US interest rates have gone from the ground floor to bargain basement levels as the Fed leaves markets wondering what next.
Clearly we're meant to think that this is it, the final push that will be enough to get the US moving through its "current soft spot" as its communique so sweetly put it.
Basically, 475 basis points later we're still not using the R word and we're still considering the savaging of markets as a correction. Sometimes I wonder if the Fed had been more doom-laden earlier on, would things have panned out a bit better.
Thing is, though there's no doubt that everyone has lost potfuls of money over the past two years, a lot of the worry is due to the more nebulous concept of "sentiment". Every time anyone is interviewed for a poll about the economy they're invariably downbeat in the short to medium term while hopeful that things will get better - but uncertain that it will happen any time soon.
The general view is that this must be the final cut because with a Fed rate at 1.25 per cent there isn't much more to go anyway. Realistically, if you're not borrowing money at these levels, you're not going to borrow at all. Nobody will be hanging around in the hopes of another 25 basis points. So most traders have now turned their attention to when the Fed will change its stance completely and start raising rates. This is the way the market works.
No sooner do you get everything you want than you start to look for something else completely! In the meantime, though, sentiment is still anti-dollar in the forex markets where the euro finally clambered through parity again.
Part of this is probably occasioned by the fact that nobody is looking for the US economy to do anything much very soon while you can stick your money on deposit in either the euro zone or Britain and pick up around 200 basis points for the privilege. Traders will probably continue to switch out of the US as long as that sort of differential is available and as long as businesses in the States are struggling (and, of course, as long as there's a threat of war with Iraq). A few years ago it was all one-way traffic across the Atlantic - I'd love to think the money coming into Europe is for long-term investment but somehow I doubt it. There needs to be a change in attitude, a belief that Europe can succeed as a generator of business, before that happens and Europe still has a lot of catching up to do.
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Everything comes and goes in cycles and I wonder whether the cycle of the McDonald's corporation being the symbol of the American culture across the globe has finally run its course. The burger giant has reported declining earnings for seven out of the last eight quarters and is losing market share almost everywhere. This is why it has announced the closure of restaurants in 10 different countries as well as job losses in the US.
There are times when a Big Mac is a comforting (if short-term) way of filling a gap but the fast-food market has evolved dramatically over the past 10 years and has become overcrowded.
McDonald's has gone through bruising price wars with other hamburger chains although its position in the US is still strong with almost 45 per cent of the market. But its strategy of opening nearly 1,000 restaurants a year to grow sales hasn't proved as successful as it would have liked. Potential law-suits from Americans, who committed themselves so much to that particular piece of culture and in so doing have ended up obese and likely heart-attack victims, haven't helped either.
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It's chastening that so many strategies that seem like good ideas at the time can return to bite their initiators. Bill Harrison, chief executive of JP Morgan Chase, thought that by merging the two banks some years ago he'd gain all sorts of synergies and competitive advantage to propel the merged entity into the banking superleague. The merger did form the world's fourth-biggest bank. But not for long. Bill was unlucky it had dealt so extensively with Enron - estimates are that it will lose up to $1.68 billion on transactions with the doomed energy firm.
Like all investment banks, it's taken a bath in South America and techs. But the facts are that in 1999 both Chase and JP Morgan respectively earned $5.45 billion and $2.06 billion. In 2001 the new improved entity earned just $1.69 billion.
Bill is optimistic that the money will roll in once the economic climate improves. Most of JP Morgan's profits come from investment banking which has been badly hit by market inactivity of late. Profits for the entire industry were down by nearly 50 per cent in 2001. But analysts are less certain of the "big is beautiful" scenario than they used to be. Big can be monolithic. Big can be cumbersome. Big can be slower to adapt. But big is the American way.
Nevertheless Harrison has let go nearly 10,000 of his investment staff - (more than half the number employed at the old JP Morgan). He has tried the approach of staff motivation by joining them at one of their "boot-camp" training seminars where he presumably exhorts them to give their all in the service of the bank. Like most Europeans I find the idea of the boss telling me to "think outside the envelope" and "be the most I can be" embarrassing at best. Whenever managers started to talk to me like that I wanted to throw up (that usually only happened if they'd been on a trip to the States anyway). It's only a bloody job in the end!
And though I always wanted to be the best I could be I certainly didn't want to feel that I was on a quasi-religious kick every time I switched on the computer. Harrison, though, feels that being a motivational guru is exactly what the company requires right now although shareholders tend to disagree. They want an improvement in earnings - and quick.
Harrison doesn't have to worry about his own earnings: $23.4 million in 2001 which included a bonus of $5 million for engineering the amalgamation of the two banks. Now that's motivation.
