Tag Archives: Capital

5 Ways Joe Biden’s Presidency Will Affect Your Money – and How to Act Now

By Farnoosh Torabi – As with any new President, Joe Biden will have his work cut out for him when he takes the oath of office in January. And while his “build back better” plans are already laid out, it’s yet to be seen how much of an impact his administration can actually make on your finances.

The COVID-19 pandemic’s not behind us, so the recovery will be slow, which Biden has been clear about. Not to mention, with a very possible Republican Senate majority, many of the new administration’s initiatives could face serious pushback, if not a total squashing. The outcome will be determined in a couple months when Georgia’s two Senate run-off races happen.

In short, we can’t read far into what Biden is proposing and use it as a playbook for our personal finances today. “I’m not a big fan of people overhauling their finances or making moves on a presumption of something passing, simply because there are just too many unknowns,” Greg McBride, Chief Financial Analyst at Bankrate.com, told me on my podcast.

Here’s a breakdown of some of the major economic initiatives proposed by President-elect Joe Biden and Vice President-elect Kamala Harris, and how to interpret them for the sake of our financial well-being. As always, personal accountability will be just as — if not more — important than matters of policy. more>

Updates from McKinsey

Managing the people side of risk
Companies can create a powerful risk culture without turning the organization upside down.
By Alexis Krivkovich and Cindy Levy – Most executives take managing risk quite seriously, the better to avoid the kinds of crises that can destroy value, ruin reputations, and even bring a company down. Especially in the wake of the global financial crisis, many have strived to put in place more thorough risk-related processes and oversight structures in order to detect and correct fraud, safety breaches, operational errors, and overleveraging long before they become full-blown disasters.

Yet processes and oversight structures, albeit essential, are only part of the story. Some organizations have found that crises can continue to emerge when they neglect to manage the frontline attitudes and behaviors that are their first line of defense against risk. This so-called risk culture is the milieu within which the human decisions that govern the day-to-day activities of every organization are made; even decisions that are small and seemingly innocuous can be critical. Having a strong risk culture does not necessarily mean taking less risk. Companies with the most effective risk cultures might, in fact, take a lot of risk, acquiring new businesses, entering new markets, and investing in organic growth. Those with an ineffective risk culture might be taking too little.

Of course, it is unlikely that any program will completely safeguard a company against unforeseen events or bad actors. But we believe it is possible to create a culture that makes it harder for an outlier, be it an event or an offender, to put the company at risk. In our risk-culture-profiling work with 30 global companies, supported by 20 detailed case studies, we have found that the most effective managers of risk exhibit certain traits—which enable them to respond quickly, whether by avoiding risks or taking advantage of them. We have also observed companies that take concrete steps to begin building an effective risk culture—often starting with data they already have. more>

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Updates from Chicago Booth

There will be more innovation post-COVID. Here’s why.
By Harry L. Davis – Since the COVID-19 pandemic threw our lives into disarray, we’ve had to change how we do anything involving other people. Rather than counting on bumping into colleagues in the hall, we now have to schedule Zoom calls around the competing demands (childcare, a broken water heater) that everyone is dealing with. There isn’t time for the kind of small talk that often, unpredictably, leads to big ideas.

There are unquestionably benefits to handling some tasks over video conference. Last spring, I taught a class in which groups of students take on consulting projects with the guidance of Chicago-based Kearney. Consultants spend countless hours on airplanes to make face-to-face meetings with their clients possible, and it’s a big part of their culture. In past years, regular in-person meetings and schmoozing were built into the syllabus.

Of course, none of that was possible this year. Our students were thrust into a new world where even senior executives were caught off-guard and without webcams. Whiteboard brainstorming sessions became Zoom calls.

Curious about their experiences, we surveyed the students about the impact of remote work throughout the quarter. While pessimistic at first, by the end of the nine-week course, they later felt that their remote situation was actually helping them be more efficient and helped them do do a better job responding to their clients’ needs. I had a similar experience with teaching remotely—although daunted at first, I found that I was able to deliver my classes effectively, even if I was tethered to my desk chair.

Once the pandemic is behind us, we’ll have to choose what to return to and what to keep from our remote way of working. I think Zoom and its ilk will continue to have an important place for those situations where teams are geographically dispersed or there’s some urgent decision that needs to be made. But the type of work that delivers innovation—creative work—will still best be done in person. more>

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Updates from McKinsey

Small capital markets businesses have been insulated against many of the troubles affecting their larger competitors. Now things are getting tougher.
By Fuad Faridi, Jared Moon, Anoop Ravindranath, Roger Rudisuli, Manu Saxena, Matthew Steinert – The capital markets arms of regional and national banks are often seen as smaller versions of the capital markets businesses of the top 10 global firms. However, they are actually quite different. Regional businesses have evolved along their own paths, with distinct client franchises, operating models, and sources of profitability. As a result, they require a strategic agenda that is tailored to their specific needs.

Until recently, the capital markets businesses of regional banks have been insulated against many of the troubles affecting larger global banks, and in some cases have performed better than them. Regional capital markets businesses’ returns on equity (ROE) held up better than those of their larger counterparts and regionals maintained their market share.

Now, however, there are signs that life is getting tougher. Structural shifts such as increasing electronification and falling revenues, and questions about the sustainability and “fit” with their parent organizations, are leading to increased scrutiny of these businesses. This has been especially pronounced in Europe. Temporary revenue upticks from market volatility linked to COVID-19 are seen as providing only temporary relief.

Even seemingly more robust franchises are being forced to answer difficult questions. They have found that after stripping out the impact from internal flows and adjacent client bases, the businesses that remain are often far less profitable. They have also found it challenging to unlock the next phase of growth.

In response, regional players across geographies are focusing on improving productivity end to end. A subset of firms is also trying to identify three to five pockets of opportunity for capturing revenue. more>

3 Keys to Engineering Success

Although success can be defined in different ways by different people, there are three very specific keys to engineering success.

By Jacob Beningo – Every engineer and engineering team wants to be successful. Success can be defined in many different ways whether it is meeting a deadline, making a customer happy, or completing work within the budget. Whatever the definition of success is, there are three keys to successful engineering, and they aren’t necessarily technical.

Success Key #1 – Maintaining Discipline

Related: 50 Top Private Engineering Firms of 2020

The first key to success is that even under the toughest conditions, discipline needs to be maintained. This isn’t a military thing, it’s common sense. I see a lot of teams that when things start to get tough, corners recklessly start getting cut. The loss of discipline creates additional problems that further get in the way of delivering and quickly become a self-feeding doom loop that wastes time and kills budget.

Maintaining discipline for success must be done at more than one level at the company. First, individual developers need to agree that no matter what pressure is put on them, they will follow their processes, perform their due diligence, and not allow themselves to decay into wild west programming. Individual developers form the foundation and if they crack, the whole project is going with them. Second, the collective team needs to agree that they will maintain their discipline no matter what. Everyone working together will help ensure that they are successful. Finally, the company management team needs to be on-board and understand that while there may be a fire today or a critical delivery date, the team has to maintain the discipline to make the delivery successful. All three levels of the business need to be on board.

In my experience, engineering success comes down to much more than technical prowess. It comes down to having and maintain discipline. It requires carefully managing expectations to deliver what is needed when it is needed not by overpromising and under-delivering. Perhaps most importantly, to have long-term success, it requires having fun doing whatever it is that you do and with the people you are doing it with. more>

Staying Focused on the Big Picture

U.S. election-related uncertainty may persist a while longer, but the relatively optimistic longer-term economic outlook hasn’t changed.
By Lisa Shalet – Now that former Vice President Joseph Biden is President-Elect, much of the election uncertainty has dissipated. Markets have factored in Biden’s win as well as the apparent lack of a Congressional Democratic sweep, but headlines concerning the transition of power could contribute to volatility.

We encourage investors to ignore short-term price swings based on the headlines and stay focused on the bigger picture. We still believe that investors should emphasize global stocks over bonds. Morgan Stanley & Co. strategists forecast that the S&P 500 Index, a broad measure of the U.S. market that is now trading around 3500, may reach 3700 by the middle of next year.

Several key points in our economic outlook are unlikely to change due to election results. Here are three reasons why:

The V-shaped economic recovery is on solid ground. October’s nonfarm payroll data was a solid upside surprise, with the unemployment rate falling and the labor participation rate rising. Consumer sentiment is holding up, and manufacturing and services indicators continue to show expansion. Housing and durable goods orders support the capital spending narrative of the new business cycle. In 2021, U.S. GDP could grow at an annualized pace of 5% to 6%—in part because the recession this year enhances the year-over-year comparison, but also given the midyear return to growth. Such economic expansion could power double-digit increases in corporate profits.

The Federal Reserve remains ultra-dovish. The central bank has stayed firm on holding its key short-term fed funds rate near zero through December, 2023. Low interest rates can stimulate growth by facilitating more borrowing, allowing consumers and businesses to spend more. The Fed has yet to define metrics or time frames for “average inflation targeting,” which will likely allow inflation to trend higher without rate intervention to check its rise. Under a policy known as quantitative easing, the Fed also continues to buy government bonds at a significant pace, a direct injection of liquidity across fixed-income markets that can also contribute to economic growth.

The COVID-19 trajectory is unlikely to lead to national lockdowns. The recent surge in new infections is unfortunate and concerning, however, as was the case in the summer, the U.S. economy remains resilient in the face of localized shutdowns. We believe that public health measures and vaccine availability will drive the pandemic’s economic impact. Hopefully by January, we could be past the peak of new cases and closer to available vaccines. Drug development pipelines remain on track to deliver some scaled vaccine distribution by summer, 2021. more>

4 Steps to Sustainable Investing

Morgan Stanley – For institutional asset owners, the case for incorporating sustainable investing into portfolio management is only getting stronger. As the wide-ranging implications of sustainability issues, such as public health, climate change and social justice, become more apparent, so too have they become essential to effectively assessing investment risks and opportunities.

Helping to make the case is evidence showing that incorporating environmental, social and governance (ESG) factors in portfolios could aid investors in capturing above-market returns. While the coronavirus pandemic induced a global recession and market volatility in the first half of 2020, sustainable funds—across stocks and bonds—in general helped investors weather the period better than many of their traditional peers,* according to a recent study by the Morgan Stanley Institute for Sustainable Investing. During a longer time horizon, from 2004 to 2018, sustainable funds experienced 20% less downside risk compared with traditional funds,* according to another Institute report, and 4-in-5 asset owners agree that sustainable investing may be an effective risk-management strategy and lead to higher profitability. In addition to financial performance, asset owners see an opportunity to target positive social and environmental impact, avoid reputational risk and comply with regulations. more>

Updates from McKinsey

Reimagining the auto industry’s future: It’s now or never
Disruptions in the auto industry will result in billions lost, with recovery years away. Yet companies that reimagine their operations will perform best in the next normal.
By Thomas Hofstätter, Melanie Krawina, Bernhard Mühlreiter, Stefan Pöhler, and Andreas Tschiesner – Electric mobility, driverless cars, automated factories, and ridesharing—these are just a few of the major disruptions the auto industry faced even before the COVID-19 crisis. Now with travel deeply curtailed by the pandemic, and in the midst of worldwide factory closures, slumping car sales, and massive layoffs, it’s natural to wonder what the “next normal” for the auto sector will look like. Over the past few months, we’ve seen the first indicators of this automotive future becoming visible, with the biggest industry changes yet to come.

Many of the recent developments raise concern. For instance, the COVID-19 crisis has compelled about 95 percent of all German automotive-related companies to put their workforces on short-term work during the shutdown, a scheme whereby employees are temporarily laid off and receive a substantial amount of their pay through the government. Globally, the repercussions of the COVID-19 crisis are immense and unprecedented. In fact, many auto-retail stores have remained closed for a month or more. We estimate that the top 20 OEMs in the global auto sector will see profits decline by approximately $100 billion in 2020, a roughly six-percentage-point decrease from just two years ago. It might take years to recover from this plunge in profitability.

At the operational level, the pandemic has accelerated developments in the automotive industry that began several years ago. Many of these changes are largely positive, such as the growth of online traffic and the greater willingness of OEMs to cooperate with partners—automotive and otherwise—to address challenges. Others, however, can have negative effects, such as the tendency to focus on core activities, rather than exploring new areas. While OEMs may now be concentrating on the core to keep the lights on, the failure to investigate other opportunities could hurt them long term.

As they navigate this crisis, automotive leaders may gain an advantage by reimagining their organizational structures and operations. Five moves can help them during this process: radically focusing on digital channels, shifting to recurring revenue streams, optimizing asset deployment, embracing zero-based budgeting, and building a resilient supply chain. One guiding principle—the need to establish a strong decision-making cadence—will also help. We believe that the window of opportunity for making these changes will permanently close in a few months—and that means the time to act is now or never. more>

Updates from Chicago Booth

When giving feedback, focus on the future
By Sarah Kuta -When managers give performance-improvement feedback to employees, they presumably want the conversations to result in positive changes—not to inspire defensiveness, excuses for poor performance, or skepticism of the managers’ point of view.

Offering forward-looking feedback can help keep such conversations productive, suggests research by Humanly Possible’s Jackie Gnepp, Chicago Booth’s Joshua Klayman, Victoria University of Wellington’s Ian O. Williamson, and University of Chicago’s Sema Barlas.

Performance-improvement feedback often fails when managers spend too much time diagnosing or analyzing what went wrong in the past, according to the researchers. When managers and employees talk about possible next steps and solutions, however, employees tend to be more receptive to the feedback and more likely to intend to act on it, the researchers find.

Recipients respond just as well to predominately negative feedback as they do to positive feedback, so long as the conversation focuses primarily on how the recipient can best move forward, the research suggests. more>

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Reviving transatlantic relations after Trump

If Joe Biden were to win the White House, transatlantic relations could return to default or be transformed—with much depending on how Europe reacted.
By Max Bergmann – A political cliché is rehearsed every four years in the United States: ‘This is the most important election of our lifetime.’ Yet it is hard to think of a more important election in US history—rarely, if ever, has the country faced two such sharply divergent paths.

All its deep-seated divisions have been exposed in 2020. Covid-19 has foregrounded the jaw-dropping inequality, the frailty of a for-profit healthcare system and the impact of a generation-long, conservative effort to weaken the functioning of government. When Americans needed the state, the state couldn’t cope.

Economically, Wall Street hasn’t missed a beat but queues for food banks grow and ‘for lease’ signs populate vacant shop fronts. Socially, the murder of George Floyd in Minneapolis in May and the subsequent protests—believed to be the largest in US history—brought into the mainstream a conversation on systemic racism and exposed the abusive nature of law enforcement, militarized and immunized from public sensitivity after ‘9/11’.

Globally, as Covid-19 struck, the US withdrew from the world, failing to lead or even participate in a transnational response. Indeed, in the midst of a pandemic, the administration led by Donald Trump pulled out of the World Health Organization, its ineptness an international embarrassment.

This does make the coming election existential. If Trump were to be re-elected president, all these trends would worsen—with dire implications for the transatlantic alliance. If not, it might be thought an incoming Democratic administration, facing such domestic turmoil, would relegate foreign policy to the second tier. But that wouldn’t be the case if Joe Biden were to prevail.

The crises of the last year have been humbling for the US and there is broad recognition that it will need allies and partners as never before. Biden would be a foreign-policy president. During the administration of Barack Obama he was a central and active foreign-policy player. His experience as chair of the prestigious Senate Foreign Relations Committee was, after all, a major factor in Obama selecting him as running mate. For the last two decades, Biden has been consumed with international relations and his inner circle of trusted advisers are experienced professionals.

A new administration would therefore hit the ground running. The question is: where would they run to? more>