Treasury Update :: A Treasury Blog by Strategic Treasurer

To Windows 7…

On March 11, 2010, In Automation, Technology Tuesday, By Craig Jeffery

Not seeing any follow up posts made some people worry a problem ensued (others wondered why we are writing about Windows…). No problems – there are time restrictions on posting to blogs with real work needing to be done -and journal articles to be completed etc.. Here is the run down of what happened and my interpretation:

It took just over two hours to run the complete upgrade (after uninstalling my anti-virus software – more on that in a moment).
Recognize that two hours is a long time – but that is what they said it might take – and I have a ton of software on this machine.
Once it ran through the process (rebooting along the way as Microsoft indicated it would) I was presented with essentially all of my stuff in a new operating system. It looked relatively close the Vista system with some minor changes.

What had to be ‘fixed’. Not everything worked perfectly right off. Here is what happened that needed to be fixed:

Had to reinstall the Anti-virus to be able to connect to the outside world. We use a firewall that ENFORCES updated AV software (a good idea). Then, we had to install it again. Then today, had to reinstall it again to get an outside internet connection.
- Called our IT guy over to resolve the AV issue. After a few minute search on the AV site he performed a firmware update to our firewall to handle Win7 clients (this took a few minutes).
- Later on, once again we couldn’t connect outside (after working for awhile). The AV site showed that the Microsoft Firewall was blocking access. Their firewall was working fine. Apparently two firewalls might be too much. Disabled the extra firewall and it works great.
Nothing

What seems neat or worked well:

With a significant upgrade, they caution that you may need to have your software disks ready to reinstall. Besides the AV stuff, the aircard software ran its own install/change (of course we had to give it permission). Everything else has worked as it did before.
Printing, networking, backup services, etc.
The speed of the system generally seems a bit faster. Though Vista for this configuration was always pretty fast.
The mouse over options on the bottom are pretty effective for navigating – you see all 6 email files and can simply move to the image and you open that on your desktop
They have a warning flag system if anything is not up to security standards (if you remove the AV – all of a sudden a red circle with an ‘X’ in the middle shows up saying – you don’t have an Anti-virus software…
The extended desktop options for viewing multiple screens works even better than Vista. Nice.

All in all a relatively painfree upgrade. Glad I went with Vista as it worked well. DELIGHTED I went with Vista since upgrading from Vista to Win7 is a non-event.

-C

From Vista to Windows 7

On March 10, 2010, In Uncategorized, By Craig Jeffery

Embarking on the upgrade from Vista to Windows 7 today. Having enjoyed Vista’s capabilities and even performance (with the service packs) I am looking forward to experiencing Windows 7. It seems that even those who didn’t enjoy Vista like Windows 7 quite well.

I am no software tester, but thought it would be useful to document the upgrade on my live laptop.

-C

Treasury: Situational Awareness – Lehman and San Mateo County

On February 24, 2010, In Current Affairs, Financial Crisis Comments, Liquidity, Political-Financial, Risk Management, By Craig Jeffery

February 24, 2010’s WallStreet Journal ran an article entitled Lehman’s Ghost Haunts California. This article is well worth a good and critical read. Emphasis on the critical. It covers, essentially, one side of the story about San Mateo County and their loss of $155mm (reported by them) from the collapse of Lehman Brothers. We’ll be more frank in this blog entry even if it makes people feel uncomfortable.

The article states that “San Mateo’s board of supervisors ordered an independent review of the way the county investment fund was run, but found no wrongdoing.” And, a little later “San Mateo’s treasurer had invested in highly rated securities and put no more than 10% of the fund in any single issuer.” Okay, no laws were broken. Nobody violated the written investment policy as written. However, this fails to tell all of the key points about what was going on at the time. I would like to see the reporter dig up some useful information to tell us – such as:

Why, according to San Mateo County’s own research (as shown in a chart in the same WSJ article) did they hold $155mm when the next seven largest county/municipal holders of Lehman paper held less than that in total?
Since everyone was talking about Lehman issues before its collapse – and most were reducing their holdings – what was San Mateo doing to stay situationally-aware? By everyone – we include treasurers of municipalities and counties.
If they were increasing these holdings, why? For the yield?

“If there are warning signs all over the place about ice on the road - and snow is falling, anyone who doesn’t slow down to adjust for conditions is responsible for flying off the road. Claiming they didn’t break the posted speed limit isn’t going to be a good argument – especially if they were accelerating into the corner when they hit the ice.”

The article highlights a push to try to secure bailout funds for municipalities that held Lehman paper and makes comparisons to the bank bailout. While we can all argue about appropriateness of the ‘voluntary’ capital infusions to banks, there are some important differences that are not noted:

Bank bailouts didn’t seem to be voluntary
The US Government – and taxpayers – appear to be getting their principle back with substantial interest
Bailout for the banks equates to temporary loan with interest
Bailout, if given, to those who held Lehman Bros paper equates to a gift with nothing coming back

Lessons Re-Learned:

Ensure you are plugged into the discussions so you can remain situationally-aware.
Remain diversified (% of holdings, total amount of any one holding, source of ratings or proxy for ratings).
Ensure the technological tools are in place to monitor your holdings, counterparty risk levels, changes in quality of issuers, etc.
Take responsibility.

If anyone thinks that reducing treasury staff levels or eliminating funding for treasury systems and tools is a good idea, they may need some shock therapy or recent (and old) history lessons. However, no system can completely prevent operator error.

Strategic Treasurer: Welcome to our Treasury Blog

On February 20, 2010, In Announcements, By Craig Jeffery

Welcome! This site is run by the consulting firm Strategic Treasurer which focuses on four practice areas:

Treasury & Cash Management | Working Capital Management | Financial Risk Management | Treasury & Risk Technology

Here are some ways to see resources we provide or to connect with us:

LinkedIn Groups | StrategicTreasurer.com |Newsletters and Subscription | Treasury Books

Forecasting Series #2: Achieving Visibility part 1: Where is the data?

On February 15, 2010, In Forecasting, Forecasting Series, By Craig Jeffery

Where is the Data?

It always helps to know where you are going before you start a trip. Unless you are just going for a ‘walk-about’ or wandering for the sake of wandering. For those seeking to forecast their cash flows, one starts with the outcome they seek (perhaps a detailed 90 day daily cash forecast of all cash flows, with variance analysis capabilities, etc.). As soon as the desired outcome is determined for a forecast, a number of questions about data usually emerge that must be answered. In many instances, treasury professionals have these four questions:

What data do we need? This is best answered on a custom basis for each individual firm.
Where is the data?
How can I get at the data that exists inside our company?
How can I get at the data that resides beyond our company servers or databases?

This short blog entry is focused on the 2^nd question. Where is the data?

“In theory, reality is just like theory.

In reality, theory is nothing like reality.” source unknown

Determining what data you need and where it is most appropriately found is, in theory, quite a simple thing. However, serious analysis and discovery must be made when determining the location of the data that is needed. Questions such as the following can help you create your information inventory list.

How frequently will I need this data? If there are options, what is the best source for that data given this frequency?
What level of data will I need? Summary, detailed? Do I need to be able to drill down into it for research purposes?
Given various options, which data is more accurate most of the time?
Does some of this data sits ‘off the grid’ that I need to access or receive?
Location of data? What sits inside Treasury, what is in the organization in another business area, what is on a spreadsheet? Is it is housed in a SaaS system or stored in locations outside our data center? Finding the location of the data includes the path to the server, the database and the specific table(s) that are necessary.
Data needed that doesn’t exist. Some data that is needed for forecasting needs to be created. This can range from creating relational tables (on drives or in memory) from multiple sources for the forecast or analysis to creating databases for hierarchies or associative tables for a variety of reasons.

Once the location of the data is filled out on your information inventory list, you are now able to begin the process of getting the data or securing access to that data and determining what the format, shape and quality it is in – and what needs to be done to it.

/caj

Hedging Misconceptions – 6 Part Series

On February 11, 2010, In Uncategorized, By Craig Jeffery

Misconceptions About Hedging – One would think that after many years’ worth of ‘experience’ with hedging that we would have the subject down pat; that we would no longer have any misconceptions about it. We landed on the moon in ’69, yet we still have various misunderstandings when it comes to hedging. Confusion about Global Warming I can understand, it’s new (ok, we’ve been talking about it for a long time, but to recent converts – it appears new, or even suspect). But hedging? Some very smart people have been writing about it and/or doing it for a very long time. There are at least two truisms in life that I believe: “…nothing can be said to be certain except death and taxes” (B. Franklin), and effective risk management, which may involve hedging, enhances a firm’s value. Nevertheless, the subject remains misunderstood. Or, as with any subject, there are different opinions on it. Over the next several BLOG posts I will raise a particular misconception about hedging and provide an alternative viewpoint. If you have an agreeable or a counter viewpoint, then feel free to respond either on the post or email me directly at DStowe@StrategicTreasurer.com .

This series of blog entries covers six commons misconceptions about hedging. Each BLOG post raises a particular misconception about hedging and provides an alternative viewpoint. If you have an agreeable or a counter viewpoint, then feel free to respond either on the post or email me directly at DStowe@StrategicTreasurer.com .

Hedging Misconception #1: Hedging Eliminates Cashflow Volatility

Hedging Misconception #2: Risk is Absolute

Hedging Misconception #3: Risk Management Equals Hedging

Hedging Misconception #4: It’s Important for My Hedges to Make Money

Hedging Misconception #5: Derivatives = Speculation

Hedging Misconception #6: Hedging Requires Crunching

Cashflow Forecasting Series – 12 Parts

On February 10, 2010, In Forecast Series Landing Page, By Craig Jeffery

Cashflow forecasting is back in vogue as a topic and activity. The recent liquidity crisis is driving many to improve their ability to forecast cashflows. This series of blog entries identifies forecasting issues and ideas as well as offering some prescriptive advice to treasury professionals responsible for liquidity management.

We will keep updating the links on this site as we add the content. This may be the easiest way to find this content

Enjoy. If you want to make a public comment -feel free to do so. If you wish to respond privately to the author, send an email to craigj@strategictreasurer.com.

Forecasting Series #1: What Does a Number Mean?

Forecasting Series #2: Achieving Visibility part 1: Where is the data?

Forecasting Series #3: Achieving Visibility part 2: How can I get at the data INTERNALLY?

Forecasting Series #4: Achieving Visibility part 3: How can I get at the data EXTERNALLY?

Forecasting Series #5: Who Knows the Data Best?

Forecasting Series #6: The Data is all Messed Up – What do I do?

Forecasting Series #7: Variance Tracking: Do I need a tool – or tools?

Forecasting Series #8: What is The Best Kind of Analysis after Seeing a Variance (hint – it isn’t Regression)?

Forecasting Series #9: How Do We Get Better/Smarter at Forecasting?

Forecasting Series #10: How Good is Good Enough?

Forecasting Series #11: How Should We Describe Forecasting Accuracy?

Forecasting Series #12: Forecasting Loose Ends.

Forecasting Series #1: What Does a Number Mean?

On February 10, 2010, In Forecasting, Liquidity, By Craig Jeffery

Forecasting Series #1: What Does a Number Mean?

Cashflow forecasting is back in vogue as a topic and activity. The recent liquidity crisis is driving many to improve their ability to forecast cashflows. This blog entry is one of a series meant to identify forecasting issues, ideas as well as offer some prescriptive advice to treasury professionals responsible for liquidity management.

What does a number mean? Watching C-Span isn’t a favorite past-time of mine, however, I found myself enjoying a conversation with C-Span going on in the background (it wasn’t my house). One of our financially astute member of congress was questioning Tim Geithner. He, the congressman, was on a roll (or rant) about mortgages. Stating something like “…many homeowners now have a negative loan to value ratio…” Yes, he said negative. If Mrs. Grundy, the proverbial 5^th grade math teacher, heard this I am sure the ruler would have come out and would have returned without reddening someone’s knuckles. The mathematical challenge of making the LTV ratio requires something strange – a negative loan (can I get one of those?) or a negative value of a home. The congressman probably meant negative equity (or a very high LTV). Enough about our elected leaders and new math.

How accurate is your forecast? We see more and more regularly people quoting accuracy levels such as “…we achieved a 95% accurate forecast…”. Really? Is that good? Is this wonderful? What is it based upon? The number by itself is pretty useless. It is akin to saying “we achieved forecasting accuracy at level orange”. Of course, if you say that, people will look at you strangely and place a discrete phone call with the assumption that white will be your new color. But, if you mention a number or percentage – that must be scientific…accurate…and based entirely on facts. So what does this % of accuracy mean?

Is this accuracy based on cash flows or cash balances? And, if cash balances, are required reserves factored out of the equation?
What is the timeframe for the forecast? One day? One week? One month? 90 days?
What is the period of the forecast? A single day? A calendar week? A month – or 4 week period?
Is the percentage based upon absolute value of difference? Is the denominator the forecast?

To state the obvious – numbers need to mean something. And to do that we need context. Ask a young child “How many are you” or “How old are you”. They will respond something like “Three” very proudly. Then ask them “three what?” The puzzled look is precious (it isn’t mean to do this, I checked).

“So, what is your forecasting accuracy?”

“95%”.

“95% of what?”.

Puzzled look…(this one isn’t so precious).

In this series we will also lay out a methodology for describing forecasting accuracy that includes the period, basis, etc. That way everyone will understand the context of the numbers that are used. And, remember to watch out for negative LTV ratios. That indicates, with confidence, that it is time to check the math, the mathematician or both.

Comments? craigj@strategictreasurer.com

/caj

Obeying (some of) The Rules (US Check Printing)

On February 9, 2010, In Checks, By Craig Jeffery

We recently switched payroll services – within the same payroll firm. The move was to the fully online version simply to make life even easier on many fronts (no more downloading updates to tax rate tables and forms – even though it was automatic). No more software updates and challenges if someone else was running payroll. We removed those extra steps that can be avoided with a SaaS (software as a Service) model. In fulfillment of the principles of unintended consequences, we found we needed to get new check stock to print checks for when checks (and not direct deposit) are required.

This was interesting. Since we provided all of the bank information and gave them a starting check number, imagine our surprise to get the special check stock which was blank. Interesting…why did we need their check stock – besides to generate an excessive fee?

In running payroll our accountant was meticulous in following the rules they list to setup the check run. A severe warning to the affect “you must follow these rules or you are breaking the law”. The rules focused solely on alignment issues.

Exactly how far over the bank number must be from the right side of the check.
Exactly how far above the perforation should the MICR line information be printed.

The process was simple and it proved to be quite easy to align the checks according to the instructions. However, there was NOTHING in any of their instructions to indicate that there might be problems caused by printing everything with regular ink. The MICR line (the bottom of the check) is supposed to be used for Magnetic Ink Character Recognition (MICR). Without magnetic ink the check won’t be magnetically readable by the reader/sorter equipment at the bank. This creates rejects, delayed processing (for a repair line to be added) and can result in additional charges being imposed by the banks.

So the payment process gets easier for us while we create exception processes downstream. It seems to us that they should have printed the MICR line in magnetic ink for their customers!

caj

Misconceptions About Hedging – Part 6

On February 1, 2010, In Derivatives, Hedging, Risk Management, By David Stowe

PART 6

Misconceptions About Hedging (continued) – This post is a continuation of a previous series of posts on the various misconceptions about hedging. Over the next several BLOG posts I will raise a particular misconception about hedging and provide an alternative viewpoint. If you have an agreeable or a counter viewpoint, then feel free to respond either on the post or email me directly at DStowe@StrategicTreasurer.com .

Misconception about hedging #6: Hedging Requires Crunching
Numbers. Though some number-crunching may be involved (one needs to quantify their exposures and analyze various risk scenarios), it is often overlooked that effective risk management requires more communication than calculation. From understanding a firm’s exposure, to determining its risk appetite and risk capacity (the ability to absorb such risks), to gaining buy-in from senior management and establishing clear objectives, it’s more important to spend the time communicating on both a pre- and post-hedging basis up, down and across an organization. You need buy-in from executive management and related staff to execute your strategy and prevent Monday-morning quarterbacking. Lack of communication, therefore, leads to misunderstanding of risk management activities, which can lead to the worst
pitfall of all: Inaction. DWS

TREASURY UPDATE

A Treasury Blog by Strategic Treasurer