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Saturday, October 25, 2008

Three Excellent Economic Blogs

While the current economic situation has been unfolding I have been trying to understand how we got into this situation. Fortunately there are some really high quality blogs that focused on the economy and their insight from the beginning has been spot on. I would like to share the three primary blogs I read and a free newsletter from John Mauldin.

John Mauldin’s Thoughts from the Frontline

A friend referred me to John Mauldin’s weekly news letter. I found his insights and ability to simplify complex concepts into understandable language refreshing. It was here that I first learned about how this economic crisis was evolving.

In my quest to gain more understanding of what was happening and my frustration with the mainstream press’s inability to provide the detail I was craving; I started looking further into the blog world. Being a part of the financial industry I knew that there was much more to what was happening than what was currently being discussed. After finding a list of the top 10 economic blogs I discovered Mish’s Global Economic Analysis and Calculated Risk. What I liked about these two blogs is that they pull information and articles from all over the web and include their commentary.

Mish's Global Economic analysis
I have found that Mish has been accurate on most of his writings and when wrong it has been for being optimistic in his forecast.
We can all understand that forecasting is really a game of best guess so I usually let these errors go. Mish does tend toward the Austrian Economic model rather than Keynesian Economics and as I watch the credit crunch begin to take its toll on the world economy I am leaning a little more toward Mish’s way of thinking.

Calculated Risk
Calculated risk is more focused on the US real estate market. This blog more often provides a wide range of articles and videos which is a good starting point for a daily dose of news.

Finally this last blog I discovered earlier this week while trying to understand why the emerging market economies were getting into financial trouble so quickly. I found Brad Setser’s Follow the Money blog

Brad Setser: Follow the Money
In this blog I quickly learned the emerging economies were borrowing in dollars because their currencies were strong against the US dollar.
However, when the financial crisis really picked up speed this summer there was a flight to safety and that meant the US dollar has strengthened against many currencies. Countries need to pay their loans in US dollars and quickly depleted their dollar reserves.

Take a look at these blogs for a much better explanation of the current crisis. Cheers

Friday, October 17, 2008

Credit is tight Manage Your Capital

Much of what we are hearing in the press about the financial markets is beginning to spread beyond the finance industry. The cost of money (capital) has gotten very expensive and many capital providers are no longer issuing credit. Therefore as organization leaders, we should begin the process of capital preservation to manage through the economic downturn.

Maximizing profit is not your top priority in this environment, as this crisis continues there will be a negative impact to the overall economy and at this time, we should have a plan to address the worse case scenario. How quickly a business can ratchet down for the impending economic storm will be the difference between long-term survival or near term failure.

I have been talking with my colleagues and the common recommendation is a two-step plan to addressing an organization’s current capital position: Assess your current funding and then build your cash position

Assess Your Current Funding
Assessing the current funding is really looking at time, covenants, and lenders. The first, Can your organization survive on the funding from normal cash generating businesses or do you need regular working capital to manage the collections cycle? If you accelerate payment collection and receive no additional working capital infusions, can the organization remain solvent? Shorten credit terms with clients. For new business, ask for larger upfront payments. Second, ensure that these conservation activities will not place the organization at risk of a margin call and ask lenders with restrictive covenants for changes. Regularly check the status of the more difficult covenants working out limitations before they become an issue. Finally look at each lender, determine their viability in the marketplace. The lending community is rapidly adjusting its policies and target market daily therefore, many may no longer lend in the same business segments as before. To protect your organization, add credit lines with new working capital providers. Then, regularly talk to the lending community to gain insight into the availability of these funds. Applying these simple solutions will enable an organization to protect access to funding sources.

Build Your Cash Position
Cash is king and that means draw down your credit lines, delay payments, and control costs. After assessing funding it is time to draw on the credit lines and place the cash into your various bank accounts (be certain your bank is not at risk of failure). Remember the motto; “banks lend to those who do not need it”. Therefore, it is better to get the cash now. Second, review vendor payment terms and renegotiate; just like your bank loan covenants, tracking vendor payment terms will avoid issues later and contribute to the long-term reputation of your organization. Finally, and this is the most painful, start looking at your spending. There is significant overcapacity in the marketplace for almost all goods and services. Focus on the three most costly areas first: put expansion plans on hold, stop hiring, and reduce travel to “essential only”. These steps will allow you to stay liquid for longer period.

Recessions are part of the normal business cycle and the marketplace will have to work through the current overcapacity before a recovery can begin. Strategies for maximizing profit or market share can prove costly in this environment. However, a capable organization with proper working capital management and cost controls can come out the other side of this cycle positioned to take advantage of the next expansion.

Wednesday, October 08, 2008

Volleyball Reminded me of Three Keys to Teamwork

Tuesday was a holiday in Hong Kong and I had the opportunity to attend my high school daughter’s volleyball team practice. I really enjoy team sports and have always welcomed the opportunity to delve into what makes a team work well together.

As I watched the players practice the bump, set, spike drills I noticed a lot of “chatter” between the team. When ball would come over the net the first hitter would call out that she was going to hit the ball to the rest of the team. The setter would then call the ball to her and identify the girl she intended to “set” the spike for. While this was going on the other girls would take up positions to backup various team members in the event the ball was somehow missed; each calling out to their teammates what they were doing. Everyone understood their role and communicated it to their team every time the ball came over the net. Often team members would adjust their role depending on where the ball came over the net; each knowing the roles that needed to be filled and called out their role to the rest of the team; each team member would then fill in the gaps created by the shift, essentially the team constantly adjusted and filled based upon what each member was saying they were doing. At no point did any member of the team say it wasn’t her job to perform a role, if the position or the back up needed to be done she stepped in and did it while letting her team mates know what they were doing.

While watching this practice I realized there was three points that continued to reoccur throughout the bump, set, spike exercise that enabled success:

- Know your position or role (but be flexible)
- Back up your team mates
- Constantly communicate what you are doing

Know your position or role (but be flexible)
Each team member understood the position she was playing on the court and had the flexibility to fill any gaps that appeared when the ball came over the net. The office environment is much the same. We should each understand our role and act to complete the functions of our role as effectively as possible. However, there are times when we will need to adjust because of the nature of the project and how it came into being. The key here is to be flexible. If a team mate said, “it isn’t my job to bump” then the ball wouldn’t stay in play. The same is true in an office environment. To keep your company in play and succeed you will need to have flexibility to step into another role on occasion.

Back up your team mates
Often we are assigned projects that are much bigger than one person can do on their own. To succeed we will need to enlist the help of others and that is why we back up our team mates. We should be constantly looking at our team members both upstream and downstream and offer to help them. I have encountered countless office environments where each person understood her specific role very well but couldn’t tell me how her output affected the overall process. Often we are spending our time focused only on ourselves when we could be so much more valuable focusing on the group.

Constantly communicate what you are doing
Too often we assume that people know what we are doing when the reality is much different. We should talk to our peers and upstream and downstream team members. Let them know what we are doing and collaborate on ways to improve how we are working. If we are not consistently working to improve our productivity we will lose out to organizations that are that much better or cheaper. (The subject of another post will be the importance of managing against the margin compression) Team work is about getting to know your team, spending time with them, and understanding how your partners work together.

If you were to apply these simple principals in your daily work activity, I believe you would find work assignments more enjoyable and with fewer errors.

Thursday, October 02, 2008

Benjamin Zander

I don't know if you have had the opportunity to look into the great series on the web called TED talks (available at: I was online the other day and stumbled upon one of my favorite presenters, Benjamin Zander the conductor for the Boston Philharmonic. I read his book, "The Art of Possibility", and really enjoyed his way of using music to teach. I have placed his TED talk below and would encourage you to watch it.