Day 6 --- 7/15/10

We started the class with a discussion on the recent financial sector reform regulations. Our discussion centered around the the reform that will mark the end of more than a generation in which the prevailing posture of government toward the financial industry was largely one of hands-off admiration, evidenced by steady deregulation.

We then discussed the increasing pace of price reductions by home sellers. It appears sellers, including banks (OREOs) are being forced to expedite selling by the perceived flat and 'stabilized' nature of prices. In some instances, local governments are putting pressure on banks to maintain or at least prevent properties from dropping to dire states.

I submitted three articles for this week's discussion. The first article was about the relative importance of stocks as the choice investment tools. The article contends that stocks may be the way to go even with a forecast of modest economic growth and a lack of clarity about whether the federal government will create more regulations. According to the article, a lot of businesses are delaying hiring and expansion plans. Many consumers are holding off on making purchases and government stimulus spending is winding down. Last year, it was mostly margin improvement that drove the earnings of American companies. This year, the best companies are starting to show substantial revenue gains, and that is expected to continue through 2010 but slow by mid-2011. As a result, such conditions favor companies with access to capital, low debt, low-cost production, market leadership and experienced, innovative management teams.

The second article I submitted deals with the importance of emerging markets for the global economic growth, particularly since the developed markets are not expected to grow at a rate exceeding 3% in the near future. According to the article, reflecting much higher productivity and population growth, the economies of the developing world are expected to grow by about 6 percent in all three years, while high-income country growth is limited to 2.3 percent in 2010 and 2.4 and 2.7 percent in 2011 and 2012 respectively. Because of these large growth differentials, developing countries will be a major source of global growth. Nearly half of the increase in global demand in each of 2010 through 2012 will come from developing countries.

The third article I submitted was an outlook towards the lending industry trends as of the end of last year. The article contends that 2010-11 will largely show greatly increased regulatory oversight that will restrict lenders; an era of much lower risk-taking by traditional lenders has begun, and risk capital remains difficult to obtain; the creation of higher-risk loans and investments will be taken over to a large extent by hedge funds and private equity; alternative sources will be used to a growing degree by small businesses and consumers unable to get loans elsewhere including peer-to-peer lending, use of “Angel investors,” wealthy individuals who make investments in small firms, are filling the capital needs of small companies and start ups; a lengthy and expensive process of write-downs by lenders will continue into 2010 and 2011, particularly in credit card and commercial real estate loans.

Other articles we discussed include the looming prospect of commercial real estate backed loans as a great deal of these loans will mature starting this year. It is estimated that a total of about $1.4 trillion in commercial real estate loans will mature between 2010 and 2014, about $300 billion of which is expected to mature in 2011. This is expected to aggravate the default rate on these loans, especially since property values have already declines by as much as 40% from their pre-downturn (2007) level.

We also discussed the increasing complexity involved in workouts including the major restructuring areas, impact of workouts, potential tax consequences etc.

Day 5 --- 7/8/10

Today's discussions are related to the hospitality, travel, resort and international property markets.

We started our discussion with a discussion on the general hospitality market trend. We discussed about how the industry reacted to the recession and the impact of the recession on the travel behavior. We specifically discussed on the short term and potential long term behavioral changes on the part of travellers as a result of the economic downturn.

We then discussed one of the articles I submitted on the status of the Chinese real estate sector. The article particularly measures the degree of growth in the Chinese real estate market with reference to the growth in GDP and the impact of the domestic market growth in the overall GDP growth.
The article mentions that the Chinese economy has recovered quickly. It asserts that the early government intervention and lower levels of debt compared to its western counterparts helped it to weather the financial storm better than most. The article also mentions that the current upswing is resulting in unprecedented liquidity easing after the global financial crisis and so there are some recent housing market developments that appear symptomatic of a bubble. The article describes that sales have nearly doubled over the past year, housing credit has increased sharply, and the price of houses in the secondary market has accelerated rapidly. Yet from an affordability standpoint, property prices appear expensive and seem to have factored in a certain amount of future income growth.

The article concludes that there are enormous opportunities for investing in China’s long term growth and resurgence as the emphasis changes from growth speed to growth quality.

...

The second article I submitted was an analysis of a survey done towards the end of last year. The analysis was done based on responses of more than 260 hotel and restaurant executives and focuses on the industry trends for 2010.

The results were summarized in five major topics:

a) most important initiatives

- main focus was expected to be on increasing core revenue and finding new revenue sources. Increasing efficiency and streamlining operations was another important initiative mentioned in the responses, indicating that the industry was on its way to rebounding.

b) recovery vs. recession

- nearly half of the respondents said they were starting to see signs of a turn-around but were proceeding with caution.

c) customer engagement efforts

- most operators were targeting new customer segments beyond their traditional focus followed by adding value to attract new customers.

d) reaction to social trends, and

- nearly half of the survey participants identify social networking as a top company initiative in the year ahead. From Facebook to Twitter, and everything in between, hospitality companies are tapping into social networking at growing rates to build brand loyalty and to keep their fingers on the pulse of consumer discussions. What's more, an arsenal of apps, plug-ins and analytic tools are available that make it even easier for businesses to track and drill-down into user data.

e) IT budgets for 2010.

- Most of the respondents expected some reduction in IT budget as part of the streamlining efforts.

We also discussed other articles submitted. Some of the other topics we covered included:

- a contrasting outlook towards the status of the Chinese economy;

- travl trends,

Day 4 --- 7/1/10

So much for improving on my late arrival...

I joined the class in the middle of a discussion about low income housing needs especially the 'social obligation' aspect of it.

Is low income housing an 'obligation'...if a developer or local government decides to revitalize a specific area for varying reasons like crime reduction, tax base boosting, strategic changes etc, should they also be responsible for relocating the existing constituents? I, for one, am strongly in favor of forcing such decision makers to bear the consequences of their choices... If the local government or the developer chooses to develop an area, then they must be forced to provide an alternative location to the existing dwellers even if the reason for the relocation is a 'social good' like behavior alteration like crime reduction.

Other articles we discussed focused on the topics of industrial markets, tax and government trends.

On industrial markets:

most people agree that the current signal from the sector in particular and the economy in general is mixed. There are signs of recovery from the deep recession although these signs are erratic in many cases and are yet to be proven stable and lasting.

On taxes:

I submitted an article regarding the philosophical base of taxation. The article mainly revolves around the dilemma as to why earned income is taxed at a much higher rate than investment income (like dividends and capital gains) and inheritances (estate tax). While there will always be a segment approach to any government policy including tax policies, that fact that income earned through hard work (like 16 hours a day, two or three jobs, six or even seven days a week) is taxed at a rate higher than investment income seems hard to conceive.

On government trends:

I also submitted an article on the government technology trends. The article is a continuation of our previous discussion on cloud computing and social networking. We discussed about how some municipalities are utilizing social networking like facebook, twitter and YouTube in order to bolster citizen participation in governance.

We also discussed the canadian economy and its focus on banking regulations. We discussed how the relatively stricter banking regulatory framework helped ease the impact of the financial meltdown that 'haunted' the global economy.

Another interesting topic we discussed was a proposed commercial rent tax in San Fransisco.