Finance Weekly Updates

Some Retailers Benefit from Crisis

While most retailers find their profits shrinking, there have been some big winners this holiday season. Most notably, those retailers known to offer low prices and affordable value have found their market share growing, at the expense of luxury and elite vendors. Walmart, for instance, reported that it has seen an increas in its sale of flat screen TV’s, one of the most desired and expensive holiday gifts.

More shoppers are also turning to non-traditional venues such as Ebay and Craig’s List to find merchandise at recession prices. We may see a realignment in the retail space in which luxury brands, which had experienced growth for many years, may be dethroned by value brands in the coming period. We will need to wait and see whether manufacturers and retailers can stay solvent selling goods at the razor-thin profit margins such venues provide.

What Will Santa Bring Shareholders?

Traditionally, we expect an end-of-the-year spike in stock prices. Investors are people too, and they are impacted by the optimistic holiday spirit. We also know that many people allocate their investment capital on a yearly basis and make investments around the new year.

This year, though, it’s hard to know what will happen. Prices seem quite depressed, making a spike even more likely, but at the same time the atmosphere of uncertainty may override the usual holiday cheer, encouraging those who still have spare cash to hold it.

Interest Rates Fall, and the Dollar Follows

Everyone wants the Fed to take action to get the economy back on track, but now it’s starting to look like measures taken to help one area can do damage in another, complicating matters further.

This week the Fed slashed interest rates, a move intended to stimulate growth in the local economy. But the move also makes dollar denominated investments less attractive to foreigners, driving their money out of the country and forcing the dollar down against most other currencies.

Times are stormy now, and we may not see interest and exchange rates stable again for some while.

Green is the New Green

One of the variables underlying the current economic crisis is of course the price of oil. From airlines to SUV owners, to those who heat their homes with oil, everyone is feeling the wild fluctuations in this commodity. Although oil is down right now, all rational projections are that the price of a commodity with a limited supply and a growing global demand will rise over the next few years.

So how will businesses that rely on energy for transportation and manufacturing stay profitable? How can we sustain the globalized business style that has come to dominate almost every industry? The only answer is to go green. Once the province of mystics and die-hard naturalists with little regard for the financial bottom line, environmental concerns are finding increasing interest in the boardroom. At it’s core, enviromentalism is about reaping the maximum productivity from the minimum of resources, an orientation that an operations officer can easily relate to. As we move forward, we are likely to find substantive environmental improvements resulting from an increase in business and transportation efficiency.

Who is Too Big To Fail?

For the past few months, we have been hearing debates about whether Bear Stearns, AIG, Lehmann Brothers, Chrysler, Ford, and GM are “too big to fail”, the assumption being that, were they to fold, they would take America down with them.

The question is, how does an influx of taxpayer money prevent failing? Isn’t the root cause of the current failures to be found with management, both on the financial side as well as the business planning side? How will the new cash from Joe taxpayer be spent differently from all the other money that has already been blown?

The hard truth is, that no business is too big to fail, to the extent that taxpayers should bail them out. Once we take this approach, we have chosen the inefficient and beauracratic road of the USSR and other communist countries, where the government basically is a giant conglomerate of failing businesses, propped up by outlandish taxes.

America is too big to fail, and in order to keep it alive, it must be quarantined from any mismanaged business. Other businesses will always rise on the ruins of today’s bankrupcies, but if we shy away from confronting the consequences of our actions, we will just be inviting a catastrophic day of reckoning at a future date.