Archive for category credit cards

Move from loan dependence to independence

Reaching the Commit stage is the gold medal of partnering— when “me” becomes “we.” As you link your success to each other’s well-being, you move from independence to interdependence.While this goal is sometimes attained in our personal relations, it is elusive for most business partnerships. This doesn’t mean it can’t happen, but long-term partnerships are rare. Businesses change, marketplace realities evolve, and alliances shift market forces in different directions. Achieving this level of partnership ensures that as long as the partnership provides mutual benefits and trust exists, abundance will flow.

The partnership becomes institutionalized when there is formal commitment to it. In our personal lives, people have weddings or other commitment ceremonies to publicly acknowledge their partnerships. Aside from the ritual, which is important, they send a message to the outside world that “we are in this together.” A business example is United Airlines, which ran a series of advertisements featuring their employees, who had just signed an employee ownership contract with management. The message was obvious: Since they were now owner-employees, their customers could expect service as if it were coming from the company leaders—because it was! In an extremely competitive marketplace, this is a powerful message.

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The correlation between credit spreads and the business cycle

Fama and Chen examine the correlation between credit spreads and the business cycle. They find empirical evidence that corporate bond spreads are good predictors of future economic growth. Based on empirical data from 1933 to 1997, a recent study by Koopman and Lucas (2003) reveals two different types of cycles. On the one hand, there is a cycle with a frequency of about 6 years, where a positive correlation between credit spreads and default rates, and a negative correlation between spreads and economic growth can be observed. On the other hand, a second cycle with a duration of about 11 years shows a positive link between spreads and business failures, and a negative correlation between GDP growth and both spreads and default rates. However, constraining the analysis on the post Second World War era no significant correlations between credit spreads, default rates and the business cycle could be found.

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