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
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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:
This short blog entry is focused on the 2nd 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.
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
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 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?
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 5th 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?
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
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.
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
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
PART 5
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 #5: Derivatives = Speculation.
This may be the most common misunderstanding in hedging. Warren Buffet’s now famous quote that “derivatives are weapons of mass destruction” (Berkshire Hathaway Annual Report 2002) has been over generalized by the media. Derivatives are merely tools, as are other financial instruments, that when used properly can offer an effective offset to an exposure to other risks, i.e. foreign exchange, interest rate, or commodity prices, for example. While there is no question that derivatives offer a vehicle to speculate on a highly leveraged basis, that is not their primary use in hedging, which is to reduce risk. Not managing one’s risks, and, therefore, the choice to float with market prices, is speculation whether it is by choice or naivety. This is not to say, that all risks need to be hedged and/or that derivatives are the only vehicle for managing such risks – the choice to hedge and with what comes down to ones risk appetite / risk capacity and other available alternative instruments / strategies. Contrary to the popular media, derivatives did not kill Wall Street during the financial crisis of 2008, unbridled speculation, combined with significant leverage, was a primary, but not only, weapon. DWS
Treasury: Situational Awareness – Lehman and San Mateo County
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:
“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:
Lessons Re-Learned:
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.