Who will go first?

The unraveling of global financial markets, currencies, economies, businesses, and potentially a government or two has taken center stage throughout the world. Based on a number of factors, I believe that some time remains before the immediate crisis begins to lift. Yesterday, a friend in Russia and business executive commented that he “hoped” we were halfway through. Perhaps this is optimistic, but I am certainly willing to hope along.

As the crisis begins to abate there will, most likely, be a gradual recovery period that will be measured in months and years. Current downturns in consumer and corporate spending combined with current and future job losses will impact corporate earnings for the upcoming quarter(s). Friedman’s “flat world” will have to pull out of the hole together or work to cushion the ongoing fall. It has become emphatically clear that we live in an inter-connected world where practices and trends in one industry in one part of the world impact others. (This brings up a range of issues, but these are outside the scope of today’s entry.)

Recently a large number of public companies have been reporting earnings. A significant portion of these companies have missed their numbers and are pointing to current decrease in demand, devaluations, etc. (see Sony for a recent example). At the same time, however, a number of companies have reported numbers that were in line or better than expectations. Most recently, these include IBM, Amazon, Apple, and Microsoft. Along with these results have come conservative upcoming quarter and year projections with unknown factors impeding normal forecasting practices from being reliable. Analysts have glossed over results and focused on the uncertainty or the low side of the projections. Investors in turn have responded with selling or holding off on making purchases. This impacts business’ capital and to some extent whether or not company employees are let go (see Goldman Sachs for the most recent example). Finally, these events and reactions impact the cash that consumers (both employees and investors) have or are willing to spend.

Assuming that governments are adequately addressing and redressing liquidity issues, the issue comes down to trust (another topic for another day–see Moody’s). There are several ways for the market bleeding to stop–for trust to begin again at some level. Any of the involved parties could step up to impact the scenario. The companies could forecast their best guess while taking the risk that if they miss, the analysts will switch their focus from the forecast to the results.  If the companies are not ready or able to take the first step, then the analysts could take the lead by pointing to the results that are real rather than the forecasts that are made to be beaten. If the companies and analysts are not ready or able to take the first step, then the investors can make decisions to start buying based on valuations rather than the analyst-fed market media. However, if the company and the analysts, and the investors are not ready or able to take the first step, then the consumer has the opportunity to do so. 

So the question remains: Who will go first? My guess is the investors, but any of the involved parties could (and do) impact the situation. 

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