sum2llc

assessing risk|realizing opportunities

Prognostications and Expostulations for 2010

We’re going out on a limb with this one or given thats its winter we’ll say we’re walking on thin ice.   We’ll gaze into the crystal ball and pontificate on eleven  subject areas for 2010.  With some we hope we will be wrong.  With some we hope we will be right.

1.  Stock Market:  Buoyed by well managed earnings by the large multinational companies in the DOW, principally as a result of cost reduction initiatives and exposure to global markets the Index will finish up 6% and close at 11, 011 on the last trading day of 2010.   Given an inflation rate of 4% investors will realize a 2% gain on equity investments in DOW constituents.  S&P 500 and NASDAQ will be flat gaining 2% for the year.

2.  Iraq War:  The war in Iraq will continue to wind down.  America will scale down its military presence in the country.  Troop levels in the country will approximate 85,000 by the close of 2010.  Though direct American military involvement in conflicts will decline,  Iraq will experience civil unrest as Kurd nationalists, Shiite and Sunni Muslims seek to protect their political and economic interests.

3.  Afghanistan War:  The escalation of America’s military presence in Afghanistan will move the theater of war further into Pakistan.  The Taliban will be satisfied to harass US forces by engaging in a guerrilla war.   Taliban and Al-Qaeda supporters will use the opportunity to increase the level of urban terrorist attacks in the large cities of Pakistan.  Al-Qaeda confederates will seek to reestablish base of support in Somalia, Yemen and ties will begin to emerge in Latin American narco-terror states.

4. Iran: The political situation in Iran will continue to deteriorate.  This is a positive development for regional stability because it will force the ruling regime to cede its nuclear program development initiatives.  Iran will not be able to capitalize on the US draw down in Iraq.  It will become increasingly isolated as Hezbollah and Hamas pursue actions that are less confrontational to Israel in Palestine and Lebanon.   The ruling Caliphate position will weaken due to internal political dissent and external economic pressures.

5.  China:  It will be a year of ultra-nationalism in China.  Its stimulus program that is targeted to internal development will sustain a GDP growth rate of 8%.  China will use this opportunity to strengthen the ideological support of its citizens to fall in line with the national development initiative.  Globally China will continue to expand its interests in Africa and will cull deeper relationships with its Pacific Rim club member Latin America.  China will continue to use US preoccupation with its wars in Afghanistan, Iraq and skirmishes in Yemen and Somalia as an opportunity to expand its global presence with a message of peace and cooperation.

5.  US Mid Term Elections:  Republicans will gain a number of seats in Congress.  The continued soft economic conditions, state and local government fiscal crisis, war weariness and cut back in services and rising expenses will make this a bad year for incumbents and the party in power, namely the democrats.  Sarah Palin will play a large role in supporting anti-government candidates drooling over the prospect of  winning a seat in government.

6.  Recession:  Though the recession may be officially over, high unemployment, home foreclosures and spiking interest rates will hamper a robust recovery.  The end of large government stimulus programs  and the continued decrease in real estate values also present strong headwinds to recovery.  We predict a GDP growth rate of 2% for the US economy.  Outsourcing will abate and a move to reintroduce SME manufacturing  will commence.

7.  Technology:  The new green technology will focus on the development of nuclear power plants.  The clash of the titan’s between Google’s Droid and Apple’s I Phone will dominate tech news during the year.  Lesser skirmishes  between Smart Phones makers or the war of the clones will continue to explode altering the home PC market and continue to change the market paradigm for old line firms like DELL, Microsoft and HP.   SaaS or cloud computing will gain on the back of lean business process initiatives and smart phone application development and processing infrastructure will encourage cottage industries fueling the cloud and making for some new millionaires.  The tension between the creators of content and search and delivery will begin to tilt back toward the content providers.  Litigation involving social networking sites will be filed to create safeguards against  its use  as a tool to control and manipulate behaviors thus threatening civil liberties and privacy rights.

8.  Culture:  The Googlization of civilization will allow individuals to embrace paternal corporatism as a pillar to add efficiency and order to their lives.  Multiculturalism will continue to grow in the US.  However a growing political backlash against it will become more of a prominent theme as Teabaggers agitate for a return to the true values of America.  Electronic arts will make major leaps and bounds as commodification continues to be a driving force in the world of art.  Printed words like books and newspapers will continue to dramatically decline.  Writing, drawing and playing musical instruments skills will  ebb as people prefer to develop digital skill sets.  Texting and Tweeting make for poor practice for extended compositions.

9.  Latin America:  Instability will grow in Latin America as narcodollars continue to undermine political stability in Columbia, Venezuela, Mexico and Panama.   The US will increasingly become involved in the conflicts between petro and narcodollars.  Mexico’s stability will be increasingly undermined by the power and corruptible influence of the drug trade.  China’s influence on the continent will grow.

10. European Union:  The EU will continue to manage itself for stability.  It will yearn to return to its aristocratic roots and will become increasingly conservative.  It will continue to have a complex relationship with the expanding Muslim community.  A call to deeper nationalism will arise out of a growing influence of Islam and the inefficiencies of EC bureaucrats in Belgium.  The EU will continue its union of expediency to counterbalance their distrust of Russia and their distaste for America.

11.  Environmental Justice:  Though awareness continues to grow concerning the need to mount and implement large scale solutions to halt the problem of global climate change;  the political will and resources required to drastically alter the planets current trajectory in growth of carbon emissions from the burning of fossil fuels remains unaltered.  Social responsible enterprises, small businesses and individuals continue to make a difference.  Eco friendly small businesses, urban farming, capital formation initiatives around renewable  energy  businesses are hopeful signs of a market response to the pressing problem.  China is investing heavily in becoming a market leader out of business savvy and environmental necessity.  Until the great powers of the world can come to some  collective agreement on how to limit , cap or trade carbon credits we’ll have to be content to separate the trash and recycle, reuse and reduce.

You Tube Music Video: Donald Byrd, Stepping Into Tomorrow

Risk: unfulfilled predictions will make me look bad

January 5, 2010 Posted by | commerce, environment, manufacturing, sustainability | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 3 Comments

A Growing Contagion: One in Seven Companies Are a Credit Risk

contagion1-450The H1N1 Swine flu threat may be the big topic on CNN but a growing contagion of financial distress is widely infecting small and mid-sized enterprises (SME) with potentially fatal consequences.

CFO magazine reports that 14% of companies are struggling to pay their bills or are at risk for bankruptcy. These findings are the result of a study CFO conducted on 1500 Midcap companies. The 2009 Credit Risk Benchmarking Report indicated that 550 companies of the 1500 made the credit watch list and over 200 of the names were in or are entering a distressed financial condition.

The report measures each company on three factors: cash as a percent of revenue, days payable outstanding (DPO), and DPO relative to the DPO of that company’s industry. The last of these measures is intended to expose which companies are under performing regardless of the economic condition of their industry as a whole. A company scoring low in all three areas is rated a potential credit risk.

The strain of a two-year recession and limited credit access is taking its toll on small and mid-sized businesses. This development is not surprising. The recession has hurt sales growth across all market segments. Banks, still reeling from the credit crisis are still concerned about troubled assets on their balance sheets. Bankers can’t afford more write downs on non-performing loans. Banks remain highly risk adverse to credit default exposures and have drastically reduced credit risk to SMEs by shutting down new lending activity.

Reduced revenue, protracted softness in the business cycle and closed credit channels are creating perfect storm conditions for SME’s. Bank’s reluctance to lend and the high cost of capital from other alternative credit channels coupled with weak cash flows from declining sales are creating liquidity problems for many SMEs. As a defensive maneuver, SMEs are extending payment cycles to vendors to preserve cash. This same cash management practice is also being employed by their clients resulting in an agonizing daisy chain of liquidity pain. SME’s that have concentrated exposures to large accounts are at the mercy of the financial soundness of few or in some instances  a single source of revenue.

The growing contagion of financial distress is also a major threat to supply chains. Buyers might prize their ability to drive hard bargains with their suppliers but the concessions won may be the straw that breaks the camels back driving a supplier into insolvency.

It is critical that managers understand all risks associated with clients and suppliers. It is critical that managers assess risks associated with client relationships and key suppliers. In this market, enhanced due diligence is clearly called for. The financial soundness of suppliers and clients must be determined and scored so as to minimize default exposures to your business.

CreditAides is a company that delivers  SaaS based financial health assessments on SMEs.  CreditAides reports that their clients are becoming more vigilant and thorough  in their due diligence of customers and suppliers.  They have noted a particular emphasis on the growing practice of reviewing the financial health of suppliers.  Supply chain risk is a heightened risk factor for SME’s due to their over dependence on single source.  Conducting a financial health assessment on key suppliers and other enhanced due diligence practices mitigates a risk factor that could have potentially devastating consequences.  SME manager’s need to button down their due diligence practices  to prevent the sickness from infecting their business.

CreditAides SaaS can be accessed here: www.CreditAides.com

You Tube Music Video: Bing Crosby and Rosemary Clooney,  Button Up Your Over Coat

Risk: contagion, credit risk, counter-party, supply chain, client, recession, banking

October 9, 2009 Posted by | banking, business, commerce, credit, credit crisis, economics, recession, risk management, SME, supply chain, sustainability | , , , , , , , , , , , , , , , , , , , , , , | 4 Comments