Business Connection; 0228

Business connection is made by MDC to serve all of our diverse communities and is made possible by the generous support of our members. Thank you. Business connection starts now. Hello I'm Jeff Salk and welcome to business connection later in tonight's program what is the secret to a winning business presentation and a look at how China's growth is impacting business around the world. But first tonight rising long term interest rates have shaken things up a bit. On Wall Street. Joining us tonight in the studio is Barry Bannister managing director at Stiefel Nicholas Barry it's good to see you again. Thanks. Let's start with the the big picture what do you think are the trends driving the markets right now. We have seen a back up in interest rates and that's affected home prices and eventually that might even affect

consumer sentiment. The Fed wanted longer term rates to rise so they wouldn't have to keep raising the short rates. So maybe they'll keep the Fed Bay but if inflation perks up the Flip the Fed will hike again. Inflation has been something I remember being concerned about in previous conversations what's happening there. On all items basis including food and energy and affecting the vast majority of Americans who really do have to spend a significant part of their income on food and energy it is a real phenomenon. It's also at the luxury end you're seeing a lot of inflation of luxury goods and services higher in travel education. But in the middle of the core inflation has not been that active. The Fed has been quiet at least in terms of short term interest rates Fed funds. What do you think the next move is there. We had thought they wouldn't cut rates until the very end of 2007 but if the economy continues strong they won't cut at all in fact they may even raise rates. The ECB the European Central Bank is raising rates the Bank of Japan is signaling the same so you have

central banks who collectively lowered over about 75 percent of the world's economy all in a tightening mode and that bodes well for the value of paper assets versus hard assets in other words we've been bulls for five years in commodities and real estate but what they're doing right now is generally better for people who are willing to bet on long duration growth stocks. So I would expect growth stocks might take a pop here. All right let's talk about all this from an individual investor perspective. Are there any particular growth stocks you can talk about. Well when you look at the growth stocks these are companies that would promise you somewhat less cyclical earnings that are distant in the future and those funds in the future have to be worth more if there is less inflation and they're worth less if inflation goes up it erodes the value of a distant cash flow. So a growth stock is going to be less cyclical and it's going to pay you in the future. And that would be something like a Internet stock like an Amazon but it would also be something like a biotech company and biotech stocks have really not done very much for six or

seven years as a group and they look pretty cheap on a cashflow yield basis and some of them are pretty downtrodden versus cyclicals and commodity plays. Your expertise has been the capital goods sector Well what's the outlook there. Well capital goods particularly machinery have had a great six year run in their cycles often pause in the 60 years so we've gone neutral recently on the stocks like Caterpillar and John Deere that have done very well on companies that are later cycle where they actually add physical physical capacity to the commodity producing industries where they build refineries and petrochemical plants we still like those because they make the most money at the back of the cycle. But you know I've been opportunistic liking fertilizer and other groups over the years and right now I'm actually shifting back towards growth stocks. What don't you like. Are there any sectors that you expect to stay out of favor for a long time.

What don't I like. So this you decide is a difficult question. I would say right now I would say the stocks that would probably be hurt by rising rates and declining credit quality would be financial stocks. So I'm not terribly interested in those. But I am interested in long term growth stocks right now. Let's talk about that. The housing sector we had what apparently was was something of a bubble and and there's been a slowdown that really varies where you are in the country even where you are and the state or individual communities. Apparently that's been something of a drag on the economy the big question is how much of a drag is it going to be. A lot of consumers have used their houses as a revolving cash machine and so is the asset value their shrinks or as long term interest rates rise and they can't refinance at lower rates they can't get access to that cash. Plus you have adjustable rate mortgages going up in terms of adjusting to higher rates

and that's likely going to cause an increase in the in the bad debt expense on the mortgage side so we've spread from subprime to all today and eventually to prime credit. And in terms of the impact of that on commodities when we saw housing taking off that affected you know lumber and so forth. Yeah well houses are just another hard asset a place to store money other than a paper asset like long duration growth stock or a bond. Housing is just somewhat inelastic supply hard asset where it takes a while to build new stock and they tend to go up when you increase the value of money or the quantity of money relative to houses the price of a house will go up it's the same with oil. I mean a lot of people don't realize that in the sense the oil shock in 74 we've grown the quantity of broad money in the United States by over a thousand percent. We've grown the quantity of the dollar value of oil production about a thousand percent so it's not

that we market the value of oil we just created more money to denominate the oil. It's a big misunderstanding in the market. When I ask a little about private equity the the big Blackstone initial public offering is set for tomorrow it's supposed to be the sixth largest public offering of all time. What do you make of this trend if it is a good thing or a bad thing. I always get nervous when any group starts to cash out and try to monetize what they've already made a lot of money doing and by the time they're selling it to the public perhaps it's less of a good buy than it was when they originally started the businesses and you're seeing a lot more private equity go public which which would worry me if I were an investor. Private equity thrived because the cash yield on the investment of what they were buying was equal or less than in many cases the cost of funds. So you could borrow one of the old was greater than the cost of funds. What Yes it was equal or greater is pardon me the cost of funds was below. OK. And

so what you found is that many investors who could take a company private using cheap debt would earn a nice cash yield on what they bought. And as that cash yield grew they could eventually just cash out in an IPO. Sort of like in the 80s the return to lenders for the LBO and the and the Drexel Burnham and the and the junk bonds the return to those lenders was extremely high. The real interest rate was very high above inflation. And that drove takeover activity then. Now it's more the other way around it's the cash yield of what you're buying is very high. So this becomes like an LBO Trog like a global LBO were doing an LBO of the whole world. Well that ends when you start to see interest rates back up. So the cheap money goes away it ends when you start to see the multiples that you have to pay to take things private go up. And you're seeing both of those I think in the next year or two. Hi Barry Ballister of Stifel Nicholas. Thanks for your time. Good to see Banks good as always.

Now Iraq's oil company has come up with an edible and memorable way to celebrate special occasions. It involves customized party favors for everything from bar mitzvahs to baby showers. Are you lot of this has the details on this unique gift for chocolate lovers. Well Jeff I'm here in Rockville Maryland in the studio space being used by Washington talent as you can see over my shoulder here. But this space also doubles as the home base for a company called a sweet idea and that name alone tells me we're in for something really good. Joining me now is Doug Sandler to talk a little bit more about it. So Doug give me an idea of where a sweet idea came from. Well we we do a number of parties here at Washington talent and we saw a really good opportunity for this chocolate machine to make lollipops at parties and we thought that would be a great idea so a number of clients of ours said they they want to end so we bought the machine and here it is right here behind us. So give us an idea of how the whole process works.

Well when we're going to function what we do is we actually take a photo as the backdrop that's over here we take a photo of a guess that might be at the party and we've used today of course our photographer Kim Moyer this photo that we have here right. And he's a good looking guy. I said that for the longest. What do you do with that photo. We take the photo. It magically is transported from our camera over to our laptop computer so let's go over there I'll show you how the software works. From the software you pull up Kim's photo. Just go through a series of very easy steps and then we're actually going to hit the print button if we hit that print button in about 20 seconds or so right over our printer will print cameras lollipops. Great. OK way if everything works well that's exactly what will go down. Now tell us. We're going to be looking here with the printer you have already a pre-assembled chocolate lollipop with a white coating on top right there's a candy coating on top of either a dark a white or a milk chocolate. There are three choices right there. And the lollipops printing out right now it's food grade ank. So the inks are in a number of different colors they all mix together and again it's all magic here so it's it's a chocolate with cameras.

And how long does a process typically take. I probably take somewhere between 30 seconds to 45 seconds for a lollipop and we can do 10 of that time so in this case Kim only has two kids instead of 10. Thank I'm sure he's happy about that so we're doing for him. Now tell me a little bit about this machine because it's kind of the brains behind this whole operation. Well we we started doing some research on the Internet where we could find a machine that actually prints directly on candy and all roads lead back to a company in New York that actually sells this machine the licensing rights to the software in the machine but like you said this is the brains behind it without this printer we can't do anything. And then you've got some samples here along the table of other chocolate lollipops and other treats that you've made give us an idea of why this makes for a good little token for folks to take home after an event. Well especially the lollipops was real popular about those as they fit into this really neat little clam shell case. The kids that are getting these are the adults that are getting these at an event can actually walk away with it not have to worry about the melting the chocolate they throw it in their pocket and it's fine with some of these bigger items like the like the Remax item that we did actually hired us in Columbia Maryland to do. Every time they

sell a house. We send a Remax logo chocolate with the client's name on it and a picture of their house. And you were saying that you've been awfully busy because you take this machine to a lot of live events. Yeah. This machine is going out every week as a matter of fact we bought the machine in November and it's been so successful for us that we had to buy a second machine that we were just putting into practice right now. I got a question for you how does the chocolate taste actually taste good you want to try it. Sure I think you've got one over here right. Yelling trying to grab one of those over there. And this is one that's kind of been broken up into certain pieces. OK hold on for that one second I just want to show real quick that they were kind enough to do a nice little lollipop for me this is a photo of me back when I was a blonde. Not a bad photo. I might have to consider going back to blonde Do you think. I like you know. So last question is What are your what are your plans long term plans long term and hopefully have a whole army of these machines going out every weekend that would be great. We do a lot of online orders right now. We do a lot of parties. So just the more business that we get it seems like every time we do a function that's self promotion.

All right sounds good Doug Sandler thank you so much for speaking with us we appreciate it. Thanks thanks very much. All right and if you'd like to find out more information about a sweet idea just log on to our website at dot org. And I have to bring one of these back for you Jeff. That's the latest here from Rockville. Now back to you in the studio. Yolanda thank you what do the tried and true lessons of the Dale Carnegie program have to say about today's high tech business communications. We talked about it with Jack messenger of the Dale Carnegie program. Jack thank you for being with us. My pleasure. Thank you. Our pleasure Dale Carnegie himself never sent an email I'm pretty sure. But where does his advice in his book or elsewhere maybe apply to this era when so much business is being done with a keyboard electronically. We like to say that still the strongest connection is the human connection. Technology is magnificent I don't think anyone of that era could possibly imagine where we are today.

Unfortunately there are still downsides. And if we're relying on the printed word it's not as effective as the verbal and nonverbal communications that exist in a conversation such as the one that we're having. By way of e-mail or from Blackberries text messaging things from time to time can fall through the cracks we could misinterpret the message and although it may save us time on the front end it may actually cost us more time on the back end. So this is a Dale Carnegie graduate do something differently when it comes to electronic communication whether it's email or even voice mail. Human communications even face to face is such a complex series of events that happen mentally physically and emotionally. One of the things a Dale Carnegie graduate experiences during the training is they they sense the impact that they can have. They also develop a certain sensitivity and empathy towards others and the

impact that their very words and phrases may have on each other. So I think it may give them time for pause as well where they will more carefully craft the words and phrases that they use and may even follow through a phone call or a meeting which would make sure that nothing falls through the cracks. Let's talk about presentations it's dreaded both by many people who have to give presentations and certainly many people have to attend presentations and there's the standard PowerPoint show where somebody is just clicking through the slides and. Reading along with what's on the screen there have been some horrible presentations made. You teach of course. What do you tell people. The biggest problem that I see is that people over prepare. They prepare so much that they end up writing things out memorizing creating PowerPoint and certainly has much more to that. But we tried it have people think of it this way.

We have a great opening which is like a plane taking off. It's a very dangerous time of the flight the dangerous time in your presentation. I have an incredible clothes which will make you memorable when it's all over. Another analogy is flying the plane. Grab their attention. Be memorable at the end in between depending upon the length and the complexity but rather than so much preparation so much memory so many notes which can put people to sleep but rather to speak from your experience speak from your heart use evidence use stories anything that supports the point that you will you want to make. And this way you're connecting more back to human relations communications you're connecting with that audience on a much more human level. Same advice or is it different at all for people giving a speech. So we're talking about a conference room presentation vs. Europe on the stage you're talking to an auditorium full of people and that's something that scares the heck out of me.

A couple more keys to that is knowing your audience who they are what do they do. What are their concerns why are they there. What's the level of complexity and sensitivity that's going into that meeting. You take a different approach if it's if you want humor versus if it's a serious issue. And again preparation is still the same there's no replacement for practice. But again I think it's over preparation more than honor and communicating enthusiasm and in some way. When you can't make it up I guess but but it's so much more entertaining and interesting to listen to somebody who's clearly enthusiastic about what they're talking about. Well Dale Carnegie called them the three E.C. said if you've earned the right to give the talk through knowledge or experience. Number two if you're excited about your information you're excited to be there and you have an eagerness to share that information. Those three things you can't go wrong because that will develop the attitude the right attitude for the meeting. And that attitude oftentimes converts into skills and practices.

I know one of the things you teach about is stress and stress management is stage fright. Fit in that category. What do you tell people overall about stress. Well the first thing that I advise is just be with it you've got it. You can ignore it and it's like the thousand pound elephant in the room. Let's talk about why why might people be stressed and anxious about that. I sell them on the idea that it's an adrenaline thing because we're in a situation where we're being competitive and we want to do so well. From there we find out that when you're stressed you stop breathing. And so we talk about just just plain old breathing helping to relax us but I think the best thing we do is we design pep talks. We get a three by five card tummy three reasons why you're going to be good greater effective in this presentation and connecting with your audience. So this way the mind is now focusing on the positives and everything that's going to go right as opposed to the negatives and anything that might go wrong.

And if you can't answer those three questions you probably shouldn't be given the speech a heck of a coach on those three things I can find some good stuff. All right Jack messenger with Dale Carnegie thank you for being with us. It's been my pleasure thank you for having me. And our Smith business close up with the University of Maryland's Robert H. Smith School of Business tonight emerging markets in China with chamois and entrepreneur in residence at the Smith School. Mr Wong thank you very much for being with us we understand that you are the entrepreneur in residence. You also run a Chevy Chase company called Opus 8. Tell me what you do there. Yes Opus 8 is a private investment firm right here in Chevy Chase outside of D.C. and were involved in two things were involved in buying a call center and customer interaction centers and the CRM company's customer relationship management companies in North America and were making venture capital investments in China in business process outsourcing call centers and marketing services businesses. What's your personal observation about what's happening in China. Obviously

it's the world's biggest business story at the moment but it's also a big social event that's happening there. Yeah China is an amazing story right now I think it's been the biggest business story for the last two to three years. You're looking at on President growth at least in modern business times lots of foreign direct investments is the largest recipient of foreign direct investments in the world the fastest growing economy in the world and it's on track to be the largest economy in the world probably within another 40 years or so at least a lot of economists are predicting that so with that you're seeing a lot of growth period you're seeing people move from rural areas into cities you're seeing people make more money and become more wealthy. You're seeing a stock market that's been asleep for about 10 years just come awake six to nine months ago and is now setting records and you're seeing an incredible amount of optimism and entrepreneurial ism and energy.

And this is more of a political question that a business question but with with all this capitalism going on and in what ways is communism still in charge in China. Well in my humble opinion it is definitely state controlled economy. However it's a state directed form of capitalism in many ways it's more capitalistic than some democracies are and I think if you look at Singapore as an example which is a heavily state involved government and a state guided economy although it is also a capitalist economy I think China might be moving towards a model like that. A lot of people looking for opportunities in China are focused on the middle class. And is that a theory to which you would subscribe. Very much so. We believe at Opus 8 that money is going to be made by multinational corporations that are selling. To the domestic Chinese clientele and also by domestic companies in

China like the petroleum companies and auto companies and mobile phone companies and Internet companies selling directly to the emerging Chinese middle class and again the Chinese middle class will be expanding by hundreds of millions of people over the next 10 years. And you're looking at purchasing power increases well on a per capita basis so the Starbucks the McDonald's of Procter Gamble's General Motors of the world that are in China right now selling to the Chinese consumer are only going to do better we think. And we're trying to place bets on companies that are servicing these multinationals who in turn are servicing middle class consumers. To what extent would you say the educational system in China has been a big factor in this rate of economic growth. I think the educational system has been pretty solid. It's a long standing educational system has been around for thousands of years. You're referring to sort of the Confucian ideals and people studying and placing

certain values above others and and I think that in China they really value education. The culture really puts a premium on that and also professors are highly revered they're highly respected and I think that that sort of lens at this stage in the Chinese economy's growth I think that's a good thing because China hasn't been there before in about the 60 to 80 years in terms of being a preeminent economy in the world. So having a firm foundation of education and educational institutions will only help. Before we go what. What should economic authorities in China worry about what What obstacles do you see ahead. Even for a macro economic standpoint well from a standpoint of keeping this this growth going without the bubble bursting. Well I think they have to make sure they comply with all the World Trade Organization requirements and to continue building trust in order to build a liquid and

free flowing and stable capital market structure on the equity side and on the credit side. You need to engender trust among your investors and if the Chinese government can prove that it is a trustworthy partner of both domestic and foreign investors either through regulations of Foresman of laws of force one of the intellectual property rights patent rights all the way down the line you know that you can bring money in and take money out freely and at a fair rate doing those kinds of things to create credibility in the world markets I think that is a major challenge that theyre going to have to face both in the press and politically and in reality as well so to the extent that they can manage those realities expectations is going to determine a largely how successful the country and the economy grows in the future. Joining us from the Robert Smith School of Business. Thanks for being with us. Great thank you very much. And thank you for watching business connection. Have a good night.

Business connection is made possible by the generous support of our members. Thank you.