Greek rioters and protesters in Spain have humbled European political and economic leaders. They know both countries are sunk in a financial cesspool, but they also do not want their governments to implement far-reaching austerity measures that would require greater concessions from the citizens and result in severe cuts to social services.
Last week, Europe's leaders failed to agree on the terms of a second bailout program for Greece; they want the government to “approve stricter austerity measures before a final decision is made on a further 12 billion euros in loans,” according to a Reuters report. The government in Athens agrees it must bow to lenders' wishes, but ordinary Greeks are piling pressures on their parliamentarians because they know some painful medicines are on the way.
Economic problems are cropping up elsewhere in the world, and the high-tech industry won't be immune from the aftershocks. Corporate stock valuation will certainly take a hit. Already, fears are growing that the global economy may experience a double-dip recession this year.
In the United States, the economy is beginning to soften again, although the government and the Federal Reserve have indicated they would not be injecting another round of fiscal stimulus into the system. The effects of these concerns are evident on the equity markets, foreign exchange rates (dollar is rising against the euro, for instance), and in the price of crude oil, which after pushing past the $100 per barrel range has since decreased to just slightly above $90 per barrel.
It's not clear yet how deeply these events will hurt demand for high-tech equipment at the corporate and consumer levels, but it would be naïve to think the sector will continue to rack up sales and profit growth, despite problems in other manufacturing segments. Consumers initially held up tech equipment purchases for years, but the latest problems have cropped up just as corporate IT folks were expected to start buying new equipment again. The housing market is obviously a constant source of concern in the United States, but so is financing for businesses (fortunately, high-tech is flush with cash), consumer lending, and manufacturing.
I haven't yet seen anything that tells me high-tech sales will drop precipitously in the third quarter; forecasts call for single-digit growth across most industry segments. However, many expect the full impact of the March Japan earthquake will hit the industry in the third quarter. But with sales moderating, we may not even notice the negative impacts of any supply chain disruptions. I am looking forward to second quarter results and forecasts for the third quarter. By now, companies have somewhat good ideas what their shipments would be for part of the second half.
What should the industry do if demand sinks? They could spend some of the cash sloshing around in their short- and long-term investment portfolios on R&D, on marketing programs, and on further separating themselves from the competition. The US Federal Reserve estimates non-farm, non-financial corporate businesses have more than $2 trillion dollars in deposits, money market funds, etc., as at the end of the first quarter. (A complete breakdown of financial holdings is available here.) Businesses, obviously, can afford to invest in new markets, if they find this justifiable and if they could gin up the conviction. History shows that not many CEOs and CFOs possess such vision and the audacity to steer down opposing analysts and shareholders.
This brings me to the headline of this blog. It seems there is a major disconnect between what many wish for and the sacrifices they are prepared to make for longer-term gains. The Greeks and the Spaniards want to continue living in a past where the government coddles them and where minimal tax is collected, even as demands for social services keep skyrocketing. Meanwhile, corporations would rather sit on the sideline and wait for governments to jumpstart global economic growth than use internal resources to hire in key areas and champion the innovation required for increased sales and consumption.
We seem to have replaced our backbones with a wishbone. It doesn't quite do the same work.