With fingers firmly crossed and prayer beads nervously twitching, it is beginning to seem like we can all breathe a little easier than we have over the past month or so. Financial markets appear to have finally passed the point of capitulation (during the week ended October 10), and, as is their wont, are screaming with joy at the recognition that the world has not ended.
But some things have. And the extraordinarily wild ride of the past month — rather like the tail end of an acid trip when all reason is suspended and you don’t know what to believe — suggests that a lot of things have changed beyond recognition and there is a new world order unfolding beyond the smoke.
First, and fairly obvious, the new world order will be characterised by a deep distrust of markets and financial institutions, advisers and wizards. This will translate to lower accepted returns on savings, which will enable interest rates to remain moderate despite the huge amount of deficit spending all over the world. Equity premiums will widen, and equity markets will remain subdued — be careful of buying the current rally. Hedge funds will languish, though private equity will continue to be a strong force, particularly as they continue to push for better corporate governance.
Of course, there will be a slowdown of sales in mid-range, and perhaps even high-end, luxury goods. Houses in the Hamptons will get cheaper. There will be fewer advertising pages in magazines like Vogue and GQ. During the crisis, I was invited to the party launching GQ in Bombay. It was a great party and I danced through the night to this wonderful blues band from LA, all the while thinking, “Boy, this will be over soon.” I guess, on a broader basis, there will be a general redefinition of the “good life”.
Much more significantly, there will be a shift in focus by young people: instead of finance, finance, finance, kids going into college will have a broader range of interests, which bodes well for a saner, new world. Of course, this shift has been coming for some time — as long ago as July this year (and, these days, that’s long ago), I had written an article entitled “Great Expectations” about the number of young Americans coming to India to pursue NGO-related work. And I read in The New York Times recently that there has been a huge increase in the number of undergraduates in liberal arts programmes who are opting to study Latin. And I don’t mean salsa.
Another major change I foresee is a dramatic increase in the value of knowledge, relative to capital. I had actually expected this a long time ago, at the start of the internet era, since it had seemed that the explosion of information would create a huge need for people who could collate, sift through, and draw meaningful conclusions from all this information — not just in the world of finance and investment, but across the board. Unfortunately, this evolution was aborted by the discrediting of financial institution research during the dot-com bust. This led to an even more hallowed role for credit rating agencies, which, while functioning as an implicit arm of the regulators, cleaned up by selling their ratings to anyone who wanted them.
Clearly, that game is up. Credit rating agencies cannot remain in business as they are. They have to either become underwriters, which would require huge amounts of capital, or they have to become unadorned research providers. Their implicit regulator-backing has to be eliminated, although it remains to be seen as to how the influence of rating agencies in financial markets will be unwound — Basel-II, for instance, is totally dependent on these now-obviously-meaningless ratings.
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Going forward, common sense will prevail, which means that if you want to invest in any asset, you will need to do your own research. Or find an adviser or agency that you trust, or who is willing to underwrite its opinions.
Integrity and knowledge will become — as, indeed, they really are — key business values. Genuine knowledge businesses — education springs loudly to mind — will be excellent investments.
And, of course, there will be the acceleration of the pendulum shift towards Asia. As China and India (and other “traditional” countries) begin to exercise their new economic power, we will see far-reaching changes in the way the world does business, and, indeed, in how it thinks. Much of contemporary culture — what is good, what is beautiful, what is hip, what is cool, what is freedom — has been driven by values determined by the European enlightenment. As the financial firestorm accelerates the decline of that era, a new global culture, much more eclectic and democratic in its roots, will take charge.
Indeed, it is already happening. It may just be a coincidence but on October 12 (arguably, as the financial crisis had ended), The Sunday New York Times had pictures of an Indian wedding in upstate New York emblazoned joyfully on the front page.
What a world! What a joy!