MARTHA VARGAS' FINANCIAL MEDIA AND COMMUNICATIONS

Is there a possible solution for this crisis?

2008-12-01T03:45:00.000-08:00

The answer is YES.

Having a greener tomorrow has been closely linked to solving the current crisis. But how can this be possible if countries are running out of money trying to bail out companies in danger of bankruptcy? The answer is very easy. If western countries could offer their financial aid to less developed countries instead of injecting it to an already damaged financial market, the credit crisis could be seen as an opportunity for green global economic growth. Focusing on a “greener growth,” the possibilities of creating new markets to invest in and hence the creation of jobs are huge.

In the last couple of years, 2.3 million people have gotten a job just in the sector of renewable sources of energy. This figure could increase up to 8.4 million in the next 20 years just taking into account wind power and solar power. A good point about this creation of greener jobs is that it has been equally witnessed in both, industrialised as well as less developed countries.

The question we now have to ask ourselves is if countries with enough financial means will prefer to use this money for a greener tomorrow.

Until when should we wait to buy our Christmas presents?

2008-11-30T14:52:00.000-08:00

The financial crisis is clearer than ever. Even though retailers are giving their best efforts to attract people to their shops, the outcome has not been successful at all. The 50 per cent discounts, the free breakfasts and goodie bags have not been enough to catch the attention of the people. Retail sales already dropped at their fastest pace in November, it will be no surprise if the trend continues for December. Hopefully the government’s intervention of cutting 2.5 per cent off the VAT will increase the confidence of consumers and retailers will not have such a depressing Christmas.

Unfortunately it is not only the English retailers who are suffering; French stores have seen the same trend throughout their empty stores. Even though there are less than 4 weeks to go before Christmas, people have not yet begun buying their gifts. Consumers are waiting until the last minute to see if they can get the best offers in the market. Not only they are waiting, but also they prefer buying their gifts online as they will save on petrol costs and have the hope to find cheaper prices.

Something that the English retailers should be glad of is that at least their consumers are not the most pessimists in Europe concerning the economy. It is the French retailers who should start thinking about exceptional strategies to be able to attract consumers into their stores as it is the French who are the most pessimists out of all the Europeans regarding their economy.

With the confidence of the people dropping and their pockets emptier and emptier, what is the future of the retail business?

Does coffee have a promising future?

2008-11-17T10:44:00.000-08:00

Colombia has always been very well known for its good quality coffee. Being the second largest producer in the world after Brazil, Colombia’s economy depends very much on this crop. Even though it is a source of income to the country, this crop is also seen as a representation of the country’s culture.

Coffee has been lucky enough to have been barely affected by the credit crunch unlike other crops like cotton, maize, and cacao between many others. Unfortunately, climate change has not had the same effect on coffee. Due to increased rains caused by the climate change, coffee production in Colombia decreased. Fortunately, the international market for coffee is so strong that the prices have not varied too much which has helped producing countries. Another favourable point that coffee has is that consumption has steadily increased therefore production has to increase as well. Does this mean the world’s next major crisis will be climate related?

Another dirty business in Colombia?

2008-11-13T09:18:00.000-08:00

Colombia has been going through a period where pyramids are a common business to invest in. Some people invested all of their life savings in the hope that they would get high profits. As some of them did, and the return was so high, they reinvested their earnings. This worked until the day the business decided to close its doors and steal all the money from their clients. A number of these businesses were illegal; therefore it was very easy to close them down if intercepted. But in the case of the company DMG and a couple other ones, they were legitimate companies that apparently were operating legally, some for almost 6 years. The doubt began when an investigation started and it was found out that many people investing in this company were not able to justify where all this money came from. This is when the government decided to intervene as it was thought that there were connections with illicit money originating from drug trafficking.

51 DMG offices were closed all over the country and in total it has been estimated that the 300 pyramids are in possession of around 2 trillion pesos, almost 850 million US dollars. This situation is very worrying as it has caused a huge social problem in the country. The consequences are so negative that there have been 3 suicides in only 2 days. People feel so stupid for having investing their life savings in these types of business that they believe there is no reason to keep on living. The question is, should they feel this way? It is incredible to see how people keep on investing in these businesses after the government has emphasised that they are illegal and that at the end of the day, they will not earn anything. What does this tell us about the Colombian society? Once again giving the image of lazy people that want to earn money in an easy way? Clearly it was not enough with the easy making drug dealing business, Colombians still want to give an even more negative image to the country.

The financial crisis is even showing its effect in the sky

2008-11-03T15:24:00.000-08:00

In the first semester of this year, a total of 1.083 aeroplanes were left unused on the ground as traffic growth slowed down due to the current financial crisis as well as other important factors. This accounts for 5 percent of the total fleet in the world. 75 percent of these unused aeroplanes are owned by North American airlines, where airlines have been forced to reduce their capacities by 10 percent already.

The director of the Ascend Aviation Consultancy predicts that there will not only be cuts in North American airlines, but European and Asian ones will also see a decrease of 3 percent and 2 percent respectively. We have already started seeing theses effects in the Irish low cost carrier Ryanair whose profits seriously fell in the first semester of this year. However they believe that by next march, they will be able to break even. Other European airlines have not had the same luck as Ryanair, which even though with decreasing profits, can still stay in the market. This is the case of the Danish airline Sterling which was declared bankrupt on 29th of October, 2008 as it did not find any buyer for its 24 aeroplane fleet. Sterling has not been the only airline to cease its flights, around the world, over two dozen airlines have stopped operating this year and there could be more to follow this trend.

The financial crisis has most likely been one of the main factors for the decrease in demand in the aerial sector. Business executives and tourists now fly less due to their personal economic situation or the overall economic situation of the business which they are working in. Businesses that are already under budget constraints might see travelling as an unnecessary expense at the moment. As evidence of this, we can look at Morgan Stanley who announced this week that they would not hold any extravagant Christmas party’s this year in order to cut down on spending. However, there is yet another important reason that has promoted this aerial crisis. The rise of petrol which rose up to $148 USD in July this year has decreased the possibilities for these companies to generate profits. In order to surpass this crisis, airlines are taking serious measures like eliminating flights, cutting down on employees, stop offering extra services like food, extra baggage etc. The question is now for how long will the airlines be able to cut down on costs before sending their customers in a chair less aeroplane?

The joy could not last for ever

2008-10-27T12:34:00.000-07:00

A couple of weeks ago it had been said that some countries barely had been hit by the financial crisis and that there was some hope that they would not feel it to a great extent. One of theses countries was Colombia, where the effect of the financial crisis had yet to be seen. But as of Friday the 24th of October, the crisis finally showed its knock on effect in this part of the world. The various companies in Colombia which make part of the BVC (Bolsa de Valores de Colombia) had experienced an increasing trend in the prices of their shares, but on Friday the 24th of October, this trend was no longer a positive trend. The Igbc (Indice general de la bolsa de Colombia) has decreased 37,62% this year but fortunately, compared to other stock markets, like for example the CSI in Shanghai, it has not suffered such a massive decline. The fear now in Colombia is if share prices have reached rock bottom, or if now, with the deceleration of the economy, shown by the fall in industrial production and retail sales, share prices will keep on decreasing.

Unfortunately, Colombians do not only have to be worried about the financial crisis. Furthermore, inflation has created another concern for the Colombian citizens. With borrowing rates as high as of 10%, Colombia faces serious problems as important indicators like the GDP and retail sales have been declining. With an already high borrowing rate, many jobs are now going to be at risk. On the other hand, the Colombian Central Bank believes that there is no need to worry as the fall in demand and the reduction in international prices will make inflationary matters stable even with the devaluation of the peso, fall in food prices, and possible major wage costs which will however try to increase the inflation rate. The Colombian economic crisis is now taking off and is something I will be following closely.

Shouldn't we all stick together through these hard times?

2008-10-18T06:44:00.000-07:00

Even though Spain was also hit by the financial crisis, it can feel relieved as at least none of the national banks have gone bankrupt and the overall financial situation is relatively healthy. This however does not mean that the Spanish banks are not feeling the down turn and there is a big possibility of Spanish banks following in the steps of many other strong European economies, with mergers as a result. But it should be mentioned that at this point in time no official announcement of any mergers have been given.

Furthermore, Spain even though they have not felt the crisis to the same extent as many others, are willing to aid its financial sector in order to help restore the confidence needed in the markets, not only at home but globally. But at this point they are faced with various problems as it has not been clear to them whether European governments are trying to find solutions as a group or if each country should find its own solution. Due to this fact, Spain had decided not to take part in the pan-European deal to bring back confidence into the markets and were the ones with the lowest EU level to guarantee personal bank deposits.

After an emergency cabinet meeting on Monday the 13th of October, Spanish Prime Minister Jose Luis Rodriguez Zapatero, decided to provide up to €100bn for new debt issued by commercial banks. This has brought some discomfort within the country as opposing parties believe that they should not aim to help banks but rather focus more on helping families and SMEs in the country. Then again, the prime minister made clear that by helping financial institutions, they would be also helping families and SMEs in the end.

Opposing parties are mainly concerned about SMEs and families due to the fact that Spanish banks have not had to directly deal with the financial crisis that erupted in the US, but have primarily dealt with the problems of rising bad loans to enterprises and families following the crash in the country’s real estate market. Opposing parties believe that as property prices keep on decreasing and there is no hope that they will increase in the immediate future, all efforts should be focused internally. The main question now is to see if Spain will be selfish enough to focus on itself rather than help its fellow Europeans solve the financial problem collectively. This is a question that might affect Spain in the future and is something we will follow with great interest.

Has some of us not learnt their lesson?

2008-10-07T14:29:00.000-07:00

It is astonishing to see how some people do not learn their lesson. As the financial market is at the verge of a total collapse, top executives can still find reasons to justify spendings of $440,000 on a luxury weekend conferance in California. This was the case of AIG executives that just a week after the governmental bailout of $85billion felt that there was room in the company budget for luxury spendings. One would think that at these difficult times, where companies are running out of funds, this would be out of the question. It is not hard to understand that the general public look at the future to come nervously, many have their savings in these companies and a bankruptcy and a loss of these savings would of course have great impact not only on the individual itself but the entire economy.

For these people to then read in the news that raised taxes used to finance major bail out packages contibute to a continuation of luxury behaviour and extremely high salaries, even up to $1 million a month, is not easily understood. At this point in time where there are discussions of a global recession, these top financial executives should more than ever be playing their part in creating stability in the market once again. There is one thing I believe any investor would agree on and that is that we will not be able to get the economy back on its feet individually but rather collectively.

Is there still some hope for a few of us?

2008-09-23T14:43:00.000-07:00

While the Asian and European markets continue their downfall closely following Wall Street, some Latin American markets are glad to show that this crisis has not had such a harmful impact on them as it did elsewhere.

Unfortunately, not only financial organisations have felt the effects of the crisis, but now other companies, such as Marks & Spencer Group plc., British Airways, Indian’s largest zinc producer, Vendanta Resources plc., have suffered a drop in their stock prices of around 5% due to the overall economic downturn. One of the reasons for the drop in stock prices is the concern from financial companies and commodity producers that the US Treasury Secretary Henry Paulson will not be able to deliver his plan. If Mr Paulson’s plan of buying $700bn of bank assets does not take place, global recession will not be able to be prevented.

As mentioned above, there are still some markets that have not been affected to a great extent. In the Latin American region, excluding Mexico, Venezuela and Brazil, there are a few markets that are still stable and rather going up than following the path many markets in the rest of the world have followed. One of the reasons for this could be that the banks of the affected sector at present do not have any specific presence in the Latin American Region. As evidence of this, Citibank is now showing a great interest in increasing its presence across various Latin American countries.

Maybe the financial crisis in the developed world will prove to have a positive effect on less developed regions. This might be the start to a new era of prosperity in a part of the world which still is more or less unexploited by this specific sector. Will these financial institutions have a change of scenery from Canary Wharf and the River Thames to the Andes Mountains and the Amazon River? That is something we will have to wait and see.

Is the job hunt about to begin?

2008-09-18T13:01:00.000-07:00

The damage in the economy caused by the credit crunch has had greater implications than we might have thought. Looking at unemployment today, it is not the most pleasant reading out of an economic perspective and it does not look like it will get any better in the near future. The effective rate of job losses last quarter added up to as much as 150,000 jobs and it looks like it will not get better any time soon. The bankruptcy of Lehman brothers is just going to add to this effect, not only by the 4,000 jobs lost over a day down in Canary Wharf, but also all the businesses providing services in the area.

Already days after the crash of Lehman Brothers, businesses like restaurants, gym instructors, local corner shops etc. claimed they have felt the effect. For example, just imagine that Tuesday morning this week there were "4,000" less people using the tube. With an already weak economy, can we handle a job loss of this magnitude with possibillities of more financial institutes following the path of Lehman Brothers. I can even imagine that many of the businesses in the surroundings were initially set up in order to fulfil the needs of this banking giant. Consequently, the fall of Lehman Brothers will bring more unemploymment into the market than only the immediate employees of the bank itslef.

At a point where the economy is struggling can it cope with a massive group of job loss in the financial sector and will these individuals will be able to find a new job in a sector already in crisis. This remains to be seen and I am sure that we will see a slowdown of not only the financial businesses but also local service providers in the city of London.