Bracing For Hard Times

I've been not posting any article for a long time since Nov 08 to attend to more pressing matters.

The starting point of a credit crisis that caused current global recession is generally a kind of "Goldilocks Scenario." It is characterized by overwhelming liquidity (not only on the investor side, but also for companies), by low default (and high recovery) rates, and by subdued risk aversion among credit investors. Global recession sparked by a chain of reactions happened in this order:

It started with excessive liquidity, then linked to -> excessive lending -> excessive leverage -> excessive risk-taking. Then, this activities followed by tremendous spread tightening especially in credit derivatives universe, then trail by credit bubble - exogenous shocks and/or fundamental dislocations. Lastly, the burst of the bubble that caused the spiral global credit crunch which in general all the economist called it "global recession." And today the crisis is really really really global.

In summary; this is how normal folks like us to understand what actually happened in this sequence:1) First-order effects: direct credit-linked losses(investments). 2) 2nd round effects: Spillover effects onto other financial market segments. 3) 3rd round effects: Spillover effects onto the real economy. I'm sorry for unable to put this in simple term, but how to explain it to our normal folks in the villages or smaller towns. Just explain and focus on the 3rd round effects will do, e.g. :

1) Reduction of rubber prices from what used to be around RM4.00++/kg to around RM1.00++/kg.
2) Reduction of CPO prices from what used to be around RM4,500/ton in Jul 08 to hovering around RM1,200/ton in early Nov 08.
3) Add on - closing down of Western Digital in Kuching Sarawak(Malaysia) and many employees being laid off as the business cannot maintain cash flow stream to keep afloat due to contraction in production demands.

We have to somehow to face it right here and now especially for the first 6 months of 2009. That is the time where the real 3rd round effects will be 'acute' and nobody knows when it will last or hit the rock bottom. The best way is to downsize in everything that non-core in our daily expenses. In my case, I adapt to the crisis with no driving to my work place daily, just come inside Light Rail Transit(LRT) capsule and within 30 minutes will reach my office. The car just park at driveway and just need to start once a while or joining colleagues for short coffee talks after working hours.

By just doing that small adjustment, the saving on fuel, tolls, and parking fees can be quite substantial. Skip the unnecessary jammed and stress. I can relax and better prepared for the day far ahead of the curve - reading books, journals, periodicals, pullouts etc. We have to change, adapt, and look for many options for efficiency during this tumultuous times.