dagblog - Comments for "Corporate myths."

In normal times this kind of

Dan Kervick — Tue, 14 Dec 2010 02:43:30 +0000

In reply to In normal times this kind of

In normal times this kind of money is spent on things like research and development, acquisition of other entities, and other investments which create higher returns than interest rates of bank accounts and short-term CDs. None of which has to do with current and projected demand. The basic explanation is that the economy is so shaky, these kind of endeavors are too risky.

Your second sentence is in conflict with the first. The reason people have spent money on these projects and acquisitions in other times is because they believed that they would eventually bear fruit and make money for their companies. And the reason similar investments are now seen as too risky is precisely because demand projections are so very low.

if you work at a company that saw retail sales fall 40% in 2009, and you read the papers and know that millions of your potential customers are still suffocating under mountains of debt, still stuck in underwater mortgages, still recovering from the catastrophic loss of retirement savings that they now need to rebuild, then it is pretty hard to justify an investment in expanded production and more workers. Almost 10% of us officially are unemployed, while the real unemployment rate is much higher. Those people aren't buying much stuff beyond the necessities.

In this environment, the opportunities for growth through investment and expanded production are limited. There are people who have lots of money. But those people are saving more of it than ever before and looking for safe vehicles. If we put some of that money in the hands of people who are desperate to buy stuff, businesses would have a reason to expand again.

I suspect businesses have also developed an extremely conservative mindset about their cash-on-hand, because of the enduring traumatic memories from the panic-inducing credit freeze in 2008, when companies feared not being able to get enough overnight cash just to stay in business. That's why they sock more of their cash away in a mattress than they did before.

We could add that the systems of labor protection in this country have been decimated. So for any manager who decides that the path to increased profitability lies in extracting the work of 10 people from a team of three or four, there is nothing standing in his way. Pretty soon, I expect to see us hiring child labor again.

Bell cow was wrong. . It's

Flavius — Tue, 14 Dec 2010 02:42:27 +0000

In reply to It can go in the opposite

Bell cow was wrong. . It's less likely that public announcements will trigger the investment turn around than it'll be rumors or corporate espionage

.In a real show down between the CFO and VP Marketing my guess is Marketing wins.And should . If you over -invest in this quarter maybe you can offset later. But if Charlie Competitor beats you to the market you may never recover your investment. First cat licks the cream..

So when the investment damn breaks, there'll be a lot of companies trying to get ahead of the stream.

So, there are at least two

moat — Tue, 14 Dec 2010 01:56:10 +0000

In reply to It can go in the opposite

So, there are at least two markets in any deal. One market tends to take over the results of another.

Edit: That last sentence should have been a question, not a statement.

It can go in the opposite

Flavius — Tue, 14 Dec 2010 00:42:25 +0000

In reply to It also could prove a boon to

It can go in the opposite direction. So far corporations are holding back but if a real bell cow announces stepped up investment, it could trigger a horde of me-toos.

If over- investing is the CFO'S bete noir,loss of market share is that of the chief Marketing Executive. And of the Board

It also could prove a boon to

moat — Mon, 13 Dec 2010 19:52:05 +0000

In reply to Moat, I think most

It also could prove a boon to me in terms of lining up work. [$+;-\> 0] = greater good.

I agree with you that a multiplier effect would occur if demand were to increase. But what makes that the case also doesn't penalize the investors who do not have to anticipate that growth to participate in it. A cumulative wait and see attitude increases the amount of inertia that has to be overcome to start a production boom.

That is my conspiracy theory

Richard Day — Mon, 13 Dec 2010 19:48:39 +0000

In reply to In normal times this kind of

That is my conspiracy theory Trope. I look at hiring practices and with all this money they are not hiring a commensurate number of new peeps. Although, if you wish to make money you need to get the right people and the right number of people in place.

So I am not so sure about this conspiracy theory. I do know they are amassing huge amounts in tithing to get more repubs into office.

I'm just wondering if the

Donal — Mon, 13 Dec 2010 18:04:00 +0000

In reply to Donal, I'm not sure I'm

I'm just wondering if the recession portends as great a change in business as usual as the depression.

Donal, I'm not sure I'm

Oxy Mora — Mon, 13 Dec 2010 17:08:13 +0000

In reply to I read somewhere that the

Donal, I'm not sure I'm understanding the question. But I think the idea of carrying employees during slow times went out the window a while ago for just about every profit making enterprise. At the same time it's my impression that companies will do everything to hang on to key technical and sales people. I think it's more the direct production people and retail folks who are waiting to be recalled, and also "staff" people.

I read somewhere that the

Donal — Mon, 13 Dec 2010 16:31:15 +0000

In reply to Trope, a very interesting

I read somewhere that the great old architectural firms used to carry their staffs during slow times, but that such firms lost so much money and that so many went belly up during the great depression that hire-and-fire became the accepted terms of employment. So I'm wondering if a similar change may have happened, or is happening, during this great recession, which is technically over, but doesn't seem over..

Moat, I think most

Oxy Mora — Mon, 13 Dec 2010 16:10:58 +0000

In reply to Those "non-financial"

Moat, I think most manufacturers operate on "just in time" and most retailers are really keeping inventories low. This may prove to be a boon to Obama. In this "tight" situation, a small increase in demand can have a great multiplier effect as manufacturers and retailers scramble to fill orders.