Mid-Life MBA: The Art of Business

What do current proposals for an economic stimulus package propose? I’ve heard estimates of $600 – $800 for average American families. This “windfall,” in theory, will revitalize our consumer-based economy by filling malls with customers who are eager to spend, spend, spend. Perhaps the hope is that this “priming of the pump,” will once again get the streams of cash flow, flowing, and keep them flowing. This kind of stimulus measure however, clearly cannot keep consumers spending for long and it is reasonable to question how many will start spending at all. $800.00 after all, at least makes a dent in whatever astronomical figure the average American has for an outstanding credit card balance.

To really really get the economy going, how about not only a larger windfall to families, but an incentive for actually spending the money on new consumer goods. What if the government say, offered a matching tax credit to consumers of $1.00 for every $1.00 spent on soft goods and perhaps double that amount for durable goods? Wouldn’t that be sweet?

My gosh, why stop even there, why not actually pay people to go shopping? Can you imagine the amount of consumer spending that could be stimulated if the government would just pay us all to shop! They of course could not keep this up forever, maybe just for a year or two until we get over the hump and the bear goes back into hibernation.

Seriously though, what about something really radical like ending the drain on the economy by ending the war that has so far created over $40,000 in debt for every American family? What about some real leadership from our elected leaders to help transform this nation into a nation of savers instead of spenders, a nation of thoughtful investors rather than reckless consumers, and a nation of well-rounded, productive people rather than amusement junkies? A one-shot, injection of liquidity may have psychological value but it won’t change the fundamentals, a long term plan and real leadership is needed for that.

Angry Bear phrased it well, “we must think further than just giving the junkie one more–maybe his last–shot in the arm. In short, merely priming the consumer for one more run at the punch bowl is a bit short-sighted.”

Alocoa’s net is up 75% and that sounds wonderful but most of the reason is on account of the pending sale of its packaging and consumer business.  The WSJ points out that 4th quarter results were also due to a favorable restructuring adjustment and tax benefit.  The reality is that its quarterly revenues fell rather steeply and its “flat rolled” sales were down due to general market weakness.  The packaging and consumer business sale to a New Zealand company was worth $2.7 b and includes the brand, “Reynold’s Wrap.”

I have 2 courses left to complete and thought that it was time for an update.  In balancing work, family and school, I opted for Colorado State’s 4 year, 1 course at a time program.  I’ve enjoyed the DVD lectures that arrive at my door about 4 – 5 days after the evening class in Fort Collins and I’ve benefitted hugely from working on team projects with both onsite and distance students.  My only misgiving with the 4 year program is that I soon lost a number of classmates to graduation whom I’d enjoyed working with.

Here’s some updated info from a recent CSU news release…

FORT COLLINS – U.S. News and World Report ranked Colorado State University among the best colleges in the nation in the 2008 “America’s Best Colleges” edition released today.

U.S. News and World Report listed Colorado State in the top tier of public and private doctoral universities and 62nd among public universities, closely ranked with institutions such as Florida State University, University of Oregon, University at Buffalo-SUNY and Kansas State University. For a complete list of rankings and methodologies, visit the Web at www.usnews.com. …

The College of Business ranked 59th among all public research universities. In March, Business Week ranked Colorado State’s College of Business as one of the top undergraduate business programs in the country. Last fall, Princeton Review ranked it No. 1 nationally in “Best Administered” MBA graduate programs.

Go here for the complete news release…

An article by Brian Grow and Robert Berner in Business Week profiles the revolution in the world of medical debt.

The new reality for a growing proportion of the 50 million or so uninsured Americans is that treating that diabetes, acute gallbladder, or even a child’s late-night earache, means more consumer debt.  Current interest rates begin at about 13.5% and increase to 27% for overdue accounts.

According to Grow and Berner, “Collecting from “self-pay” patients … has long been the bane of medical administrators. When they don’t get paid immediately, hospitals typically recover around 10¢ on the dollar owed, even when they hire collection specialists. So hospitals and clinics are bringing in more sophisticated help. They are transferring patient accounts wholesale to finance experts, banks, credit-card companies, and even private equity firms. Many of these third parties use credit scores and risk-analysis software to price the debt and impose interest rates as high as 27% on past-due bills.”

Who are these companies?  Many small companies have sprung up in regional markets such as Complete Care of Little Rock Arkansas, but bigger, more familiar companies are entering the field.  Some of these include, General Electric (Care Credit), Citi Group, and Capital One. Wachovia is also considering entry into the lucrative market which for GE will amount to $5 billion this year.  

“Hospitals can’t just be an interest-free finance vehicle,” says Todd Cole, director of patient accounting at TriHealth, a $2 billion pair of nonprofit hospitals in Cincinnati. “The world of $5 sent to the hospital and they will never send me to collections, never sue me — that world has gone away,” he adds. TriHealth sells patient accounts at a steep discount to firms that specialize in collecting delinquent consumer debt. “Hospitals need their cash,” Cole says. “It is the lifeblood that supports the doctors, the nurses.”

Illness is inevitable and treatment is costly, isn’t that a reasonable argument for the world’s most powerful nation to revisit the creation of a nationalized health care plan?

The complete article (Fresh Pain for the Uninsured) may be read here

Go here to visit “Physicians for a National Health Care Program

Read the Intelligence Daily, article here

Executive Summary:

Bernanke, in his testimony before congress today, admits that the economy has worsened since August in the wake of sub-prime loan defaults which would increase over coming months.  He also hinted that the present credit crisis could become a fully blown recession.

Internationally, China has suggested it may react by diversifying its $1.43 trillion in foreign exchange reserves into stronger currencies, and French President Sarkozy said that America’s ”monetary disorder risked turning into economic war” as American exports cheapened and European exports were becoming more expensive.

Bernanke’s appearance before congress was opened with a statement from New York Senator Charles Schumer, the chairman of the Joint Economic Committee. 

He said that in the aftermath of the “seizing up of the credit markets” in the summer, “there is now a lack of confidence in credit-worthiness throughout the market… However, while we did weather that summer storm, I’m very concerned that there may be a bigger storm on the horizon. Quite frankly, I think we are at a moment of economic crisis stemming from four key areas: falling housing prices, lack of confidence in credit-worthiness, the weak dollar and high oil prices. Each of these problems alone would be enough of a threat to our economic well-being. But taken together, they are essentially the four horsemen of economic crisis…

“Even our bedrock assumptions are being put into doubt. As housing prices decline, there are real fears that we won’t be able to depend on consumers, the engine of our economy over the past few years, to keep spending. And now we hear that foreign investors may no longer be confident in the dollar as the global currency of choice. I’m not surprised to hear experts, such as your predecessor Alan Greenspan, warn about the threat of recession. I’ve begun to worry about worse.

“In particular, as I watch bank after bank write down bad investments tied to baroque financial instruments that even sophisticated investors don’t understand, I fear for the stability of our financial system.”

One exciting story in the age of a greening culture and environmentally sensitive populace is the announcement that British researchers have produced an independently verified device that produces more energy in heat than the energy it consumes in electricity. 

The Daily Mail article said, “The system – developed by scientists at a firm called Ecowatts in a nondescript laboratory on an industrial estate at Lancing, West Sussex – involves passing an electrical current through a mixture of water, potassium carbonate (otherwise known as potash) and a secret liquid catalyst, based on chrome. This creates a reaction that releases an incredible amount of energy compared to that put in. If the reaction takes place in a unit surrounded by water, the liquid heats up, which could form the basis for a household heating system. If the technology can be developed on a domestic scale, it means consumers will need much less energy for heating and hot water – creating smaller bills and fewer greenhouse gases.

Jim Lyons, of the University of York, independently evaluated the system. He said: ‘Let’s be honest, people are generally pretty sceptical about this kind of thing. Our team was happy to take on the evaluation, even if to prove it didn’t work. ‘But this is a very efficient replacement for the traditional immersion heater. We have examined this interesting technology and when we got the rig operating, we were getting 150 to 200 per cent more energy out than we put in, without trying too hard.”

Researchers think that somehow the device resources “a previously unrecognised source of energy, stored at a sub-atomic level within the hydrogen atoms in water.”

The development company is called “Ecowatts,” and the project formed from the chance meeting of Ecowatts’ chairman Chris Davies with Irish inventor Christopher Eccles in 1998.  After informal review of Eccles’ research, Mrs. Davies immediately wrote out a check on the hood of her car for 20,000 pounds.  Eccles assumed the post of chief researcher at Ecowatts.

How it works…

Click here to review the article

The Wall Street Journal noted today how the current market volatility is raising the stock of a little-known economist whose views have suddenly become very popular–Hyman Minsky.

The WSJ says that, “Minsky, who died more than a decade ago, spent much of his career advancing the idea that financial systems are inherently susceptible to bouts of speculation that, if they last long enough, end in crises. At a time when many economists were coming to believe in the efficiency of markets, Mr. Minsky was considered somewhat of a radical for his stress on their tendency toward excess and upheaval.”

“Today, his views are reverberating from New York to Hong Kong as economists and traders try to understand what’s happening in the markets. The Levy Economics Institute of Bard College, where Mr. Minsky worked for the last six years of his life, is planning to reprint two books by the economist — one on John Maynard Keynes, the other on unstable economies. The latter book was being offered on the Internet for thousands of dollars.  Christopher Wood, a widely read Hong Kong-based analyst for CLSA Group, told his clients that recent cash injections by central banks designed “to prevent, or at least delay, a ‘Minsky moment,’ is evidence of market failure.”"

The “Minsky moment” has become a fashionable catch phrase on Wall Street. It refers to the time when over-indebted investors are forced to sell even their solid investments to make good on their loans, sparking sharp declines in financial markets and demand for cash that can force central bankers to lend a hand.

Wikipedia says:

“Hyman Minsky has proposed a simplified explanation that is most applicable to a closed economy. He theorized that financial fragility is a typical feature of any capitalist economy. High fragility leads to a higher risk of a financial crisis. To facilitate his analysis Minsky defines three types of financing firms choose according to their tolerance of risk. They are hedge finance, speculative finance and Ponzi finance. Ponzi finance leads to the most fragility.

Financial fragility levels move together with the business cycle. After a recession firms have lost much financing and choose only hedge, the safest. As the economy grows, and expected profits rise, firms tend to believe that they can allow themselves to take on speculative financing. In this case they know that profits will not cover all the interest all the time. Firms, however, believe that profits will rise and the loans will eventually be repaid without much trouble. More loans lead to more investment and the economy grows further. Then lenders also start believing that they will get back all the money they lend. Therefore they are ready to lend to firms without full guarantees of success. Lenders know that such firms will have problems repaying. Still, they believe these firms will refinance from elsewhere as their expected profits rise. This is Ponzi financing. In this way the economy has taken on much risky credit. Now it is only a question of time before some big firm actually defaults. Lenders understand the actual risks in the economy and stop giving credit so easily. Refinancing becomes impossible for many and more firms default. If no new money comes into the economy to allow the refinancing process, a real economic crisis begins. During the recession firms start to hedge again and the cycle is closed.”

Major Works of Hyman P. Minsky

• “Central Banking and Money Market Changes”, 1957,
• “Can “It” Happen Again?”, 1963, in Carson, editor, Banking and Monetary Studies.
• “Longer Waves in Financial Relations: Financial factors in more severe depressions”, 1964, AER.
• “The Modeling of Financial Instability: An introduction”, 1974, Modelling and Simulation.
• John Maynard Keynes, 1975.
• “The Financial Instability Hypothesis: A restatement”, 1978, Thames Papers on Political Economy.
• Can “It” Happen Again? Essays on instability and finance, 1982.
• “The Financial-Instability Hypothesis: Capitalist processes and the behavior of the economy”, 1982, in Kindleberger and Laffargue, editors, Financial Crises.
• “Beginnings”, 1985, BNLQR.
• Stabilizing an Unstable Economy, 1986.
• “The Global Consequences of Financial Deregulation”, 1986, Marcus Wallenberg Papers on International Finance.
• “Sraffa and Keynes: Effective demand in the long-run”, 1988
• “The Macroeconomic Safety Net: Does it need to be improved?”, 1989, in H.P. Gray, editor, Modern International Environment.
• “Schumpeter: Finance and evolution”, 1990, in Heertje et al, editors, Evolving Technology and Market Structure.
• “Financial Crises: Systemic or Idiosyncratic?”, 1991
• “Market Processes and Thwarting Systems” with Piero Ferri, 1991 
• “The Transition to a Market Economy: Financial Options”, 1991
• “Reconstituting the United States’ Financial Structure: Some Fundamental Issues”, 1991
• “The Capitalist Development of the Economy and the Structure of Financial Institutions”
• “The Financial Instability Hypothesis: A clarification”, 1991, in Feldstein, editor, Risk of Financial Crisis.
• “Financial Instability Hypothesis”, 1993, in Arestis and Sawyer, Handbook of Radical Political Economy
• “Finance and Stability: The Limits of Capitalism”, 1993
• “Business Cycles in Capitalist Economies”, 1994, MIJCF.

The Los Angeles Times reported this week that Wal-Mart Stores Inc. must face a class action by South Carolina employees claiming that the company forced them to work through breaks and off the clock, a judge ruled.

They said that, “current and former hourly workers from July 31, 1999, forward can sue in a single case, Judge Perry M. Buckner III in Walterboro, S.C., said. The group of about 100,000 workers is large enough and their claims similar enough to allow a class action, Buckner said in an Aug. 1 ruling.”

Wal Mart faces more than 70 U.S. wage-and-hour suits by employees claiming it failed to pay for all hours worked.  In other Wal Mart news, Julie Roehm, Wal-Mart’s former marketing chief alleged in a recent court filing that Lee Scott, Wal-Mart’s CEO, bought yachts and jewellery for his wife at preferential prices as a result of his relationship with Irwin Jacobs, whose company buys unsold Wal-Mart stock.  Roehm, the accuser, was previously fired for an alleged affair with another employee and for accepting gifts from vendors.  Both sides contend the respective accusations and, like the wage-and-hour suits, will have their day in court.  The internal investigation and subsequent firing of Julie Roehm is a story in itself, one that is as deeply troubling as it is interesting.

Considering Wal-Mart’s ongoing business, human resources, labor, and ethical issues, one might be justified in considering these as signs of a company that has become bloated and unmanageable, that is perhaps nearing the end of its useful business life. Could we be viewing WM’s segue into senescence?

Reported in Barron’s, Joel Kurtzman, a senior fellow at the Milken Institute and publisher of the Santa Monica, Calif., think-tank’s The Milken Institute Review, says, “We’ve gone back as far as 1995 to look at the long-term trend in demand. It has increased by 1.5% per year. Consumers have used 300 billion barrels of oil and 330 billion barrels have been found. So in terms of supply, we’re in good shape,” he says.

The day the Iraq war began, oil was around $33 per barrel. Since then, demand hasn’t jumped and Iraq is again producing some crude, but prices have more than doubled. Says Kurtzman: “We’ve had three or four years of steady demand and increases in supplies, yet prices — it doesn’t add up. I think we’re going to see a drop that could be fairly precipitous.”

In addition to fear and uncertainty, the current price of oil also reflects compensation for a 30% decline in the value of the dollar, says Kurtzman. “It’s the ’70s all over again.”

What do you think?

Watch for continuing stock market volatility this week with the labor department’s producer-price index due on Thursday and its consumer-price index due on Friday.  Also of note, Friday is an options expiry day.

Yesterday’s market drop under pressure from rising bond yields appears to have eased today with the DJIA regaining 140 points in the wake of favorable economic news including a 1.4% increase in retail sales for the month of May. Ten year treasuries fell from yesterday’s peak of 5.3% to 5.21%.