Global Recession - Hw To Profit

The Global Recession's Here: How to Profit from It? Introduction: All is doom and gloom. Stocks and shares are plummeting and the savings of blue chip shares you were relying on to help you in times of financial crisis, no longer looks like being the blue chip investment you once thought it was. The prime locality house which was worth crores is nearly worthless. Banks are failing and the recession is sending a worrying shiver through the global economy. Nothing seems stable, not even the prices of apples and onions. So what can you do? How do you react to an economy that is grinding to a halt, and that looks like it won't be recovering any time very soon? So how can we cash in on the upcoming boom? Or your question might me ‘Can we actually profit from this recession at all in any way? The Problem – This research paper will cite and allude to the following problems: 1) A Shocking majority of the investing public/people have a misconception that this is the end of their profits. This is NOT true. 2) There is no positive outlook at the present financial situation or the future for that matter. Again NOT true. 3) Which are the safe and sort of unwavering industries to invest in? Objective – This research paper fulfills the following objectives: 1) The study and scrutiny of the present situation in the US economy, with an

Indian perspective as well. 2) To present a comprehensive set of guidelines and strategies to wade through these murky water of recession. 3) How to position yourself now to rake in the spoils of your lesser informed investing friends?

The Sagging US economy… By the looks of this chart further declines can be anticipated. Since houses are owned by consumers, consumers are getting pinched hard. The days of easy credit are rapidly diminishing. As home equity declines, home equity lines of credit are disappearing. Consumers are increasingly turning to credit cards to make ends meet:

This continued reliance on "plastic" will continue to pinch the consumer even more. Bankruptcies are already up 30% over last year's pace and this is not true of only the US, in India too. Retailers are taking drastic steps to increase sales but these steps are not working. Corporate earnings are projected to plummet. Jobs are being lost at an alarming rate in the US:

Even the government is even feeling the pinch through declining payroll taxes:

Finally, banks have been hemorrhaging losses at an alarming rate. In summary, GDP is slipping, housing prices are in freefall, consumer debt is skyrocketing, bankruptcies are climbing, consumer spending is dwindling, earnings are cascading, jobs are being slashed, and, oh yeah…most banks are insolvent. Yet the market presses on as if we've already seen the bottom. You may have heard the term "When the U.S. sneezes the world catches a cold." The idea is that the U.S. economy is the worlds largest and anything that affects the U.S. economy, ultimately affects the world economy. Some economists feel that regional economies are "decoupled" and not affected by U.S. problems. But let’s face the facts - the world's economies are more globally intertwined than they ever have been. With China, Russia, India, and other emerging markets rapidly accepting Capitalism as a way of life, the opportunities for global trade have expanded exponentially. This fundamental change has brought new wealth to countries that have been repressed for so long. But at the same time, it has tied them even closer to the U.S. economy. The best way to determine whether or not the global economy is being affected is to follow the trade of goods. The majority of goods travel by sea. The best way to measure the amount of goods being shipped by sea is to look at the Baltic Dry Index. The BDI combines amount of cargo being shipped by sea and prices paid for that cargo in one index. As you can see in the chart, shipping levels started to drop off around November of '07:

Another way to determine the flow of trading is by analyzing the railways of the country. The Indian Railways have been making a profit ever since the 1991 economic reforms, though the global economic downturn is slowly starting to catch up to the railroads as well. Railways are though landlocked, still majority of our commodities get to ships by rail first. So rails are an important part of the global economy. Since there has been a continuous rise in crude oil, it can be assumed that as fuel prices too will continue to rise, the cost of trucking will cause more demand to ship goods by rail. With gas at record highs, the rails should be booming right now. It must be mentioned that since the past few months fuel prices have come down but that’s only because the demand has dropped. What about stocks? U.S. stocks are still WAY overvalued though the Bombay Stock Exchange. We are off only 12% from our record close in October 2007. Compared to P/E ratios of other global markets, the US are still the most overvalued market:

Source: Bespoke Investment Group

Corporate earnings will plummet. Most analysts have not factored this in yet. The next few quarters will see numerous misses and continual guiding of estimates lower. The analysts are always late to the party:

Which sectors can I still depend upon…? There are very few sectors worth being bullish on. Even the sectors that should do well in this environment (gold, silver, aerospace, and possibly consumer staples) will be overtaken by the negative momentum of a falling stock market. The commodities market though it fluctuates is still one of the dependable investment options because of the constant demands for staple goods. The Commodities market… Commodities have been on a tear already. Two factors are feeding this. One is the basic laws of supply and demand. The second is speculation. Supply and demand is somewhat predictable by analyzing global macroeconomics. Speculation is the wild card. You can lose a lot of money if your luck runs out. With that in mind, let's look at how a few different commodities playing out over the next several years. Grains: The move in grains is for real. Food prices continue to stampede higher. Why is the cost of food getting higher? China's emergence from a social-agricultural economy to an emerging-capitalist economy has caused a mass movement of people away from the rural farming areas into the more urban areas. Everyone has focused on how rapidly their economy has expanded, but nobody focused on how that would affect global food prices when the farmers stopped farming. China is not the only nation causing this "food crisis", but it is certainly the largest. Speculation too has added to the rising grain prices, but the main fuel has been pure supply and demand. This problem will only get worse. The price of grains will continue to go up. Gold and Silver: I see gold prices being set by an even mix of supply/demand fundamentals and speculation. As wealth grows in emerging markets, the demand for gold jewelry has increased. But the majority of demand is coming from the markets. Gold is both a hedge against inflation and a "safe-haven" against a falling market. Having a falling U.S. dollar only adds to the upward pressure on gold prices. Gold is also being fueled by massive speculation. It has received a lot of press and with it, a lot of speculative money. According to the RBI, gold is going to be very volatile this year, but ultimately, the fundamentals will take gold higher. As for silver, it follows gold, but with less fanfare. It’s good to look for opportunities to get into silver when gold is outpacing it.

Oil & Natural Gas: Perhaps more than any other commodity, oil is rampant with speculation. While it cannot be denied that there is a fundamental issue of supply and demand driving the price higher, as well as a weak dollar boosting it even more, the price has gotten to a point that is unsustainable for the global economy. Rising fuel prices are pinching the consumer just as much as the falling real estate prices. Is oil in short supply? No. If it was, we'd have to wait in line to fill up our tanks. In fact some oil refineries recently slowed down due to slowing demand. Smaller and budget airlines are rapidly going bankrupt due to the high oil prices. As the global recession progresses, worldwide industries will require less and less oil. It’s expected oil to remain extremely volatile due to the speculation. We may see $125 and $150 a barrel in the near term, but ultimately, a slow sustained pullback is in the future of the oil industry. Natural gas is a different story. As a cleaner energy source, natural gas has lagged behind the big increases in oil. I expect natural gas to outperform oil in the near term. After oil peaks and heads lower, I expect natural gas to stagnate, and then eventually turn lower as well.

How to Profit In a Recession… Most competitors are dropping their prices like they can't give their products and services away fast enough. Many are racing towards the liquidator with their eyes wide shut, others are buying business’ by bending over backwards like contortionists and if you close any hotel in any city you'd annihilate about 20% of the entire sales force in the industry. Hypothetically your business on the other hand have been steadily increasing your close ratios while more prospects are coming to you and asking you to help them. You're probably raising your prices by 30%, 40%, 50% every Quarter because you've chosen not to play in this recession by falling into the trap your competition has. You're keeping a tight hold on your cashflow, you are turning down invitations to tender where you have little or no chance of winning because the prospect has already decided who they're going to use or they're so early in their research that they're just fishing for free consulting. Heaven knows you're forward thinking enough to structure the turnover in your sales team so that you're only losing the weakest people and your best people are staying and thriving in your company while all around you are gnashing their teeth, laying people off, eating into their margins, incurring ludicrously high costs of customer acquisition and allowing buyers to treat them as a supplier of commodities not like they treat you ... as a trusted advisor delivering multiples of value each time they work with you. So what makes you different from the rest of your emaciated, scared and ever so occasionally blinkered competitors? Cash is king. Get paid upfront, early and often. Keep money in the business. Be picky and do business with people willing to pay your fees not the fees they tell you can have later. Make sure you're in profit and protect your time, resources and cash flow like your business depends on it. It does. Identify the reasons why your customers will pay you premium for what you offer. Decline generous offers to take on work that will cost you money to deliver. Disqualify hard to avoid wasting your time, money and resources let alone sapping your morale by being led by the naive. Charge what you're worth and do it with conviction.

Fire people who when order taking and only talking about the stuff within their comfort zone because they're too ignorant, idle or scared to discuss why the customer should buy the dozen of so other services and products they offer. No cross selling, no up selling, no strategic account development, no effort to spot the potential of an account on the basis of their paltry wallet-share. Ask for and take the help. A business and its network need help more than ever now. Take the time to invest in the key relationships that will help the business thrive in the nasty recession that lies ahead. Keep your head. Even stagflation means rising prices while the economy remains stagnant. i.e. Germany Plc continues to have a GDP of €30 trillion with inflation running at 8% or UK Plc has a GDP of £27 trillion with inflation running at 18%. Yes credit is tighter so run checks before you incur costs but €30 trillion in sales are still happening and £27 trillion are still happening. People are still buying. Its not like the full population is watching what they spend and don’t buy nethin. Money is changing hands, transactions and deals are being done. So it's not doom and gloom all around. It is time to really pull out all the stops and make sure all the customers Fulfilling on those promises is much easier if you ask for help before you need it not when you have the bailiffs dropping around for a quick cup of tea and repossession. Ask for help. Take the help. Apply it. Recognise it. Thank people for their help. Give help to others. BUT QUALIFY IF THE PEOPLE YOU ARE ASKING FOR HELP ARE WORTH ASKING!! It's worth paying for good advice. Bad advice is very expensive even if it looks cheap (value for money or a bargain). The owner’s state of mind determines the health of your business. Sure, the bank balance and order book do to, but if you've already decided you're going to have a hard time ... you're right. If you've decided you have to discount.... you're right. If you expect your sales meeting to be tough then.... You’re right. Your state of mind, your self-concept, the subliminal scripts you're running, your need to be liked over your intent to go to the bank, your need to comply instead of respect yourself enough to expect to be treated as your prospect's equal, when you have all these in check and you are able to separate who you are from what you do so you don't take rejection personally and your self-concept is always protected ... all these play a visceral part in you becoming another statistic of economic mismanagement and global recession or being one of the survivors and thrivers who makes it out the other side bigger, leaner, stronger and much more profitable. When will it end? I personally believe a severe recession and a severe market correction are in the near future. But this whole academic research paper would be meaningless unless I quantified the exact moment one should return to the Bull camp. It’s really bad when analysts make stock picks and price projections without a time frame. For me, the turn will not happen until the very thing that got us into this mess leads us out of this mess… that’s housing. I believe the U.S. economy will lead the world out of the global recession. Exactly when will it happen, one cannot don't know and cannot say. But when I see the NASDAQ and the SENSEX turn positive, so will I.

Limitations -

Though all the research in this paper is applicable to the current economic scenario,

due to the ever changing economic situations certain suggestions may change. - The scope of this topic is too vast to cover completely in this paper and so only the main points have been discussed. - The industries which have been suggested as safe to invest in is based on my personal knowledge and sourced from some magazines. This information may not be exactly accurate. - Though it is mentioned that an Indian perspective will also be discussed in this paper, since enough research material and information is not available the Indian perspective is very brief.

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Bibliography I sourced the information for this research from the following websites.

Sources and References - Wikipedia.com - Lowrisk.com - BEA.gov - standardandpoors.com - PrudentBear.com - Bloomberg books - FinancialArmageddon.com

- SeekingAlpha.com - BigPicture.com - timesofindia.com - InvestmentTools.com - FinancialArmageddon.com - BespokeInvest.com - BigPicture.com

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