Turnaround - too early!

I was in Chennai last week & most people I met came up with the same question - when will things turnaround? 2nd half of 2009 or 2010 or will it be later? My answer to them was simple - its too early to be talking about turnarounds! The question to be discussed is really is how worse will it get? Especially in India. So far we have seen the impact mostly in newspaper headlines & in stock markets. The real economy is still to witness anything remotely bordering catastrophy. True, corporate numbers have taken a hit & Govt finances too are reflecting the strains. But when things start to deteriorate at the ground level, we will see the more hard-hitting signs - builders defaulting & real estate prices crashing, fear to purchase any new underconstruction projects, people selling assets (property, cars) to pay off debt, reducing life styles & affordability, a more pronounced demarcation between the true rich & the middle class pretenders of the last few years, and so on....we are seeing the early signs of some of these but more pronounced play is ahead of us.

But even as all & sundry predict gloom (which is the easiest to do), whats the endgame? Definitely the world won't end and there will be turnaround & boom once again within our life times.

One way of predicting the timing of the turnaround is probably to look at things which should have happened by the end of this downward cycle....its a very tricky way of forecasting, since certain policy actions can shape the turn of events & hence this approach is essentially either predicting the policy actions or ignoring their effects altogether. But I'll try.

The following are likely to happen by the time we are done with the worst of this crisis -
- End of quite a few large US & European banks in their current private ownership form & stock prices go below $ 1 or 2;
- auto majors in the US declare bankruptcy or merge or are bought over;
- Euro currency is abandoned or atleast a few countries walk away from it or new guidelines on fiscal deficit levels & monitisation of deficits for Euro countries are defined;
- a couple of European countries default;
- a couple of middle eastern countries are bailed out within GCC;
- unemployement becoming a big issue in Asian countries & with atleast 1 round of political unrest in China;
- Central Banks publicly acknowledge purchase of gold for reserve holdings;
- stock market valuations hit their lowest point ever (below historic low points);
- new international agreements on trade, post trade wars among a few large countries;
- reverse migration of labour from western economies to Asia;
- issue of new accounting norms for MTM, derivatives, etc;

I have mentioned the above since these are the problems which have to be dealt with presently & or in immediate future & till these events come to pass & have been dealt with, the turnaround will be much ahead of us. In a perverse way, the faster these happen the better;though the pain will be huge.
Unfortunately, but definitely understably, Policy actions procrastinate reaching these end points. Its the right thing to do to avoid a carnage & collossal damage. Its like treating a patient with terminal disease - even if the inevitable is known, its the job of doctors to keep treating & trying to fix the disease rather than just go for the leathel injection. A slow death is preferable to instant death. And ofcourse there are miracles as well. So, you keep trying & hoping.
Thats pretty much whats happenning now to the western economies. The 'economic doctors' are trying some fixes & hoping for miracles, even if they known the disease could be fatal. But we should see the reality for what it is - a slow approach to an end game. And that end game would see some or many of the above predictions. And once that happens, one can hope for the turnaround. Till then, the only option is to pray for the miracle!