Are We Facing The End Of Business As Usual Or The Start Of A New Way Of Doing Business?

By Charles Andrews, Celona Technologies

As 2008 continues to be overshadowed by the fallout from the US subprime market, we see banks tightening lending and consumers tightening their belts. But a market discontinuum is not universally bad news. Celona Technologies' Charles Andrews argues that companies should hold their nerve and resist slashing IT budgets just yet.

The simple truth is that markets implode regularly and usually with good reason. While you might think that the $5 trillion1 of market value lost in the dot com crash of the early part of this decade would have taught a few lessons, recent bullish investment has resulted in yet another market ‘readjustment' in the US and UK. The current crisis is centred on the banking and housing markets, caused largely by over-inflated borrowing and subprime loans, but commentators say the knock-on effects will be much wider when consumers feel the pinch and tighten their spending. If you believe everything you read in the papers then it would seem we are staring into the mouth of recession. But while the outlook is still ‘somewhat uncertain' according to economists, we need to get this into context.

At peak the total number of adjustable rate mortgages in the US were worth around $1 trillion. Only a fraction of these are subprime and current conservative estimates say the damage is likely to total no more than $400 billion. That's a lot of money; but compared to the dot com wipe out, or as a proportion of US market capitalisation (around $16 trillion), it's manageable. In the UK the concern is that growth has been substantially funded by debt, leaving some sectors highly vulnerable, but the stock market is resisting a crash – at least for the moment. In May the FTSE 100, for example, bucked the gloomy predictions on the back of high oil prices (which stimulated a rise in the energy sector), as well as positive announcements from a range of companies including BA, BT, Cadbury and SABMiller.