2012 was not a happy year for many across the world. Numerous worries clouded the horizon and it seemed tough to predict where things would end up. Add to that a Mayan prophecy that the world was going to end and the general disposition was negative to say the least.
As someone working in financial services, the overall "mood" of the people in the world can make a lot of difference to my life. When people feel "happy" they spend more, companies earn more, stock market rises more, the mood in my office improves and my pay-check becomes healthier. On the flip side, when people are feeling apprehensive of the future, a reverse cycle starts. People in financial services start getting fired, there is pressure on everyone and its tough for everyone. You get the drift......
So 2012 over-all was not a year I would look back on very fondly. Except that I took a leap of faith and went from working from a small family owned outfit to a large MNC bank.
So for all those of you who might not care much for the intricacies of the stock market, yet wonder why it is so fickle, it might seem strange that India seems to have suddenly gone from being such a negative place to starting to appear more optimistic in a matter a few days. So what really changed you might ask? Obama got re-elected, the so called "fiscal cliff" (which basically was a fear that US may not be able to act in time to pass a few policies required to keep its economy chugging along) got averted, Manmohan allowed Chidambram to make a few good noises on reforms and suddenly things seem brighter.
Why is this so? Simple fact of life is that economic growth is dependent on a basic ingredient: investment. Just like for us to grow as human, we need to invest some time and effort, similarly for an economy to grow, time, effort and resources have to be invested. Think of yourself when you have to evaluate whether to take up a new job or not. You would usually think: will I benefit if I work in this new place? Will I be happier? Will my career progress in the right direction. Similarly, when a company wants to make some new investments, it has to ask itself various questions. So for e.g. suppose Pizza Hut is today making 100 Rs. of revenue in the city of Bombay. If it wants to grow the revenue to lets say 120 in a year, it needs to do something. Open a new store maybe, offer some new Pizzas, do some branding etc. etc. So in short it needs to spend some money or make an investment. Now unless the company feels that people in Bombay on an average are going to demand more of its Pizzas, it will not make that spend. And how does it assess whether people would spend more or not? It would do a market-survey to gauge the over-all mood of the people. If people are feeling "good" about their future, they would not mind going out and spending a few more rupees on Pizzas. However, if people feel their companies are not doing well, people are getting fired, they would tend to save more and hence no growth for Pizza Hut.
And since an economy is basically a sum of all such businesses put together, we can see how at an aggregate level the "mood" of the nation is so important. So while nothing drastic has happened over the last 2 - 3 months, it is enough to make people feel more optimistic or "cautiously optimistic" as economists tend to say. So future earnings of companies start "appearing" better, stock market moves higher, companies start making investment plans, start limited hiring etc. This rubs of on people working in companies who start being more optimistic on their increments and bonuses for next year and when their kids want to have that Pizza on the weekend, they relent more easily. Pizza Hut's sales start going up and it decides to open a new store, employ more people, buy more flour, tomatoes, cheese etc etc.. This further helps people selling these items and so on till a virtuous cycle gets built.
And all this on what?? "Perception" of better times ahead!!
If by now you are scratching your ahead and thinking what rubbish!! Wait and reflect. Isn't this world just an aggregation of people? If on a net, a majority of people are positive about the future, the world would be a positive place. And if they are negative then the other way around.
So this leads to the key question. Can one person's mood have an impact on the rest of the world? If you are a powerful and rich person then certainly. But even if you are not, I hope this blog will persuade you to start believing that our attitude in life does impact the world we inhabit.
So if the world out there feels horrible, are you and I responsible? And if not us, then who??
Anyways for me to have a better 2013, wish you all have a "brighter" 2013!!! :)
As someone working in financial services, the overall "mood" of the people in the world can make a lot of difference to my life. When people feel "happy" they spend more, companies earn more, stock market rises more, the mood in my office improves and my pay-check becomes healthier. On the flip side, when people are feeling apprehensive of the future, a reverse cycle starts. People in financial services start getting fired, there is pressure on everyone and its tough for everyone. You get the drift......
So 2012 over-all was not a year I would look back on very fondly. Except that I took a leap of faith and went from working from a small family owned outfit to a large MNC bank.
So for all those of you who might not care much for the intricacies of the stock market, yet wonder why it is so fickle, it might seem strange that India seems to have suddenly gone from being such a negative place to starting to appear more optimistic in a matter a few days. So what really changed you might ask? Obama got re-elected, the so called "fiscal cliff" (which basically was a fear that US may not be able to act in time to pass a few policies required to keep its economy chugging along) got averted, Manmohan allowed Chidambram to make a few good noises on reforms and suddenly things seem brighter.
Why is this so? Simple fact of life is that economic growth is dependent on a basic ingredient: investment. Just like for us to grow as human, we need to invest some time and effort, similarly for an economy to grow, time, effort and resources have to be invested. Think of yourself when you have to evaluate whether to take up a new job or not. You would usually think: will I benefit if I work in this new place? Will I be happier? Will my career progress in the right direction. Similarly, when a company wants to make some new investments, it has to ask itself various questions. So for e.g. suppose Pizza Hut is today making 100 Rs. of revenue in the city of Bombay. If it wants to grow the revenue to lets say 120 in a year, it needs to do something. Open a new store maybe, offer some new Pizzas, do some branding etc. etc. So in short it needs to spend some money or make an investment. Now unless the company feels that people in Bombay on an average are going to demand more of its Pizzas, it will not make that spend. And how does it assess whether people would spend more or not? It would do a market-survey to gauge the over-all mood of the people. If people are feeling "good" about their future, they would not mind going out and spending a few more rupees on Pizzas. However, if people feel their companies are not doing well, people are getting fired, they would tend to save more and hence no growth for Pizza Hut.
And since an economy is basically a sum of all such businesses put together, we can see how at an aggregate level the "mood" of the nation is so important. So while nothing drastic has happened over the last 2 - 3 months, it is enough to make people feel more optimistic or "cautiously optimistic" as economists tend to say. So future earnings of companies start "appearing" better, stock market moves higher, companies start making investment plans, start limited hiring etc. This rubs of on people working in companies who start being more optimistic on their increments and bonuses for next year and when their kids want to have that Pizza on the weekend, they relent more easily. Pizza Hut's sales start going up and it decides to open a new store, employ more people, buy more flour, tomatoes, cheese etc etc.. This further helps people selling these items and so on till a virtuous cycle gets built.
And all this on what?? "Perception" of better times ahead!!
If by now you are scratching your ahead and thinking what rubbish!! Wait and reflect. Isn't this world just an aggregation of people? If on a net, a majority of people are positive about the future, the world would be a positive place. And if they are negative then the other way around.
So this leads to the key question. Can one person's mood have an impact on the rest of the world? If you are a powerful and rich person then certainly. But even if you are not, I hope this blog will persuade you to start believing that our attitude in life does impact the world we inhabit.
So if the world out there feels horrible, are you and I responsible? And if not us, then who??
Anyways for me to have a better 2013, wish you all have a "brighter" 2013!!! :)
well written and very easily explained the working of the economies.will ask my kids to go through it.
ReplyDeleteThanks a lot for your feedback! Do we know each other?
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