I have just gone through a short essay of HBR. In this essay, Gina Trapani shared some important tips for effective time manegement and to ehance personal productivity.
Gina wrote "Busy people have two options when they decide how their workdays will go: they can choose to be reactive to urgent demands on their time, or proactive about focusing on what they decide is important. The only way to actually get things done is to mitigate the urgent to work on the important".
She further differentiate between urgent and important tasks: "Urgent tasks include things like that frantic email that needs a response RIGHT NOW; a sudden request that seems like it'll only take two minutes but often ends up taking an hour; a report you've got to write up before a meeting . . . Urgent tasks are usually short-term and we're drawn to them because they keep us busy and make us feel needed. But dealing with a constant stream of urgent tasks leaves you wrung out at the end of the day, wondering where all the time went, staring at the undone actual work you've got to complete”
She further considered “Important work moves you and your business towards your goals. The important stuff doesn't give us that same shot of adrenaline that the urgent requests do. It can involve thinking out long-term goals, being honest about where you are and want to be, and just doing plain hard work that feels boring and tedious".
Finally, She provides the following points and conceded that an awareness of the difference and a few simple techniques can help:
Choose three important tasks to complete each day. Write them down on a slip of paper and keep it visible on your desk. When you have a moment, instead of checking your email, look at the slip, and work on an item. Keep the list to just three, and see how many you can complete.
Turn off your email client. Shut down Outlook, turn off new email notifications on your BlackBerry, do whatever you have to do to muffle the interruption of email. When you decide to work on one of your important tasks, give yourself an hour at least of uninterrupted time to complete it. If the web is too much of a temptation, disconnect your computer from the Internet for that hour.
Set up a weekly 20-minute meeting with yourself. Put it on your calendar, and don't book over it — treat it with the same respect you'd treat a meeting with your boss. If you don't have an office door or you work in an open area that's constantly busy, book a conference room for your meeting. Go there to be alone. Bring your project list, to-do list, and calendar, and spend the time reviewing what you finished that past week, and what you want to get done the following week. This is a great time to choose your daily three important tasks.
Thursday, April 9, 2009
Friday, March 27, 2009
The Great Recession
Economists generally agree this is the worst economic downturn since the Great Depression, but they say despite pain, another depression isn't likely. NEW YORK -- Is this the worst economy since the Great Depression? And what are the chances of the economy falling into another depression?
The answer to the first question is fairly clear. In most ways that matter to economists and average Americans, this is the worst economic crisis since the Depression.
The answer to the second question is not as clear. While the National Bureau of Economic Research officially declares the beginning and end of recessions, nobody does that for depressions.
Still, the general consensus of economists is that another depression is not likely. But the risks are greater than they were only a few months ago.
Why this recession is so bad
First things first: Even though it may seem obvious to most that this is the worst downturn since the Great Depression, the economy has experienced other serious recessions in the past, particularly in the mid-1970s and early 1980s.
But this recession dwarfs those two for several reasons.
In terms of length, the longest post-Depression economic decline was 16 months, which occurred in both the 1973-75 and 1981-82 recessions. This recession began in December 2007, which means that it will enter its 17th month next Wednesday.
The current recession is also more widespread than any other since the Depression. The Federal Reserve's readings show that 86% of industries have cut back production since November, the most widespread reduction in the 42 years the Fed has tracked this figure.
What's more, every state reported an increase in unemployment this past December, the first time that has happened in the 32 years that records for unemployment in each state have been kept.
"This is important because there's nowhere you can move to find a job," said Gus Faucher, director of macroeconomics for Moody's Economy.com.
Finally, during the past nine months, the drop in household wealth has been larger since anything on record in the post-World War II period.
Why this won't be another depression
So far during this recession, the nation's gross domestic product, the broadest measure of economic activity, has dropped about 1.7%. Forecasts of experts surveyed by the National Association for Business Economics work out to about a 3.4% decline in GDP over the life of this recession.
To be sure, there already have been some quarters where the drop was much more severe. The government will report its final revision of GDP for the fourth quarter of 2008 and economists are expecting that report to show an annual rate of decline of 6.6%. And some economists think the drop in the first quarter could be even greater.
But measuring the drop in economic activity from top to bottom is how economists judge a recession's depth. And a 3.4% drop would be the worst since World War II, and far worse than the average recession in that period.
Still, that's a long way from the 26.5% drop in GDP that took place between 1929 and 1933.
One of the main reasons why economists think another depression could be avoided is that it will take more than just a sharp decline in consumer spending and household wealth to spark a depression.
Even though household net worth has fallen a record $11 trillion, or 18%, during the course of this recession, the broader economy can weather such a shock.
Historically, stock market crashes and bursting housing bubbles haven't necessarily led to depressions. It takes a variety of economic factors and policy decisions to turn a recession into something even more serious.
"I don't know if you can make a causal link between a loss of wealth and a depression," said Lakshman Achuthan, managing director of Economic Cycle Research Institute.
Learning lessons of the 1930s
Significant policy changes since the 1930s will also cushion the blow.
Unemployment insurance, Social Security payments and larger government at the federal, state and local levels keep money flowing into the economy even as consumers and businesses pull back on their own spending.
"There's a lot more safeguards in place," said Keith Hembre, chief economist at First American Funds.
Hembre said the $787 billion stimulus bill passed by Congress in February will also spur more economic activity down the road.
In addition, the Federal Reserve, led by Great Depression expert Ben Bernanke, has pumped trillions of dollars into the economy with new lending programs the central bank has never tried before. That has swelled the supply of money. By way of contrast, the money supply tightened during the Great Depression.
There were many other policy mistakes made in the 1930s that economists say are not being repeated today, including stiff tariffs that killed international trade and government imposed limits on prices and production levels.
Even if Congress imposed "Buy American" provisions in the public works paid for by the stimulus bill, there is no call to move back to the strict protectionism of the 1930s or production and price controls.
"I'd like to think we've learned something, so in terms of policy we're doing better," said Achuthan.
Still, even if the United States does not enter another depression, that doesn't make the current economic crisis any less painful for many Americans. Also, few economists are predicting an end to the recession anytime soon.
Hembre said he is worried that the country could be in a period of prolonged economic stagnation similar so the so-called lost-decade that Japan suffered starting in the 1990s. He said continued weakness in housing and high debt levels by households and governments could hold the economy back for some time.
And some economists aren't completely ruling out another depression.
In a paper for the National Bureau of Economic Research last month, Harvard University professors Robert Barro and Jose Ursua put the chance of a minor depression (which they defined as a GDP decline of at least 10%) at about 20% and a 3% chance of a major depression (defined as a GDP drop of at least 25%). Moody's Economy.com is forecasting a 10% chance of a depression.
Source: CNNMoney.com
Thursday, March 26, 2009
Will the banks survive?
A wave of troubled loans threatens to send weak ones into the arms of Uncle Sam.
February 27, 2009: 7:17 AM ET
(Fortune Magazine) -- On Friday, Feb. 20, investors watched in horror as shares of Bank of America plunged below $3 and Citigroup's stock broke $2, giving the two pillars of U.S. banking a combined market value of $26 billion - far below that of Kraft Foods.
Fear is spreading that if all that rescue money can't revive these stumbling giants, only one road remains. Everyone from former Fed chief Alan Greenspan to Senate Banking Committee chairman Chris Dodd is warning that the sole solution may be the once unthinkable one: nationalization.
How can it be that the banks are tottering after the government fortified them with hundreds of billions in bailout cash and guarantees on their troubled assets? For the past 18 months, the banks' problems with toxic securities, especially collateralized debt obligations (CDOs) and other exotic products that packaged subprime mortgages, attracted most of the attention - and alarm. Now the storm is entering an entirely new phase that's potentially even more dangerous: a historic meltdown in the bread-and-butter businesses of credit card, home-equity, and mortgage lending.
The scale of potential losses in consumer and business loans swamps what's left from the securities debacle by a factor of three or four to one. And the next wave, the looming defaults on commercial real estate loans financing the likes of half-leased retail malls, will soon cause a fresh round of pain. "We've now moved from the securities phase to the lending phase of the banking crisis," says Tanya Azarchs, a managing director in S&P's financial services ratings group. "For 2009 we expect that loan losses will be much worse than for 2008 and that securities write-downs will be much less."
***
Those looming losses make it inevitable that the government will shower the banks with more bailout billions - and get big ownership stakes in return. But that will fall far short of what most people think of as nationalization.
Speaking before Congress, Federal Reserve chairman Ben Bernanke said that nationalization means that the government takes 100% ownership, wipes out the shareholders, and runs the bank. "I don't think we want to do that," he said. He added that talk of nationalization misses the point. And he's right: The government already exerts tremendous influence over the industry, requiring banks that take federal money to limit compensation and modify mortgages, among other restrictions.
Moreover, the government seizes banks all the time. Since the beginning of 2008, the FDIC has shut down 39 insolvent institutions (leaving shareholders with nothing), reselling the branches, loans, and bad assets as quickly as possible. In the rare cases when it can't find a buyer, the FDIC will run the bank, as it is doing with Indy-Mac, which it took over in July. (A sale of Indy-Mac is now in the works.) And the agency is likely to be busy for some time to come: During the last banking crisis, from 1989 through 1992, it seized 1,368 banks.
The big banks, however, will get all the help they need to avoid that fate. The administration plans to put the 19 banks with assets of more than $100 billion through a rigorous financial analysis called a stress test. The banks will have to calculate their losses under severe conditions, including increased unemployment and continued home-price declines. The goal is to establish which institutions are so short of capital that they can't sustain current loan books, let alone expand credit.
Washington won't let those big banks fail: It will boost their capital by purchasing preferred stock that will pay a 9% dividend. If a bank has trouble paying the hefty dividend, it can convert the preferred shares into common stock. Hence, the weakest big banks may well end up with the government as their largest shareholder.
***
To understand the forces that will drive some banks into the arms of Uncle Sam, let's take a deep dive into their balance sheets. We'll concentrate on the four biggest U.S. institutions - Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500), and Wells Fargo (WFC, Fortune 500) - because they hold almost half of U.S. consumer and business loans and account for most of the problem securities that haunt the industry.
First, let's examine the banks' securities portfolios. According to brokerage FBR Capital Markets, the four big banks hold almost $2 trillion in investment and trading securities such as collateralized debt obligations (CDOs), collateralized loan obligations (CLOs), and commercial and residential mortgage-backed securities - including the subprime paper that started the whole debacle. Accounting rules require the banks to mark almost all such assets to market-adjust their value according to prices brought by comparable securities in recent sales. But the markets for many of these assets are frozen, making it difficult or impossible to value them accurately.
That doesn't mean, however, that they are necessarily being carried on the banks' books for much more than they are worth, as is widely believed. In fact, banks have been marking the securities down for well over a year. According to Azarchs of the S&P, three types of debt are fairly valued or undervalued on banks' books: bundles of home loans backed by Fannie Mae (FNM, Fortune 500) and Freddie Mac, the notorious subprime CDOs that started the problem, and leveraged loans that shops like Blackstone (BX) and KKR used to finance buyout deals. The loans backed by Fannie and Freddie are essentially government guaranteed. Banks are carrying them at about 90 cents on the dollar, so they are fairly valued. The banks have marked down many subprime CDOs to 25 cents, and they are carrying the leveraged loans at around 75 cents. But Azarchs contends that a fair portion of those loans are producing income and will be paid back. "In both categories the potential losses in many cases, in my opinion, are a lot lower than their prices on the banks' books," she says.
Other securities are still overvalued: for example, mortgage-backed securities based on jumbo home loans, those too big to be guaranteed by Fannie and Freddie. Azarchs says that these securities at the four big banks are now marked at around 78 cents, probably an inflated number given the soaring mortgage default rates. Another area where the marks are too high is packages of commercial real estate loans. "Even if they're still paying full interest, many of the buildings backing them are worth a lot less than the loans," says Tom Barrack, CEO of Colony Capital, a private equity firm specializing in real estate. "They're really worth around 50 cents, and they're marked at 70 cents."
The banks also face losses on the insurance contracts they bought to protect against losses on many of these securities from monoline insurers such as Ambac and MBIA. Those insurers have run into trouble and seen their credit ratings cut, which forces the banks to take reserves against potentially uninsured losses, a trend that's bound to accelerate.
If the securities held by the banks do indeed contain plenty of bargains (alongside the overpriced merchandise), why aren't buyers lining up to take them off the banks' hands? The reason is threefold: First, buyers who have jumped in so far have been badly burned because of gyrating prices. In the fourth quarter, just when it looked as if once-toxic securities were raving bargains, prices collapsed as rates on everything from junk bonds to triple-A corporate debt exploded. Second, the buyers are financing their purchases with short-term loans, so they typically can't hold the assets until they mature. Instead, they're getting killed by margin calls from lenders. Third, potential buyers are sitting on the sidelines while Washington designs a plan for dealing with toxic assets that may give them a better deal.
The buyers' strike won't last. In early February the Treasury announced that it would provide up to $1 trillion in financing for private buyers to purchase illiquid assets. That program is bound to stir the vultures. A few investors are ready to pounce: "We see lots of fabulous bargains, with good assets often selling at 60 cents," says Michael Tennenbaum of Tennenbaum Capital Partners, an investment firm specializing in distressed debt. And Colony Capital has raised a $1 billion fund to purchase beaten-down bonds.
As more transactions occur, we'll get a better idea of how overvalued or undervalued various securities really are. According to estimates by FBR, the banks will end up writing down around 4.5% of their trading and investment portfolios, mostly over the next three years. For the big four, that would mean losses of $90 billion, or around $30 billion a year. That's a large number, but it's far less than the $150 billion the four (and the banks and firms they have acquired recently) have written down since late 2007.
***
Now let's examine the second, far more dangerous menace lurking in the loan portfolios. The big four hold $3.6 trillion in credit card, home-equity, mortgage, commercial real estate, and other consumer and business loans. Those loans are deteriorating with shocking speed: Default rates will soon surpass the worst of any recession in decades. Since mid-2007, for example, the charge-off rate for credit card loans has jumped from 3.8% to 7%. Overall, the four big banks suffered charge-offs of around 1% of their portfolios through the middle of 2007. For the fourth quarter of 2008 the figure jumped to 2.6%. And things are getting worse - delinquencies in all categories are rising. Star analyst Meredith Whitney predicts that credit card losses will climb above 10%, far higher than in any recent recession.
How high will the losses mount? FBR predicts the banks will eventually write off about 9% of their loan portfolios, with the vast bulk of losses coming in the next three years. That would hit the big four with around $300 billion - or $100 billion a year - in credit losses, more than three times the projected damage from their toxic securities.
And that explains the talk of nationalization. The challenge for the banks now is to earn enough money from normal operations that they can avoid taking additional government aid - which is not an impossible dream. Unless the U.S. falls into a near depression, it's likely that the majority will succeed. Among the big four, J.P. Morgan and Wells Fargo have the best prospects. They boast relatively strong capital ratios and are striving to stay ahead of the government by raising capital on their own. J.P. Morgan just announced a steep dividend cut that will save $5 billion annually and greatly strengthen its balance sheet. By concentrating on consumer banking, Wells Fargo mostly avoided the securities mess. It's likely to raise additional cash by selling the East Coast branches it inherited from its merger with Wachovia to concentrate on its powerful Western U.S. franchise.
And even BofA, saddled with the disastrous purchase of Merrill Lynch (see "Divorce - Bank of America Style"), could find a clear path out of the muck, although that's far from certain. The smart money is betting that Bank of America will soon launch a big asset sale, including Merrill Lynch's prime brokerage, which caters to hedge funds; reportedly, it has already put private bank First Republic on the block. That could give BofA sufficient capital to sidestep a bailout. Then the bank could rely on its powerful nationwide low-cost consumer franchise to rebuild its balance sheet. "Investors underestimated BofA," says Whitney. "BofA should be able to start building capital by the middle of 2009."
The true basket case among the biggest banks is Citigroup. Citigroup's core businesses in areas like credit cards, branch banking, and international corporate lending are so weak that it cannot generate enough revenue to compensate for the deluge of losses. That means its puny equity capital is destined to keep shrinking or disappear entirely. Citi executives are already asking Washington for additional aid in exchange for as much as 40% of Citi's common stock. And after the stress test, it will probably need more cash, making it all but certain that the government will end up with a majority stake.
How the government proceeds from there will say a lot about the future of the banking sector. The fear is that Washington will continue to prop up Citi and other wounded banks in their current form. The best course would be to force battered banks to sell enough assets to restore their financial health - if that's possible - or to dissolve. That would demonstrate that Washington is serious about reviving the industry - the one that is absolutely essential to the nation's economic recovery.
Source: Forune Magazine
Wednesday, March 25, 2009
Is The Euro At Risk?: A 'Newsweek' article
Is The Euro At Risk?
NEWSWEEKFrom the magazine issue dated Mar 23, 2009
Is the death of the euro possible? As the global recession deepens, investors are certainly starting to worry that Europe's most ambitious integration project to date, the common currency shared by 16 sovereign nations, could break apart under the strains. The fact that the euro zone, far from decoupling from a U.S. recession, is now contracting at least as fast as the U.S. and the U.K. has added to the concerns. But the notion of a full-scale euro breakup looks vastly overblown.
The key reason the euro zone is not doing well is external, not homemade. Because companies around the world can slash their investment plans in times of uncertainty much faster than households can scale back their expenditures, the traditional exporters of top-quality machinery such as Germany are now suffering the brunt of the global downturn. This, in turn, weakens the euro. At some point, however, the worst of the global crisis will be over—with luck, sometime later this year. Once that happens, trading nations with a focus on investment goods, like Germany, should be able to recover lost ground.
The medium-term outlook for core Europe is still encouraging. German consumers had never joined in the credit-fueled party thrown by U.S. and U.K. consumers. While these consumers will probably need to restrain their consumption for years after the crisis, core continental Europe, as well as China and Japan, could enjoy an almost normal consumer upswing once the crisis is over.
Of course, we have to get to the medium term first. The global turmoil has hit the euro zone as a symmetric shock. All economies in the region are now contracting. In this sense, the euro area looks more and not less cohesive than it did a year ago, when regional real-estate booms were already turning to busts in some euro-member countries such as Spain, Greece and Ireland, while Germany was still enjoying strong export growth.
That said, markets are still shunning all kinds of perceived risks, and thus drawing a much clearer distinction between supposedly strong countries such as Germany and supposedly weak euro members such as Greece, Ireland, Italy and Spain, whose governments now have to pay much more than Germany to borrow on global capital markets.
This has led to speculation that some weaker nations might drop out of the euro, perhaps even solving funding problems the Zimbabwean way, by printing all the money the government wants in a new national currency. But Zimbabwe, which has taken this tactic to its extreme and is now reeling under hyperinflation and economic collapse, proves that this strategy doesn't work. Any country leaving the haven of the euro would risk devaluing its new national currency, and bond markets would demand very hefty risk premiums. These countries would thus find it much more expensive to borrow.
The occasional speculation in corners of the financial markets that a strong country like Germany might abandon the euro makes little sense either. Just imagine what would happen if Germany reintroduced its old Deutsche mark amid the current turmoil. Foreign-exchange markets would probably bid the independent German currency up quickly and strongly, further crippling the growth prospects of a country that exports half of what it produces. Given the extreme economic environment, a German currency might soar even more than in past crises.
The political logic also argues very strongly against a demise of the common currency. All member countries have invested a lot of political capital into the European venture. European leaders meet almost once a month to discuss a huge range of issues. If one country had to ask for urgent help in a particular financial crisis, it would be very difficult for its partners to refuse such a request. After all, that country's vote may soon be needed again in decisions on other matters.
Skeptics have expressed doubt that the euro zone has a pot of money large enough to bail out multiple European member states simultaneously. Yet there are various ways in which euro-zone members could help each other. For example, some European institution backed up by the member states may temporarily guarantee issues of new government bonds by a euro country in trouble. In a similar way, many national governments are already guaranteeing new bank bonds against a fee and for a limited number of years. A similar guarantee to another euro nation would give that member time to ride out the crisis and put its own house in order.
The bottom line: global investors have bigger things to worry about at the moment than a breakup of the euro zone. In the medium term, the crisis may even enhance the position of the euro. Many European countries outside the euro, like Poland and Hungary, are now suffering as their currencies are battered badly. They are trying to get as close as they can to the protective umbrella offered by the euro. The lesson for them is that they should work harder to qualify for Europe's most exclusive club. If they can meet the requirements, their entry will eventually strengthen the common currency.
Schmieding is chief European economist at Bank of AmericaMerrill Lynch.
Source: Newsweek
Saturday, March 21, 2009
In search of clarity: Unravelling the complexities of executive decision-making
In search of clarity: Unravelling the complexities of executive decision-makingA report from the Economist Intelligence Unit Sponsored by Business Objects
EXECUTIVE SUMMARY
Decision-making is at the core of all business activity, as executives set strategy and manage operations by weighing a vast array of factors to arrive at the desired balance of risk and reward. The enormous growth of companies’ size and operations in recent years—particularly across borders—is making this process increasingly complex. It is cause for alarm, then, that executives themselves perceive the quality of decision-making at their companies as mixed at best.
Well over half of executives surveyed for this report—61%—characterise management decision-
making at their companies as moderately efficient or worse, a figure which climbs to 72% for large organisations. Nearly one in five—rising to over one quarter in North America—thinks that management frequently gets its decisions wrong. This may result in part from the greater challenges of running a business in a period of rapid growth, such as many of the surveyed companies are experiencing, but it suggests deeper problems as well. This is the key finding of a major programme of research, conducted by the Economist Intelligence Unit and sponsored by Business Objects, into how senior executives in different regions make decisions for their companies. It is based on a survey of 154 senior executives from around the world, as well
as a series of in-depth interviews conducted with practitioners. Other major conclusions of the research include the following:
Poor data leads to poor decisions. By far the most important input into decision-making identified by surveyed executives is good data. As one expert interviewed for this report remarks, “You cannot make proper decisions without proper information.” But the timeliness and quality of this information leaves much to be desired. Less than one in ten executives
in the survey receive information when they need it, and 46% assert that wading through huge volumes of data impedes decision-making. Worse still, 56% are often concerned about making poor choices because of faulty, inaccurate or incomplete data.
Approaches to decision-making vary by region. There are distinct geographic differences among respondents when it comes to how they take decisions, and to their reliance on technology in doin so. For example, Asian executives appear more likely than those in other regions to trust their own intuitio and judgement, while Europeans look more strongly
to the opinions of their peers. Asian executives also make greater use of technology to support decision-making. Companies need to take these cultural differences into account as they seek to improve decision-making tools and processes. Detailed, uniform decision-making processes may be hard to apply across different cultures; broad frameworks describing missions and values may work better.
The challenge only increases as companies grow. Executives at smaller companies are more confident in the efficiency of their decision-making than peers at larger companies, more reliant on people over process, more consultative, and less worried about data overload. This is an advantage of being small. The ability to retain these qualities is an important management challenge for companies in a period of rapid growth.
Too much art, not enough science? Senior management decision-making at the majority of
surveyed companies (55%) is largely informal and unstructured, with executives consulting others largely on an ad hoc basis. Most executives seem comfortable with these arrangements: only 29% think poor decision-making structures are a common cause of bad choices. This reflects a view expressed by several interviewees that strategic decisions always require a strong element of intuition or judgement.
Nevertheless, there can be no doubt that better data and processes would take some of the guesswork out of decision-making. Common metrics and greater use of automated information tools such as dashboards would also help to support better quality decisions.
Decision support tools need to be easier to use. Executives believe that technology can play a key role in improving decision-making, by making it quicker and easier to access and organise large amounts of information. This is hugely important as companies become larger and more complex and as the volume of data available rises. At the moment, however, too many executives do not feel comfortable using dashboards and other IT tools that could sharpen
their decision-making. Companies therefore need to develop decision-making tools that are sufficiently reliable and user-friendly to appeal to even the less technology-savvy members of the management team and wider workforce.
Who took the survey?
A total of 154 executives from around the world took part in the Executive decision-making survey, conducted by the Economist Intelligence Unit. The survey sample was cosmopolitan: 40% of respondents hailed from Europe, 31% from North America and 23% from Asia-Pacific. It was also senior—50% of respondents were C-level executives such as CEOs, CFOs and CIOs or board members, with the rest consisting of heads of business units and other senior managers. The majority of organisations were large: 53% had annual revenue of over US$500m, and 25% earned more than US$5bn. The main industry sectors represented were manufacturing (16%), technology (16%) and financial services (14%). For more detail on the sample and results, see the Appendix to this report.
Source: Economist Intelligence Unit
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