When communism was collapsing back in the 1980s and the early 1990s in Eastern Europe, equity markets around the world cheered.
Then, the collapse of communism was all about the opportunities that capitalism and globalization create for the world’s multinational corporations; about easy credit and rising leverage, as money flowed easily across local and national boundaries—setting the world economy into a virtuous cycle of income and employment growth that supported a generous welfare system.
Now, more than twenty years later, the world is experiencing another collapse, the collapse of semi-communism in Western Europe; the scaling back the active involvement of governments in the allocation of scare resources of European Union and Member nations.
But this time around, financial markets do not celebrate. The collapse of semi-communism is all about austerity, tight credit, deleveraging, and declining money flows across local and national boundaries; setting the world economy into a vicious cycle of income and employment declines that undermine the generous welfare system.
Corporations that benefited from the collapse of communism back in the late 1980s now suffer from the collapse of semi-communism, as austerity depresses aggregate demand and economic growth.
Just take a look at the stocks of large US export companies after Italian bond yields soared early last week: GM (NYSE:GM) down 10% (the company lowered its sales guidance for Europe), Ford (NYSE:F) down 8%, Caterpillar 4% (NYSE:CAT), Microsoft (NASDAQ:MSFT) down 2.10%, Intel (NASDAQ:INTC) down 1.24%, Apple (NASDAQ:AAPL) 4.37, Cisco Systems (NASDAQ:CSCO) 2.20 %, and 3M (NYSE:MMM) 3.18 percent.
The bottom line: The collapse of semi-communism may make things worse, before it makes them better, especially for the large multinational corporations. This means that investors in these corporations must be prepared for a rough ride, as austerity and deleveraging may depress demand and corporate earnings for quite some time.
forbes.com
Then, the collapse of communism was all about the opportunities that capitalism and globalization create for the world’s multinational corporations; about easy credit and rising leverage, as money flowed easily across local and national boundaries—setting the world economy into a virtuous cycle of income and employment growth that supported a generous welfare system.
Now, more than twenty years later, the world is experiencing another collapse, the collapse of semi-communism in Western Europe; the scaling back the active involvement of governments in the allocation of scare resources of European Union and Member nations.
But this time around, financial markets do not celebrate. The collapse of semi-communism is all about austerity, tight credit, deleveraging, and declining money flows across local and national boundaries; setting the world economy into a vicious cycle of income and employment declines that undermine the generous welfare system.
Corporations that benefited from the collapse of communism back in the late 1980s now suffer from the collapse of semi-communism, as austerity depresses aggregate demand and economic growth.
Just take a look at the stocks of large US export companies after Italian bond yields soared early last week: GM (NYSE:GM) down 10% (the company lowered its sales guidance for Europe), Ford (NYSE:F) down 8%, Caterpillar 4% (NYSE:CAT), Microsoft (NASDAQ:MSFT) down 2.10%, Intel (NASDAQ:INTC) down 1.24%, Apple (NASDAQ:AAPL) 4.37, Cisco Systems (NASDAQ:CSCO) 2.20 %, and 3M (NYSE:MMM) 3.18 percent.
The bottom line: The collapse of semi-communism may make things worse, before it makes them better, especially for the large multinational corporations. This means that investors in these corporations must be prepared for a rough ride, as austerity and deleveraging may depress demand and corporate earnings for quite some time.
forbes.com
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