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Tag >> Finance
Barry Ritholtz over at The Big Picture has recently made the useful point that the capital markets often divorce themselves from economic reality, as they seem to be doing of late.
In so doing, he's been echoing Keynes' observation that "markets can stay irrational longer than you can stay solvent."
This is about as succinct a diagnosis of our fundamental problem as I've seen, and pretty timely given growing concerns about the strength of whatever recovery is supposedly afoot.
In a nutshell, analyst David Merkel points out that it's one thing to raise the prices of financial assets, it's another to encourage new capital investment. And the difference explains why the Fed's successful efforts to provide liquidity to the markets will at best merely re-inflate an asset bubble.
As a CFO or employee in a finance organization, you are probably thinking to yourself, "How can I have any impact on the growth of a company, let alone through Innovation?" The idea that finance people are only number crunchers concerned about cost-cutting is a myth. Many become excellent business leaders, requiring a balance of creativity, logical decision-making and financial acumen. In today's uncertain economic environment, all employees must identify opportunities for growth, armed with as many weapons as possible to be prepared when the recovery comes. What kind of weapons do you need? Well, you have everything you need in between your ears, all you really need is a Process by which you will use ideas and teamwork to identify ways to cut costs or grow sales. Your organization has the potential to bring great ideas to the table, that don't necessarily help the finance organization, but help other parts of the company. So what are you waiting for?
The example below could be considered New Product Introduction, but it came to life as the result of the financial toll it was taking on the business. Look around at your company. Do you have issues that cause significant or repeated financial hardship? If so, you are ripe for an innovation session, and you may end up with surprising results. But don't be stingy when it comes to the investment needed to make an idea work! Make sure ideas are given the same weight as capital expenditures. In the end, these ideas may be what distinguish you from competitors, lowers your costs or creates a new product/service offering.
This decision should put to rest the argument made in some quarters, including that of libertarians like former SEC commissioner Paul Atkins, that backdated options weren't necessarily a problem for shareholders, if only because they might save a company cash compensation.
I always thought that argument was absurd, if only because higher priced options may save as much cash or more from the tax deductions that companies claim for the Black-Scholes value of the grants than lower priced ones cost in terms of foregone salary.
As if CFOs didn’t have enough to worry about as they gauge the effects of this recession and the pace of the recovery, worldwide “regulatory chaos” may be on the horizon, according to an industry consultant, and that has the potential to further hurt bottom lines.
In addition to the regulatory turf war in Washington, which Ron Fink blogged about last week
, the US, UK, and EU will all be vying to be the toughest on regulation, said Anthony J. Carfang, partner of Treasury Strategies, and that’s going to make it a confusing and expensive world for corporate CFO types.
Judging from what has been suggested so far in these countries, Carfang said in a press release yesterday, non-bank money market activity will be limited, banks won’t have as much capital to lend, yields on investments will be middling, and there will be more required oversight and reporting.
End result for corporations: Fewer investments at higher costs, and fewer competitors from which to shop services, due to industry consolidation. Not to mention the onerous task of tracking regulation in the countries in which you do business.
“If you wait to see what outcomes emerge, you will be left behind," said Carfang in the release. He suggested that companies try to keep in the game by lobbying, and that they prepare by analyzing how proposed changes will affect operations.
As if anybody needed another fire drill right now.
Companies across the board may be cutting costs and saving cash, but it seems they’re not about to return that money to shareholders any time soon.
It’s been the worst July for dividends since 2002, Howard Silverblatt, senior index analyst at Standard & Poor’s, wrote in a note today. So far this year, 59 companies in the S&P 500 have decreased their dividends, compared with 40 in all of 2008. S&P dividend companies have paid out almost $30 billion less than they did last year, and for the full year, that shortfall is likely to rise to around $60 billion, Silverblatt predicted.
“From the shareholder point of view, these numbers are devastating,” Silverblatt said on the phone today.
This piece by Noam Schreiber provides yet another excuse for the Treasury to require little from banks in return for taxpayer-funded bailouts.
Geithner and crew were prepared to take over the banks but feared that nationalization would cost the banks its employees, says Schreiber, so the government wouldn't be able to generate revenue from the banks and sell them back to private investors any time soon.
We've all long suspected the Roman Catholic Church is living in the past, but today it gave us a ballpark date on how far back.
In a speech to Italian senators in Rome, Vatican Secretary of State Tarcisio Bertone slammed the "greed is good" mantra made famous by corporate raider Gordon Gekko in Oliver Stone's movie "Wall Street," which was released in 1987.
I see that the press is engaged in more hype about home sales today. Not to spoil the party, but finance folks should keep in mind a couple of things about this data.
For starters, all it means, if it's accurate, is that real estate may have bottomed out. The operative word here is "may" since no one knows at this point whether new home sales will begin falling again. And I say "if' here, because that 11% increase from May is within the 13% margin of error, so we don't even know if the numbers are accurate.
It's tempting to think that the regulatory turf battle breaking out into the open during hearings on Capitol Hill today are another sign of the disarray that lets market participants play one regulator off of another, leading to a race to the bottom.
But while such regulatory arbitrage has led to problems in the past, there are benefits to competition among regulators. In other words, it can also be a race to the top, as state regulators like former New York Governor Elliott Spitzer and current NY attorney general Andrew Cuomo have shown.