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Here Comes August, The Cruellest Month Of All

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http://www.guardian.co.uk/business/2009/ju...-economy-august

The tills are ringing on the high street. Estate agents have a spring in their step. Bonuses are back in the City, and the stockmarket is up 1,000 points from its low.

Beyond Britain's shores, there are signs of recovery in Chinese manufacturing and Japanese exports, and even some tentative hopes that the US property market has reached rock bottom.

Almost two years to the day after the world was plunged into the deepest financial and economic crisis since the Great Depression, it finally seems safe for bankers, politicians and business leaders to head for the beach without having to keep their BlackBerrys switched on.

Even some of Wall Street's super-bears, such as the economist Nouriel Roubini, are beginning to suspect that the worst may be over. In Britain, Friday's news that GDP declined at a worse-than-expected 0.8% in the second quarter may have tempered expectations of a rapid return to business as usual; but with interest rates on both sides of the Atlantic at record lows and taxpayers' cash pouring into the economy, many experts are still tentatively predicting a modest recovery, starting this autumn.

History suggests, however, that severing links with the office and dozing off in the sun could be a bad mistake. As far as economics is concerned, TS Eliot was wrong: it is August, not April, that is the cruellest month.

For Northern Rock boss Adam Applegarth, it was 9 August 2007 when, as he put it, "the world changed," and a seemingly arcane statement from BNP Paribas that it was struggling to value its mortgage-backed assets, triggered a seizure in the international financial markets from which they are yet to recover.

Since then, the global economy has lurched through a series of six-monthly cycles: from the run on the Rock in September 2007, to its eventual nationalisation in February 2008, followed by the fire sale of Bear Stearns. And from then to the collapse of Lehman Brothers on 15 September last year - the pivotal moment in the entire crisis.

In the spring of 2008, as the fallout from Bear Stearns died down, investors comforted themselves that the worst was over, and economists clung to the notion of "decoupling," which suggested that fast-growing countries such as China and India would be untouched by the financial rout. In fact, during August the fuse was already burning down towards the near-death moment for the entire global financial system that followed Lehman's bankruptcy.

Steve Barrow, head of G10 strategy at Standard Bank, says, "if you look at what happened this time last year, we had the start of the collapse in the oil price and the dollar. That really got going after Lehman Brothers fell, but the signs were already there before."

Some in the City will remember the Russian debt default of August 1998, while those with even longer memories will recall Saddam Hussein's invasion of Kuwait, in August 1990, which sent oil prices rocketing.

As August 2009 gets under way, while the optimists are basking in sunshine, bears can find economic clouds everywhere, from a fresh crash in the housing market in the world's biggest economy to a mass debt default by African governments.

"There are still huge vulnerabilities," says Russell Jones, global strategist at RBC Capital Markets in London. "There are issues of capitalisation in the banking sector; there are issues of public sector debt sustainability, not least here in the UK; and you've got the threat of central banks and governments wanting to take away the support to economies too soon."

The first concern is that the optimism in financial markets is premature. Just as they failed to foresee the deepest recession in a generation and chose to "keep dancing", as Citigroup boss Chuck Prince put it at the time, investors may now be clinging too enthusiastically to the hope that recession will be swiftly followed by recovery.

Upbeat financial results from a series of US companies, including processor-maker Intel and investment bank Goldman Sachs, have helped drive up stock prices; but Graham Turner of GFC Economics says many firms have only chalked up profits by taking an axe to their costs.

That may be good for each company individually, but if wages right across the economy are depressed by pay freezes and reductions in hours, the hoped-for return of consumer spending is unlikely to materialise - the problem of shortage of demand first identified by John Maynard Keynes during the 1930s. "The stockmarket interprets slashing labour costs very positively. But we are now in a situation where the Fed can't do anything more, so if firms keep cutting wages, we will run into the very thing that Keynes always said we should avoid," Turner says.

American firms are still shedding staff aggressively - latest figures showed there were 554,000 new claims for unemployment benefit last week. How rapidly the job-cutting comes to an end could make the difference between a nascent recovery and a "double dip". Retail sales have already begun to fall back, despite President Obama's $800bn stimulus package.

Barrow at Standard Bank agrees that rosy corporate earnings statements mask deeper problems. "This is all about cost-cutting and shedding labour, rather than economic growth improving," he says. Look more closely at many of the data being trumpeted as signs of recovery and they only appear positive because they are a marginal improvement on the three vertigo-inducing months with which the year began.

It appears that all the profits made by the big companies are as a result of cost cutting, you can only fire your staff and close excess capacity once after that you run out of saving options and the real profits are revealed.

Will August be a quiet month? Or will it be seen to be the cruellest month of all again?

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Hmm, I agree with T.S. Elliot in that April is the Cruellest Month, but for the context of the article, its any month post 2007 really.

It's that 'return to normal' bit from the famous graph that gets so much time on here.

manias-bubbles.jpg

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Guest happy?
Can we hold off the crash until September please....I will have sold my business by then :ph34r:

Saw your post - I've instructed my solicitor to withdraw from the sale!

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Saw your post - I've instructed my solicitor to withdraw from the sale!

But you must buy Southampton Football Club from me. You must, you must, you must...........

We agreed on £5 and shook hands on it and everything!

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It's that 'return to normal' bit from the famous graph that gets so much time on here.

manias-bubbles.jpg

That's such a good graph. Shame that house "prices" weren't ALLOWED to be included in the inflation figures so that Mervyn at the BOE could stop the World's Greatest EVER Pyramid Scam in its tracks..... But oh, one Mr G Brown, Chancellor for 10 years, devised this trick to make every home owner feel "rich" - a delusion - [house prices rose 400%+, and THIS DIDN'T COUNT!!!??] - so that Nu Labia could be voted in x 3....

WHY hasn't Brown been hauled in front of the firing squad, and MADE to apologise for this gross FRAUD - and then shot?

Edited by eric pebble

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these guys seeing signs of recovery coveniently forget that the world is the subject of "Stimulii" from all the worlds governments.

and then he complains the stimulii are about to be withdrawn!!!!

my car works fine....its got no fuel, but it moves forward in 1st when the starter is engaged. all we need now is for the engine to continue without the battery backup.

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http://www.guardian.co.uk/business/2009/ju...-economy-august

It appears that all the profits made by the big companies are as a result of cost cutting, you can only fire your staff and close excess capacity once after that you run out of saving options and the real profits are revealed.

Will August be a quiet month? Or will it be seen to be the cruellest month of all again?

Yes they just seem to make profits by cutting costs and merging with other companies. Eventually you are left with a skeleton staff to carry out the same work as before. Everything looks good on the balance sheet, the problems remain hidden, but eventually the cracks appear. How many times do you see a share price rise on the news of job cuts in the name of efficiency? It's good for the city vultures in the short term though.

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WHY hasn't Brown been hauled in front of the firing squad, and MADE to apologise for this gross FRAUD - and then shot?

I know it's bad and not very 'Christian' but a part of me would like to see that. :( It could be a long firing line.

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Yes they just seem to make profits by cutting costs and merging with other companies. Eventually you are left with a skeleton staff to carry out the same work as before. Everything looks good on the balance sheet, the problems remain hidden, but eventually the cracks appear. How many times do you see a share price rise on the news of job cuts in the name of efficiency? It's good for the city vultures in the short term though.

Meanwhile because the balance sheets look "good" the fat cats at the firms give themselves massive pay and bonuses voted in at shareholder meetings. Even though private shareholders object the votes are passed because the fat cats themselves and other institutions hold more of the shares and vote for it.

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but Graham Turner of GFC Economics says many firms have only chalked up profits by taking an axe to their costs.

Right. The crucial detail is that the green shoots are actually poisonous weeds. A blip of profit now that creates woeful consumer spending later.

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my car works fine....its got no fuel, but it moves forward in 1st when the starter is engaged. all we need now is for the engine to continue without the battery backup.

Gettabike!

/me certainly wouldn't've had that second (excellent) pint with his (excellent) pub meal last night if he'd had to drive rather than cycle home. Some things still work nicely :)

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I know it's bad and not very 'Christian' but a part of me would like to see that. :( It could be a long firing line.

You're too humane to be Christian. A charitable christian would just burn an enemy; a more extreme one - from the sack of Byzantium right through to Bush&Blair's minions - would torture him first.

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