The Future Place Blog

Is Iceland going bust?

BBC's Robert Preston makes a persuasive case that Iceland (the country not the UK retailer) is in deep trouble. For example, its GDP is US$20billion, its banks have borrowed US$120billion. One consequence of Iceland's problems is that companies who have been in the habit of borrowing from Icelandic banks will need to look elsewhere to find their capital to continue their operations, these organisations include a wide rank of UK companies and West Ham United football team (soccer).

Iceland's Landsbanki is Iceland's second largest bank, and is currently ranked by Bloomberg as the European bank most likely to collapse, according to the Telegraph.

Blog about why the bankings system is collapsing

I have recently become a fan of BBC's Robert Preston's blog. If Preston is right, and he has been right several times recently, then we are in for more troubles. His explanations are both clear and insightful I get the impression that he has some very good sources of information.

For example one recent post looked at the problem for UK banks in the light of their dependence on the wholesale money market, and the consequences for those banks or this supply drying up, pointing out that this was one of the main reasons that Bradford and Bingley was judged to be non-viable as a bank. He has described the dependence of the banks on central funds as Nationalisation by Stealth, I think it might be more a case of Nationalisation by accident.

Thumbnail Sketch of UK Slowdown

The BBC have a really useful page looking at how the current economic squeeze is hitting the UK. I am always in two minds, whether to share the facts and information, or whether avoid spreading panic.

However, I am feeling too much panic, or too little?

George Soros Predicts Further Economic Woes

George Soros has published his thoughts in a new book “The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Mean”. I have not read the book yet, but I did listen to an interesting interview with Soros this morning on Bloomber, and harvested a few key facts from early reviews, such as those in the The Independent and The Telegraph.

Soros’s main point is that the world’s economy is facing its biggest challenge since the 1930s, and that the sixty-year long term growth in the power of what he calls leverage and which loosely translates into borrowing has come to an end.

Soros reserves much of his criticism for market fundamentalists, people who believe that markets are self-regulating. He points out that regulators, such as National Banks, have repeatedly had to step in over the last few years to sort out market problems, most recently Northern Rock and Bear Sterns.
An article on Bloomberg puts it this way: 'The belief that markets tend towards equilibrium is directly responsible for the current turmoil,’ the billionaire philanthropist writes. ‘It encouraged the regulators to abandon their responsibility and rely on the market mechanism to correct its own excesses.’ .

One interesting sign of the times is that at present the book is only available as an e-book, the hardcover will be available in May.

And the implications for Market Researchers? Well I guess the main one is to expect some of your clients to go bust, including some blue chips. This means practicing normal good business procedures such as not being too dependent on any one client, and ensuring that invoices and payments are processed promptly. It might mean harder times for agencies looking for funds or looking to sell. In terms of consumers, we should be looking to detect changes in priorities and strategies. In the past retailers knew that during a recession sales of staples such as bread and jam would increase. If we do have new hard times, what will be the implication for ‘indispensibles’ such as tv-packages, overseas holidays, and mobile phones?

Why globalisation is good

The Economist has an interesting opinion piece arguing that globalisation is, in general, good for Europe.

The article contains a really good example of why China's increased production capabilities are good for the West. An iPod is sold in the USA for US$299, with US citizens reaping the low cost benefit of China's production. Of the US$299, just US$4 stays in China, with US$160 going to US companies that design, transport, and retail iPods.

Back at the start of the 19th Century David Ricardo showed how international trade between two countries could make the populations of both countries better off. However, the dislocations caused by changes in balance of trade can cause real problems. (I grew up in the Nottinghamshire coal fields decimated by changes in trade coupled with the determination of the Government to break the trade unions). The challenge for economists and Governments is to work out how to deal with those who are hurt by free trade, rather than hurt everybody by restricting trade.

UK clients slash marketing spend

WARC reports that UK client-side companies slashed their marketing budgets in the last quarter of 2007. Of note was the fact that Web advertising seemed very little affected. The picture about the short term appears to be becoming clearer, and some people are going to be in for a hard time.

MR view of the economy unclear?

About 58 MR folk have already voted on my latest poll about whether people think the economy will be favourable, neutral, or unfavourable for market research. An the picture is as clear as mud! Almost exactly one-third are nervous, one-third are optimistic, and one third are neutral.

Some of the differences may be between countries, this will become clearer as the numbers of votes increase, but it suggests to me that about one-third of industry is in for a surprise in 2008.

If you would like to vote, or see the latest figures, click here. To see the figures, click on view results, near the vote tab.

More economic clouds in the sky

The BBC report that UK retailers had their worst Christmas for three years. Whilst food and drink sales were OK, clothing and footware fell for the third month in a row.

In a separate report the BBC also announced that a recession had arrived in the US, based on a report by Merryll Lynch. Merrill Lynch's view is currently controversial, with other bankers and experts saying there is not a recession, and that a soft landing is possible. The official verdict will be given by the National Bureau of Economic Research, but its verdict could take two years to arrive.

Downturn news

Research News reports that IMS Health may be laying off 10% of its staff in 2008, in the face of the challenging healthcare market. The report estimates that up to 780 jobs could go, but with few of them in client facing positions.

Japan's quirky housing market

The Economist has an interesting article about the nature of the housing market in Japan, which to UK eyes looks odd. More than 60% of Japanese homes were built since 1980. This appears to be the result of two phenomena. Firstly, Japanese law separates ownership of the building and the land. Secondly, the Japanese prefer not to buy a house that other people have lived in.  By contrast 89% of British homes have had more than one owner, 78% of American homes have, as have 66% of homes in France. By contrast on 13% of Japanese homes have had more than one owner.

As a result of these differences, the average Japanese home is demolished after 30 years, and the typical Japanese house owner engages in very little home improvement and DIY. A typical older couple may decide to move to a smaller home, so what they often do is demolish their home, sell their land, buy a new smaller plot, and build a new home.

The point of the article in the Economist was to report on changes the Government is taking to change this pattern, as it is environmentally bad, and a poor use of assets. However, to me, the important message is a reminder that different cultures have surprising differences. To anybody brought up in the UK the assumption that the average lifespan of a house is 30 years seems really odd, we tend to think 100 years is a reasonable average, if not longer, and we tend to assume that everywhere else will be trending the same way.