What is Recession? This is the period of time when people and businesses take a compulsory vacation. The business activity becomes lower.
As I write this today, Car Manufacturers in USA and Europe has announced that they are slashing production. Sony Corporation announced in Japan their production will reduce and the shareholders can expect half the profit, they expected earlier. OPEC announced today that they will cut the oil production by 2 billion barrels p/d. Similarly lot of business will cut production. When they cut production, the resources will be surplus. Accordingly, unemployed resources will increase. This will include human resources. In other words many people will no longer be required because of lower production levels. This will span across industries. Steel mills, copper mills, cement factories, etc will slash output. Then the rawmaterials will be required in lower quantity, resulting lower mining activity. This in turn will reduce the demand for costly mining machinery.
Boy, it is like a vacation. No work and all play!!. But it is painful if you have (a) debt burden and (b) no other means of survival other than your production activity/ business or job.
When people loss job, they will cut their expenditure. There will be lower demand for garments, eatables, luxury goods, cars, TVs, etc. If they have taken loans, they do not have any repayment capacity. All unemployed become sub-prime category. USA is worst affected because the debt-burdened US consumers almost stopped buying things. US Banks, whose bad times started in 2007 with Sub prime mortgage, is not expected to be over anytime soon. With the increasing unemployment, the repayment to the banks will get affected.
Surprisingly, what should have been a US problem has become a global problem. US and Europe economies were intertwined for quite sometime. China has taken all the manufacturing from US and was selling goods to all over the world, which tamed inflation despite ballooning oil prices. They will affect China, India (mainly BPOs, IT, etc) and most of the rest of the world. The only group of people not affected would be the tribes living in jungles and does not engage in any business relationship with the rest of the world.
Who does Recession Benefits:
Many suffer during recession. But some benefits. May be it could be you. I will provide some insight as to how you can benefit towards the end of this session. First of all let us see who all benefits:
a) Lawyers: Many MOUs (Memorandum of Undertaking) and Agreements will be tested during a recession. The promising business ventures inked during the boom conditions may no longer look attractive to one of the parties and will try to escape their contractual obligations. In such cases, the demand for services of lawyers increase. Businesses and people will consult lawyers to see how they can get out of the once promising business deals.
Another set of services, where lawyers will become busy, is little nasty. The real dispute and legal fights between counterparties due to failure to perform. Lawyers services are called in to represent before Courts of Law. One of the main such legal disputes will be in banks as businesses and individuals default on several loans and credit facilities availed.
b) Consultancies (Business): With the sharp fall in demand, many businesses will plan restructuring or downsizing. They will have to revisit the strategies and other growth plans drawn up during good times. Can they be sustained? Shall they be postponed or dishelved? Or a new set of strategies are required? If so, in what direction? How the external markets and stimuli are being reshaped. All these require tough questions and equally critical answers.
Many top management finds it convenient to rely on external consultants to help them to take decisions on such tough issues.
c) Vulture Capitalists: Just as venture capitalists make money helping others start to new ventures, vulture capitalists help them to break up. They acquire bad businesses and break them up and sell them piecemeal. Their business increase during recession.
d) Receivers/Liquidators: They are the category of people who specialise in liquidating the business firms. Once declared bankrupt, a company/business will be entrusted to Receivers (usually by a court of law), who will realise assets and settle the creditors. Usually, this fuction is handled by either Professional Accountants or Lawyers.
e) Shrewd Investors: Warren Buffet's (WB) well known strategy is to pick up stocks when everyone is fearful. Recession is a time when everyone is fearful. WB has already picked up a few stakes in GE, Goldman Sachs, etc. This applies to all fields - not only in stock markets all over the world, but in all other asset categories as well.
Another category is the option and forex traders. Although high risk, by taking risk of a sum you may be willing to lose in a lottery, you may be able to win a jackpot. The probability for a learned individual to win in this type of activity is very high.
One day, the cycle will move up. All policy decisions at all Government levels, Central Banks, etc are aimed at moving the cycle up. There will be many, who will be laughing all the way to bank, because of the Recession.
To get more information on this, I encourage you to browse the wealth of information available on the Internet. For your easy access, the Google Search bar is given below and use your imagination and creativity to do search (e.g. search for 'money in recession' , etc) and unlock opportunities.
Wish you all the best.
Custom Search
