Ativo Capital

Rigorous Thinking


Financial and economic commentary reflecting Ativo’s world view:

The Country In a Funk

Monday, November 1, 2010

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Mid-September marked the second anniversary of the bankruptcy of Lehman Brothers, probably the most costly U.S. financial policy error ever. The sharp decline in housing starts that began early in 2007 led to a slowdown of growth. The recession started in January 2008; employment declined by 300,000 in the first nine months of that year—on average 30,000 a month. The Lehman bankruptcy triggered a panic and the most severe economic slowdown in 80 years; employment declined by six million in the last two quarters of 2008 and the first two quarters of 2009—an average of 500,000 a month. Virtually…

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Strengthening International Monetary Arrangements

Thursday, October 14, 2010

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Oct. 14, 2010Statement by Robert Z. Aliber Professor of International Economics and Finance EmeritusChicago Booth School of BusinessUniversity of Chicago(Professor Aliber is also a member of the Board of Advisors, Ativo Capital Management LLC) Before the Ways and Means Committee United States House of Representatives March 24, 2010 I am honored by the invitation to testify before this Committee and regret that I have a long standing commitment to be in Beijing on the date of these very important hearings. First, my background. I have studied international financial issues for more than fifty years, including currency questions and the…

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ESG/Sustainability Investors Should Engage Directly with Company Executives

Wednesday, September 22, 2010

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Guest Post by Pamela Styles, Principal, Next Level Investor Relations LLC Investors and company executives should be concerned about the lack of time and attention investor relations officers (IROs) feel they have available to understand the constructive and rapidly evolving investor attention to ESG (environmental & energy, social issues and corporate governance)/Sustainability factors in investment decisions, especially given estimates of related global managed assets that range from $18 to $27 trillion (see Rigorous Thinking or UN Principles for Responsible Investing reports.) Thoughtful assessments in two recent Rigorous Thinking postings do not overtly speak to the investor relations dimension, but…

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The Outlook for Non-US Equity Markets, guest blog by William J. Cridland

Wednesday, September 8, 2010

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The outlook for non-US equity markets overall remains favorable. However, performance will diverge by geographic region. In contrast to other recoveries from global economic downturns, the US is not leading the world out of recession this time around. Western Europe’s equity markets clearly have been buffeted by concerns about the outlook for Greece and to a lesser extent Portugal and Spain. However, there are emerging signs of economic recovery on the part of Germany, Europe’s largest economy, and the UK, where a serious austerity program could be put in place. Overhanging the region’s outlook are concerns about the banking…

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The Shareholder Value Case for Corporate Responsibility

Tuesday, August 31, 2010

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Aneel Karnani’s “Case Against Corporate Social Responsibility” (Wall Street Journal, 10/23/2010) misses a critical dimension of this issue. When it comes to measuring shareholder value, conventional financial metrics such as earnings and NPV fall short, failing to incorporate factors such as public perceptions, risk profiles, and investor preferences, which can have a significant impact on stock prices and the returns shareholders actually realize. For example, the UN Principles for Responsible Investing reports that its members manage $18 trillion of assets in 36 countries, with some estimates ranging as high as $27 trillion managed globally according to these principles. Values…

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American Angst

Tuesday, July 27, 2010

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By Robert Z. Aliber, Professor Emeritus of International Economics and Finance at the University of Chicago There is a lot of angst in America. The persistent high level of unemployment, and especially the six million individuals who have been unemployed for more than twenty six weeks are a matter of great concern. The foreclosure rate on homes is approaching one million in 2010—a frightening number; Before this episode is over, five percent of seventy-five million homes will have been foreclosed on—and millions more will have left their homes because of short-sales and jingle mail. There is fear that the…

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Using Tobin’s Q Ratio To Assess the Market

Monday, July 19, 2010

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The Q Ratio has been getting more attention than usual lately (for example, articles by Smithers and Short). Conventional wisdom is that current Q Ratio levels significantly above long-term averages indicate that the market is substantially overvalued. Our view: The Q ratio is an extremely useful metric, but the conventional wisdom on the topic is wrong. From a practical perspective, equity prices are the biggest input that determines the Q ratio. (The other two components, corporate assets and debt, are relatively stable in comparison.) And equity prices are determined by two variables, economic earnings (Cash ROI) of corporate sector…

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Pay for Performance?

Monday, May 17, 2010

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It’s that time of year again. Now that the proxy statements are out and shareholder meetings are on the calendar, we’re seeing the latest round of articles and studies (such as this from Business Week) questioning whether CEO’s are being overpaid or underpaid for the performance they’ve delivered. One major concern with many such comparisons is that they define “performance” as Total Shareholder Return (TSR) over some arbitrary period. A critical (and obvious) problem is that TSR, by definition, requires specific start and end dates for the measurement period. Moving the start date or end date by even one…

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Does Good Corporate Governance Pay?

Monday, May 3, 2010

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The Economist website recently published an article addressing the linkage (or lack thereof) between good governance and returns to shareholders. Critics of reform point to a study by Lucian Bebchuk showing that test portfolios of well-governed firms no longer earn excess returns. Although we approach the issue differently than Bebchuk, we concur (at least generally) with his conclusions. Even though Bebchuk found no relationship between good governance and excess returns over the period studied, he did find a strong correlation between good governance and high Q ratios. This is eminently sensible. A high Q ratio is due to one…

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Dennis Aust to Speak at Chicago Booth Finance Roundtable

Friday, April 30, 2010

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The University of Chicago Booth School of Business Finance RoundtableEnterprise Valuation: More Than Just Multiples?May 13, 2010: 6:00 PM – 9:00 PM In today’s “new normal” economic situation, valuation professionals are under increasing scrutiny to justify their enterprise valuations and explain the changes in enterprise value. Further, the analytical uses of enterprise valuations continue to grow beyond buy/sell transactions. What are the latest developments in financial valuation, accounting valuations, and management valuations? How do practitioners arrive at their enterprise valuations? What impact do valuations have on business activities? Panelists:Dennis N. Aust, Founder, CharterMast Partners LLCPatricia Luscombe, Managing Director and…

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