Risks to the US Stock Market Rally in 2018 – “What Could Possibly Go Wrong?”

graphic-dow

By Terry Connelly, Dean Emeritus of the Ageno School of Business 

terry-connelly

It was hard NOT to make money in the American stock market because almost everything went right in 2017, with each of the DOW the NASDAQ and the S&P 500 indices up between 20% on up to 28%. Yet some Wall Street traders managed to fail against those benchmarks or even lose a lot of money, largely by shorting high-growth technology, going long energy or otherwise trying to live without the moderate to high price day-to-day price volatility that is the mother’s milk for trading profits. Investors who simply invested in those indexes did very well indeed: $1000 spent buying the S&P 500 index, for example, yielded a total of $200+ in profits by the last day of trading in 2017.

But even with such performance, the US market was surpassed by the returns of its global peers, as measured by the MSCI ACWI non-US Index that tracks non-US companies across other developed and emerging markets. According to CNN Money, Hong Kong’s Index was up 36%, India’s 28% and markets in countries coming out of the shadows of economic downturns like Argentina (77%) and Nigeria (42%) were also up substantially more than the US market.

Last Days of 2017

Indeed, the synchronized global recovery in 2017 – including Europe (with or without the UK), plus India, Japan and many developing markets (but excluding China) – was fueled by maintenance of relatively low interest rates and bond buying by major central banks including the US Federal Reserve and the European and Japanese Central Banks. This had a lot to do with the US stock rally – perhaps even more than the self-described hero of equities President Donald Trump. In fairness, his election obviously had a positive impact on stock values – investors quickly and accurately saw him and his Administration’s agenda as very favorable to American business interests. As a “discounting mechanism” for future economic value, the stock market anticipated his tax cut agenda increasingly as it became finally clear that it would pass in the late fourth quarter and rose 25% for the year.

Investors generally know about the risks of a North Korean nuclear conflagration and the Mueller investigation of possible Trump campaign ties with Russia…But there are other less-noted risks that merit attention.

Nothing in fact of substance to the equity market has changed between December 29, 2017 and the first week of January 2018 so many analysts have predicted a continuing positive run for stocks in the New Year. Yes, there was a 100+ point drop in the Dow the last minutes of trading that coincided with a last-minute headline on Reuters that Russian ships were secretly transferring oil on the high seas — in violation of UN sanctions — to North Korean vessels. But Russia denied any “State” involvement (just as China had done days before in response to a similar charge).

Diplomatic Relations in 2018

Denials aside, however, US relations with Russia, China, North Korea (and even oil) pose risks to the US stock rally that investors need to take into consideration as they count especially their unrealized winnings – as they also contemplate their moves under the new tax regime, which has lowered individual rates such that the 24% personal rate kicks in only when couples’ taxable incomes reach $315,000 while long-term capital gains rates for such folks still come in at 23.8%. This marginal effect is a whole new wrinkle in a tax code change that otherwise is far more favorable to capital than salaried income! The tax changes themselves also include some surprising potential pitfalls for investors as the year begins, as we shall see below.

New Market Risks that Merit Attention

Knowing “when to hold ’em and when to fold ‘em” is a skill often in demand and frequently in short supply. Investors generally know about the risks of a North Korean nuclear conflagration and the Mueller investigation of possible Trump campaign ties with Russia that could threaten impeachment and political turmoil. Thus far markets have not reacted adversely to these threats, nor to China’s relative economic slowdown in the wake of financial reforms and capital controls.

But there are other less-noted risks that merit attention. Let’s uncover some of those:

Trade War

A trade war with China has often been threatened by Trump, but no trigger has been pulled as yet — although there have been media reports that an Administration squeeze on China trade is coming as early as January. We know from the Depression onward that markets hate trade wars, especially right when the world economy, driven by trade, is just starting to come around.

Interest Rates

The price of oil has been recovering from a multi-year slump and closed the year above $60, along with the increasing price of other commodities in part due to the 7.5% decrease in the value of the US dollar in 2017. Such inflationary pressure could lead the US Fed to raise interest rates more quickly than anticipated now by the market. That outcome could be negative for US equities even if US GDP picks up to near 4% as Trump predicts.

[The] tax code change … is far more favorable to capital than salaried income! The tax changes themselves also include some surprising potential pitfalls for investors as the year begins…

Government Shutdown

Likewise, the Federal government’s unfinished budget business (which took second place to passage of the Trump tax bill) is now leading to a January 19 shutdown deadline that could also play havoc with equity values short-term — especially if both Trump and the Democrats conclude that a shutdown fight over “principles” is in their 2018 midterm election interest. Remember that politicians take credit for rising stock values, but blame “market forces” for corrections and crashes.

Corporate Tax Rates

Under the new tax “repatriation” provisions, US corporations holding cash profits at least technically offshore to income tax liability here are deemed to have repatriated that cash effective in the 2018 tax year and owe theirs in addition to the new special tax of 15% on those proceeds. Although they can spread the payment that tax amount over 8 years, many will follow the lead of Goldman Sachs and take a charge for that liability in their last quarter of 2017, creating a sharp decline or even negative result for quarterly profits – quite the opposite of the strong and steady increase in such profits investors had come to appreciate and value in 2017!

Will shareholders look past this one-time hit to the fact that the new tax regime severely limits taxation of foreign profits of US companies going forward with a new “territorial” based-regime more akin to the rest of developed world? That risk question starts coming up right now. Goldman’s stock closed 1% down after its decision was announced on the last day of US trading, in a reversal of a recent uptrend that had broken above long-term “resistance” levels.

Banks

We will also need to see what other banks do with write-offs of tax-loss carry-overs from the bad days of the financial meltdown beginning in 2007, which are now worth much less on their balance sheets than they were before the new tax law substantially cut their effective tax rates from the mid-thirties to nearly the teens. A knee-jerk “run” on bank stocks could also upset the equity market’s equilibrium early in the first quarter as last quarter charges hit.

Technology Stocks

Another sector that has been responsible for much of the equity indices march higher has been technology, especially the “FANG” stocks – Facebook, Apple (and/or Amazon), Netflix and Google (now officially “Alphabet). The risks here to investors are even more substantial and longer term.

Senator Mark Warner and others in Congress have targeted Facebook’s and other Silicon Valley giants’ failures to control Russian use of its platforms to spread fake news intended to interfere with US elections.

Apple ended the year with an apology for remotely and secretly controlling the internet access speed of older iPhones to save battery life. This is a worthy goal, for sure, but an unworthy process that ironically mocks the very same “net neutrality” policies – now overturned by the Trump’s appointed leader of the FCC – which other FANGS and, lately, Apple have so vigorously has advocated.

In addition, Amazon is in Trump’s sights most recently for its “cheap” delivery deal with the US Post Office. Netflix has its own problems with new direct competition from Disney and its combination with Fox Entertainment – not to mention its ongoing streaming rivalry with Amazon. And Google is under threat from the European Union for billions in fines and more for favoring its own brands on its search function.

Collectively, the FANG stocks spell more risks for investors even than individually, because their rising stock prices have along with other “tech” companies has elevated their percentage presence of that sector in “market-cap-weighted” indices like the S&P 500. If the market turns sour on a set of such tech stocks, it would bring down the value of the whole index accordingly. Thus the 20% profit enjoyed by S&P index investors in 2017 could quickly turn the other way if the FANGS collectively fail to deal effectively with their current challenges.

The Dow and Its Most Expensive Stocks

The Dow Industrial average, by contrast, is not market-cap-weighted but stock-price weighted – so that that it is the higher per-share price stocks like Goldman Sachs (and, Boeing, IBM, and Apple) can have outsized impact day to day. As noted, some of these companies have their own special risks going into 2018 and can bring down the Dow index if they are not handled well.

The best speech I ever heard on Wall Street, given to assembled investment bankers in the midst of a trading recession, was the simple “environ­mental” reminder that “trees don’t grow to the sky.” Even as the science of climate change undergoes severe challenge from the “fake news” crowd, 2018 investors would do well to remember that basic lesson of ecology.


About Terry Connelly

Terry Connelly is an economic expert and Dean Emeritus of the Ageno School of Business at Golden Gate University. With more than 30 years experience in investment banking, law and corporate strategy on Wall Street and abroad, Terry analyses the impact of government politics and policies on local, national and international economies, examining the interaction of global financial markets, the U.S. banking industry (and all of its regulatory agencies), the Federal Reserve, domestic employment levels and consumer reactions to the changing economic tides. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore (corporate, securities and litigation practice in New York and London), global chief of staff at Salomon Brothers investment banking firm and Cowen & Company’s investments, where he served as CEO. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education (2011). Riptidedeconstructs the changing landscape of higher education in the face of the for-profit debacle, graduation gridlock, and staggering student debt, and asserts a new, sustainable model for progress. Terry is a board member of the Public Religion Research Institute, a Washington, DC think tank and polling organization, and the Cardiac Therapy Foundation in Palo Alto, California. Terry lives in Palo Alto with his wife.


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Can you predict what 2018 has in store for business, economics, politics, and sports? Take the Emeritus Dean’s Quiz

terry-connellyAt year’s end, I write the Business Dean’s Quiz about what the new year will bring. What do you think of my answers?

 

 

1) Where will the Dow Jones average stand at year end 2018 as compared with year-end 2017:
a) 10% or more higher
b) 10% or more lower
c) within 5% either way
d) less than 1% different
e) between 5% and 10% up
f) between 5% and 10% down

2) Which of the following companies will be acquired:
a) Time Warner
b) Netflix
c) Humana
d) Qualcomm
e) CBS
f) Macy’s

3) President Trump will have the opportunity to choose a nominee for the US Supreme Court before year’s-end.
a) True
b) False

4) Which Trump Administration senior official will not be in the same office at year end 2018 (List as many of these as you like.):
a) Treasury Secretary Mnuchin
b) Attorney General Sessions
c) Secretary of State Tillerson
d) Defense Secretary Mattis
e) Education Secretary DeVos
f) CIA Head Pompeo
g) UN Ambassador Haley
h) Office of Management and Budget Mulvaney
i) None of the above

5) Pick the stock that will appreciate the most in 2018:
a) Ford
b) Bank of America
c) Con Edison
d) Google
e) Apple
f) Alibaba
g) Facebook
h) General Electric

6) Pick the stock that will depreciate the most in 2018 among the following:
a) Netflix
b) AT&T
c) Chevron
d) Goldman Sachs
e) Lockheed Martin
f) Berkshire Hathaway
g) Citigroup
h) United Technologies

7) Bitcoin’s market value at year end 2018 will be:
a) at or below $10,000
b) above $10,000
c) essentially worthless and untradeable

8) The Democrats will recapture the House of Representatives in the 2018 midterms:
a) True
b) False

9) The Republicans will hold the Senate in the 2018 midterms:
a) True
b) False

10) Sports “Comeback of the Year”:
a) Tiger Woods
b) Aaron Rogers
c) San Francisco Giants
d) San Francisco 49ers
e) Washington Redskins
f) UCLA football team
g) Lindsay Vonn
h) Rory McElroy

11) The following will announce they are NOT running for President in 2020 (List as many of these as you like.):
a) Hillary Clinton
b) Donald Trump
c) Bernie Sanders
d) Elizabeth Warren
e) Jerry Brown
f) Ben Sasse
g) Cory Booker
h) Kirsten Gillibrand
i) Bill DiBlasio

12) Which, if any, of those named in Question 11 will announce early that they WILL run for President in 2020.

13) Which, if any, will attack another country pre-emptively in 2018 (List as many of these as you like.):
a) Venezuela
b) Saudi Arabia
c) Israel
d) Pakistan
e) Russia
f) North Korea
g) Turkey
h) USA
i) None of the above.

14) Special Counsel Mueller’s conclusion will be:
a) The Trump campaign was “extremely careless” in its dealings with Russian person, the Trump transition team acted in technical violation of the Logan act, and President Trump attempted to obstruct justice by firing Comey – BUT no “reasonable prosecutor” would seek to indict the President.
b) Trump did nothing wrong; no collusion was proven
c) Trump is indicted for obstruction of justice
d) same as (a) above but all matters should be referred to Congress for any action.

15) Whatever tax change bill passes the Congress and is signed by the President into law, a major unintended consequence will be discovered during the year which will require a fix before the 2018 midterm election:
a) True
b) False

16) The price of oil at year-end 2018 will be higher than the price of oil at year-end 2017:
a) True
b) False

17) The British will fail to successfully conclude “Brexit” arrangement with the European Union before the end of 2018, calling to serious question whether there will be in place by the March 2019 official deadline for an agreement:
a) True
b) False

18) The US Congress will pass and the president will sign significant new legislation regarding the following before the end of 2018, regardless of whether before or after the midterm elections:
a) reinstating “net neutrality”
b) abolishing the Consumer Finance Protection Bureau
c) providing permanent legal status to so-called DACA or “dreamer” immigrants
d) changing Medicare to a form of voucher program for new enrollees
e) repealing the remnants of Obamacare and shifting funds and full responsibility for health insurance regulation entirely to the states
f) killing the Iran nuclear agreement
g) establishing a federal/state/private enterprise partnership for infrastructure construction
i) none of the above

19) The MVP of the 2018 Super Bowl will be:
a) Jared Goff of the Rams
b) Aaron Rogers of the Packers
c) Tom Brady of the Patriots
d) Antonio Brown or Ben Rothlisberger of the Steelers
e) Mark Ingram or Drew Brees of the Saints
f) Russell Wilson of the Seahawks
g) Cam Newton or Christian McCaffrey of the Panthers
h) Case Keenum of the Vikings
i) none of the above

20) American financial firms will begin significantly to relocate their operation from London to:
a) Paris
b) Frankfurt
c) Amsterdam
d) Dublin
e) Luxembourg
f) all of the above
g) none of the above – won’t happen


Answers: 1 c; 2 c and d; 3 b; 4 c and f; 5 a;  6 g; 7 a; 8 a; 9 b; 10 d; 11 a, e and i; 12 b and g; 13 i; 14 a; 15 a; 16 a; 17 a; 18 a; 18 c; 19 d; 20 f.


About Terry Connelly

Terry Connelly is an economic expert and Dean Emeritus of the Ageno School of Business at Golden Gate University. With more than 30 years experience in investment banking, law and corporate strategy on Wall Street and abroad, Terry analyses the impact of government politics and policies on local, national and international economies, examining the interaction of global financial markets, the U.S. banking industry (and all of its regulatory agencies), the Federal Reserve, domestic employment levels and consumer reactions to the changing economic tides. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore (corporate, securities and litigation practice in New York and London), global chief of staff at Salomon Brothers investment banking firm and Cowen & Company’s investments, where he served as CEO. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education (2011). Riptidedeconstructs the changing landscape of higher education in the face of the for-profit debacle, graduation gridlock, and staggering student debt, and asserts a new, sustainable model for progress. Terry is a board member of the Public Religion Research Institute, a Washington, DC think tank and polling organization, and the Cardiac Therapy Foundation in Palo Alto, California. Terry lives in Palo Alto with his wife.


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To Create a New Amazon Village, It Takes a Graduate Degree (or Two, or Three…)


By Terry Connelly, Dean Emeritus of the Ageno School of Business

Amazon made headlines with its stupendous 1300% “earnings beat” for its most recent quarter that moved the company’s stock up over 10% in just one day! But before that, the folks from Seattle made perhaps even more consequential news by opening a competition to American cities for selection to host the second Amazon headquarters (“HQ2”), with the prospect of 50,000 new jobs coming to their immediate region and total investment of upwards of $5 billion, which has provoked a bidding war among metropolitan areas across the U.S. and even Canada.

Just what kind of expertise and insight is involved in this exciting business venture that could create a local enterprise supporting a family population the size of a Bay Area city such as Santa Clara or Hayward?

Big Decisions, Big Data, Big Money

First, let’s consider the highest-level executive judgment involved, integrating all the various dimensions of Amazon’s long-term business strategy, growth plans, political interests, financial capacity, artificial intelligence involvement, staffing innovations, and logistical structures. Add to that current experiments with brick-and-mortar stores, drone and in-home package delivery, and wholesale pharmacy licenses, just to name a few.

Such integrative thinking calls for at least a first-rate Master of Business Administration program taught by real-world veterans of both the commercial and academic arenas. An Executive MBA program might well be even more apt, especially if it involves hands-on experience with current business problems involving entrepreneurial challenges faced by world-scale as well as start-up enterprises.

Amazon’s leadership team for this exciting project would need to involve also expertise in Business Analytics to frame the entire scenario for planning an executing such a complex and multi-faceted undertaking, involving detailed assessment of multiple locations and logistical considerations, evaluating over 200 proposals from municipalities against a defined set of financial and other criteria that set Amazon’s objectives in advance with precision and confidence.

Financial considerations would, of course, be front-and-center for AMZN given a $5 billion project far more complex than building a multi-million-dollar sports stadium or even a Disney theme park. A master’s degree in Finance would be necessary to make the team tasked to determine exactly how this project would be funded and the rate-of-return benchmarks to be used not only in scoping the project physically and evaluating the various forms of incentives to AMZN offered by the competing communities to determine which are in the long-term interests of the company.

People Power

Speaking of employees, a master’s degree in Human Resources would be extremely helpful in defining the criteria for the type of community where Amazon would like to locate its large workforce, ranging from top-level world-class senior management to the newest entry-level trainee. The company was explicit in the kind of social environment that it wants for this large-scale operation. The community’s engagement in sophisticated workforce development programs such as those that exist in Silicon Valley – supported by many established businesses in the area as well as educational and public service institutions – would be a prime consideration for the company’s senior HR professionals. Similarly, Amazon’s commitment to racial and gender diversity in hiring and advancement would be relevant in evaluating which location is most likely to advance the company’s goals in this area.

At the employee level, a Financial Planning graduate degree would come in handy eventually for assessing the cost-of-living considerations relevant to the tens of thousands of employees that Amazon’s HR department will need to attract a retain with compensation and benefits structures appropriate to the location – and, in the same vein, assess the same metrics in choosing the location most likely to attract the best and brightest employees!

Getting It Done

The design, planning, construction and operation of the new headquarters is a massive undertaking that would require the most sophisticated Project Management knowledge and skills that a master’s degree in that field would provide. The project leadership would have to involved from well before the word “go” in designing criteria to evaluate the optimal-location considerations in terms of design talent, land availability and cost, municipal services quality and availability, labor capacity and supply access to materials, weather patterns, and all other issues relevant to the company’s timetable.

Once designed, the project would have to be executed with attention to the desired timetable; contractor management; compliance with building codes and ordinances, labor standards, and clean-energy objectives and other resource-consumption considerations; local and regional transportation polices and interests; as well as community focus on traffic and public transport routing and planning — for necessary employee housing and related facilities such as schools. In these connections, professionals with a master’s degree in Public Administration would be very helpful in negotiating the nuances of local political and governmental authorities as well as federal and state agencies with stakeholder interest in the headquarters project design and execution.

Nuts and Bolts

A master’s-level education in IT Management would also be critical in terms of specifications for the fiber-optic network and related technology infrastructure required to meet Amazon’s standards and assure seamless and efficient communications between HQ2 and HQ1 — as well as a vast array of warehouses, logistical network, customers, suppliers.

Finally, but crucially, linking all of these complex operations, a master’s degree level of expertise in Supply Chain Management would be essential to get the most value out of the new headquarters in terms of Amazon’s multifaceted connections to its suppliers, merchants, and customers. By the time the new headquarters is fully operational, Amazon might well be operating its own cargo airline delivering food and pharmaceuticals as well as merchandise the company offers now.

What an exciting opportunity for anyone who could in the next year begin pursuing any range of graduate degrees that are so integral to the success of Amazon’s headquarters project. You might even call it a “Prime” opportunity!


About Terry Connelly

terry-connellyTerry Connelly is an economic expert and Dean Emeritus of the Ageno School of Business at Golden Gate University. With more than 30 years experience in investment banking, law and corporate strategy on Wall Street and abroad, Terry analyses the impact of government politics and policies on local, national and international economies, examining the interaction of global financial markets, the U.S. banking industry (and all of its regulatory agencies), the Federal Reserve, domestic employment levels and consumer reactions to the changing economic tides. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore (corporate, securities and litigation practice in New York and London), global chief of staff at Salomon Brothers investment banking firm and Cowen & Company’s investments, where he served as CEO. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education (2011). Riptidedeconstructs the changing landscape of higher education in the face of the for-profit debacle, graduation gridlock, and staggering student debt, and asserts a new, sustainable model for progress. Terry is a board member of the Public Religion Research Institute, a Washington, DC think tank and polling organization, and the Cardiac Therapy Foundation in Palo Alto, California. Terry lives in Palo Alto with his wife.


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What Is the Best Executive MBA Program for Me?

By Terry Connelly, Dean Emeritus of the Ageno School of Business

Choosing an Executive MBA (EMBA) program turns out to a “multiple choice” question – and a good one. EMBA programs are offered in multiple shapes and sizes, in large universities and small, private and public, non-profit and for-profit, distinguished and ‘not so much’, in-person, online and hybrid – with variable lengths and depths, with little or substantial travel commitments, domestic and overseas or both, expensive and more expensive.

Making the right choice would seem to require an MBA degree in and of itself, in only to sift through all the marketing claims focused on convincing you why each program is “just right for you”!

What does “Executive” really mean?

Let’s instead start with a simple matter of definition – not of the “MBA” part at first, but rather of the key term: “Executive.” Too many prospective students associate that word with an idea of a sort of mid-career shortcut to a Master’s of Business degree that will help them climb to the next, narrower zone up on their career path. They confuse the Executive MBA with something like an “Executive” Golf Course designed for less-experienced (talented?) players. If that’s what you’re looking for in an EMBA program, you know one thing for sure: you’re not ready to pursue an EMBA!

The right understanding of the “Executive” aspect requires a focus on two factors: the folks who will be accepted as your classmate, and a level of effort expectations – of both your fellow students and the teaching faculty – that is commensurate with the knowledge leverage that assures that the “MBA”-part of the program provides for real career advancement.

The term “Executive” envisions a level of responsibility that goes beyond mere management of enterprise affairs to the ability to provide leadership in those affairs.

Learning from Peers

In the right Executive MBA program, you should expect to learn not just from a faculty that has more real-world experience than you have accumulated, but also from your fellow students, whose experience, taken as a whole, should have business knowledge on par with your own. And you should also be prepared to contribute your fair share of challenging, questioning and probing insights as part of the program – or again, you are not ready for a real EMBA!

The right school will select a class by making their admissions criteria clear, compelling and challenging. Years of managerial experience will be important but the most important factor should be ready for leadership roles, as certified by employers. Look favorably on EMBA programs that interview all applicants
that you will interact with and learn from. GGU students tend to be older, so you will most likely find a cohort of individuals who have accrued a certain amount of experience and success.

Look for Road-Tested Faculty

The best Executive MBA programs are ones in which you should expect to learn not just from a faculty that has more experience in enterprise (for-profit or non-profit, governmental or NGO) than you have, rather than just academic pedigrees. Whether full-time professors or part-time adjuncts, they should show a record of leadership involvement that, in stock-trading parlance, would be an “up-tick” to yours and your classmates. If not, give their EMBA program an “Incomplete” grade and look elsewhere. Since the first job of a leader is “define the reality” that your enterprise confronts, you can only learn this skill from real-world sources.

You are far more likely to find the business experience so critical to a good EMBA faculty in a private rather than a public institution, which must prioritize its tenured faculty privileges. All the better if it’s a non-profit school so that your place as a student is not outranked as a priority by the shareholders and the marketing directors.

In the right Executive MBA program, you should expect to learn not just from a faculty that has more real-world experience than you have accumulated, but also from your fellow students, whose experience, taken as a whole, should have business knowledge on par with your own.

Finally, look for diversity in both your classmates and the faculty, in terms of experience, background, race, ethnicity, and gender – as well as foreign as well as domestic home bases. Again, this will help you define reality in the future.

Location, Location, Location

When all the above boxes are checked favorably in your search for the best EMBA program, you may be surprised to find it closer to home or your job than you expected – maybe even near a public transit hub with good nourishment sites around in the neighborhood. You are going to spend many intense hours at school and you don’t want to add any more time getting fed or to and from your destination!

Curriculum

Check to see if the EMBA program itself integrates real-world, present tense problems into the curriculum. You and your classmates will savor the chance to put theory into practice on actual enterprise challenges that have yet to find a solution. The best EMBA programs will readily find enterprises willing to share these opportunities for problem-solving with their students, precisely because those programs will have earned a reputation for being a “cut above” than the others in terms of students, faculty, and ingenuity! And a “cut above” is what you want to be when you get your EMBA, isn’t it?


About Terry Connelly

Terry Connelly is an economic expert and Dean Emeritus of the Ageno School of Business at Golden Gate University. With more than 30 years experience in investment banking, law and corporate strategy on Wall Street and abroad, Terry analyses the impact of government politics and policies on local, national and international economies, examining the interaction of global financial markets, the U.S. banking industry (and all of its regulatory agencies), the Federal Reserve, domestic employment levels and consumer reactions to the changing economic tides. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore (corporate, securities and litigation practice in New York and London), global chief of staff at Salomon Brothers investment banking firm and Cowen & Company’s investments, where he served as CEO. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education (2011). Riptide deconstructs the changing landscape of higher education in the face of the for-profit debacle, graduation gridlock, and staggering student debt, and asserts a new, sustainable model for progress. Terry is a board member of the the Public Religion Research Institute, a Washington, DC think tank and polling organization, and the Cardiac Therapy Foundation in Palo Alto, California. Terry lives in Palo Alto with his wife.


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Under Every GOP Plan to Replace Obamacare, Your Employer Will Be Free to Terminate Your Health Insurance: Did You Vote for That?

By Terry Connelly, Dean Emeritus of the Ageno School of Business

Employer-based health insurance has been a mainstay of the American economic scene since World War II, when it provided an added benefit for workers denied any increase in wages to match their wartime productivity by Federal wage-price controls. And it is at risk of disappearing without much, if any, public debate. For decades it was provided on a voluntary basis, as a product of employer-employee bargaining and job market forces.

The Affordable Care Act signed by President Obama made such coverage mandatory for most enterprises in the US except those with fewer than 50 full-time employees. The Act also specifies the required core elements of such coverage in line with the essential insurance coverage set for the Obamacare Exchanges. It has been a central promise of the Republican Party to end the employer mandate (as well as the individual mandate to purchase some form of insurance). The GOP has made that promise a core part of every form of legislation they have on offer to repeal President Obama’s signature legislation.

Yet, the working assumption of the media seems to be that most large-scale employers would not take advantage of the opportunity to terminate the health insurance benefits of their employees. Even the Democrats have not raised the issue of folks losing their workplace health care policies under the GOP plans, presumably because of the same lazy assumption. But these assumptions fly in the face of basic economic consideration that should lead any sensate CFO to put pencil to paper and “go figure.”

First of all, there are no wage/price controls in place today that would prevent them from giving employees a raise in their pay packet in exchange for ending the insurance benefit. Both are deductible business expenses under the Federal and state income tax laws. Indeed, the only threat on the horizon in terms of benefits is the risk that some health insurance plans may be so generous as to lose part of their tax deductibility!

This trade-off could well be a win-win for employees, especially at the lower segments of the national pay scale, who could buy health insurance on the private market using their expanded paychecks together with both the GOP expansion of tax-advantaged, expanded Health Savings Accounts and Federal premium support subsidies (both part of the GOP proposals to replace current Obamacare tax credits).

If any state were to take advantage of GOP proposal to waive essential insurance benefits mandated by Obamacare on its Exchanges and the individual market…all employers nationwide would be immediately authorized by law to drop their employer coverage down to this new “lowest common denominator” range of coverage.

Replacing workplace-based health insurance policies and forcing the entire US employee base to enter the individual marketplace could have the benefit of radically reducing premiums for most insured families as a result of the massive influx of basically healthy workers to that market which is now gravely tilted to the sick and people with pre-existing conditions (and let’s remember, a pre-existing condition before Obamacare included not just cancer, diabetes, and heart disease, but also simply having ovaries or just having once taken a prescription antacid).

If CFOs discover the magic of replacing rapidly escalating health insurance costs with much more controllable pay increases and letting the US taxpayer foot the bill through the GOP’s federal insurance tax breaks and subsidies, surely employees’ personal contributions to health insurance payments would quickly be made tax deductible by any sensate Congress. (And why not: why should such costs be deductible if paid by an employer, but not if paid by employees if there is no longer an available employer-based plan in their workplace?)

It would be one thing if this rosy transition scenario would be worked out in advance; however, that is hardly the likely base case of what would happen if any of the GOP replacement plans were to be enacted and signed by President Trump. It is much more likely that the first wave of employee insurance terminations would come from small scale, non-unionized “mom and pop” businesses and non-profit entities. Given their vociferous opposition to the mandate all along, they will logically stop providing employee health insurance as soon as the ink is dry on
Trump’s signature.

Remember that as we get closer to businesses of 500 or so employees, we would be dealing with a very big source of jobs in America in an aggregate sense. So it is no wonder that the CBO has estimated that millions would lose their employer-based insurance in the early years following enactment of the GOP proposals. At the same time, there will be rolling chaos as other millions lose their Medicaid coverage and flood the emergency rooms, which are now increasingly staffed by high-cost outsourcing firms. Separate from a hospital’s doctor and nursing workforce, these firms are known for laying the highest maximum ER charges onto working poor patients, thus forcing many thousands into additional medically induced bankruptcies.

This outcome, in turn, would bring increased calls for higher Federal insurance subsidies which will only make it more attractive for major corporate CFOs, CEOs and boards to begin thinking the unthinkable about “repealing” corporate insurance benefit expenses and “replacing” them with equally or even more fully deductible pay increases. Nobody in media is doing such scenario analyses now, in part because they are not paying close enough attention to the CBO scoring of the GOP bill beyond the headline coverage loss numbers largely due to the obvious cutbacks to Medicaid coverage.

The media is also not paying a lot of attention to another aspect of certain GOP proposals that would have another profound effect on employer-based health insurance. If any state were to take advantage of GOP proposal to waive essential insurance benefits mandated by Obamacare on its Exchanges and the individual market — like maternity care, mental health, drug rehab or cancer care — all employers nationwide would be immediately authorized by law to drop their employer coverage down to this new “lowest common denominator” range of coverage, regardless of how those with pre-existing conditions would be left to the mercy of the marketplace, and that Obamacare’s ban on lifetime limits of coverage would likewise disappear also for those conditions.

This sneak attack on employer-based insurance may or may not make it into whatever the GOP manages to pass in Congress or adopt by regulation, if they pass anything at all. But it is worth paying far more attention to than the mainstream media (perhaps cowed by President Trump’s incessant attacks on their bias and “fake news” reports) is willing to report. As Arthur Miller wrote in Death of a Salesman: “Attention must be paid.” — especially when we are confronting the possibility of a slow, insidious attack on workplace health insurance.

This article appeared on the Huffiington Post on July 27, 2017.


About Terry Connelly

Terry Connelly is an economic expert and Dean Emeritus of the Ageno School of Business at Golden Gate University. With more than 30 years experience in investment banking, law and corporate strategy on Wall Street and abroad, Terry analyses the impact of government politics and policies on local, national and international economies, examining the interaction of global financial markets, the U.S. banking industry (and all of its regulatory agencies), the Federal Reserve, domestic employment levels and consumer reactions to the changing economic tides. Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore (corporate, securities and litigation practice in New York and London), global chief of staff at Salomon Brothers investment banking firm and Cowen & Company’s investments, where he served as CEO. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education (2011). Riptide deconstructs the changing landscape of higher education in the face of the for-profit debacle, graduation gridlock and staggering student debt, and asserts a new, sustainable model for progress. Terry is a board member of the the Public Religion Research Institute, a Washington, DC think tank and polling organization, and the Cardiac Therapy Foundation in Palo Alto, California. Terry lives in Palo Alto with his wife.

What Everyone Planning to Get an MBA Should Be Reading, Every Day!


By Terry Connelly, Dean Emeritus of the Ageno School of Business at Golden Gate University

When I first started the entry-level Wall Street training program at Salomon Brothers, our first instruction was simple: Force yourself to read The Wall Street Journal, end to end, every weekday. If you are planning to pursue Masters of Business Administration (MBA) degree, that advice is still good.

Today’s vast new array of digital media offers the aspiring MBA student a range of choices to keep up with business and economic affairs. Perhaps there are too many choices—so many so that you can focus on the Web sites that fit your personal world-view. And yet..the precious time in your life that you devote getting an MBA offers a tremendous opportunity to challenge your preconceived notions, rather than reinforce them. Learning other points of view will help you as you advance in your career.

Most business magazines are like a day-old sandwich. Web sources that are committed to near real-time news are helpful.

The New York Times (front section): Don’t focus so much on the business pages—those are yesterday’s news. The front pages and even the Op-Eds will offer far more clues as to what will move events and markets and commerce today, and even more so, tomorrow.

The Economist: This British journal is the quickest way to get something all MBAs need: a world view. You will find that The Economist has its own, distinctive, world view. In reading this, you will confront ideas different than your own, early and often, in your schooling. So go ahead and argue with our British friends and figure out your own view of things, and absorb the incredible amount of carefully crafted and thoroughly researched reporting and perspective it provides every week—especially in its in-depth special sections.

Financial Times: While you are in the “British Reading Room” perusing the Economist, also look at Financial Times, which will offer you a perspective on American business, finance, and politics that, as they used to say of Schweppes soda, is “curiously refreshing.” You will want to keep up with Brexit and the doings of the European Community institutions, the Eurozone, German competitors, and French upstarts (Watch that space.).

The Financial Times does not do a bad job covering the Asian region either. You can add Singapore’s Straits Times for that, or better yet, Bloomberg’s Live TV around midnight Pacific Time—when the stock and bond and currency trading day has already started. Speaking of Bloomberg, consider its Businessweek because it is reinventing itself as a more focused journal.

Terry Connelly’s Best Websites for Aspiring MBAs

The New York Times (front section) >>
Financial Times  >>
The Economist  >>
Straits Times (Singapore) >>
Bloomberg’s Live TV >>
Bloomberg’s Businessweek >>
Recode >>
Axios >>

Sidewire >>

Expert Discussion and Commentary

No, I am not going to close with a recommendation of The Washington Post, despite their good information leaks over the decades. Instead, I suggest you get fresh information. Sign up to get the daily online D.C. webcast chats on Axios or Sidewire (the latter of which I have the privilege of contributing to). They limit discussions to those who are experts in their field and summarize current issues that are not discussed in routine press headlines. Their discussions also reveal what to look for during the day and how to stay just a smidge ahead of events related to your industry, your investments, and your general peace of mind.

These sources will help you figure out how to meet the first and mandatory challenge that awaits those who seek to be leaders: defining reality. Most people come to their new jobs with illusions which may have served them well in previous positions but will lead to poor results in their current one. Occasionally, a leader has to shatter the illusions of their team with a cold dose of truth, like the “BI Running Platform” analogy found in more than one business school case study.

Defining reality provides what successful athletes and CEOs alike refer to as acute “situational awareness.” If you want to make the most of your post-MBA moments, use your MBA “free time” to learn how to always know the score and the time left on the clock.


About Terry Connelly

Terry Connelly is an economic expert and dean emeritus of the Ageno School of Business at Golden Gate University, California’s fifth largest private university and a nonprofit institution based in San Francisco with award-winning online cyber campus. With more than 30 years experience in investment banking, law and corporate strategy on Wall Street and abroad, Terry analyses the impact of government politics and policies on local, national and international economies, examining the interaction on global financial markets, the U.S. banking industry (and all of its regulatory agencies), the Federal Reserve, domestic employment levels and consumer reactions to the changing economic tides.

Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore (corporate, securities and litigation practice in New York and London), global chief of staff at Salomon Brothers investment banking firm and Cowen & Company’s investments, where he served as CEO. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education (2011). Available on Amazon.com, Riptide deconstructs the changing landscape of higher education in the face of the for-profit debacle, graduation gridlock and staggering student debt, and asserts a new, sustainable model for progress. Terry is a board member of the Public Religion Research Institute, a Washington, DC think tank and polling organization, and the Cardiac Therapy Foundation in Palo Alto, California. Terry lives in Palo Alto with his wife.


Request information about Golden Gate University’s MBA program >>

What the House GOP Isn’t Telling You About Their Obamacare Repeal Bill: “If you like your workplace health care plan, you probably can’t keep it!”

Absent from the half-time celebration at the White House of the one-vote passage of the American Health Care Act (“ACHA”) by the GOP-controlled House of Representatives, there was many statements about both premiums and deductibles going down and pre-existing condition coverage continuing as a result of this legislation. But no one in the Rose Garden or the Rotunda of the Capitol building was heard to utter the famous magic words associated with the ObamaCare passage from Day One: ‘If you like the health plan you have now, you can keep it!”

Certainly, it has been clear enough for a while that, under ACHA, if you are on Medicaid, you are looking at an $880 billion in overall funding reduction, so million of those depending on Medicaid coverage will lose at least part of that.

The same result applies for those who purchase policies on the ObamaCare Exchanges with direct subsidies from the Federal treasury because those subsidies will be replaced by substantially lesser advanced tax credits that will, therefore, force choices for less generous coverage.

In addition, if your state chooses to waive the Federal requirement that your individual (ie non-workplace) market plan include ten “essential” coverage elements—like maternity and infant care, mental health, prescription drugs, hospitalization)—you will lose whatever benefits are waived no matter what your pay. And there will be even greater coverage degradation of existing policies if protections for those with a pre-existing medical condition (Here’s a list of them.) are waived by your state and you somehow lose coverage for over 63 days, and in any event whatever coverage of your condition is not waived will cost a lot more.

But nobody on the GOP side has acknowledged that the famous “you can keep it” phrase regarding your family’s current health insurance policy quite possibly will no longer apply to the 160 million persons (nearly 50% of the marketplace) currently receiving their health care coverage through plans provided by their employers. How did this happen without virtually any public notice of this element of the GOP plan until the very morning it passed?

It should have been clear enough that at least those who work in many small businesses across America and get their health insurance though their employer would be at risk to losing coverage. The late-April revisions to the AHCA offering states the options to waive essential benefits and pre-existing condition protection against price discrimination would apply not only to the ObamaCare Exchange and individual marketplace but also to the small group market relevant to firms with 50-100 employees or less, depending on the relevant state regulations.

But even employees of our largest public and private companies could have their current coverage limited or eliminated, as the Wall Street Journal pointed out on the morning the House voted.  Under the ObamaCare rules now, a big company can choose the benefit package of any state to apply to its employees in all states—a rule that hardly matters while all policies are required to provide the ten essential benefits.

If just one state (as Wisconsin’s governor has already suggested he would consider) chooses to pursue the coverage waivers under the new AHCA, a big company could simply impose this ‘lowest common insurance denominator” of coverage to all its US employees, unless the current rules are changed (but the ACHA leaves them place). As a further result, the Obamacare ban on lifetime caps on insurance benefits would also be undercut for any insurance coverage remaining after the waivers take effect.  If you still think the GOP plan won’t affect you because you have a job with insurance, think again.

Neither the GOP generally, Speaker Ryan and his leadership team, nor President Trump ever campaigned on the platform to “repeal and replace your workplace healthcare policies.”  It surely seems that somebody’s got some explaining to do: the town hall meetings during the current Congressional recess might be a good place to start.

About Terry Connelly

terry-connellyTerry Connelly is an economic expert and dean emeritus of the Ageno School of Business at Golden Gate University, California’s fifth largest private university and a nonprofit institution based in San Francisco with award-winning online cyber campus. With more than 30 years experience in investment banking, law and corporate strategy on Wall Street and abroad, Terry analyses the impact of government politics and policies on local, national and international economies, examining the interaction of global financial markets, the U.S. banking industry (and all of its regulatory agencies), the Federal Reserve, domestic employment levels and consumer reactions to the changing economic tides.

Terry holds a law degree from NYU School of Law and his professional history includes positions with Ernst & Young Australia, the Queensland University of Technology Graduate School of Business, New York law firm Cravath, Swaine & Moore (corporate, securities and litigation practice in New York and London), global chief of staff at Salomon Brothers investment banking firm and Cowen & Company’s investments, where he served as CEO. In conjunction with Golden Gate University President Dan Angel, Terry co-authored Riptide: The New Normal In Higher Education (2011). Riptide deconstructs the changing landscape of higher education in the face of the for-profit debacle, graduation gridlock and staggering student debt, and asserts a new, sustainable model for progress. Terry is a board member of the the Public Religion Research Institute, a Washington, DC think tank and polling organization, and the Cardiac Therapy Foundation in Palo Alto, California. Terry lives in Palo Alto with his wife.