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How to Emerge from this Recession Stronger than Before – Recent HBS Research

Monday, August 9th, 2010

How to Emerge from this Recession Stronger than Before

An astounding 85 percent of growth leaders entering into a recession will emerge weaker, according to new research.

Only 9% come out stronger.

What do business do wrong?

  • Firms that cut costs faster and deeper than rivals had the lowest probability — 21% — of pulling ahead of the competition post-recession.
  • Businesses that invested aggressively more than competitors had only a 26% chance of becoming leaders after the downturn.

What works? A careful balance between the cutting costs and new spending, according to Harvard Business School researchers Ranjay Gulati and Nitin Nohria, and Northwestern University’s Franz Wohlgezogen who studied 4,700 companies during the last three recessions.

Specifically, the successful companies didn’t slash headcount. Instead, they focused on improving operational efficiency. They also were bigger investors than their rivals in developing new business with investments in R&D, marketing and in plants and machinery.

“The most successful reduce costs selectively by focusing more on operational efficiency than their rivals do, even as they invest relatively comprehensively in the future by spending on marketing, R&D, and new assets,” the researchers report. “Their multi-pronged strategy is the best antidote to a recession.”

Source: http://cpatrendlines.com/2010/07/27/how-to-emerge-from-this-recession-stronger-than-before/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+cpatrendlines%2FtPxN+%28CPA+Trendlines%29

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Rubin, O’Neill reject more stimulus

Monday, August 9th, 2010
Rubin, O’Neill reject more stimulus By Bloomberg News  |  August 9, 2010

WASHINGTON — The US economy will improve slowly but more fiscal stimulus probably wouldn’t be effective, former Treasury secretaries Paul O’Neill and Robert Rubin said yesterday.

Rubin, who served under Bill Clinton, said the United States is “going to have slow and bumpy growth.’’ A “major second stimulus’’ might create more uncertainty, he said.

Companies won’t expand until sales improve, said O’Neill, George W. Bush’s Treasury chief: “We are moving forward at a pretty gradual pace. But I don’t think things are terrible.’’

Concern about the deficit has prompted President Obama to urge lawmakers to let Bush-era tax cuts for the wealthiest expire. O’Neill opposed the tax cuts but said lawmakers need to focus on overhauling the entire system.

© Copyright 2010 The New York Times Company

Source: http://www.boston.com/business/articles/2010/08/09/rubin_oneill_reject_more_stimulus/

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Goldman Sachs Cuts 2010 S&P 500 Forecast to 1,200

Monday, August 9th, 2010

Goldman Sachs Cuts 2010 S&P 500 Forecast to 1,200

By Rita Nazareth – Aug 9, 2010

Goldman Sachs Group Inc. lowered its year-end forecast for the Standard & Poor’s 500 Index to 1,200 from 1,250 and reduced its 2011 earnings projection, citing weakening economic forecasts.

S&P 500 companies will post combined profit of $89 a share next year, compared with Goldman Sachs’ prior estimate of $93, according to David Kostin, the New York-based equity strategist. Jan Hatzius, the firm’s chief U.S. economist, lowered his prediction for 2011 growth in gross domestic product to 1.9 percent from 2.4 percent on Aug. 6.

“The weak GDP growth forecast and specter of deflation means top-line sales increases will be hard to achieve,” Kostin wrote today in a note to clients. He raised his 2010 earnings forecast for the S&P 500 to $81 a share from $78.

The S&P 500 has rallied 9.7 percent since July 2 as profit growth that exceeded analyst estimates helped overcome concern the economy will slip into the second recession in three years. Growth in the U.S. slowed to a 2.4 percent annual rate in the second quarter, less than forecast, reflecting an easing in consumer spending, according to Commerce Department data.

Before today, the average estimate of 12 strategists tracked by Bloomberg called for the S&P 500 to rise 20 percent in the last six months of 2010 to 1,242. U.S. earnings will increase 35 percent in 2010, the biggest annual gain since 1988, more than 8,000 analyst estimates compiled by Bloomberg show.

The Federal Reserve may return to “unconventional” monetary stimulus as early as this week’s policy meeting as the U.S. economy continues to lose momentum, economists led by Hatzius wrote Aug. 6. The firm raised its estimate for the jobless rate as growth slows and the “reacceleration in U.S. output” expected for 2011 is made more doubtful by congressional resistance to fiscal stimulus, the note said.

To contact the reporters on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.

®2010 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Source: http://www.bloomberg.com/news/2010-08-09/goldman-sachs-cuts-2010-s-p-500-forecast-to-1-200-on-slowing-u-s-economy.html

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CFTC Begins Publishing New Large-Trader Report for Financial Futures Markets

Tuesday, July 27th, 2010

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that it will begin publishing a new report that adds further transparency to the financial futures markets. The report, entitled Traders in Financial Futures (TFF), builds on improvements to transparency implemented last year that disaggregated data in the CFTC’s weekly Commitments of Traders (COT) Reports.

“Promoting transparency is at the core of the CFTC’s mission,” CFTC Chairman Gary Gensler said. “The new Traders in Financial Futures reports will provide the public with a better view into the financial futures marketplace. This transparency effort builds upon prior improvements we made to the COT reports and will provide the market with much helpful information. I thank the CFTC staff for their hard work to prepare these new reports.”

For decades, the CFTC has provided the futures industry with COT reports consisting of aggregated large-trader position data to shed light on the changing composition of the markets. The reports are based on a request by Congress for an annual report, upon passage of original enabling legislation in the 1920’s, and have been intensified over time into weekly reports in several formats.

The new TFF report uses the same data that appears in the COT reports, but separates large traders in the financial futures markets into the following four categories: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds; and Other Reportables. The “dealer/intermediary” category comprises the sell-side participants that earn commissions selling financial products, capturing bid/offer spreads and otherwise accommodating clients. The remaining three categories represent buy-side participants. These are generally clients of the sell-side participants who use the markets to invest, hedge, manage risk, speculate or change the term structure or duration of their assets.

Like the COT reports, the TFF report provides a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC. The report is published in futures-only and futures-and-options-combined formats. The TFF report will be published concurrently with the legacy COT. The TFF report, however, is not a disaggregation of the COT data for the financial markets. The traders classified into one of the four categories in the TFF report may be drawn from either the “commercial” or “noncommercial” categories of traders in the legacy COT reports. The CFTC also plans to soon release four years of historical data for the new report.

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Change to the Definition of an Accredited Investor is Effective Immediately.

Thursday, July 22nd, 2010

By Lance Friedler

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Financial Bill”) into law. Set forth below are certain aspects of the Financial Bill which impact investment managers to hedge funds and private equity funds.

The Financial Bill revises one of the definitions of an “accredited investor” under the Securities Act of 1933 (“1933 Act”).   Specifically, in determining if a natural person is an “accredited investor” who meets the $1 million net worth test, the value of such person’s primary residence must now be excluded from the $1 million net worth calculation.  Previously, a natural person’s primary residence (net of any mortgage) was included in calculating a natural person’s net worth.  The other definitions of “accredited investor” under the 1933 Act are currently remaining the same.  This change in definition is effective immediately.  As a result, we urge you to contact us as soon as possible as the Confidential Private Placement Memorandum and Subscription Documents for any investment funds you manage will need to be revised for this new definition of “accredited investor”.  Please note that, absent further guidance from the Securities and Exchange Commission (“SEC”), we currently believe that the new “accredited investor” definition only applies to (i) new investors in your hedge funds and (ii) existing investors in your hedge funds that make an additional capital contribution.  We do not currently believe that you need to recertify existing investors in your hedge funds that are not making additional capital contributions.  Likewise, with respect to private equity funds, if an investor has already made a capital commitment to the fund, we do not believe that subsequent draw-downs of capital by the fund from such investor will require you to recertify such investor.  However, as with hedge funds, any investor that is making a new capital commitment to the private equity fund would need to meet the new definition of “accredited investor”.

Under the Financial Bill, the Investment Advisers Act of 1940 (“Advisers Act”) will also be amended to require many investment advisers that are currently exempt from registration with the SEC to register.  Generally, the Financial Bill requires all investment advisers to hedge funds and/or private equity funds that manage $150 million or more in assets to register with the SEC.  Importantly, the “private adviser” exemption which many hedge fund and private equity fund managers relied upon in the past is being eliminated.  The “private adviser” exemption enabled an investment adviser to avoid SEC registration if it: (i) did not act as an investment adviser to a registered investment company or business development company; (ii) had fewer than 15 clients (counting each fund as 1 client); and (iii) did not hold itself out to the public as an investment adviser.  Please note that the SEC will need to issue additional guidance on numerous aspects of the Financial Bill relating to investment adviser registration and coordinate their efforts with various State regulators.  Unlike the change in the “accredited investor” definition set forth above, the new rules under the Advisers Act will become effective on July 21, 2011.

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Pimco Sees Risk of Deflation

Thursday, April 15th, 2010

Featured Post – HS Dent Blog Updates

Posted: 14 Apr 2010 07:37 AM PDT

The manager of one of the biggest and most successful inflation-protected bond funds does not see inflation; he sees deflation.

If there was ever an investor that had every incentive to forecast inflation, it would be Mihir Worah, the manager of the Pimco Real Return Fund and the largest holder of inflation-protected bonds in the world.  As the expression goes, when the only tool you have is a hammer, everything looks like a nail.  Worah’s investment mandate is to protect his investors from inflation, so following the analogy, he should see inflation nails that need hammering around every corner.

But, as Bloomberg reported this morning,

Pimco is “underweight” inflation-linked bonds in portfolios that focus on the debt, Worah wrote in a report on Pimco’s Web site….  “There is a near-term risk of flipping to deflation given our view that developed economies have not fully healed and consumers are not yet ready to stand on their own two feet,” wrote Worah, a managing director based at Pimco’s Newport Beach, California, headquarters.

Worah echoes BlackRock Inc., the world’s biggest money manager with $3.35 trillion in assets, which said it is becoming bullish on Treasuries because “there isn’t inflation in the pipeline.” See article.

We’re starting to see some intelligent minds move to our camp in the inflation/deflation debate.  Our view remains clear — there IS no inflation right now.  We continue to see mild, Japan-style deflation as the most likely outcome of the credit crisis and deleveraging.

Charles Sizemore, CFA
Co-author of the recently-published Boom or Bust: Understanding and Profiting from a Changing Consumer Economy

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Social Security Budgetary Tricks Officially Die

Friday, March 26th, 2010

By Rodney Johnson – The HS Dent Financial Blog

This year Social Security payments will most likely exceed Social Security Tax revenues, making it the first year in the history of the program where outlays exceed inflows.  Is this momentous?  Not really, but it does remove one tantalizing item that has ensnared politicians for ages – the urge to use excess Social Security Tax revenue to offset deficit spending.

Now that there is no excess, there is less for our policy makers to hide behind as they push numbers around in an effort to make their idiotic policy decisions look more economically intelligent.  It doesn’t matter much because the laughable budgetary assumptions, forecasts, and double-counting of the new healthcare reform dwarf the current Social Security excess/deficit numbers.

What this situation should (and that’s a big SHOULD) do, is finally end the argument about whether or not the Social Security Trust Fund represents savings.  It does not.  It never has.  By regulation, all excess funds in the trust must be held in US backed securities (re: treasuries).  Our government runs a deficit, and a whopper of a deficit at that.  Deficits must be repaid in the future.  Hence, money intended to fund Social Security is taxed from workers in a form of forced savings, but is then being lent to the US government so that the government can spend in excess of it’s income.  There is no savings.  None.  Zip.  In order to repay this money, which the US government must start doing this year, the government will have to issue more bonds to other suckers investors and send the funds back to the Social Security Administration.

The noose of fiscal profligacy is tightening.

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Futures Magazine’s “Top Traders of 2009″

Friday, February 26th, 2010

Futures Magazine’s “Top Traders of 2009″ includes a familiar face.Congratulations to Craig Kendall and the trading team at FCI for being recognized by Futures magazine as one of the Top Traders of 2009! See article preview below:

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It is no surprise that Financial Commodity Investments’ (FCI) Credit Premium Program (CPP) did well in 2009 — most option writing programs had a good year — but it was also up in 2008, making it quite unique. FCI President Craig Kendall is a certified public accountant and longtime investor with a pretty good sense of timing. He exited real estate in 2006 and took profits in equities before the dotcom bubble burst.

As an accountant who had helped take a couple of companies public, he was amazed at the valuations he was seeing in the late 1990s and knew he needed to diversify his holdings.

In the early 2000s, he opened an account with famed option writer Max Ansbacher and became a protégé of his. What struck Kendall about the strategy after a conversation with Ansbacher was its simplicity, so he went about creating his own advisory.

“First of all, in futures you have increased leverage and if you take some risk, the returns can be commendable but managing the risk is ever so important, especially in options writing. I don’t need to tell you that a lot of the competition is not around today,” Kendall says.

So in 2003 he became a registered CTA and investment advisor. He launched his Options Selling Strategy (OSS) in 2004 and the CPP in 2006. What distinguishes both of his programs is that they trade a diversified group of markets instead of concentrating on equity indexes as most options writers do. Each program has roughly $10 million under management.

“There were a lot of options writers out there and I thought why not take the same strategy and diversify it across different commodities,” Kendall says. “With this strategy we are really a short volatility play and there are times when the volatility on the S&P doesn’t warrant doing credit premium selling because the risk/return just isn’t worth it. But by doing the extra research and finding the volatility opportunities amongst various commodities [we find opportunities] to make good trades that can be a lot less risky than doing the S&P.   

Click here to continue…  then go to page 3.

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Why Commodity Bubbles ALWAYS Burst

Wednesday, February 3rd, 2010

-Featured Article

By Charles Sizemore

Harry Dent and many, many other analysts over the years have written volumes about the nature of cycles in commodity prices.  To summarize those volumes in one paragraph, commodity bubbles are always self defeating.  Once a valuable commodity becomes prohibitively expensive, market mechanisms correct the imbalance in a couple of different, complimentary ways:

  1. High prices lead to reduced usage (setting the air conditioning at 80 degrees instead of 75, for example)
  2. High prices lead to efficiency drives (think insulation in homes and increased fuel efficiency in cars)
  3. High prices lead to substitution effects (switching from gasoline to diesel in your choice of car or from steak to chicken at your dinner table, for example)
  4. High prices lead to new sources of supply being searched for and found (consider Brazil’s enormous recent oil discoveries in the Atlantic)

These adjustments do not always happen overnight, of course.  Depending on the rate of technological change and other factors, some supply/demand imbalances can persist for years or decades, and sometimes the points above can conflict with each other.   One example is rubber. Click here to continue…

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U.S. One-Month Bill Rate Negative for First Time Since March

Wednesday, January 27th, 2010

-Featured Article

By Allison Bennett

Jan. 27 (Bloomberg) — Treasury one-month bill rates turned negative for the first time in 10 months, as issuance declines while investors seek the most easily-traded securities amid a renewal of risk aversion.

The rate on the four-week security dropped to negative 0.0101 percent, the lowest since it reached negative 0.015 percent on March 26. The Treasury sold $10 billion of four-week bills on Jan. 26 at a rate of zero percent, the second auction of the securities in three weeks at zero percent. Winning bidders will receive no interest on their investment.

“There’s some flight to quality with concern around sovereign risk around the globe, like Greece,” said Anshul Pradhan, an interest-rate strategist in New York at Barclays Plc, one of the 18 primary dealers that are required to bid at Treasury auctions. “Secondly, the bill universe is likely to shrink as the Treasury continues to term out debt so there’s risk aversion with demand.”

Click here to continue…

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