Tuesday, August 2, 2011

Buyer's remorse sets in as investors begin to realize what the future holds for economic growth; one UK firm lowers its global ad spending forecast significantly

The cult of austerity has won, the budget slashers reign supreme, and investors are heading for the hills. Or at least that is one day's data appears to show.

Like a teenager who buys the latest hit CD because it is cool, only to find out it really sucks, investors are starting to realize that slash and burn may not be actually good for the economy. With Europe, a half year ahead of the U.S. in its austerity campaign, reporting numbers that look like a return to recession, the outlook for U.S. economic growth is starting to look dire.

Today the U.S. markets tanked, with the Dow dropping more than two percent of its value, 265.87 points in total, and the Nasdaq losses even higher, 2.75% percent or 75.37 to the negative.
Maybe investors understand better than politicians that you can not contract your way to growth. I wondered just yesterday morning whether this mood shift might effect ad spending for the rest of the year, and further out, the fall planning season. I guess I should have waited 24 hours because one marketing services company is already claiming that it is.

Warc, a London based marketing information service company, has downgraded its International Advertising Forecast. The company is still forecasting growth, 3.2 percent for the year (globally), but this is down significantly from their previous forecast of 4.6 percent growth.

Global economic conditions remain unsettled and this is making marketers cautious, particularly in Western Europe, Japan and the US," Suzy Young, Warc's data editor, said. "As a consequence, marketing budgets for 2011 are likely to be smaller than initially hoped."

BtoBOnline is reporting that Warc blames this decline on debt issues in the U.S. and Europe. But that is not at all what the company said, instead speaking of "uncertainty relating to political disagreements over how best to tackle public deficits in the Eurozone nations and the US." That is definitely not the same thing.

But markets are weird things, and I have a feeling investors might be in a buying mood tomorrow. But don't take my financial advice: in 2000 I felt positive enough about tech to buy into Cisco following the bursting of the tech bubble in the stock market – that didn't turn out so well.

While the U.S. media is already moving on from the debt ceiling crisis, concluding that it was all good fun while it lasted, but now the Senate signed onto the agreement it can return to more important celebrity news, Europe is suffering severe handover.

Markets in Europe also fell today, with German DAX falling more than two percent – the second straight day of declines at this level. The FTSE in the UK and the CAC 40 in France also fell by large amounts.

The problem is that the aerial walking done by the Congress was seen not as just good politics but real juvenile behavior on the part of the politicians with ramifications far broader than just the U.S.

The Guardian is reporting this afternoon that Spanish Prime Minister José Luis Rodríguez Zapatero is abandoning his holiday plans to return to Madrid to deal with the financial crisis.

(American may not understand the meaning of "vacation", but the Europeans certainly do. TNM traffic from Europe is half its normal level in mid-July to early August thanks to European vacations.)

According to The Guardian story that leads its website this afternoon, interest rates on Spanish and Italian bonds have rise to above 6 percent "the level that signalled the beginning of the bailout process for Greece, Ireland and Portugal."

Paul Krugman, NYT economics columnist is paying attention to all this. Yesterday on his NYT blog he mentioned the Italy-Germany bond spread – the spread between what the two countries have to pay on its bonds. Krugman uses the spread to see what investors think of the economies of the two countries. That spread, according to Bloomberg, is at at shocking levels.

(Update: wow, maybe Krugman reads TNM – doubt it – he has a new short post about the situation in Europe on his NYT blog.)

The fact is that the austerity contagion has been active in Europe longer than here in the U.S., and the results are turning catastrophic. With the White House now signed onto the austerity bandwagon with the Republicans, we could be looking at the U.S. economy falling back into recession before many media companies have even begun to recover from the previous economic downturn.

Hang on to your hats publishers.