Archive for the ‘Grow Page’ Category

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High-Speed Market Crash Blamed On Impatient Investors

Wednesday, September 29th, 2010

On May 6, 2010, the stock market crashed. For about 20 minutes.

  • No one is exactly sure how it happened, but it had a lot to do with the way electronic trading works (or doesn’t work). After the crash, people began to look carefully at the intended and unintended consequences of digitizing the trading process.
  • High-speed trading systems have made investing cheaper and faster. Wall Street traders demanded greater speed, and SEC and FTC regulators allowed technology upgrades to continue unchecked for a long time.
  • The SEC has been investigating the crash for months and is about to release its official report. As part of that process, the SEC is acknowledging its own role and failings in the regulations leading up to the brief financial meltdown.

Facts & Figures

  • During the crash, the DJIA dropped almost 700 points before rebounding.
  • In January, the SEC showed signs of questioning the new structure of the stock market.

Best Quote

“Who could argue that competition was a bad thing … and that faster trades would be a bad thing?” – Joseph Saluzzi, Co-Head of Trading at Themis Trading

The Recession’s Been Over For More Than A Year Now

Monday, September 20th, 2010

Are we late in reporting this, or what?

  • After almost a year of analysis and debate, the National Bureau of Economic Research has announced that the recent recession officially began in December of 2007 and ended in June of 2009.
  • The good news in the report ends there. The NBER doesn’t rule out the possibility of another recession, just indicates that any subsequent recession would be a new one.
  • The Organization for Economic Cooperation and Development also released a report emphasizing that the recovery, especially in the labor market, will take at least three more years. It praised and encouraged the Obama administration’s handling of the economic crisis, and suggested that taxes and interest rates will probably have to be raised to make up for some of the damage done.

Facts & Figures

  • Unemployment probably won’t return to pre-recession levels for another 3 years.
  • Unlike past recessions, this one could result in permanently increased unemployment numbers.
  • Though tax increases are unpopular, the United States has a lower tax rate than many other countries.

Best Quote

“The committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity.” – from the National Bureau of Economic Research’s report

Prudential Turns Veterans’ Death Benefits Into Benefit For Prudential

Wednesday, September 15th, 2010

Large companies have an obligation to their shareholders, but what happens when that puts them at odds with their obligation to the families of fallen soldiers?

  • Records obtained through the Freedom of Information Act show that for the past 10 years, Prudential Financial has been withholding lump-sum death benefits from the families of fallen U.S. soldiers.
  • In a verbal agreement with a Veterans Administration director in 1999, Prudential was given permission to issue “retained-asset accounts” to survivors rather than pay out the full amount due to them. According to original contract terms set with the company in 1965, verbal agreements aren’t enough to stand up in court.
  • Prudential keeps those “retained assets” in its corporate general account, where they have earned the company as much as $500 million in interest. These funds are not insured by the FDIC, meaning that if the company went bankrupt, all of the money due to surviving families would disappear.

Facts & Figures

  • Prudential pays survivors an interest rate of 0.5% on money held in retained-asset accounts
  • These retained-asset accounts have earned Prudential a profit of 4.2%
  • 90% of survivors request lump sum benefits from Prudential
  • In June 2010, Prudential had $662 million in money due to survivors in its general account

Best Quote

“Until today I actually believed that the families of our fallen heroes got a check for the full amount of their benefits. This came as news to me.” – U.S. Secretary of Defense Robert Gates

Flipping Positions, Dividends Paying Out More Than Bonds

Wednesday, September 8th, 2010

For the first time in 15 years, a usually-small bonus payout is earning investors more money than long-term corporate bonds!

  • Dividend-paying stocks are handing a higher return percentage to investors than corporate bonds issued by the same companies, in part because in the short-term, companies are pretty flush with cash, but nobody knows what the long term holds.
  • The recession drove down the prices of most S&P 500 companies, but at the same time their profits have soared. This means their stock prices are relatively cheap, considering the health of the companies.
  • Bond yields have been low since the start of the recession for many reasons, including the Fed’s rock-bottom interest rate and uncertainty about the future of the economy.

Facts & Figures

  • Interest on 10-year Treasury bonds was 2.42% last month
  • Kraft dividends are up to 3.82% – that’s 0.18% higher than their bonds expiring in 2018

Best Quote

“The economy is slowing down, but productivity has been so great in this country and companies have been able to make good profits,” said Duessel, the Pittsburgh-based equity market strategist at Federated. “Companies that would have cut their dividends already did so. It’s an unusual time where, yes, their profits are good, their cash is good, they can afford to pay more in dividends.” – Linda Duessel, Equity Market Strategist for Federated Investors

Mass Layoffs Fund Raises For Sketchy CEOs

Thursday, September 2nd, 2010

Tough love, or “tough luck – bwahahahaha”?

  • A study by the Institute for Policy Studies, a Washington think tank, shows that in the 50 companies that laid off the most workers around 2009, CEOs tended to make more money than CEOs of other companies.
  • The companies analyzed were diverse in terms of their health in the wake of the recession. Some were doing fine while others were struggling. But all showed the same trend toward higher CEO pay.
  • Most of these companies were actually laying off workers during a time of increased profit. Layoffs are usually a short-term solution that companies use to increase profits and stay afloat.

Facts & Figures

  • CEOs of high-layoff companies were paid an average of 42% more than their peers – about $12 million
  • Of the 50 companies studied, average CEO pay rose by 7% in 2009
  • Average pay for CEOs in the Fortune 500 decreased 11% in the same period

Best Quote

“We are trying to encourage people to think long-term, that there are all kinds of costs to mass layoffs, in terms of morale problems with remaining workers, in terms of when you may have to rehire and train workers if conditions improve. It was more a way to boost their profits in the short terms and line the pockets of their CEOs.” – Sarah Anderson, study author and Global Economy Project Director at Institute for Policy Studies

Well That Didn’t Work; Japan Tries Something Else

Monday, August 30th, 2010

Japan’s been in an economic bind for years, but now they’re faced with an increasingly expensive currency as well. What’s a prime minister to do?

  • With the yen at a 15-year high and deflation ironically still going strong, Japanese Prime Minister Naoto Kan has proposed a stimulus plan designed to dig his country out of its economic hole. An expensive yen means it’s more expensive for foreign nations to purchase Japan’s exported goods.
  • Part of the plan involves lending more money to the banks at a very low rate. The idea is to keep the yen’s value low and to encourage more consumer lending – similar to recent U.S. stimulus efforts.
  • Some experts say Kan’s proposal doesn’t go far enough to address the country’s seriously messed up financial situation, and some are even saying this is a purely political move designed to make Kan look good.

Facts & Figures

  • Japan’s main interest rate is currently 0.1%
  • Part of the Japanese stimulus package includes a 900 billion yen government injection (just under $11 billion) into the economy
  • Stimulus money will be used to subsidize green appliances and homes, fund career counseling and internships, and keep domestic companies from outsourcing.

Best Quote

“There seems to be a sense of fatalism. The B.O.J. continues to play the same old game of making incremental, but ultimately meaningless, policy changes in response to political pressure. The government talks of the need for fiscal reconstruction, but then tries to construct an economic stimulus package with tiny fiscal measures and minor, uncoordinated structural reforms.” – Richard Jerram, Economist for Japan at Macquarie, a global investment bank

Bernie Ferrari on Being Strategic

Thursday, August 26th, 2010

bernie-ferrari.jpg Bernard T. Ferrari is the Chairman & Founder of the Ferrari Consultancy, but before he became a professional strategy consultant, he’d been around the block more than once. Before establishing his consulting firm, he served for almost 20 years as a Director at McKinsey & Company. And before THAT, he was a surgeon and chief operating officer at a clinic in New Orleans. He’s racked up a B.A., an M.D., a J.D., and an M.B.A. during the course of his education, which we think makes him “Bernard T. Ferrari, M.D., J.D., M.B.A.” Bernie is a trustee of the Juilliard School and the University of Rochester, he’s a philanthropist, and he’s also a Life Member of the Council on Foreign Relations. Not a bad man to ask for advice.

TILE: What exactly is a strategy consultant?
Bernie: A strategy consultant works closely with a company’s senior management to help address how, when, and where to compete. Strategy consultants are essentially professional problem-solvers brought into an organization to provide independent thinking and an outside perspective on business challenges.

TILE: How old were you when you got involved in philanthropy?
Bernie: I was in my 30s. At that time I was in medicine and most of my philanthropic work was associated with that profession. I donated mostly to research being conducted on major medical problems and diseases. Then later I started to broaden my philanthropic interests.

TILE: Do you have a personal mission or giving plan?
Bernie: My personal mission when it comes to philanthropy is to provide outstanding education to the most talented students in our country.  I am interested in helping to build an extraordinary educational system that takes very talented individuals and makes them even more impactful members of our society.

TILE: What’s the best advice you would give your teenage self?
Bernie: Avoid cynicism. To lead a happy and productive life, you must stay optimistic and channel your personal passions to address society’s challenges through your career or your philanthropy or both.

TILE: What’s your advice to someone who knows nothing about business but who wants to learn the ropes?
Bernie: I have three pieces of advice. First, read as much about business as you possibly can, particularly in the news and the business press. Second, hang around business people and people who talk about business, as those individuals can sometimes be your best learning resources. And finally, go to business school, either as an undergraduate or as a post-grad, so you can learn the fundamentals and get plugged into the business community.

>> TILE brings you exclusive opinions, explanations, and interviews from experts in every industry. To read more, click on Ask the Experts in the TILE Library.

Have a burning question or an expert you’d like to see interviewed? Just Ask TILE!

A City Pawns Its Zoo To Keep The Lights On

Wednesday, August 25th, 2010

Selling off parts of the city may help right now, but is it really a good idea?

  • Facing record budget shortfalls, cities and states across the country have come up with a creative solution: privatize. Privatizing means selling off city properties to private companies – parking lots, buildings, airports, even zoos.
  • Companies pay governments lump sums for these income-generating properties, but the cities lose that future income and end up losing money on the sale. This raises the question of whether it’s better for a city to pay off its debts now or hold onto its assets to secure income for the future.
  • Privatization is not new. America and other nations have been doing it for years. Private companies often have more cash and economic motivation to improve quality and efficiency of public properties like roads and parking lots, but ultimately they only answer to their shareholders – not to the tax-paying populace.

Facts & Figures

  • In 2008, Chicago sold the rights to 36,000 of its metered parking spaces for $1.16 billion.
  • Selling off public assets can cause rating agencies to downgrade government credit ratings.
  • A Pittsburgh deal to lease out its parking system for 50 years for a $300 million lump sum payment is predicted to lose the city $3.5 billion in revenues.

Best Quote

“The investors will make their money back in 20 years and we are stuck for 50 more years making zero dollars.” – Scott Waguespack, an alderman who voted against the 2008 Chicago parking lease

Home Ownership No Longer A Safe Investment Option

Monday, August 23rd, 2010

Before the real estate bubble burst, a home was more than just a home – it was an investment.

  • For the past 50 years, homeowners have seen huge profits as their homes went up in value every year. It was relatively easy to buy low and sell high, so there was more money moving around in the housing market and the economy as a whole.
  • No more. Some experts predict that home values will now increase only by the rate of inflation – nowhere near the 10% increase many homeowners had been expecting every year.
  • Buying a home is now more of a risk than a definite reward. But not everyone has a dismal view. Housing is a necessary part of life, and in areas where there is a limited number of options, prices will have to keep up with demand.

Facts & Figures

  • Home sales are expected to have declined by 20% since last July.
  • $6 trillion in housing-related assets has been lost since 2005.
  • It will take at least 20 years for those losses to be regained, though it’s possible they never will.

Best Quote

“There is no iron law that real estate must appreciate.” – Stan Humphries, Chief Economist for Zillow (a real estate website)

Things Looking Up For Unemployed New Yorkers

Friday, August 20th, 2010

Employers in New York went on a hiring frenzy in July.

  • Several thousand unemployed New Yorkers were hired in July, marking the city’s best job growth since January.
  • The nonprofit sector, performing arts and restaurants were the most notable gainers, while transportation, hospitals and private educational services cut back.
  • Manufacturing jobs are still scarce and apparel manufacturers have shed 6,000 jobs since the recession began.

Facts & Figures

  • New York added about 24,600 jobs in July.
  • New York City’s unemployment rate was 9.4% in July.

Best Quote

“It’s very strong numbers in terms of jobs. Just about every sector performed above their historical averages.” – James Brown, Economist, Labor Department.

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