NIRI Cincinnati Tri State -- Regional and National Economic Outlook
Making Sense of What is Next Speech 10 2009 v 4d
1. Making Business Sense of What’s Next!
Marketing Research Conference
Ravi Parmeswar, Managing Director
Global Consumer and Marketplace Insights, Citigroup
6. 6
Sub-prime lending and credit crisis led to
a global equity market collapse in 2008…
Jan-2009
Market value
$ trillions
Annual Change
Percent
S&P Global 1200 Index
Source: Standard & Poor’s
• S&P Global 1200 index
captures 70% of the
world’s capital market
• Declines by ~42%
( $11, 646 trillion)
• Reversed almost all
of the gains since
2001
20,589.9
16,226.2
18,025.6
22065.2
26,242.3
27,872.4
0
5,000
10,000
15,000
20,000
25,000
30,000
2003 2004 2005 2006 2007 2008
(50.0)
(40.0)
(30.0)
(20.0)
(10.0)
0.0
10.0
20.0
30.0
40.0
7. 0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
Jan-72 Jan-76 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08
Federal Reserves Fund Rate, 1972-2008
Percent
Source: Federal Reserve Board
• Federal Reserve abandons
its official target rate of 1%
• Fed fund rate now stands
reduced to an
unprecedented 0 to 0.25%
• Has indicated a shift in its
finance policy to
‘quantitative easing’ in an
attempt to revive the
economy
• Near zero rate is expected to
help stabilize housing prices
• However, this could also
weaken the US dollar
US has reduced its Fed fund rate to near zero and
announced a shift in its finance policy…
7
Jan-2009
8. 8
Start of World
War I
Russian Revolution
begins
Great Depression and
economic crisis sets in
World War II
begins
United Nations
established
European Economic
Community effective
Oil Crisis began
Fall of Soviet
Union
Early 2000
recession
Subprime and the
credit crisis
Unprecedented in its scale, the current crisis will likely result in
generation marking event
1914 1917 1929 1939 1945 1958 1973 1991 2001 2007
Jan-2009
9. … as it, together with countries worldwide, have
responded with stimulus packages to ease the crisis
and jump start economic growth
9
US ~ $850B*
UK $29.7B*
China
$586B
Australia
$7.4B
South Korea
$11.3B
Mexico
$5.8B
Sweden
$1.8B*
Netherlands
$7.6B*
Spain
$14B*
Italy $8B*
India $4B
Japan
$105B
Note: As of Dec 18, 2008 except US and Germany; Information captured is not exhaustive; * - Expected
France
$33B*
Germany
$69B*
• Governments worldwide respond
with a nearly $1.7 trillion dollars
economic package
• US is planning a stimulus package of
as much as $850 billion that hopes to
create an impact by favoring long-
term infrastructure and job creation
projects
• China aims to spend almost $600
billion over the next two years with
the EU pushing a package of around
$250 billion
Source: Wall Street Journal; news articles
Hungary
$6.9B*
Jan-2009
10. We represent a strange new land
Welcome to the New Normal
10
13. 13
The experts didn’t agree then…
Jun ‘09
Jun ‘10
Jun ‘11
Jun ‘12
“On average, expect the downturn
to conclude in June 2009.”
Wall Street Journal (Dec-2008)
“There is a reasonable probability of
the US economy starting to recover at
the end of 2009 or the start of 2010.”
Dominique Strauss-Kahn, MD
International Monetary Fund
(Dec-2008)
“The likely duration of the financial turmoil is difficult to
judge, and thus the uncertainty surrounding the
economic outlook is unusually large. …Economic
conditions will probably remain weak for a time.”
Ben S. Bernanke, Chairman,
Board of Governors of the Federal
Reserve System (Dec-2008)
“GDP rising just 1.5% in the fourth quarter of
2009. Do not see a resumption of anything
close to trend growth before 2010.”
Goldman Sachs (Nov-2008)
Analyst Expectations of Recovery
Jan-2009
14. …And they don’t agree now
“Even though from a technical perspective the
recession is very likely over at this point, it is still
going to feel like a very weak economy for some
time as many people still find their job security and
their employment status is not what they wish it
was.”
Ben Bernanke, Chairman,
Board of Governors of the Federal
Reserve System (Sept-2009)
“Technically, it’s not freezing but it’s still
pretty darn cold outside and you see
ice everywhere… The economy has
not improved that much.”
Mark Vitner, Senior Economist,
Wells Fargo (Sept-2009)
Sources: Wall Street Journal, Charlotte Business Journals, Business Week, Salt Lake Tribune
“There is a long way to go before
the level of output gets back to
where it was. Growth rates don’t
tell the story, it’s the levels that
matter.”
Mervyn King, Governor,
Bank of England (Sept-2009)
“We need more data to see if this
is sustainable or just noise. The
income and credit constraints on
consumers remain intense.
Ian Shepherdson, Chief U.S. Economist,
High Frequency Economics (Sept-2009)
16. They have been wrong before…about the market
"Stocks have reached what looks like
a permanently high plateau."
- Irving Fisher, Professor of Economics, Yale University, 1929.
16
17. They have been wrong before…about music
"We don't like their sound, and guitar music is on the way out."
- Decca Recording Co. rejecting the Beatles, 1962
17
18. "I think there is a world market for maybe five computers."
Thomas Watson, chairman of IBM, 1943
"There is no reason anyone would want a computer in their home."
Ken Olson, president, chairman and founder of Digital Equipment Corp., 1977
"640K ought to be enough for anybody.“
Bill Gates, 1981
They have been wrong before…about computers
18
19. • Oil crisis in the 80’s – world out of oil in 2000-2010
• Microwave revolution – change the way the kitchen looks
• Internet – Death of brick & motor
• Fast food dead– Health & wellness -
19
More predictoons
20. Take their Input. Then think for yourself.
• Linear extrapolation is dangerous
• They have been wrong before
…and probably will be wrong again
• Pay only some attention to “the men behind
the curtain”
• Be your own wizard. Create your future.
20
21. 21
So, wizards, what shape will recovery take?
V L W U ?
SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT:
Tonight's story is brought to you by the letter "V" or perhaps "W" maybe "L." How about
"U"? We're not sure because when you ask an economist to forecast the shape of the
recovery, you could get any one of those letters as an answer.
The question is, where do we go from here?
V L W U
Sometimes, forecasting the economy is like playing Scrabble!
How does R get in here?
22. C is the Only Constant
– V, L, W, or U: Its all About Change
C
We can only predict one thing
27. You need a continuous process
Adjust
Act
Anticipate
27
Anticipate
• More than measuring
• Continuous sensing
• Peripheral vision
Act
• In real time
• Agility is key
Adjust
• For market changes
• Consumer changes
• The unexpected
28. 28
Anticipate:
Develop your organization’s peripheral vision
“Most organizations have maverick employees with insights about the periphery,
but these individuals are rarely tapped.”
George Day & Paul Schoemaker, “Scanning the Periphery”
29. Anticipating our new normal at Citi
29
New national survey by Citi reveals
Consumers across all income levels and ethnic groups
have permanently changed their saving and spending habits
30. 30
29%
63%
Spending and saving
will go back to the way it was
Spending and saving
will be forever changed
Anticipating our new normal at Citi
63% said the way they spend and save has been forever
changed as a result of the economic downturn.
31. 31
Cutting back on everyday expenses
Saving and investing more
Cutting down on credit card purchases
Cutting back on the amount of money you owe
Consumers across all income levels and ethnic groups said they plan
to continue to their adjusted spending habits
Anticipating our new normal at Citi
32. Along with tracking, you’ll need some friends
to navigate the Yellow Brick Road
32
34. • Companies like Ning.com allow you the opportunity
to create your own social media community
• One such community, Finance 3.0, connects
almost 18,000 members of the financial modeling,
corporate finance, accounting and financial
management world
• New social media networks are popping up everyday,
covering a full range of interests
Social media now accounts for more web traffic
than any other type of Internet sites
36. Beware of The Wicked Witch
Naysayers. Pessimists.
36
37. Things witches say
• That hasn’t worked in the past
• No one has done that before
• That won’t work now
• I’ll get you … and your little dog, too!
37
You must melt them!
38. Watch out for Flying Monkeys
Seemingly random events coming at you from nowhere
38
39. Source: Edward N. Lorenz, The Essence of Chaos
When a butterfly flaps it’s wings in Brazil
40. Send the monkeys flying
Agility is paramount
• Old way 5 year plan
• New way Change course as the market demands
• Best way Move before the market moves
40
41. Act:
Long-term planning is dead
41
“Strategy – as we knew it – is dead: welcome to the fast strategy game.”
Yves Doz & Mikko Kosonen, Fast Strategy: How Strategic Agility Will Help You Stay Ahead of the Game
42. The world has changed and
the rules of engagement have shifted
Jan-2009
43. 43
Adjust:
Tweak the plan? Completely revamp the plan?
“Has an organization ever failed to survive because it forgot something important?
More likely is the possibility that organizations fail because
they remember too much too long and persist too often
doing too many things the way they’ve always done them.”
The Importance of Doubt
46. Anticipation: develop your organization’s
peripheral vision
• Ask open-ended questions, not “what is our
market share?”
• Don’t determine what happened in the past;
determine what lessons learned from the past
can build on the future
• Scan broadly throughout the entire
organization; don’t get stuck in the midlevel
groupthink
• Envision future possibilities for the organization
after digesting past and present information
“Most organizations have
maverick employees with
insights about the
periphery, but these
individuals are rarely
tapped.”
-George Day & Paul
Schoemaker, “Scanning
the Periphery”
47. Agility: strategic agility in execution
• Strategic agility is at premium because
established corporate cultures hinder new
ideas and change, the dynamic world is
rapidly picking up the pace and young,
startup companies are quickly making a
splash in the market
• It is most needed in those organizations that
have enjoyed the most success
• Successful strategic agility requires a balance
between Strategic Sensitivity, Resource
Fluidity and Leadership Unity
“Strategy – as we knew it
– is dead: welcome to
the fast strategy game.”
-Yves Doz & Mikko
Kosonen, Fast
Strategy: How Strategic
Agility Will Help You
Stay Ahead of the
Game
48. Adjustment: knowing what to remember and
knowing what to forget
• The dynamic market requires companies to realize
effective strategy in the past does not ensure
success in the future
• In actuality, volatility and change means a more
effective strategy is likely available with each
passing month
• Failing to forget often establishes routines that
become entrenched in a company’s culture,
fostering a false sense of security and strategic
direction
• Companies must foster a living strategy that
integrates new business data as well as the impact of
past decisions
“Has an organization ever
failed to survive because
it forgot something
important? More likely is
the possibility that
organizations fail
because they remember
too much too long and
persist too often doing too
many things the way
they’ve always done
them.”
-The Importance of Doubt
49. ACT with Agility: strategic agility in execution
• Strategic agility is at premium because established
corporate cultures hinder new ideas and change,
the dynamic world is rapidly picking up the pace
and young, startup companies are quickly
making a splash in the market
• It is most needed in those organizations that have
enjoyed the most success
• Successful strategic agility requires a balance
between Strategic Sensitivity, Resource Fluidity
and Leadership Unity
“Strategy – as we knew it
– is dead: welcome to
the fast strategy game.”
-Yves Doz & Mikko Kosonen,
Fast Strategy: How Strategic
Agility Will Help You Stay Ahead
of the Game
50. Summary
Future belongs to
those companies
with a bias toward
fast decisive action
and constant re-
evaluation with
regular real-time
feedback loops.
Flexibility will be
key
Act
Adjust
51. You must melt them
Forget the past – create a new future
Do something no one has done before
Who’s to say what won’t work now?
51
52. You can’t give up.
Turn those threats into opportunities
