It was a bubble

It’s interesting to see how many seasoned commentors on CNBC and social media gurus refuse to directly call the pandemic earnings a bubble.  Which is worse, the Federal Reserve not taking the hard stance that’s needed to curve interests’ rates or the American public acting surprise we are seeing the unraveling of our economy.

Like you, I was shuttered in.  In essence Americans were on time-out.  We were not allowed to see friends, work, shop and take vacations.  It was self-evident the hospitality industry was going to feel the financial pinch immediately.  We were ordered to stay home.  But what about the other industries, such as software, communications or auto. Check out Prospering in pandemic: the top 100 companies – Financial Times

I’ve heard people ask, is common sense, common.  If only essential workers were allowed to work, where did the all the money come from to bulge the pockets of the corporations?  Yea, you know where. The Fed.  Two notable items for the record; first there was no quick fix for maintaining the economy during the pandemic and secondly, we too are capitalists.  But not at the expense of having a free fall dive.  You cannot dump money into the system and not expect currency devaluation.  Oh, for the record we are fighting two evils: currency devaluation and inflation via the supply chain.

 

 

CFO’s and the Board’s responsibility

Christine Lagarde of the European Central Bank president said it best, Europe was focused on employees being able to return to work, not giving out checks.  The PPP program, we believe was a needed remedy to stave off household bills.  But the run on the money press occurred with the IEDL program.  The fiduciary responsibility of the SBA & Treasury was verify if the businesses were a true going concerns as of December 2019 according to EIN filings.  This would have been more prudent and would have more thank likely reduced IEDL spending by 15  – 20%.

How should Board rooms and CFOs manage a tidal wave of revenue and net income growth?  Capitalize on the opportunity but with conditions.  These four conditions are imperative.  In this example, let us use Paramount+.  For the record, I am a fan of Paramount+, notably Frasier and Halo.  First, managed investors’ expectations.  Make it clear that the conditions that fostered opportunity and growth are unique and we can extract value.  But, with consideration of competition in the market, we temper our growth expectations.  Do not let the external noise dictate Board room decisions.  If this is a must, let it be supported with data.  Secondly, plainly define your market differentiation.  Nintendo has done this nicely.  They are the family go-to for home gaming entertainment.  Thirdly, have an exit strategy when the streaming hype dies down.  Do not get caught out there with high capital investments wishing on a star. Do more with less until the organization is compelled to.  Finally, reassess the market to see if you need to redefine your customer segments or value proposition.  Keep the copycats at bay

Never forget Michael Porters principles on competitive strategy.  Like New York hot dog stands, everyone, big or small, wants their own streaming service, hints YouTube.