With money for borrowing in a lockdown, it becomes quickly obvious who has an advantage in this current economy. It’s anyone with cash. Cash has become king. And those entities with spare change on hand mainly take the form of countries that have had resource sales success or specific industries that are recession-resistant.

Sovereign Wealth Funds

With respect to countries, it is the nations that have stockpiled large foreign exchange reserves due to selling either oil and gas or goods and services to the industrialized world. Those sums are being held by state-owned entities known as sovereign wealth funds. Some of the largest are in China, Singapore, Hong Kong, Norway, and the Middle East (Saudi Arabia, Dubai and Abu Dhabi).

Russia has accumulated enough cash due to its natural gas export sales that it may come to the aid of nearly-bankrupt Iceland. Firms in Japan have large cash reserves earned by export sales, while the government still has a massive debt due to an earlier ill-advised infrastructure spending blowout. Mergers and acquisitions within Japan are not a big part of the economic landscape and, as a result, firms are looking for strategic investments elsewhere. Such plans are receiving an extra boost from the strength of the yen and the bargains that are cropping up on North America’s stock markets.

The Technology Leaders and the Pharmaceutical Giants

With respect to cash-rich industries, two come quickly to mind – the technology leaders and the pharmaceutical giants. People keep taking drugs for their health even during an economic downturn. In fact, one could facetiously say that the incidence of drug use may get a shot in the arm from each hard landing of the economy. Firms in this sector (e.g., Eli Lilly, Pfizer and Merck) are looking to take over young hot-shot biotechnology contenders that have a good product but are cash short and looking for financing. The high-tech and Internet firms that are flush with cash and on the prowl for takeover targets include Amazon, Apple, eBay, Google and Microsoft.

Where Else to find Comfort?

Where else can one find some comfort in terms of positive things to say about the economy? Most of us spent the first half of this year moaning about the high cost of gasoline. Well, that’s not a factor anymore and this does free up income to be spent in other areas. Similarly, families are often receiving much lower-than-expected prices for their home resales, which is inhibiting in terms of wealth estimations and home equity loans. But on the other side of each purchase, someone is now paying considerably less for shelter than would have been the case a year or two ago.

On the currency front, the Canadian dollar has retreated considerably from its highs above parity earlier this year and in the fall of last year. This will provide some help to the manufacturing sector. Also, a loonie at $0.85 USD cushions the blow to Canadian resource producers which are seeing their revenues decline from lower prices and the world economic slowdown.

Think of it this way. It’s all about perspective.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

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