Skyscrapers, Condos and market stress

Posted on November 20, 2012 by Chris Warburton

I have been reading quite a bit recently about indirect economic indicators for growth, boom and bust within the economy.

Some interesting examples;

  • Hairdressers, coffee shops, art galleries (in order) – On a local level, this can be an indicator of increasing disposable incomes.  However rapid expansion could be a sign of boom and potential bust in the economy.
  • Baltic Dry Index – Measures shipping volumes.  A great indicator of global trade.  (we are in a slow down now)
  • Skyscraper Index – Measures national aspirations, economic expansion, and bubbles.  The more skyscrapers being built the higher the likelihood of economic recession it seems.

These indicators are informative and in many ways can leading indicators of issues we need to watch for.

The skyscaper index is of particular concern when contrasted against the building boom in Toronto.

Another potential indicator pointing to the need to stay prepared.

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Secured loans – Insurance and Fraud

Posted on November 10, 2012 by Chris Warburton

This week I have been discussing secured lending, always considered somewhat different to world of unsecured loans (credit cards and utilities).

Typically losses associated with secured loans are lower (in proportion to the assets). After-all there are always the actual physical assets to fall back on.

As such this has always been considered less of an issue of credit risk, rather operational risk. (A key risk being the valuation of the asset is incorrect, has been misrepresented or there is just downright fraud).

However it is not as different as it first may seem; behavioural modelling, fraud modelling and process controls are all equally applicable. Indeed I have been hearing of several companies looking for unsecured experience in order to run a secured portfolio.

Undoubtably there is a lot to learn from each discipline and it is good to know the skills are being considered transferable. It will lead to stronger processes and controls.

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Corporate Sustainability

Posted on November 1, 2012 by Chris Warburton

This week was the week of the corporate sustainability conference in Toronto.

Hosted by Chartered Institute of Management Accountants, the focus was on the financial aspects of sustainability and making the business case for investment.  An interesting and thought provoking discussion.

The argument made was sustainability is increasingly a necessity for staying in business.  There is a cost benefit and in many cases this is compelling.  Ie the savings generated increase profitability over the long term.

Jim Harris had a excellent slide, from a McKinsey study that detailed the cost/complexity of each sustainability initiative.  At least 50% of the initiatives shown were ‘profit accretive’, with many easy to implement.

His comment, was that we could meet the Kyoto agreement requirements, simply by implementing these, becoming more profitable and efficient too…. it was compelling.

There are of course barriers to implementation.  The longer investment horizon in particular represents a challenge, especially in a cost constrained world where there is a focus on immediate return.

The core issue here is really one of ‘externalities‘.  Although whole life cycle costing tries to address this, it is still somewhat abstract in todays business environment being more complex to calculate and without wide adoption.

Successful examples seemed to be driven by either public pressure or associated legislation had converted the impacts into very real financial drivers, therefore helping the cost benefit analysis.

Certainly a thought provoking discussion and one to watch how it develops.

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