Thursday, January 22, 2009

A One – Handed Economist

Harry Truman famously complained that what he needed was a one-handed economist, as all of the economists that were advising him would state “On the one hand… but then again, on the other hand…”  Old Harry S. can now rest easy in his grave, because yesterday I may have heard a one-handed economist.  

The occasion was my local NIRI chapter luncheon for January where we were treated to an economic outlook and forecast by an economist for an investment bank.  As you might imagine, given the current economic environment, the overall message the speaker was giving out was not overly optimistic.  I’m not going to depress you by going over all of the gory details, but there was one statement that caught my attention.  Speaking to the actions of the government and the Federal Reserve to combat the current economic downturn and credit crisis, he said, “They’re doing all the right things”.  That is about as straightforward a statement as you will ever hear from an economist.  This guy obviously did not take elocution lessons from Alan Greenspan.  

Naturally, when I heard something that simple and direct I got to thinking about it and I realized that there were a number of unstated assumptions in what had been said.  What I think the economist was really saying was, “[In my opinion, if this economic situation is similar to what we have experienced in the past, then] they’re doing all the right things.”  Of course, therein lies the catch – things are never quite what we’ve experienced in the past.  The financial markets that have evolved in the last ten years with Collateralized Debt Obligations, Mortgage Backed Securities, highly leveraged hedge funds and derivative markets are vastly more complex than anything that existed during any past financial crisis, be it the Great Depression, the Saving and Loan debacle or the Japanese economic bubble.  In each of these past downturns, policy makers thought they were doing the right things, but it’s only in retrospect that you know if they got it right or screwed up royally, because every time it looks the same, but it’s different. 

Which brings me to what we do in investor relations. (You knew I had to get here eventually, right?)  We are often confronted with situations that sort of look like what we’ve seen in the past, but things have changed.  Say you are going to make a presentation to an investor conference that you presented at last year.  You’re still the same company; the investors attending the conference are likely to be very similar to the investors that attended last year.  Things look pretty similar  - should you just mark up last year’s presentation and let it go at that?  Maybe, but are you really the same company you were last year?  Have your markets changed?  Perhaps you’ve gone from being a growth company to a value play.  Certainly your investors this year are not the same as they were last year as the market downturn has radically altered their view of the world.  Even if your company’s basic long term strategy hasn’t changed, it is probably time to think about a fresh approach to how you communicate your story to investors, taking the new reality into account. 

The same can be said for any number of situations we face in investor relations.  Should we be rethinking our approach to regulatory disclosure issues with the SEC smarting from some of its recent oversight failures?  Will non-governmental organizations and social activists gain more traction on proxy proposals with a more liberal administration and Congress in charge?  Are activist hedge funds relevant if access to capital is restricted?  We’ve seen all these issues before – interpretation of SEC regulations, proxy proposals, activist hedge funds – but not in the current environment.  History may be a help, but it is not a definitive guide.  You still have to bring judgment and critical thinking in order to weigh the issues and come up with a well thought out course of action because things are never exactly the same. 

There are more examples I could cite,  but I have to stop now – both my hands have gotten tired from all this shifting of issues back and forth.

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