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The stock market isn’t the only indicator hitting record-high valuations this year. Gold values have also been skyrocketing—even outpacing the markets. Spot gold prices are hovering near their record of $2,664 per troy ounce. As of Friday, Gold’s year-to-date value gain was 27.1%, higher than the S&P 500’s record 20.8% return.
Forbes’ Derek Saul writes gold is becoming more valuable for two reasons. One is the interest rate cut from the Federal Reserve last week. While lower interest rates tend to be better for consumer spending and borrowing, investors can’t earn as much from assets that are tied to federal interest rates, like government bonds and certificates of deposit. Gold, on the other hand, has its own inherent value and isn’t impacted by the Fed’s decision. In general, gold prices tend to increase whenever interest rates go down.
But the year’s constant geopolitical turmoil is also driving gold prices up. Gold is an international currency standard and is seen as a safe hedge against geopolitical risks. Central banks have been purchasing gold quickly as international conflicts unfold. Since Russia invaded Ukraine in 2022, central banks have bought gold three times faster than in years prior, Goldman Sachs found. The ongoing conflict involving Israel, Hamas and Hezbollah has added to the frenzy. J.P. Morgan reported that the first quarter of 2024 saw a gold-buying pace 36% higher than anticipated.
While the price of gold doesn’t directly impact most businesses (jewelry being a notable exception), the commodity can be seen as an economic indicator, often pointing to economic uncertainties. Everyone in the finance business is well aware of today’s unknowns. In addition to the geopolitical situations and interest rate changes, there’s also the upcoming presidential election—in which some major changes to tax policy are being proposed—and lingering inflation difficulties.
And CFOs are expecting turbulence in the near term. According to StrategicCFO360’s quarterly poll of CFOs conducted with BlackLine last month, CFOs rate the economy as a 6.5 out of 10. Overall, 55% said they expect a recession in the near term. Just 35% are anticipating a soft landing.
Last month, the Justice Department launched a pilot program to reward corporate whistleblowers who help uncover corruption at companies. While many companies carry directors and officers liability insurance, often referred to as D&O insurance, will this change impact what companies can afford in premiums—or in potential damages? I talked to Carolyn Rosenberg, a partner in the insurance recovery group at law firm Reed Smith, about the issue. An excerpt from our conversation is later in this newsletter.
Forbes is compiling its first-ever list of best-in-state CPAs, and nominations are now open. You can find all the details and submit a nomination here.
ECONOMIC INDICATORS
It finally happened: Last week, the Federal Reserve cut interest rates for the first time in four years. The Fed’s policy-setting committee opted for a significant rate cut of half a percentage point, meaning the target federal funds rate is now 4.75% to 5%, down from the 5.25% to 5.5% where it’s sat since July 2023.
“This recalibration of our policy stance will help maintain the strength of the economy and the labor market and will continue to enable further progress on inflation as we begin the process of moving toward a more neutral stance,” Fed Chairman Jerome Powell said at the press conference following last Wednesday’s announcement.
But what does the rate cut mean in the long run? And is this the beginning of more leveling off? The answer to both is we’ll see. What happens next depends on how businesses, financial institutions, investors and consumers behave. If inflation continues to decrease or stays steady, if employment figures move upward and if the economy sees increased vigor, it may be the beginning of more economic good news. Forbes writers collected predictions of how the rate cuts will impact different interest groups, ranging from small businesses to student loan borrowers.
HUMAN CAPITAL
Just over a week after roughly 33,000 unionized Boeing machinists in the Pacific Northwest went on strike, the company made its “best and final offer” to the union. The aerospace manufacturer’s proposed deal includes raises of 30% over the four-year term of the contract—an increase from 25%, a $6,000 bonus for each worker who approves the deal—double the previous offer, reinstates performance bonuses—which were slated to be cut, and increases the company 401(k) match. The union responded on Facebook that the company treated them disrespectfully by sharing the offer directly to members and media while union members were still reviewing it, and Boeing has made the deal contingent on ratification by 11:59 p.m. Friday.
It’s not clear what the union’s ultimate response will be; the union said it was sending an email survey to members for input. The strike has been costly for Boeing. An analysis by Anderson Economic Group estimated the first week cost the company’s workers and shareholders at least $571 million. Since the strike essentially shut down production, Boeing started finding ways to cut its costs last week as the strike continued. Non-unionized employees—executives, managers and other white-collar workers—will be furloughed one week out of every four. The company has also instituted a hiring freeze and reduced purchases from vendors and suppliers.
Forbes senior contributor Ted Reed writes labor strikes in the last few years have been bolstered by support from the White House. Focusing on recent airline-related contract negotiations for which strikes were authorized if there was no agreed upon contract by a deadline, Reed writes the administration signaled proof that the threat of strikes were real. Transportation Secretary Pete Buttigieg, Acting Labor Secretary Julie Su and National Mediation Board Member Linda Puchala worked directly with the union representing American Airlines flight attendants in their successful quest for a contract.
Some labor leaders feel the same support from the White House will continue if Vice President Kamala Harris is elected in November. Former President Donald Trump said in an interview on X last month he supported firing employees who go on strike, leading the United Auto Workers to file federal labor charges against him for trying to threaten and intimidate workers.
NOTABLE NEWS
One way to deal with the accountant shortage: cash. Private equity has been investing in accounting firms for the last few years, with five of the 25 largest firms in the U.S. receiving those investment dollars, Forbes’ Kelly Phillips Erb writes. These investments represent a source of funds for many of the pressures today’s accounting firms are grappling with. They can help bolster salaries and benefits to attract a dwindling number of accounting college graduates. The funds can be used to upgrade technology, making AI platforms available that cut down on more mundane work, like data entry and routine review. And they can help meet retirement and pension obligations. Accounting firms are seen as solid investments for private equity firms, places where they can put their money and watch it grow. However, some accounting firms and industry watchers fear that private equity money can cause conflicts of interest or result in some “sexier” areas of accounting firms—like tax and advisory services—taking most of the funds, with little money left for areas like auditing.
OFF THE LEDGER
How Corporate Whistleblower Incentives Could Change D&O Insurance Policies
As legal claims against businesses and their boards climb, directors and officers liability insurance, commonly abbreviated as D&O, has become a vital financial hedge for companies. Since the Justice Department launched a corporate whistleblower awards program last month, are there likely to be more claims? I talked to Carolyn Rosenberg, a partner in the insurance recovery group at law firm Reed Smith, about what changes this may bring to D&O coverage. This conversation has been edited for length, clarity and continuity.
In general, how have companies thought about D&O insurance and how do they consider what they need?
Rosenberg: Insurance is typically part of an overall risk management effort on the part of a company. So insurance is designed to shift the risk to an insurer, as opposed to having a company or an individual be personally responsible. Part of what kind of D&O insurance a company may decide upon is really a question of several factors. What is the company’s risk appetite? What’s the company’s financial position? Is it primarily to protect directors and officers? Is it to protect the company’s balance sheet? What is the availability of coverage and what’s the cost of the coverage? And also what are the terms and conditions of the coverage?
There are a great deal of differences between different insurance policies. Different insurance companies may provide D&O insurance coverage, but beyond that, there can be both nuances and differences in terminology, differences in what enhancements might be negotiated.
When looking at D&O insurance, also look comprehensively at your insurance programs across the board, because you may get hit with a ransomware claim, a data breach claim or a myriad of different claims, and you want to make sure that there are no gaps in your programs. In other words, if a claim is going to be excluded under one type of policy, you might want to look and see: Do you have coverage for that under a different type of policy?
How do you see the new Justice Department whistleblower program impacting the D&O insurance market?
It may be a little too soon to tell. The program is touted as finding more financial incentive and focusing on different areas, but there have always been the opportunity to have whistleblowers attempt to bring claims. The question is, will this lead to a surge of claims? That’s not necessarily been proven out.
It’s still prudent to look at your current coverage, or if you’re in the process of potentially renewing coverage, to see what kind of coverage is in the marketplace. Most D&O policies for public companies include coverage for the company for securities claims. The issue that the whistleblower-type claims and other regulatory initiatives may bring—and it’s not necessarily a new question—is what coverage do you have for regulatory-type investigations, as opposed to simply a lawsuit? How early in the process will coverage apply, because costs of defending claims, costs of looking into investigations can be quite high. The issue is what coverage do you have currently? And then what other potential alternatives exist in the market?
I’ve seen certain articles that [ask] does this mean you should be looking into what’s called entity investigations coverage to have certainty about coverage for investigations? Historically, those options have been fairly limited and very expensive. It will be interesting to see if those options become more practical, broader or affordable, if in fact there becomes a market for them.
What kind of advice would you give to a CFO working through this process and trying to find the most value and benefit to the company in terms of both their premium and the coverage they may need if something happens?
I would start early, before the insurance renewal, so there’s time to compare policy terms and conditions and prices. Most big public companies work with quality insurance brokers who can get those options. A number of companies work with someone like me or others who are insurance coverage counsel for policy holders to really get into the weeds on the policy terms and conditions. Working with the insurance brokers and the risk managers and legal or other teams involved in assisting the CFO, to really do a fulsome look at how the policies compare, and even create potential enhancements to seek from the insurers. And then being able to leave time to do a comparison to say: If this policy is going to be X thousands more in premium, is it worth it if we compare the terms and conditions, apples to apples? Or it may be that we are not comfortable going with this insurer for whatever reason.
The other aspect is that the newest hot issue is artificial intelligence, and to the extent that companies are using it and what they’re expecting on the horizon, we would also say you want to look to see if there’s anything about the policies or what you’re doing that would suggest any specifics with regard to AI.
FACTS + COMMENTS
Intel’s stock surged since Friday on reports that Qualcomm may be interested in a takeover, or that alternative asset manager Apollo Global Management has offered an equity-like investment in the company.
4%: Rise in Intel stock by mid-afternoon Monday
$5 billion: Reported maximum investment that Apollo would make in Intel—about 5% of its market capitalization as of Tuesday morning
Intel ‘should have enough runway to survive’: Bernstein Group analysts wrote, saying it’s unlikely Intel would want a Qualcomm takeover
STRATEGIES + ADVICE
Virtual meetings are a necessity for the modern workforce. Here’s how you can take advantage of them and show your leadership abilities.
Business partnerships can quickly pay off. Here are five financial reasons you should consider them.
VIDEO
QUIZ
Indian hospitality startup OYO plans to purchase a motel chain with roughly 1,500 locations in both the U.S. and Canada. Which chain will it buy?
A. Motel 6
B. Days Inn
C. Red Roof Inn
D. Super 8
See if you got the answer right here.
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