sascom voices - The sascom magazine blog

As of late February this year there was a question making the rounds at all the on-air interviews with industry pundits: “Are global stock markets set for ‘capitulation’ after sliding to six-year lows, obliterating the recent, yet faltering recovery?” By definition, capitulation means to surrender or give up. In financial circles, this term is used to indicate the point in time when investors have decided to give up on trying to recapture lost gains as a result of falling stock prices. One key factor that has been thwarting panic-stricken selling of shares and wiping the slate clean, the harbinger of an equities rebound, is governments stepping in as lenders and spenders of last resort to rescue banks and their economy, but their pockets are not bottomless – that we all know from Econ 101.

So the question on everyone’s mind -- you, me, Joe the plumber (anyone remember that guy?), and “greed is good” Mr. Wall Street Gordon Gekko – alike is this: when is the bloodletting going to end and when do we return to normal? Hanging on to every blunt word of Fed Chairman Ben Bernanke’s testimony to Congress yesterday, which ranged from, “Congress and the administration face formidable near-term challenges that must be addressed," and, "Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” filters down to the wires and blogs and then to you and me is this: Moderate growth looks likely to resume late this year and build modestly into 2010, but the credit bust has left households and businesses unable or unwilling to borrow and spend as freely as they did before the crisis. Boil it down even further and we land up at -- when’s it back to business as usual?

Recessions, like wars, have been an integral part of our history, and history tells us that most financial panic is predicated by pretty much the same sequence of events. In ancient Rome, a group of bankers underwrote ships going the east, which sank. The banks, overextended, ran out of cash and panic ensued. In 1837 the major cause of a panic and reason for the economy staying in a decade long slump was driven by the economic impact of land speculation. It was a period of speculative mania. Other factors were at play as well: Large debts were incurred by states due to over-expansion of canals and the construction of railroads; an unfavorable balance of trade as imports exceeded exports, resulting in a loss of specie (gold and silver -- as opposed to paper currency) ; and several crop failures in 1835 and 1837. Need I go on? Can you tell I have reading the Ascent of Money by historian and author Niall Ferguson?

So history proves that once systems are disrupted, overpoweringly they tend to revert to their previous state – who are we to try and prove history wrong? The reality, though, seems to be different. Post-crisis our economies will differ dramatically from the 2003 – 2007 high-growth and low-inflationary state that fueled the global economy to sustain a 4.5 percent average annual expansion. Industry pundits and economists alike are cautioning that we will have to come to terms with 2 percent or lower annualized growth rate. Unemployment at 6 percent will be the floor rather than the ceiling. The post-industrial Anglo-Saxon model of deregulated finance is being labeled as crisis-prone and threatens to shift wealth management to industrial tigers of Asia and Latin America, making financial services companies looking more like overregulated utility companies. This has potential to be the new normal!

Just like Treasury Secretary Tim Geithner led the charge on stress testing the 19 largest banks in the U.S. for capital adequacy in a worst case scenario (we can argue on the merits of the test in another blog post), all organizations and even households have to stress test their own portfolios to ensure that they cannot just operate but thrive in the new normal. While many will argue productivity, innovation, fiscal policy, consumer spend, etc., are powerful tools that have and will bring the bounce back, none will argue that we can go back to doing business the way we were. Backward - looking operating models will not prepare us for the new normal – evidence – based, proactive, agile operating - models will.

[Full disclosure -- I am a CNBC addict and sound bite junkie, which should be evident from some of the content in this blog, so much so that my DVR is belly up with shows the likes of Squawk Box, Kudlow Report and American Greed.]