Cost Cutting in IT companies on US recession fears

The world is moving through really tough times, so are the IT companies. With the clients cutting heavily on the IT spending and new projects being scrapped, the IT companies in India are doing all they can to cut the costs.

The IT companies are really worried about the recession fears in US and have gone to take measures to cut the costs as much as they can. In India, it was TCS which went for a layoff following TCS salary cuts. Then it was IBM which axed 700 jobs across all over India.

Following that sequel, the IT companies went for a Reduction in Perdiem for onsite visits. And now, even the petty things like internal travel is under the scanner for cutting costs.
I As per the news from the leading newspapers from India, Senior executives, including in the vice-president and general manager levels, are being asked to travel by cabs, that too with one or two other colleagues.

Someone required to travel from Bangalore to Hyderabad is no longer allowed to book a flight – he is asked to hire a cab, that too with 2-3 colleagues. The journey may be tiresome and time-consuming, but saves a lot on costs – that is what matters most!

From Bangalore, a return AC cab with infotainment on board costs Rs 7,500 to Hyderabad, Rs 5,000 to Chennai and Rs 7,500 to Kochi, against the return air fare (for a single person) of Rs 4,500 to 6,500, Rs 3,000 to 4,000 and Rs 3,500 to 4,500 respectively. “The logic is that at least three employees can get to a client’s location and return at a minimal cost. The same cab can be used for local logistics support at the client’s place, which again is economical,” said a logistics in-charge of a tier 1 tech major.

Even the individual managers and executives do not like this idea. How can they like it – it’s human nature. Someone habitual of staying in a 5 star hotel cannot be comfortable in a road-side lodge, even if it comes with a cozy AC. People also find it humiliating – especially with the way relatives look at you. Someone who used to travel by flight is now moving around in a cab.

No one knows whether it is a short term cost-cutting business or will this last long, but one thing is sure. The Companies are making a good use of the timing. In India, this is the appraisal and salary review time. They may be taking all these steps to create a hyper atmosphere to give minimal or no salary hikes – that may last for next 12 months.

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Mortgage Delinquency Report: 6% of the US mortgages are delinquent

The Mortgage Bankers Association has come out with its latest mortgage report and according to the report, a whopping 6% of the US mortgages are delinquent.

Mortgages are considered to be delinquent when there are problems with the mortgage property in terms of finance or there are no authentic procedures under which the mortgage was possessed.

Going by the state-wise data, Michigan keeps up the first rank which is high for delinquencies and the number of homes in foreclosure. The state ranked second nationwide with 8.97% of its home loans more than 30 days delinquent during the three months ended Dec. 31. Mississippi was first with 11% of loans delinquent and Georgia was third with 8.37%.

The total national delinquency rate of 5.82% is the highest in the mortgage bankers survey since it reached 6.07% in 1985, said Doug Duncan, chief economist for the mortgage bankers.
As per the reports, the housing market bubble bust could have far devastating impact and it may culminate being even more dramatic than the long run house price boom that we have seen running from 1998 to 2005. This was the boom that has driven the house prices to astronomical levels in states like California and Florida. Those states are now suffering with a disproportionate share of foreclosure starts.

No doubt, US is witnessing the worst of the times recently. Whatever goes on in the mortgage markets in the US, the ripples and effects of that are felt in far away countries like India, China and UK. Hope to see some respite by the government actions of Hope Now, Mortgage Rescue Plan along with the Six Bank Consortium for mortgage repayment relief.

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US Fed Rate Cut: another 75 basis points?

Is US Federal Reserve Bank going for another rate cut? If the market speculations and the bond prices are any indications, then definitely YES.
There are strong indications in the market that the Fed may cut another 75 basis points in the interest rates, or 0.75%. The bond prices in the US are going down because of this speculation, and there are expectations that the Fed will definitely have to go for a massive rate cut.

This speculation about the interest rate cut follows from the recent development of dollar yen exchange rate falling to record bottoms for the dollar in the past many years.

Previously also, the Fed had gone for massive rate cuts, but the turmoil seems to continue for the US economy.

What is more dangerous for the other emerging economies of the world is that the export dependent countries like India and China also face the dangers of being eroded away. The interest rate differential between India and US is already well above 5% or 500 basis points, and yet another rate cut of 75 basis points will make it an interesting scenario.

As per the news, the U.S. Treasuries fell for a second day on growing speculation the Federal Reserve will lower interest rates by 0.75 percentage point this month.

Two-year notes led the declines, with the yield difference between the shortest-dated debt and 10-year notes at 190 basis points, still near the widest in more than 3 1/2 years. Traders raised bets on rate cuts on speculation policy makers are more concerned about reviving economic growth than curbing inflation.

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Recession: How it affects stock prices?

I have gathered some tit-bits about recession. Here is an attempt to explain it in simple terms.

We all have been hearing about recession since last few months. US is on the verge of recession, we will be affected, the UK economy could follow US if the latter gets into recession, and some such concepts.

In this article, I’ll try to explain what is recession, what causes a recession, How do the money markets work in recession, what happens to the stock market in recession, etc.

What is a recession?
The moment the GDP or Gross Domestic Product of a country goes down for a minimum of 2 quarters, the economy may be falling in a recession.

What causes recession?
Speculations by the consumers in that economy, investors at large and the lowering of business confidence causes recession. There are multiple examples of recession causing factors – however, there is no sure shot way to measure it. There are several indices created, like the Business Confidence Index, etc., they try to gauge these parameters. However, they may be highly erroneous. Ultimately, the demand and supply factor comes in, there may be a decrease in industrial production due to loss in demand, and hence job cuts and unemployment. All these factors when become significant, it can be said that economy is in recession.

How do stock markets work in recession period?
Stock markets reflect the economy – so if the economy is expected to be in recession, the stock markets fall. This is what is currently happening in US.

Can an individual fight recession?
Typically, no. Only the government can take measures to bring back the economy on track. Like cutting interest rates, so that people start spending, cut the taxes so that people can have extra money to spend, then trying to create jobs so that people can earn, etc. Ultimately, the more free flow of money is there, the better the chances of coming out of recession. Recession can never be predicted. People & organizations perceive it coming and they start taking measure to act in that manner. That is what is happening in the US currently. Recession is not officially declared, it is an expectation. Hence, since the markets are efficient, measures are already being taken to counteract it. That is causing the US stock markets to fall.
For an individual, one can only rely on savings for bad times. Relying on your stock holdings can be very risky, as the share prices may fall down significantly.

If you have savings, then you can think of buying a cheaper house during recession. Basically, in recession, one attempts to go against the trend.

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Wal-Mart numbers shake up US and Global Economy

Here are some signs that indicate how bad the US economy is going, nothing but almost a certain sign of recession. Yesterday, it was Wal-Mart, the top retail store chain of US, which declared a very disappointing set of numbers.

Not only that, the January sales observation at Wal-Mart have been really disappointing and surprising.

Wal-Mart officially said that its shoppers are redeeming the Wal-Mart gift coupons and gift vouchers for basic necessities like food, clothing other basic necessities of life. Instead, traditionally, these gift vouchers used to be redeemed for luxury items and fancy accessories like ipods, DVDs, DVD players, etc. When free gift cards and vouchers are used to make a saving or used to make spending on the basic necessities of life, it is an indication that things are not good at all. Though the other discount retailers have performed better than Wal-Mart, but they are also worried about loosing the traditional customers.

It’s an indication of how low the consumer confidence is, and how much we are in the grip of an economical slowdown, which may have a long lasting effect not only on the USA, but also on the entire global economy. Interestingly, the results declared by Wal-Mart are the worst results in 4 decades.

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