Do you know the No.1 Reason why World Economy recovered from Crash of 2008-9?
It was because of a US Federal Reserve (Central Bank of US)Program called Quantitative Easing(QE)-Very simply its Money Printing where the US Federal Reserve uses US Dollars to buy Assets all over the world like Euros, Pounds, Bonds,Shares and Commodities.
So far we have had Three versions of the program-QE1(2009),QE2(2010) and QE Operation Twist(2011);now today the World's Financial System is begging them for QE3.
Only problem is that they can only deliver QE3 before 30th June this Year.If they can't deliver that this year then it can happen only next year(2013 around March 2013 or so).
Its still very difficult to predict if QE3 will have happen this year or not.
All you need to do is compare the Price of Stock Markets/Commodities like Oil or DRAMs with that of US Federal Reserve Easing programs and you will see its a 100% overlap[When they pump Money in,Prices rise and when they stop printing Money,Prices Fall]
Typical Bankruptcy Laws do not get followed in China.
China believes in Sweeping its problems under a Rug.That's why the eventual Blowout and Recession coming out of China will be even bigger and more massive than what anybody can expect today.
As for you thinking that Larger companies are more susceptible;I Disagree its going to be that those companies which are the most Inflexible and don't have Liquid Assets on Balance Sheets that will struggle to survive in the coming Recession.
I thought I will share an interesting case with you ,I was recently at a Conference which was Hosted by a Top 5 IT Vendor and a Top 5 IT Analyst firm.
The IT Analyst firm was Super Gung-Ho on Global IT Spending for the next Year-7%(based on the fact that IT spending grew by more than 5% in 2010 and 2011!!!);not just that he said that the bulk(70%) of IT Spending will come from Emerging Economies-Particularly the BRICS!!!And by 2020,Total IT spending will be double what it is today!!!
I asked him,Do you know that -Australia,China,India and Brazil are slowing very sharply and so what happens if Spending gets cut by 50%?
He was like,"Impossible" IT spending cannot slowdown.
Then I asked him-Did you forget what Happened in 2008-9???
He said,no Problem-Governments will continue to spend Money-I told Him-Dude,Govts are all Bankrupt Globally,Where is the Money gonna come from????
Problem is we Live in a Dog Eat Dog world today and even if you manage to Get the Western Oriented Manufacturers in on this-[Japanese,Korean,European ,Mexican and American];
Can you guarantee that the Chinese, Taiwanese,Thai,Malay, Singaporeans,Indians and Phillipinines will follow suit???
You can't.
This is because these guys depend on these companies for critical manufacturing Jobs.
If you need a clear case,I will illustrate what is happening in the Auto industry in Europe.Manufacturers based primarily in France are Struggling big-time.
But the moment they threaten to cut production(and thus cut Jobs) ;the CEOs get summoned by the President of France and lectured on the Social Responsibility of preserving jobs in the France.
We have tremendous over-capacity in most industries Globally-Primarily because of Cheap Credit(which I had alluded to earlier in this post).
But the only way for this Mal-investment to clear it out is to allow the weaker firms to declare bankruptcy and leave the market;Unfortunately u cant do that in China-In the name of preserving social Stability China believes in just sweeping the problems under the rug!!!
This is why the biggest blowout this time around will come from China.
It is interesting to see that the DRAM market is fluctuating like the oil market and the volatility makes them look similar. I wonder what is the reason behind this behavior though. Is it because there's a high monopoly of a few regions that dominate in the production?
I've suggested before the DRAM, in fact memory industry generally, needs to coordinate into an association for the specific purpose of educating government oversight on the need for a DRAM and perhaps NAND Flash price floors. At the trailing edge of the CMOS cost curve moving to disruptive memory technologies, materials and structures, something has got to offset the price of development. Agreement on price floor(s) can offset development investment while deterring the collusive price fix by recognizing the actual economics of a sustainable business. And regardless of the supply that results because it may still be excessive can stabilize procurement into future time. This is not to suggest that end buyers should pay more. End buyers should pay no more than an adequate competitive profit for components that support industry sustainability and reinvention required through a phase transition. Mike Bruzzone, CampMarketing
Well I feel that no one will wonder as such in a big manner since there is a huge economic downturn everywhere and bankruptacy has become a common factor for not only small companies but for the bigger ones as well. I think the bigger ones are suffering more than the smaller ones because their expenditure is far more higher than the small or medium scaled ones.
You raise some interesting points regarding the DRAM over-supply situation.
But the problem is not just restricted to DRAM's.Its one of excessive Global Over-production of almost all Manufactured Items brought on by Cheap Credit doled out by Global Central Banks.
Think about it practically,if an American Citizen were Getting say 5%-10% Interest in your Savings Bank Account today;would you speculate on Assets like Commodities,etc?
No you would'nt.
Exactly the same situation exists with the Chinese,Japanese and Taiwanese(where these DRAM guys are based).
Interest Rates are way too low there(Below the real rate of Inflation);which forces everybody to speculate;which led most Chinese to think that Commodities can only go one way-UP.
You might say this situation does not explain the periodic Booms and Bursts of this industry since the 1990s.
In fact it does,Following first the Black friday disaster,then the Asian Financial crisis ,then the LTCM bust,then the Dotcom Bust,Then the Housing Bubble bust-The US Federal Reserve has always cut Interest Rates and Pumped in more and more Liquidity to pump up the Global Economy;This has led directly to Speculative Bubbles of Bigger and Bigger amplitude.
Don't worry its not just the US Federal Reserve-the ECB,the BOJ,the BoE,the PBOC everybody's doing it.
Think about it rationally;if these Electronic Devices were priced fairly(and not be skewed by all kinds of incentives and Cheap Loans) ;How many people would be able to afford to change their Electronic Devices every Year/Two Years?
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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