Strategic Issues: When will they ever learn?

When governments were telling you it was all OK, Lehman Brothers was about to implode, following the failure of Bear Sterns. And still governments told you it was OK.

Incredibly, you believed them.

They pumped real billions i.e. millions of millions of dollars, collectively, into markets. But the money failed to trickle down to support businesses and at the engine-room level of SMEs, they continued to struggle and fail. And still they struggle and fail.

Small financial institutions struggled and failed. And still they struggle and fail - 50-odd in the USA so far this year alone - and, incredibly, that is good news compared to previous years. If one bank per week were failing in Europe, there would be pandemonium. The USA continues to regard this as pretty normal.

Property prices, long seen as a comment on the health of an economy (rather than a comment on the stupidity of lenders and borrowers) have, started to slide again in those districts that were held up as evidencing that economies were "bouncing back." They were not - it was the same kind of illusion that created the bubble that underpinned the financial crisis starting in the early 2000s.

And now, the UK's biggest businesses have responded in a survey called the Bellweather survey, that they over-estimated the strength of the recovery. It's a DUH! moment. All the underlying evidence was that the UK was not having a recovery. It was an illusion fuelled by redundancy money and the last few pounds available on credit cards. Banks are looking at the overall credit position of households and saying "no more." They are absolutely right to do so. Why take on high-risk debt - that's what the Americans, in their let's-hide-the-brutal-truth called "sub-prime." It wasn't. It was rubbish lending decisions on a casino hope that less would fail than would succeed. Governments are telling banks to shore up their balance sheets and to not to make dodgy lending and then complaining that the banks, when being prudent, are not lending money.

Governments can't have it both ways: they can't demand that banks lend to all and sundry and then complain that credit risk is too high.

The increase in sales in UK retail in late 2009 was due, in major part, to dumping of stock that was unsold and increases in profits due to lower restocking costs. Economists looked at the total spend and said it was good. It was not. And the simplest analysis (as ChiefOfficers.Net has repeatedly said) proved that there was no strong recovery underpinning those figures.

Now, as the reality is beginning to bite, those businesses that say they over-estimated the recovery have recognised that they spent too much money trying to buy share in a market that was not growing as they had been led to believe.

Nothing changes.

So let's make this clear: there is no global recovery. There are patches of strength but even those are not guaranteed. Even those parts of the world that were relatively resilient during the crisis (Canada, Australia for example) are now facing a downturn, especially in retail and property, and it has taken them by surprise.

It should not. We long told of a crisis in commercial property - and the bankers to that segment - as the retailers began to fold and in office premises as businesses did not start, did not grow or retracted. We stand by that.

With some places seeing extraordinary inflation (for example Singapore) and others facing a loss of tourism business because of the weakness of the currencies in the developed countries where their visitors traditionally come from (Malaysia from the UK, for example where a combination of domestic inflation and the relative GBP/MYR exchange rate has increased costs for GBP users by as much as 60% as against three years ago) there are no safe spots.

Bernanke's solution? He's the man who said families in financial difficulty should remortgage their homes and use the equity to pay down future instalments - yep, he thinks the only way to run an economy is by everyone taking on more debt. Even today, he is reported to be planning yet more "easing" i.e. throwing taxpayers' money into the economy which, of course, means either directly created government debt (which it cannot create because it is, once more, at its debt ceiling) or increasing taxation or tax yields which is just another way of making sure the citizenry are forced to borrow money because their income is swallowed up in paying taxes.

The recession never went away, it just mutated and those who have an interest in disguising it did their job brilliantly.

Now it's your job to protect your business by looking beyond the PR hype by industry bodies and governments.

The fact that those UK businesses have cut their advertising expenditure by more than 20% in the recent past as a result of misreading the economy is proof that, even if everything in the garden looks rosy, something nasty is rotting the roots.