Monday, February 27, 2012

Which Companies & Industries Would Come Out Strong After the Recession?

After about 25 years we have had a recession which has been led by financial firms. The last such recession was in 1980's. So what is so special about recessions that start due to financial services or banks? To understand this recession completely one needs to realize that the financial services sector is generally considered the back bone of any economy. If something goes wrong to the backbone, the entire economy rocks. Also the economy changes its position in different sectors completely after the recovery. The above point was proven again in this recession when the problem which just started by few people not paying their mortgages to banks rippled into worst recession for decades.

So now the question arises what new things will happen after this economy recovers. As everyone knows after every recession there are some clear winners who grow tremendously once the economy recovers. The biggest difference the current recession will bring is that companies would reduce their reliance on credit. Looking at the companies who are still top performers, it is evident they are the likes of Microsoft, Apple and Google. All are all time cash rich companies and have little to no reliance on credit. A company's success would be measured also by how much capital a company has to survive a downturn.

The second change that would come is the big fishes would become even bigger and small businesses would find it hard to survive. With credit availability decreasing, banks would start to only lend out to very safe intuitions. Hence it will become hard to start and grow small businesses due to scarcity of loans. On the other hand since large business would have access to large sums of money at cheap rates they would try and consolidate by purchasing smaller players that are having hard time to survive.

So how does that affect common man by all this? Well to that point common man always gets affected; that is the in fact the prime problem with him. Fewer small businesses mean fewer jobs. It also means lower salaries as there would be less competition from employers. That would in turn mean less spending. Hence in totality although the economy would recover, it will probably not get back to levels we saw in late 2006 anytime soon.

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