Tuesday Report - October 30, 2001

October 30, 2001

Economists Call Them Stranded Costs

In the barter marketplace we refer to capital invested in fixed assets that didn't produce the expected returns "underutilized assets"...but economists refer to them as stranded costs. For the airlines and hotels the expected returns probably won't come back real soon, so the adjustments become quite costly. And to make up for the changes we can look for higher prices or more taxes.

Another change taking place is the just-in-time efforts that companies have come to rely on. Now, with trucking delays--particularly when delivering products with high perishability--manufacturers, retailers, and suppliers will have to change their operations.

They will need to carry more inventory to hedge against supply and production-line disruptions. Retailers must rethink their timing and frequency. And sourcing of critical parts will be important, too. In short, business operations have become less predictable, and the savings of more than $1 billion a year in inventory carrying costs by using just-in-time methods over the past decade will be challenged.

81% of VCs Report Unfavorable Environment

The venture capital market, according to a new report by Profit Dynamics, www.capital-connection.com, is lousy! (Eighty venture capital firms across the U.S. participated in the survey.)

The most common reasons for the unfavorable environment for both the previous 12 months and the next 12 months are relatively the same: VCs will remain focused on their current portfolio companies, the economy won't rally much, and exit strategies will still be lacking.

McKinsey & Co. Survey Says Dot-coms and Internet Sector Will Rebound

In a couple of years, according to a recent study by the highly respected McKinsey Management Consultancy, people will look back on the summer of 2001 as the time when the music started up again!

What's happened is analogous to the savings-and-loan crisis and the great real estate collapse of the late 1980s. The prevailing wisdom says there is a bandwidth glut, but that it's almost certainly a temporary phenomenon.

(McKinsey says that if the S&L/real estate crisis is a suitable analogy, it'll take about five years to get from here to there. And along the way, they contend, there's a lot of money to be made bottom-fishing among the distressed properties in the marketplace.)

China Moving Forward With Change For WTO Entry

Wanting to enter the World Trade Organization, and realizing the importance of belonging to the international trading community, sees China taking dramatic steps forward in the effort to open and modernize its economy.

The State Council, China's Cabinet, has repealed 71 rules that conflict with new government policies and another 80 regulations that were due to expire.

Among the things abolished were rules that regulated foreign joint ventures, which means much more freedom for those ventures. It also lifted restrictions on insurance, banking and transport. The changes coming about, because of the entry into the WTO, are expected to be a big shock for China's long-protected farmers and inefficient state factories.