Economist Aug 9th 2014

Stop whining, I’m your friend (Barack Obama’s message to business)

Three-fold main complaints from business

  • Mr Obama casts them as bad guys;
  • [CEOs] find themselves accused of special pleading
  • over-regulation

Timing is everything (Presidents and growth)

Democrats presidents have consistently done better in growing the economy, buy primarily because of good luck

  • too small to be significant in monetary and fiscal policies, even rates are usually declining in Republican terms;
  • much of the growth under Democrats, has been due to private sector investment and increased consumption, and lowered oil prices;

David vs two Goliaths (Travel websites)

TripAdvisor could challenge the big two – Priceline and Expedia

  • different business model:  pass booking requests on others v.s. sell flights and rooms directly;
  • a new app designing to book without leaving TripAdvisor, more tailoring to smartphone users, could be a potential threat to the big two;
  • (Jeff Bussgang, HBS) TripAdvisor’s gross margin could be astonishingly 98%, since all reviews are free

More bang for your buck (Prostitution and the internet)

The hour rate is declining

  • one reason is surely the downturn that followed the financial crisis;
  • large-scale migration – immigrant workers have pressed the prices lower;
  • the shift online

Background check has more to do with cops than customers

Screenings for cops is now the priority over screening for rapists, thieves, kidnappers.

Feeling the pinch (Japan’s economy)

labor market remains tight

  • population shrinking fast, from 127m today to under 90m by 2060;

real wages continue to fall despite lowered unemployment rate

  • rising consumption tax, slightly higher inflation, and massive easing – not the biggest factor
  • a deep-sated factor: regulated v.s. un-regulated workers (without annual contract negotiation, less protected, many are women);

Coming unstuck (Mergers and acquisitions)

Four giant deals failed

  • 21st Century Fox v.s. Timer Warner – $70bn;
  • Spring v.s. T-Mobile US – $30bn;
  • Pfizer v.s. Astra Zeneca – $125bn;
  • Publicis and Omincom – $165bn;

Company usually overstretch in two ways:

  •  the proposed combinations that annoys regulators (Sprint’s case);
  • deals that test the limits of balance-sheets, and the patience of investors (21st Century Fox and Pfizer”s case)

Failed transactions often have lasting consequences:

  • target has to meet the ambitious forecasts that have been cooked up – share buy-backs are one way to rent some loyalty;
  • acquirer’s managers and coherence of its strategy are damaged – CEO usually left, as were the cases of GE, BHP Billiton;

If earnings are rising, investors, staff and clients will forgive almost anything.

Practice makes imperfect

The key to a long career in the mutual fund industry seems to be related more to avoiding underperformance than to achieving superior performance.

  • successful performance in the first five years is not predicative of success in the following five years;
  • now 95% are institutional investors, this makes it very difficult to perform better than the benchmark;
  • blind optimism – pension funds among the most optimistic of all;

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