The Federal Reserve offered an official statement last week, acknowledging that it had grossly under-estimated the depth of the economic recession that began in September, 2008. . . this, all while refraining from issuing new policies to jump start the economy. They predicted 2 more years (at least) of recovery, although I cannot be sure that they used the same exact vernacular. Regardless of how they finessed their own misread of the economy, we appear to be in this for a longer duration than anyone previously expected.
Thought leadership from a respected, world-class company recently declared that we are in the “New Normal” — defined as a state of permanent global volatility. My personal opinion is that the first recession was never over, technically. And new traction is not real. The markets may have perceived recovery, but sustained recovery is not real at all. Neither is the recession.
Rather, what we are experiencing is life in the economy of uncertainty — an era of financial speculation and investment based on the erratic, constant flow of information. I forecast that global business will live here for at least the next 3-5 years, perhaps longer, before learning to adapt to the new pipeline of media data.
We have two colliding, interacting influences that are reinventing the status quo to which so many economists and analysts were accustomed. One is the traditional need for information, security, and confidence — a stable semblance of certainty in our future. The other, a seeming paradox to the first need, is technology and accessibility of information, the revolution in immediate communication that the world continues to realize. No existing terminology can adequately describe the complex new dynamic that governs the global, business information climate. It’s the traditional need for data — with a new way to feed that habit, and it is carnivorous — feeding on itself in real-time, on a 24/7 basis. News and business information, shared in multiple, tiny increments, betray the larger picture and confuse investment markets.
Consider this cascading event: Storms bubble and surface in Greece or Italy; investors react instantly in a few dozen other major markets as hours tick away. The Nikkei opens down; Dow futures begin trading down before U.S markets open; technology and immediacy of communication make it accessible to a universe of both institutional and consumer investors; the Dow loses 400 points, just hours after the news was published. Corporate CFO’s call meetings and freeze budgets in marketing and HR, so on some level B2B spending in advertising and hiring are affected. And the whole reaction continues to trickle throughout related markets and audiences.
The next day, news that unemployment in the U.S. has receded by one tenth of one percent floods online (or broadcast) news venues and investors once again react in real time. And the cascading trickle plays out again.
This mesmerizing cause-and-effect becomes even more fascinating when we consider the complicating analysis of the economy by geography, the interconnectedness of countries living in the new global paradigm. But even that has all been driven by the larger influence of technology and communication. U.S. companies were surely invested in Greece in the 1960’s, but without the same instant level of information, stocks did not rise and fall by 3-5 percent on a daily basis.
According to Norris, “Over the last three months, there has been day after day of wild swings in prices. Stocks soar when it appears that Europe will manage to work out a rescue plan for Greece. They plunge when it appears the world may be entering a double-dip recession.”
“But the Standard & Poor’s 500-stock index has moved almost nowhere. An investor who spent the last three months in private contemplation, without any information about what was going on, could have emerged this week and concluded, from the stock market, that it had been a quiet time for all,” writes Norris.
Where will this all land in a year, 3 years, or even 5 years? Well, it seems clear that the progressive trend toward information and technology will remain constant. With the market capitalization and I.P.O. deals available to the Groupons and Facebooks, there is no reason to assume that innovation in this area will slow.
Given that, and knowing that news and information do change investment decisions, which further affects corporate decision-making, there’s every reason to imagine a micro-finance and micro-business world, with billions of decisions made each day, each hour, each minute. Each incremental action will come as a response to real time information, good or bad, that has been multiplied, and amplified, across thousands of new channels. The ebb and flow of investor, business, and consumer confidence will continue to increase with greater speed and fragmentation.
Tags: Dow Jones, economic recession, Europe, facebook, Federal Reserve, financial markets, financial stability, global business, global volatility, Greece, Groupon, information flow, investment, IPO, Nikkei, S&P 500, social media, The New York Times
This entry was posted on Sunday, November 6th, 2011 at 9:35 pm and is filed under Advertising, Business, Marketing, Media, Social Media, Technology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.