Recovery, what recovery?

If you think the economic downturn is over, pick a state in the US and go for a drive. Last week, I drove across Florida, from St Petersburg beach on the west coast to Cape Canaveral on the east coast. Along the way, the highways were dotted with vacant strip-malls, and towns where houses that didn't have a "for sale" sign in their front yard were the exception, not the norm. Pawn shops and yard sales proliferated.

When a woman ambled up to me outside of a supermarket in the old-money section of south Tampa, grabbed my arm and said, "Honey, can you spare some food for my sister and me" she surprised me. It wasn't just that she wasn't begging for money but rather food from my shopping cart that startled me, but more to the point, this simply isn't the part of town where you would have expected that type of encounter. It was akin to being panhandled for a jar of olives outside 360 in the Landmark building in Hong Kong.

Road works on perfectly good roads infuriated me -- is this where the stimulus package is going? And let's not even talk about the backward state of airports. I flew on three different domestic airlines; each had too few staff handling far too many people, and each initially seated my two-year-old son rows away from me, then resignedly told me to sort it out at the gate. After a while you give up getting angry at the stupidity because you realise folks are just so depressed they don't care. That means they are not going to work too hard to get out of the mess they are in.

Here, in Asia, we have been hit by the downturn, for sure, but not nearly as severely as in the US. I know I risk offending people who might think I am belittling what is happening here. But trust me, I am not. There have been far too many lay-offs that we have had to write about, or personally endure. I doubt there is anyone in Asia who doesn't know someone who has lost their job and there are few managers who have gotten away with not having to fire someone. So yes, we've been hard hit. 

But then you go to America, where hard hit that looks more like life in a third world nation. One wonders, how is this the largest economy in the world?

Despite this, thanks to a market rally, there has been a burst of optimism in the past month (even though the rally is based primarily on an excess of liquidity as opposed to any sound corporate fundamentals). A spate of reports suggests that the worst is over. More cautious analysts say this may be the first up-tick in a W-shaped recovery, but that we are at least on the mend. 

I think part of the optimism of analysts is part-and-parcel with the industry. They recognise that if you say it, people might start buying it, and thus it can move markets. The rest of the industry reads these reports and sees them for what they are, but at the same time they also manage (by and large) to raise a toast to the half-full glass. That is because they see the big picture. If I had a penny for every time a banker has told me in the past six months that downturns are cyclical, I'd have at least an extra $5 in my pocket. But while the line is cliché, it's not a bad perspective; bankers understand cycles and therefore know that in weak economic climates there are opportunities. 

In the past fortnight we have seen two poignant examples of that understanding. The announcement last week of Citi's former Asia-Pacific CEO Ajay Banga's departure to MasterCard clearly sums up this optimism. Even in a downturn you can negotiate a sweet deal. As Sameera Anand reported earlier this week, Banga is joining MasterCard at a base salary of $800,000 plus an annual bonus. His target bonus payout will be 150% of his base salary, in other words $1.2 million, and his 2009 bonus will not be prorated. Banga will also receive $4.9 million in restricted stock this year and a standard award under the stock plan in 2010, valued at $4.4 million. 

Similarly, Matthew Ginsburg left his job as head of investment banking for Asia-Pacific at Morgan Stanley and is tipped to be moving on to the same role at Barclays Capital, summing up both the prevailing optimism and the fact that Asia is in a relatively better state than the US. Barclays has been on a hiring spree out here -- and is reportedly paying well as it is keen to take advantage of available talent and room to build a business. 

It's good to see optimism in the industry, particularly among the top players. But it's also important to stay in touch with the darker picture that underscores this downturn. While some bankers may be able to negotiate better deals for themselves, there is undoubtedly more pain to come because the fundamentals of one of the world's driving economies are shattered. You could argue that my anecdotes about US woes are evidence of past problems and that we may have hit the bottom. But the problem is the depression that has ensued has led to emotionally driven decision making that will continue to haunt corporate growth.

Just a few days ago, my husband John was at a plastics manufacturing conference in Chicago, which was a ghost town compared to previous years. He ran into an ex-colleague whom he had worked with in Chicago more than a decade ago. John asked him about a machine he was selling -- and the sales-spiel began. Then the man asked John where he worked. The second he heard China, the conversation ended. The man simply walked away. When John followed and said, "What's wrong?" he was told: "We don't do business with China." The irony was that the man was reverse engineering an existing product, working his way around a patent -- precisely one of the accusations most frequently levelled at China. My husband shrugged off the encounter (but took off his name badge, which had Hong Kong clearly marked on it), as such protectionism-driven business practices will simply be the undoing of that company.

The problem is that that company is not alone. It appears to be part of a growing movement of knee-jerk protectionism, and so the undoing of one company steamrolls into sectors, further damaging businesses, and decreasing the likelihood of a speedier recovery. While some may say the decline of manufacturing in the US has been well telegraphed for decades (and this is true) the reality is that its loss is still being felt now. Don't believe me? Visit Detroit.

On some level it's not a bad thing for strip malls to be stripped off the Florida landscape. A sense of frugality evidenced by yard sales is a better state of affairs for Americans who up until recently had evidently lost sight of how to keep spending in line with their earnings. But it is not just Americans who need to come to terms with this new state of economic affairs; the rest of the world does too. There are opportunities, and for the moment quite a few of them are thankfully here in Asia, but the heady days of 2007 are not yet around the corner.