We know the causes of this latest crisis - fear, worry and concern. Three uncomfortable bedfellows that have wreaked havoc on the world's financial markets. What pushed everyone over the edge was the debt ceiling debacle and the downgrading of U.S. debt by ratings agency Standard & Poor’s, that was followed by a 630 point fall in the Dow Jones index.
The markets are basically saying that they are unhappy with the wider economic situation - and with good cause. Manufacturing numbers in the U.S., UK and Germany were all weak last month. Unemployment remains high. Inflation is creeping up in some countries. And the debt situation in Europe is not getting any better.
What the markets are seeking is leadership, and for the moment they believe it is lacking. Take Monday's speech by U.S. President Barack Obama. The Dow had been trading down around 150-200 points until the president started speaking. It was in the hours after his speech the market saw its biggest losses.
U.S. downgrade or European debt crisis? Which is more important? I keep getting asked this question again and again. And it is a good question to ask. Both crises have enormous implications, some more immediate than others.
The U.S.downgrade has a slow burning effect. For instance, U.S.bonds being used to guarantee Israel's debt have been downgraded. Housing loan groups Fannie Mae and Freddie Mac have also been downgraded because they rely on U.S. treasury bonds as their ultimate guarantee.
And certainly the credit rating downgrade changes the rules forever – as PIMCO CEO Mohamed El-Erian said on Saturday, the global financial system is constructed around the U.S. AAA rating being a constant, it is the cornerstone around which everything is built. Even though it may be restored at some time in the future, the fact is that it has gone, the unthinkable has happened.
The Europeans are in a tricky position. They desperately want to keep the top job at the IMF, but they can’t be seen to be nakedly saying “it’s ours by right.”
So leaders from European Commission President Jose Manuel Barroso to finance ministers from Austria, Sweden and Denmark, (in fact just about anyone from Europe who has opened their mouth on the subject), are turning linguistic cartwheels to promote a European solution.
London (CNN) – The text of the European Central Bank statement last week ran to more than one thousand words but only two of them were significant: “Strong Vigilance.”
When we saw these two words we knew: European interest rates are going up. Sooner rather than later.
So suddenly we were all looking at charts of the last tightening cycle which began in November 2005 to discover just how predictive this phrase really was. Sure enough, whenever Trichet used the phrase “strong vigilance” following an ECB meeting, a rate rise invariably followed after the next meeting or two.
It has become known as the “Trichet traffic lights” system. Phrases like “Monitor Closely” were red…..nothing expected just yet. When it went to “monitor very closely” or “exercise vigilance” then we were on amber…rates were moving and probably in the near future. But if the words “Strong vigilance” were uttered; The light’s at green. Rates are going up!
It used to be really simple. When taking a flight you chose your national flag carrier or whichever airline happened to be going from A to B. When there was a choice, braver hearts might be adventurous and fly an unusual airline to add a bit of local color and mystique to the trip!
But individual airlines couldn't fly to all places and suddenly the world was a small place. Code sharing came along and we found ourselves on those unknown airlines whether we liked it or not. Then, in 1997, code sharing went into overdrive and the airline alliances were born.
We have begun. In the coffee bars and salons around the WEF, I am now meeting and greeting people I haven’t seen since last year’s Davos. I am trying desperately to remember names, occupations and titles.
Crucially – any important facts about that person and their life. Who are they? Where are they? What are they doing? Did their company make money or lose a fortune? Is the gossip that they are going to be promoted or fired? Help!!
I am perfecting the smile of recognition when I have no idea. It’s not pretty.
Everyone is talking about the new economies and the role they are playing in the world. It is the only topic in town. But what to do about it and how to handle it? So far, there are few answers about that. Tonight we hear from President Medvedev. It will be a serious, somber reflection on the state of play in Russia I guess, after the airport bombing.
Last night on Quest Means Business, Ben Verwaayen, the CEO of Alcatel Lucent – who I love having on the programme – talked about the need to take real decisions. He is worried about protectionism and wants a conclusion to the Doha round. Good luck, Ben.
Trade ministers are due to meet later this week to try and jump-start the process. If I had a dollar for every time they have done that, I would be able to afford to ski at Davos every year.
It is easy to take pot-shots at the World Economic Forum in Davos. As most of the developed world groans its way back to growth, there is something a bit obscene about rich, famous and powerful people getting together on a Swiss mountain side to talk about how to make things better. It has a ring of “let them eat cake” about it.
This year’s jamboree will add fuel to the fire - with a large new Congress Centre entrance, with oodles of lights.
But as I say every year - that ignores what happens here. I don’t for one moment think that the sometimes pretentiously titled panels are really what this event is about. (Some are without doubt interesting and stimulate thought and debate, but you don’t need to schlep to Switzerland in winter to do that.)
Rather, Davos is about access, meetings, talking and schmoozing, which is why the most important rooms here are not the big halls where tedious panels will take place, but the bilateral rooms where government ministers and CEOs meet each other.
We're marking the start of a brand new segment on CNN International's Quest Means Business, where you, the reader, will have an opportunity to choose the topics that you want discussed.
Richard Quest will be teaming up with CNN's Ali Velshi to answer your questions on topics as diverse as technology, travel, finance, commodities and even pop culture.
Our first topic will be on an issue that is integral to many of our lives - wheat.
Sixty percent of the world relies on wheat as a staple part of their diet and many more consume it on a daily basis. Since mid-June, the price of wheat has surged more than 50 percent on world commodity markets, fuelled by Russia's decision to ban wheat exports after crops were devastated by drought.
The price surge shows that any variance or trouble spot in a large wheat-producing country - Russia is the world's third biggest wheat exporter - can be felt all over the world.
What drives sharp rises in world grain prices? Why is wheat so important? How does a price rise impact our decision to buy a loaf of bread?
Here's your chance to ask us and have your question answered.
QMB viewers are familiar with the Q25 – the exercise we conduct each earnings season, to see if we can spot the prevailing trend in the health of major companies. In the Q25, good results earn a green balloon, while a red is what we give for a disappointing report.
When we last did the Q25 there were far more greens than reds – which gave great hope that the world's big corporations were back on track.
In the first days of this earnings season there is a great deal of dismay at the results. Even though economists had warned that there was a slowdown, now we are seeing the evidence.
Earnings expectations may have been set too high, but companies are warning that things are still very tough and not getting much better. In the past week a wide range of companies warned of more difficult times ahead.
We have many more companies to add before we can come to any conclusions from our Q25. There is still a long way to go in this reporting season, but the early signs are not good.
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