Bruce Watson
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Low liquidity, low return, high security: Fixed annuities thrive in recession
Anyone looking to document the effect of investor fear in the age of the "Great Recession" need look no further than the recent explosion in fixed annuities. Reflecting growth in other fear-based investments like gold and treasury bonds, sales of the secure, conservative annuities jumped by 74% in the first three months of 2009.Fixed annuities are a contract with an insurance company, wherein a customer gives the company a lump sum and receives a set interest rate for a period of time. Generally, participants have to keep their money in the annuity for seven to ten years, or have to pay a surrender fee when they withdraw it. Some annuities allow users to withdraw a certain amount for free each year.
Continue reading Low liquidity, low return, high security: Fixed annuities thrive in recession
General Mills churns out a great year
Food manufacturer General Mills, Inc. (NYSE: GIS) recently reported a 5% jump in fourth-quarter net sales. This resulted in a net income jump of almost 10%, from $185.2 million to $358.8 million. This translated into a leap from 53 cents to $1.07 per share, or an adjusted earnings increase from 73 cents to 86 cents per share. In the same period, sales increased from $3.47 billion to $3.65 billion.Although most famous for its breakfast cereals, General Mills actually provides a wide array of home cooking products, ranging from the old-fashioned to the organic and from raw ingredients to fully-prepared meals. As such, it is positioned to experience massive growth as recession-plagued former restaurant customers start cooking at home and economizing home chefs move away from pricey prepared dishes.
The company is predicting that its 2010 adjusted net will increase by as much as 7%, a move that will yield a jump of up to 27 cents per share, from $3.98 to $4.25. For General Mills, at least, the recession looks like a fantastic growth opportunity.
Delicious irony: AIG has to sell its home
In a story that is sure to fill many American's with a warm sense of satisfaction, American International Group (AIG) has agreed to sell two of its buildings in lower Manhattan. Although the deal hasn't been made public yet, an agreement has, apparently, been reached between buyer and seller.The irony continues, as it appears that AIG's headquarters at 70 Pine Street may soon be the site of condominiums (presumably, they will not be purchased with subprime mortages). According to reports, the space was sold for approximately $100 million to an overseas company that plans to transform it into a mixed-use development including both retail and residential spaces.
Continue reading Delicious irony: AIG has to sell its home
Nintendo DSi: Revolutionary or evolutionary?
On Sunday, the latest edition of Nintendo's (OTC: NTDOY) DS portable gaming system hit stores. In the aftermath of the release, questions are emerging about where the company is heading and what its platform will ultimately become.
There is little question that the DSi will be a big hit. One of the harsher reviewers, The LA Times' Pete Metzger, criticized the matte finish and stated that the machine's advances were "evolutionary," but not a must-have. Even so, he gave it a strong A-.
This attitude was echoed by another tough reviewer, The Globe and Mail's Chad Sapieha, who questioned whether the DSi was really worth the extra money, but seemed confident that the gaming system would be a resounding success.
Continue reading Nintendo DSi: Revolutionary or evolutionary?
Long term investments: The (bright) future of publishing
It can be hard to tell the difference between a revolution and a fad, or a game-changing innovation and the latest toy. With that in mind, it isn't surprising that so many people have failed to recognize Amazon's (NASDAQ: AMZN) Kindle for what it truly is: the first bold step in what will likely become the salvation of publishing. Frankly, it's easy to overlook the Kindle. At more than $300, it is prohibitively expensive for many consumers in today's market; further, as Bloggingstocks columnist Joseph Lazzaro notes, there is nothing quite like curling up with a nice book, and the current Kindle doesn't quite make the grade. The little reader suffers from a too-small screen, a too-high price tag, and is an insufficient translator of the holistic "reading experience" that true bibliophiles adore.
Continue reading Long term investments: The (bright) future of publishing
Turning a plane ticket into a contract: The government means business
A few weeks ago, the Wall Street Journal reported that the US Department of Transportation has proposed new rules that would lay a groundwork for remedying America's airline delay disasters. The most important change is that passengers would be able to sue carriers for breach of contract. Additionally, the proposed guidelines would force airlines to develop contingency plans for lengthy delays, set time limits for delays, and publish delay information on their websites. Perhaps most importantly, they would make carriers liable for civil penalties on flights that are chronically delayed.Continue reading Turning a plane ticket into a contract: The government means business
Wall Street, 2009: Deaf, blind, and just plain dumb
In Gone with the Wind, Rhett Butler wryly notes that there is "just as much money to be made out of the wreckage of a civilization as from the upbuilding of one." Having observed the near-Roman excesses of New York's money men over the past couple of years, I might go even further and argue that the end of a civilization tends to be even more outrageously profligate than its beginning. After all, it's hard to imagine stern, conservative men like J.P. Morgan and Andrew Mellon giving in to the incredible excesses of the latest round of would-be magnates.While tales like Stephen Schwarzman's million dollar birthday and Dick Fuld's five homes tend to capture the public's attention, these outrageous expenditures are only the tip of the iceberg. From $175 hamburgers at the Wall Street Burger Shoppe to John Thain's $1.22 million office redecoration, it has become increasingly clear that New York's financial workers have spent the last few years living in a completely alien world. What's more, they are either unable or unwilling to adapt to the changing realities of America's economy.
Continue reading Wall Street, 2009: Deaf, blind, and just plain dumb
Big Three use bailout bucks to sue state governments
Looking over the recent history of America's automakers, one theme seems to stand out. Regardless of their situation, the economy, or the issue at hand, the Big Three have an almost preternatural ability to determine the most foolish course of action and pursue it with amazing vigor. Regardless of whether we're talking about the Ford Motor Company's (NYSE: F) decision to focus its attention on cars (to the detriment of its truck lines), Chrysler's decision to channel stuff its dealerships, or General Motors' (NYSE: GM) decision to sit on its fuel cell cars, Detroit seems determined to misjudge the economy and the customers.
At their best, the three have minimized innovation while milking their successes. At their worst, they have spent time and money on expensive acquisitions or dead-end technologies, to the detriment of their bottom line.
Continue reading Big Three use bailout bucks to sue state governments
Arm candy: The ultimate executive compensation
I have to admit that I'm a little naïve. While I've long since realized that rich men and pretty girls go together like frat parties and crab lice, I always assumed that the connection was tenuous and unformed. Basically, I imagined that it was a matter of overlapping social circles: bars, nightclubs and restaurants use financial sector employees to boost their bottom line by buying overpriced drinks and over-engineered food. In order to get these socially inept adrenaline junkies in the door, hot spots try to attract models by offering free crudite, well-appointed vomitoria, and... you guessed it, large numbers of financial sector employees. Thus, the models find their money men, the money men get their gold diggers, and the restaurants get a lot of money. Now, I'm not a total rube. I never thought for a second that this connection was the result of random chance or pure romance. After all, there is nothing like a model to enhance the reputation and self-image of a hedge fund manager. Conversely, after Baywatch went off the air, financial-sector employees became the ultimate means for aging models to parley their looks into long-term financial security. Both groups have something to offer the other; while this may not be the basis for true love, it certainly serves as a stable foundation for a business arrangement.
Continue reading Arm candy: The ultimate executive compensation
2008: When Wall Street scandals started to sound like a Dickens novel
I'm not sure when it happened, but I think that I've slipped into a Charles Dickens novel.
I got my first clue that something was up back in September, when Lehman Brothers filed for bankruptcy. Amid scandals over bailouts and backroom deals, congressional testimony and AIG retreats, one figure quickly emerged from the mass of bloated plutocrats and greedy execs clamoring for bonuses. Everything about Dick Fuld, from his cartoonishly aggressive management style, to his whining over Congress' refusal to bail out Lehman, to his striking resemblance to Rocky and Bullwinkle's Fearless Leader, made him the perfect poster boy for corporate greed. As more details leaked out, including the story about Fuld being pummeled by one of his employees, much was made of his name. In the public mind and this writer's heart, Richard Fuld was permanently transformed into a complete Dick. All in all, I was hardly surprised to see Lehman fold.
Another clue came when the story leaked out that Merrill Lynch CEO John Thain tried to collect a $10 million bonus. The fact that this bonus was, supposedly, based on Thain's performance in a year when Merrill lost billions of dollars made Thain's chutzpah almost legendary. My wife, who has had dealings with Thain in the past, noted that this aristocratic sense of entitlement permeated every single one of their interactions. I, on the other hand, couldn't help but remember the words of the witches in Macbeth, who hail the Scotsman as Thane of Cawdor, Thane of Glamis, and King hereafter. There seemed to be something ironic about an ambitious, clawing Thain who so clearly felt himself deserving of the spoils of war.
There have since been others. For example, when I first heard of Bernie Madoff, I thought nothing of his last name. However, when I learned that the proper pronunciation isn't "MAD-off" but rather "MADE-off," I couldn't help but laugh. For somebody who "made off" with billions of dollars, Bernie has a name that would put Dickens to shame. Following him, of course, there's been Joseph Forte, the Ponzi schemer who put on a "strong" front, but couldn't hide the fact that making money wasn't his forte. Frankly, punning off these guys is so easy that it's almost embarrassing.
I got my first clue that something was up back in September, when Lehman Brothers filed for bankruptcy. Amid scandals over bailouts and backroom deals, congressional testimony and AIG retreats, one figure quickly emerged from the mass of bloated plutocrats and greedy execs clamoring for bonuses. Everything about Dick Fuld, from his cartoonishly aggressive management style, to his whining over Congress' refusal to bail out Lehman, to his striking resemblance to Rocky and Bullwinkle's Fearless Leader, made him the perfect poster boy for corporate greed. As more details leaked out, including the story about Fuld being pummeled by one of his employees, much was made of his name. In the public mind and this writer's heart, Richard Fuld was permanently transformed into a complete Dick. All in all, I was hardly surprised to see Lehman fold.
Another clue came when the story leaked out that Merrill Lynch CEO John Thain tried to collect a $10 million bonus. The fact that this bonus was, supposedly, based on Thain's performance in a year when Merrill lost billions of dollars made Thain's chutzpah almost legendary. My wife, who has had dealings with Thain in the past, noted that this aristocratic sense of entitlement permeated every single one of their interactions. I, on the other hand, couldn't help but remember the words of the witches in Macbeth, who hail the Scotsman as Thane of Cawdor, Thane of Glamis, and King hereafter. There seemed to be something ironic about an ambitious, clawing Thain who so clearly felt himself deserving of the spoils of war.
There have since been others. For example, when I first heard of Bernie Madoff, I thought nothing of his last name. However, when I learned that the proper pronunciation isn't "MAD-off" but rather "MADE-off," I couldn't help but laugh. For somebody who "made off" with billions of dollars, Bernie has a name that would put Dickens to shame. Following him, of course, there's been Joseph Forte, the Ponzi schemer who put on a "strong" front, but couldn't hide the fact that making money wasn't his forte. Frankly, punning off these guys is so easy that it's almost embarrassing.
Continue reading 2008: When Wall Street scandals started to sound like a Dickens novel
When in doubt, bail out!
When it comes to explaining the great subprime mortgage crisis of 2008, there appear to be three clear narratives. The first blames cynical or stupid borrowers who got in over their heads, lied on their applications, borrowed more than they could, didn't read the fine print on their contracts, and ended up drowning in debt. The second narrative attacks "predatory" lenders who tempted these foolish borrowers with houses that they didn't need and mortgages that they couldn't afford. The third narrative blames the financial professionals who bundled mortgages together into securitized debt packages that were then passed around like little toxic time bombs. While these three narratives all contain a certain measure of truth, most people tend to choose one and stick with it. Personally, having been given the hard sell from a predatory lender, I tend to allot them a fair bit of the blame. Moreover, having watched the bailout farce unspool over the past few months, I feel a certain amount of disgust at the behavior of financial institutions that treated the housing bubble like a license to print money, but are now begging for taxpayer money to save their ailing companies. Needless to say, this feeling is only compounded by the fact that some of the bailout money has been used to pay for bloated executive compensation packages. Added to this, the lack of transparency in the bailout is somewhat terrifying; given the recent behavior of these financial institutions, I can't completely discount the possibility that they're blowing the dough on booze and hookers.
The latest stage in this saga occurred a few days ago when commercial real estate developers began lobbying for a bailout. Citing slowly rising delinquency rates and the pending due dates of various mortgage-backed securities, they are in the beginning stages of painting what is sure to be a dire, apocalyptic vision of the horrifying disasters that will befall the world if they should go under.
Continue reading When in doubt, bail out!
Madoff, airlines, Wall Street: We don't need no stinkin' regulation!
As the sordid tale of Bernard Madoff continues to unspool, it has become increasingly clear that somebody -- in fact, a lot of somebodies -- were asleep at the switch. Beyond the standard warning signs, like Madoff's incredible secrecy, his surprisingly consistent rate of return, and the clubby nature of his selling staff, there were far more obvious portents. For example, Madoff's chief compliance officer was his brother Peter, and one of the compliance attorneys was his niece. For that matter, the fact that Harry Markopolos, a Boston accountant, has been urging the SEC to investigate Madoff for the last nine years should have been a hint. The same, of course, goes for the 2006 SEC investigation that found violations, but didn't feel obliged to take any substantive action.
As the SEC attempts to assign blame in finest Three Stooges form, it's worth noting that this is hardly the first time that a lack of serious governmental regulation has reared its ugly head this year. At the moment, mobs are currently clamoring for Dick Fuld's head, with a healthy side order of Hank Greenberg, John Thain, John Mack, Lloyd Blankfein, Jimmy Cain, and pretty much everyone who works in New York's financial district. The general perspective seems to be that these men engaged in business practices that ran the gamut from risky to actionable and now should be forced to pay for the economy that they have ruined.
As the SEC attempts to assign blame in finest Three Stooges form, it's worth noting that this is hardly the first time that a lack of serious governmental regulation has reared its ugly head this year. At the moment, mobs are currently clamoring for Dick Fuld's head, with a healthy side order of Hank Greenberg, John Thain, John Mack, Lloyd Blankfein, Jimmy Cain, and pretty much everyone who works in New York's financial district. The general perspective seems to be that these men engaged in business practices that ran the gamut from risky to actionable and now should be forced to pay for the economy that they have ruined.
Continue reading Madoff, airlines, Wall Street: We don't need no stinkin' regulation!
Madoff, Lehman, and suicidal stupidity
At their base level, Ponzi schemes are incredibly simple: the schemer promises a consistent, impressive return on an investment, which he funds by soliciting new investors and using their money to pay off earlier investors. If the schemer can successfully project an air of reliability, he can often convince his investors to keep their principal in the fund, which means that he only has to pay dividends, improving his profit margin and extending the longevity of his scam.
Any intelligent person recognizes that a Ponzi scheme is, essentially, suicidal. Even in a consistently strong market, there will come a day when people will withdraw from the fund, investigators will shut it down, or the financial house of cards will fall apart. The best that a Ponzi schemer can hope for is that he will die before he is caught or will somehow be able to pull out all funds and make a run for it. In the case of Bernard Madoff, it's pretty clear that he was counting on the former. While this didn't work out, one could make a strong argument that Madoff's life currently isn't worth a plugged nickel: even if he somehow survives the next few months without suffering a massive coronary, chances are that a former investor or fellow inmate (or both!) will soon introduce him to the business end of a shank.
Any intelligent person recognizes that a Ponzi scheme is, essentially, suicidal. Even in a consistently strong market, there will come a day when people will withdraw from the fund, investigators will shut it down, or the financial house of cards will fall apart. The best that a Ponzi schemer can hope for is that he will die before he is caught or will somehow be able to pull out all funds and make a run for it. In the case of Bernard Madoff, it's pretty clear that he was counting on the former. While this didn't work out, one could make a strong argument that Madoff's life currently isn't worth a plugged nickel: even if he somehow survives the next few months without suffering a massive coronary, chances are that a former investor or fellow inmate (or both!) will soon introduce him to the business end of a shank.
Continue reading Madoff, Lehman, and suicidal stupidity
Waiting for the other shoe to drop: The looming credit crisis
I still remember when I realized that a real estate crisis was on its way. My wife and I were contemplating buying a home in Roanoke, Virginia, and began talking to a mortgage broker. When we saw the final offer, we realized that, if the real estate market continued on a stable path, and if the (then marginal) neighborhood continued to have a declining crime rate, and if the price of gas didn't go up, and if neither my wife nor I became seriously ill, then we would be great. In five years, when the rate went variable, we would refinance and everything would work out beautifully.That was in 2004.
Thinking about it, my wife and I soon realized that those were a lot of ifs; while we wanted the house, we knew that we couldn't base our financial future on a deck of cards. After turning down the offer, I thought more and more about it and began to get worried. If a lot of people were buying into the kind of mortgage that my wife and I had declined, and if they had similar expectations about refinancing when their rates went variable, then it seemed likely that the mortgage industry was sitting on a major time bomb.
Continue reading Waiting for the other shoe to drop: The looming credit crisis
Citigroup bailout sheds light on just what the taxpayers are buying
We are unfortunately not privy to the backroom deals and promises that are passing between Treasury Secretary Henry Paulson and the honchos who are benefiting from the government's massive bailout. However, two things are becoming increasingly clear: first, the financial industry has not gotten the memo about changing their business practices, and, second, the $700 billion in tax money that is keeping these companies afloat is not finding its way down to the average citizen. The big bailout was originally sold as a desperate maneuver to keep Wall Street afloat. Paulson has indicated that these funds would enable lending companies to service their toxic debt and, in turn, continue lending. In this way, America would be able to count on the credit that kept it running; businesses would be able to meet their payrolls, people would be able to buy houses, and the world would continue to turn.
Instead, some banks seem to be going on a buying spree, snatching up smaller, less successful institutions while prices are low and the getting is good. Citigroup (NYSE: C), for example, used the Wall Street fire sale to make a bid for Wachovia and pick up Forum Financial, shortly before asking for a second huge bailout. Similarly, Bank of America (NYSE: BAC) has decided to take over Merrill Lynch. A clever MBA could, undoubtedly, filter these purchases through a secret capitalism decoder ring and come up with a logical reason for them, but one wonders how gobbling up companies (and their toxic debt) is likely to help Bank of America and Citigroup to stay afloat, much less enable them to extend money to consumers. It is becoming clearer and clearer that the huge influx of taxpayer money is less about saving consumers than it is about enabling big companies to get even bigger.
Continue reading Citigroup bailout sheds light on just what the taxpayers are buying
Will Rich Ross really have a positive impact on Disney's movie operations?
Consumers sick of recession, may spend extra on holidays
Corrections, seasonality and Santa Claus
