson.

Well, no-one who hasnt been living under a rock since september 2008 can say that they have not been shaken up by the things around you. Information coming from the most inner sanctum of the worl economy says that we have been overspending, over-leveaging and buying stuff that we simply havent had collateral for. Well, this statement can definitly been said about the U.S. A normal family, living in the suburbs with "normal" jobs.. of course you take out yet anohter mortgage in order to send your kids to college/b-school/unvisity (whatever!) but ordinary consumption? Well, this has certainly been the case, but what about the Nordic countries.

Well, when I say Nordic I should say Scandinavia - see what happened to Iceland. Talk about emulating the behavior of American consumers and doubling that. What I get so confused about is that no-one stopped for a minute and asked themselves "where does this newly found wealth come from?". Well, certainly not from organic growth, taking away the effects of gearing - the US economy has only grown 1 % per annum during the last administration (according to Krugman) and this can certainly be said about Iceland too. Well, a burger at one of the ordinary restaurants in Reykavik, that will be SEK 200. What?! What is in this burger, Iceland-pony?

I cannot say that I feel any pain for the Icelandic people - what I see is that I see a total game-changer, a new order that we cannot yet define. And this new way of capitalism, is in the end going to affect all of us. In what way then? Well, lower access to capital - a focus on organic growth and less financial alchemy. Many of the hedge funds operating in Scandinavia has had this as their primer objective, pay out the cash - give this "wealth" to the owners since the owners have better use for it than the company, since they are only "sitting on it". Well, now - in retrospect, how wrong they were. However, less access to capital will definitely change the P/E market in Scandinavia. Less access to capital will mean that it will be harder to find positive NPVs out there, skill of running businesses and finding opportunities will definitely become harder and more scarce. The cost of capital is going up and so is the demand for returns. As we live with the forces of market capitalism, we cannot change the way people think about life, wealth and jobs (and I dont think it is wise to re-define the modern world).

However, what I believe this financial melt-down will do is that we in a couple of years will see new domains of power emerge from the ashes of those that once were. Should the Swedish government allow SAAB to go into bankruptcy? Of course (in hindsight, the Swedish ship yards?). Is there any value in retaining something that needs financial medicine every quarter? Of course not. From the ashes of the old corporations, new one will rise. Profitable businesses, and those companies that will survive this year of judgement will re-emerge as the powerhouses of tomorrow. What do I base this on? Well, I base this on the fact that the latter half of the last century was one of the most prominent times of the history of humanity. Krugman derives the wealth from the fact that we had a different game-changer back then, the 2nd world war. I disagree (even though my access to facts is limited), I believe that what we saw back then - disregarding the cold war - was a new way of comradery, the construction of the EU, the emergence of new technologies and a commitment of consumption that touched every soul in the "western world".

This may sound naive, but what I hope is that the rest of world, eventually will get on the wagon and see the potential in disruption. After all, in the old testament, g#d found it appropriate to rest on the 7th day - and I think we just have to understand that so will consumption during 2009, either if its financed with debt or with equity since the stakes of our future foundation of wealth are so high.

To sum up what it is i mean with this posting: In 10 years we will see that the demand for goods and services will be rising and in the long run we are all dead. This also means that a lot of old - earlier functioning - business models will die.

(Good links on this topic: Krugman 1, Krugman 2, Becker-Posner Blog, Roubini 1, Ferguson 1, Ferguson 2, Roubini and Mishkin on Charlie Rose, Washington Post)

Murder on the financial dance floor

I found a couple of articles that highlights the financial distress in the UAE. It seems as if a lot of expats are seeing a really though time paying for their debt, and if they don't? well, then they will end up in jail.

What is the evidence of this? well, apparently.. when the expats leave Dubai (according to some statistics, 1 500 expats leave the city every day) they tend to leave their car (luxury/standard) vehicle in the long-term parking lot outside the airport. The police then auction off the cars on a montly basis. When will the crisis end? Not soon.(NY Times, The Financial Times)

As if these numbers aren't scare, the officials in Dubai denied an Israeli tennis player access to their annual ladies tennis tournament. Well, now that is a sign of really bad sports. (NY Times)

Link from US PBS

I recently saw this great great program dealing with the financial crisis on US PBS. Its made by Frontline and is called "Inside the meltdown". Have a look and watch the show. Great production!

Interesting article from Krugman

Paul Krugman published this fascinating article in the NY Times. It is very very interesting and gives you a very sharp analysis of how the worlds largest economy currently is functioning. Hope this mess ends soon.

The coldest winter in 20 years

It seems as though this winter is the coldest winter in 20 years here in Norway.. I have therefore bought winter shoes as well as a new "parka-coat". I am very happy because the sale has started which meant that i got a good price.. So, bring on the cold! Im finally prepared.

I have also decided that I will go to Mannheim Business School to study some international marketing which Dr Sabine Keuster is teaching. It seems to a very interesting and everthing seems be in order for my participation.

Kalle also sent me a link with a great song; "sex on fire" by Kings of Leon, which is an awesome song.

Week coming to an end

This week has so far been very hectic and then im not counting the birthday. It has been a lot of school work and hand ins for a subject called "Value Based Decision Making" which more or less comprise of micro, game theory and quantitative valuation techniques. It is very interesting, and this week we built a simulation model in Excel. I do not know how well our team performed with the task, but I do have a positive gut feeling.

What else, yeah - tonight im off to a bar in Oslo city and tomorrow im going to go look at some stores for a paper im going to write about service marketing. I also slept more than 9 hours this night, which was a true blessing.

New class in corporate finance

On my birthday, we now started the new class in corporate finance. We are now going through the theorem by Modigliani and Miller. I have of course seen these propositions before, and if feels like I have worked with them a lot.. its just, I cant kick the fact that I still find the theory very very interesting. It also feels great to get a re-fresher in regards to the theory.. As I write, it seems like the world is "drowning" in rescue packages.

My birthday is today

... and the economic gloom continues and stocks can always loose an additional 50 %. Cheers!

Horrible news from the US

Apparently, the unemployment stats from the US are grim, in January alone they lost a total of 598 000 jobs in the US.. confirming the largest economical contraction in decades. When it will end? not tomorrow, thats one thing for sure (NY Times).

Great marketing article

I recently read a great service marketing article called "Marketing intangible products and product intangibles" by Theodore Levitt. It was published in the Harvard Business Review in 1981!

The basics in his article stems from the fact that all companies are service producers - which is a statement that many can sign off on (Honda doesnt produce cars, they produce units that enable travel?!??). Well, this is sort of the core of the article, that what makes marketing different is whether the output is intangible or tangible - here the argumentation stops (a car, is a car = tangible). And this causes problems for marketing... more on this topic later.

Case on Starbucks

We are currently reading a case on a former employer of mine, Starbucks. I used to work at Starbucks when I was 19 - which is now more or less 10 years ago. I remember it quite well. I worked at the cafe close to Liverpool St Station in London, not Old Broad Street - the other one.

Well, now Starbucks are closing several stores and selling their newly purchased corporate Jet. Well, what can you say.. a bit irrational exuberance from Mr Howard Schultz perhaps?

- When will this worldwide corporate melt down end? Now?

Two excellent quotes

Yesterday, Öystein Fjeldstad quoted this line:
"You don't have to have been a horse to be a good jockey"

- Arrigo Sacchi

Another great quote - for the same price...
"Public opinion is no substitute for thought"

- Warren Buffett

Grading my Dell.

I have now used my Dell for a couple of hours and here is what i think about it. The computer is a Dell Inspiron 1525.

• Screen: 5/5 (great, good view and clear)
• Overall size of computer: 3/5 (too big)
• Weight: 3/5 (see above)
• Price: 5/5
• Speed and storage: 4/5

Overall, a good purchase.. i think, but dont use it for work/travel.. its way to big for that.

Sunday evening.

Well, I had a great time in Stockholm. Managed to pick up my Dell computer which is very fast.. Its quite big though, which is not good... but then.. I got what I paid for. I didnt whish to have a very nice and small computer, because of the price tag.. but as for now.. it strikes me as a good computer for the purpose of listening to music and watching media (pictures and movies). I also saw a movie this weekend called "city of ember" which also stroke me as good.

Well, lets see.. on the agenda for the week is a hand-in in value based decision making and some articles for tomorrows class. Ill better go through them asap. In the news.. Ingemar Johansson - former heavy weight champion of the world - has now passed away. I found this compilation of fights on youtube, with a horrible version of the Swedish national anthem in the background. Unfortunately Ingemar spent his last years in life battling the damages that he received during his fighting years, yet another reason to ban universal health care... why should the health care system take care of people that deliberatly interact in a sport where they receive punches to the head? anyone? how do you cope with this issue? Hard nut to crack (Washington Post, Int'nl Herald Tribune, Times Online)