Monday, December 31, 2007

Fed Funds Rate Predicting

A discussion about Ben Bernanke and the Fed would not be complete without a discussion of where the Fed Funds Rate is going? The current rate is a 4.25%. How can you predict this ahead of time, and perhaps ahead of the markets? Can managers prepare for these changes? Predicting what decision the Fed is likely to make can be a valuable tool for financial analysts, managers, and investors. An article by Michael Hunstad in the November "AFP Exchange" journal describes 5 predictive indicators that can be observed prior to a fed decision.

Sudden CPI Shock: A slow growth or decline in the CPI is less likely to prompt Fed Rate action than that of a rapid, sudden jump. Should there be a spike in the CPI, inflation may be perceived as quickly rising and the Fed will be more likely to raise rates to curb spending.

Long Leading Indicator: Put out by The Conference Board, this is an indicator relating to economic growth. When there is stronger growth, the Fed may be more likely to raise rates to keep the economy from overheating. The Fed may also be more likely to lower rates if economy appears to be contracting.

Corporate Credit to 10-Year Treasury Spreads: The difference in yield between a "Baa" rated corporate bond and a 10-year U.S. Treasury Bond can be important. The greater the spread, the greater the perception of risk of companies with low credit ratings. As these companies are often the ones most affected by a recession, a greater spread can be a leading indicator of a coming downturn in the economy. The Fed in observing this my lower rates to reduce the severity and duration of the recession.

Spread between 6-mo T-Bill and Fed Funds Rate: When these bonds approximately equal the Fed Funds Rate, the economy is in near equilibrium. However, a deviation in which the 6-mo T-Bill rate is lower than the Fed Funds Rate represents investor confidence in anticipating a rate cut. As Mr. Hunstad states in his article "This results as T-Bill investors are willing to take a lower yield today because they expect future interest rates to be lower". The Fed may be likely to move in that anticipated direction.

Previous Fed Action: This is the easy one. A Fed Funds Rate in motion is likely to remain in motion, a Rate at rest is likely to remain at rest.

Overall, observing these 5 indicators can help you make more educated predictions about where the Fed Funds rate may be headed. For more detailed information, I suggest you read the entire article in the November "AFP Exchange" magazine.

Thanks for visiting. I would love to hear from some analysts, managers, and other professionals. Please drop me a comment below and discuss your own insights into predicting the Fed Funds Rate.
--------Sincerely, Trevor Stasik.
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Monday, December 24, 2007

Competitive Advantage

MERRY CHRISTMAS! It's been several days since I got back from Arizona, but I've been too busy to post this. Here is an entry I wrote while I was down there:

Allow me to spend a few minutes with you. I'm still on vacation visiting my Girlfriend's relatives down in Arizona. It's quite beautiful here despite the vast amounts of construction going on. Right now, I'm on my trusty PDA (Dell Axim X51V) typing this post and I'll upload it when I get home. Today I'd like to talk a little about Competitive Advantage.

Competitive Advantage:
The marketplace positioning that a business does which improves its profit margins relative to competitors in the same industry. In other words, the company with competitive advantage has something the others don't have. There are two types of competitive offerings that a company can offer - Cost Advantage and Benefit Advantage.

Cost Advantage:
It's no wonder that companies such as Walmart do not win customers by providing superior service, superior products, and innovative superior ideas. That's not to say that Walmart companies are all bad. They still provide fair service, reasonable products, and time tested ideas. Companies such as Walmart don't compete the way a company such as Apple might, because instead of offering more benefits to the customer, they are offering lower prices. Customers go to Walmart expecting the best deal for their dollar. The consumer will often seek out the firm with the lowest cost to that individual.

Benefit Advantage:

As mentioned a moment ago, companies such as Apple do not pursue a cost strategy. Instead, they seek to charge a higher price by offering powerful, unique, or specialized benefits that other firms in the industry cannot provide. Apple has had a significant benefit advantage in the portable music player market. Other firms can and do create quality music players at a lower price, but they have been unable to succeed in the way Apple's Ipod product has. The reason is that consumers see all of the benefits in an Ipod as being worth the added cost. Benefits such ease of use, a deep library of music, stylish case, and large display screen have convinced many consumers to pay the higher charge. These benefits have enabled Apple to make a larger profit margin and gain in the marketplace.

As you have seen, a Competitive Advantage is a valuable thing for a firm to seek. Find out how you too can create value for your customers, either through lower prices or greater benefits. You may then discover greater profitability for your firm by pursuing a focused strategy in one of those areas.

Thanks for reading. If you'd like to say something, please add a comment below.
----Sincerely, Trevor Stasik.

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Sunday, December 16, 2007

Video With SEI Investments

Okay, I'm getting ready to go to Phoenix, AZ to visit my girlfriend's family. I will not be posting for the next several days. However, before I go, I'd like to leave you with this new video I just finished for the FMA. It is a video I did with John Campolongo and Clay Stewart of SEI Investments:

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Thursday, December 13, 2007

Priority Rules in Dispatching Jobs

There are four different sets of guidelines that a business will commonly use in determining the sequence of order completion. These rules are:
  • FCFS: First Come, First Served
  • SPT: Shortest Processing Time
  • EDD: Earliest Due Date
  • LPT: Longest Processing Time

  • These guidelines or rules can be followed by the service industry, manufacturing industry, and retail industry. Actually, they really can be applied in one way or another to practically any business.

    First Come, First Served
    is the idea that the first job to come in, is the first job to be completed. This can be a costly procedure to follow for some businesses, such as those in the manufacturing industry, where efficiency in time and energy are of high importance. However, FCFS is more suited to a retail industry. Customers waiting in line do not like it when others get to jump ahead of them. Diners at a restaurant do not like to be ignored because their order is time consuming. Therefore, FCFS may sometimes be better suited to the retail industry since it appears fair to customers.(Keeping in mind that there are always exceptions).

    Shortest Processing Time
    may be the most efficient of all at completing the most jobs in the shortest period of time. This could be of an advantage to businesses and plants with few long term projects. However, if there are long term projects, watch out for missed deadlines. These projects may get bumped back to complete the shorter term projects.

    Earliest Due Date
    will minimize your average lateness. If there are fines or contractual penalties attached to project deadlines, this is the plan for you. This may not be the most efficient way for a firm to use its resources, but projects are more likely to come out on time this way.

    Longest Processing Time
    is a ridiculous way to run a business. However, it may come in handy to create a "worst case scenario" to plan against. LPT could be useful for that.

    These are 4 basic guidelines that businesses can follow. There are others to be aware of including the Critical Ratio and Johnson's Rule, but I will leave those for a future discussion. Knowing how to sequence jobs is an important short-term timeframe management tool. It ensures that a business will run more efficiently and hopefully be successful in meeting priority orders.

    Thanks for visiting. Feel free to drop me a comment.

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    Friday, December 7, 2007

    Time Management Matrix

    I would like to introduce you to the Time Management Matrix. Frequently discussed by Stephen Covey and Brian Tracy, this is a simple tool that can be used to guide a person's productivity choices. In other words, it can help you make better use of your time. This is perhaps one of the most valuable skills that sets leaders apart from mere mortals.

    Here is the matrix as presented by Mr. Covey:

    If you are spending most of your time in quadrant I, then you are likely always stressed and putting out fires. One of the primary problems faced by people living in Quadrant 1 is that when everything is important, nothing is important. By understanding that, you can begin to prioritize tasks. Does that task really need done now, by me? Can that be delegated? Do I need to volunteer for it? How important is it really? With proper planning, fewer tasks will become urgent since they can be taken care of ahead of time.

    Here is where you are going to get things done. You can spend time working today to prepare for tomorrow. Why put off tomorrow what can be done today? You don't need to finish these tasks right away, but get them started. Think about it like you were building Rome. Before you can build the Colosseum, you should lay down some thick slabs of stone to act as a foundation. These first steps in your long range tasks may be that important, even if they are not urgent or pressing upon you immediately. All of those later steps will build one upon another, like brick upon brick. Before you know it, your task will be done (or Colosseum built if you're a Roman). To maximize your productivity, you should spend most of your time in Quadrant II.

    Here is a tough choice- to pick up that ringing cell phone or to let it go to voicemail? It can be a tough choice because you may not know who it is or why they are calling. It is something that is urgent, but not necessarily important. There are many tasks that can fill a person's day, but they may not all be the most productive choices. Look at what you need or want to do, and determine which tasks you don't really need to do because they are not really that important. One task that I've had trouble with is the news. I'm a news junkie and I love checking sites like the Drudge Report to see what's going on minute-by-minute. However, I need to fight that urge because it is a waste of time. The news, if not applicable to your life, may be urgent but not important.

    This is the most useless waste of time. Nothing accomplished here will actually change anything in your life or anyone else's. This is the quadrant of "waste" as Mr. Covey would call it. Hours checking Wikipedia for useless facts, watching 85 episodes of Stargate, or mindless debate of unimportant issues fill this quadrant. Although it can be enticing to lose yourself for a while, Quadrant IV can be destructive if you spend large amounts of time there.
    Time management can be a daily struggle, but it is a struggle worth undertaking. It can help guide you and help you find your limits. Proper use of the guide above will help you answer the question: "What is the best use of my time?"

    For more information about the Time Management Matrix, check out the website of Stephen Covey HERE and Brian Tracy HERE. For other ideas about time management, check out the Productivity Guru Steve Pavlina HERE. Thanks for visiting.

    -----Sincerely, Trevor Stasik.

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    Tuesday, December 4, 2007

    Invest in Companies With Products You Use - Cold/Flu Products

    One theory for easy investing is to invest in what you know. When you open up your medicine cabinet, what do you see and what do you use. I'm in the process of finishing my semester with a cold. Only another week until the semester is finished and I've caught a cold. So, I think that the subject of this entry will be a simple one about some of the products I'm using to battle it. Maybe that will help some investors in figuring out what products some consumers are using. I'm not getting paid for any of the recommendations I'm making here, if you were wondering.

    Product #1: Halls Cough Drops - I've used a ton of these. It helps clear up my nose with "Vapor Action". Produced by CadburyAdams, a unit of Cadbury Schweppes, you can invest in through ADRs (American Depository Receipts) on the New York Stock Exchange under the symbol CSG.
    Here's the company website for Cadbury Schweppes.

    Product #2: Wawa Black Tea with Lemon & Honey - really soothing on the throat, and I highly recommend it. It's a privately owned company, so you really can't invest.
    Here's the company website for Wawa.

    Product #3: Tylenol Cold Multi-Symptom Day & Night Pack - This helped me get through last night when I was having trouble sleeping and breathing at the same time. Tylenol is a product of Johnson & Johnson, McNeil. You can invest in Johnson & Johnson under the stock symbol JNJ.
    Here's the company website for Johnson & Johnson.

    Product #4: Zicam Cold Remedy - I don't know if these will work yet or not. My girlfriend Chris convinced me that they are really good, so we'll have to wait and see. This is a product of Matrixx Initiatives, which is on the NASDAQ under stock symbol MTXX.
    Here's the company website for Matrixx Initiatives.

    So there you have some information about the products I'm using. The theory goes that investors that know the product, will be more knowledgeable in investing in that company. There is a lot of other research that an investor will want to use in making decisions, but this is one tool that can work in combination with many others.

    Okay, I need to get ready for my next class. have a good day.
    ---Sincerely, Trevor Stasik.

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