As I said in the Fixed Income class, when you are in finance, "it's always something." It was a stock market crash in 1987 and 2000. Interest rates were 15-20% in the late early 1980's. There were numerous developing market crises in the 80's and 90's. Today it is the subprime mortgage market crisis carrying over to the credit markets in total.
As each of you thinks about your 20, 30, or 40 finance year careers, what could be the issues/opportunities of tomorrow? Another stock market crash? The dollar no longer being the bellwether currency of the world? Rising inflation as cheap labor is used up in China, India, etc. and as world demands for commodities grow geometrically. Aging baby boomers "eating up their stock investments to live on", the associated federal government deficit to fund Medicare/Medicaid and Social Security, etc.
What else might there be? How will the role of finance need to change to meet these challenges? Will we change from forecasters and analysts to risk managers? How can you take what you've learned at Krannert to help you deal with these issues? Most importantly, how can you turn them into a competitive opportunity for your firm and your career?
-Roger Stewart
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3 comments:
One of the most valuable things that I have learned at Krannert is the ability to do a Sensitivity Analysis. Looking not just at the base model, but at what the most important drivers are and then adjusting them.
Also, as we are seeing in the Financials. It isn't just the fact that Interest Rates are going up, but also that housing prices are going down, and that oil prices are going up so disposable income is going down.
The ability to try and develop models that look at all of these will be very important. I do the role of Finance to be much more involved in the risk management process.
We we will be foreced to deal with a very different currency landscape in the future. With the dollar falling to record lows against the Euro and 20 year lows against the yen, the future looks drastically different than the past 25 years. The dollar has been overvalued for a long time and our recent uptick in exports is nowhere near enough to offset our trade imbalance. This probably means that as Finance Officers we will likely be looking less at outsourcing and more at bringing business back home due to cheaper labor inputs coupled with a productive work force.
Also, I think that China's role will be one that will affect our careers greatly. Should they discontinue pegging their currency or drop the percentage of the basket that is denominated in dollars, the value of the dollar would plummet and perhaps open China up as a more lucrative export market (while making our overseas profits look that much larger).
As for our roles, I see risk management as a natural extension of forecasting/budgeting. The latter is a best guess look at the future while the former is a holistic process to handle the uncertainty surrounding any look into a crystal ball. I think that risk management will be a large part of our jobs as the world economy continues to change rapidly and old rules of thumb in the financial world become obsolete. Those that prepare for drastic and unforeseen events will survive and others will not.
What I will take away from Krannert is the confirmed belief that numbers are only a sound basis from which to start the decision process. Success in our future careers will depend largely on our ability to communicate and to handle uncertainty.
After coming back from Europe over break, I am acutely aware of the US currency issues. Depending on how long it takes the US to rebuild in purchasing power and currency leadership (I hope), I think managing currency risk and being flexible in moving operations will be increasingly important.
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