The Last Word

I'm often compared to a harbinger of doom, but I believe that it's better to be prepared by thinking through the possible eventualities of a situation. It has struck me over the last few years that the number of possible outcomes from any current situation is so vast that it is nearly impossible to forecast the future (even in a game of chess, the number of possible games is around 10¹²⁰, the 'Shannon Number'). In the dark days before Lehman's collapse, nobody had a clue as to what might happen afterwards (it turns out that the world didn't end, after all, but it was one of the possibilities). Anyway, despite the wide variety of future outcomes, it's possibly worthwhile to contemplate the effects of the current instability (and weakness) of the Euro on the gypsum industry.

Just to be clear, I am not advocating a 'Grexit' - a Greek exit from the EuroZone - it is just that the markets now suggest that there is only a small chance that Greece will not leave the Euro. A run on Greece's banks and the declination of the ECB to guarantee them would lead to default, as might the rejection of further austerity by the electorate... or a number of other possible scenarios as well. Euro ejection would quickly follow any default.

I've had the pleasure of sitting through more than 4000 presentations at our own and others' conferences over the years (think of it like this: 10 conferences per year, 20 presentations at each conference, 20 years of going to industry conferences). In that time, I have seen some really terrific presentations, where the audience was literally on the edge of its seat, and where listeners waited for every utterance as if their lives depended upon it. I have also heard a few presentations that were not so good. I thought I would take the opportunity to give a few hints to potential speakers...

I recently had the pleasure of being invited to the Bank of America - Merrill Lynch 'Global Research Macro Year Ahead Press Briefing' in the City of London. The heads of EMEA Research, of European Equities Strategy, International Credit Research and other high-powered banking types gave their prognoses on the prospects for the global economy in 2012. The gathering had all the joie de vivre of a wake.

Laurence Boone, the polished 'Head of Developed Europe Economics' was first to burst the bubble of positive expectations: She expects a drop in GDP for Europe as a whole of 2-3% in 2012, meaning a continuing European recession (which she said had already started in 4Q2011) that will continue through the whole of the first half of 2012. European banks will undertake 'deleveraging' (paying off debts) of around Euro1.5trillion in 2012.

A year ago, at the Global Gypsum Conference in Paris, the question was asked, several times and by a number of people, 'What will be the date of the start of the recovery from this awful mess that we are in at the moment.' The response, from the assembled experts, was that if things go well, then we should be seeing the start of recovery by the autumn of 2011. Oh dear.

You need to remember, that in autumn 2010, we had just witnessed two years of mind-blowing financial market turbulence, company failures, house repossessions and deepening unemployment. Back then it looked like things could not get much worse, and - as a result - things would shortly start to improve.

Ah, the triumph of hope over experience (the definition of a second marriage by some wags). What we had not realised back in the halcyon days of autumn 2010 was things could get worse. And indeed they did.

We seem to be at - or coming to - a crossroads. After the calamitous year of 2008 - when we saw a rising tide of sub-prime defaults, culminating in runs on banks, the seize-up of global credit markets, the collapse into bankruptcy of one of the world's largest banks (Lehman Brothers) and a number of others, the bailout of AIG (which insured many of the deals done between the rest of the banks), the effective nationalisation of other 'megabanks' (think Lloyds TSB, Associated Irish Bank and others), the sale of previously rock-solid institutions at 'fire-sale' prices (several big American banks), the utter collapse of the over-bloated construction industry on both sides of the Atlantic and the decimation of global stock markets (all summarised brilliantly in a book entitled 'Too big to fail' by Andrew Ross Sorkin) - things have been relatively quiet.