Inflation vs. Deflation - Let the debate begin! Small Businesses and Deflation

Let the debate begin.

I for one, think Deflation and Inflation will be fighting for quite awhile. Deflation is here and it is getting NASTY in a hurry (oil from $140 a barrel to $60 in 4 months?) but the governments of the world have the printing presses going OVERTIME to avert such a situation. So, as the printing presses go wild to prop up the economy (and add inflationary worries) get prepared for WILD, VOLATILE markets. Get your employees and customers prepared for WILD, VOLATILE markets. If you look like you know what is going on you are 20 steps ahead of the next business. Below is a video from yahoo discussing the situation. Below are some helpful tips for businesses to succeed in this environment.

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Six ways for small businesses to prepare for deflation:

1. Scenario Planning: This is what successful, large enterprises do LEAPS and bounds better than smaller enterprises. Typically because they have resources to dedicate SOLELY to this purpose. They develop action plans based on various changes to their industry and look for threats and opportunities based on how they see things playing out in their industry. How will input prices and market forces (like interest rates) impact their company/industry. Which companies have too much debt or are poorly hedged with commodity exposures? Which management teams have depth and can survive an exodus of talent given a volatile market? Deflation may not cut across all sectors equally since commodity prices swing more wildly than semiconductor prices. How will your company adapt?

2. Inventory Reductions: Imagine buying oil as an input for your business at $140 per barrel in July. Today it is $60 per barrel. The business that has to sell its products at $140 is either going to sell at a loss or sell for a MUCH higher price than the business that bought at $60 per barrel. The raw materials cost can destroy a business with such volatility. As such, you need to operate your business on the Just-In-Time (JIT) inventory model or learn to order smaller amounts in shorter cycles to take advantage of dropping prices and optimizing profits.

3. Avoid Commodities: Have you seen oil come down from $140 + in July to the low 60s recently? You can count corn, soybeans, natural gas, etc. in that same bucket/set of issues. Commodity based businesses will have MORE volatility in the next 12-18 months than you can shake a stick at. You need to reposition your business as a niche marketer of high value goods. You need to be selling on VALUE and not on price. How can you add value?

4. Increase Productivity: Not all deflation is negative and wealth destroying. Deflation can benefit small business by making technology affordable. In such an environment you would be well served to buy technology boosts the productivity of your company. This should enhance the bottom line and give you more flexibility with your financials.

5. Cut Costs: Understand which costs are truly adding value in your enterprise. Which costs can be upgraded at the same cost? (ie. better quality) At the same time understand what costs are "nice to have" goods and services. Are you getting maximum productivity in your employees? Is there "dead weight" and which employees truly go "the extra mile" for your customers.

6. Review Contracts: This is a HUGE concern, especially for manufacturing companies. Holding a long-term contract during a period of dropping prices locks you into a high price point. On the contrary, negotiate longer contracts with clients if at all possible to hold your margins and profits.

Dan Ross
http://www.BetterBizIdeas.com/

Stock Market soars 10% but is it for real? Interesting Charts below...

Today the Dow closed up over 900 points or 10% today. Other indexes (S&P and Nasdaq) were up over 10% as well.

GM & Chrysler are asking for $$$. Ford as well.

Consumer confidence hit a new low today. PLUMMETING well below market forecasts, yet the market finished up significantly. This is nothing short of ludicrous to me. The consumer is 70% of the economy and we haven't seen them pull back like this, without a CONSUMER stimulus package, in AGES. Things are going to get worse before they get better.......Just my 2 cents.

The Fed started their meeting today. They'll announce their rate cut tomorrow. If they don't announce a cut to 1% on the Fed Funds Rate the market will sell off. I have posted two graphs of the S&P 500 at the bottom of this email.

While today's move of 90 + (10%+) on the S&P 500 was a HUGE move I haven't seen the market close above, and then stay above, the 20 day moving average in ages. Once a stock or index moves above such a threshhold they typically pop up some more and then re-test going below the average, on the upswing (bullish cycle.) The market still has 32 points to get to the 20 day moving average from the chart below. I'll get more optimistic once the market gets above and then stays above that average for another 30 days. By then the market might have a chance to make a run at a longer-term bearish indicator like the 20 week (100 day) moving average. The 20 week moving average is still NOTABLY higher at 1188 but moving downwards quickly.

The Bottom Line: I think this downtrend is still in full effect for the time being. I will sit on the sidelines with my "powder dry." I don't see a reason to put a bunch of my 401k to work and take it out of money market funds right now....



Dan Ross
http://www.BetterBizIdeas.com

Supply / Demand gone upside down in China?

First off, China finds some serious amount of natural resources in their country. It will take time to be mined & shipped (needs infrastructure) but it does have global implications for supply/demand for natural resources over the long-term. They want to import less and use more domestic sources of commodities.

http://english.people.com.cn/90001/90776/90884/6520297.html

Since the beginning of September, major Chinese steel manufacturers have announced to slash production upon falling steel prices on the domestic market.

http://english.people.com.cn/90001/90778/90857/90860/6517391.html

The Aluminum Corporation of China Ltd. (Chalco), the country's largest aluminum producer, said on Wednesday it would cut production in line with falling demand and prices. The total capacity reduction would be 720,000 tons a year or 18 percent of the company's annual production, said a company statement.

http://english.people.com.cn/90001/90776/90884/6520346.html

My take: It should be noted that the Chinese were GOBBLING up every conceivable natural resources before the Olympics to feed their economy. Since then, they have really quieted down and, as supply/demand levels are coming back to true equilibrium, the volatility in the commodity and financial markets has been STAGGERING.

I personally think they got wind of the slowing economy and put the brakes on their purchases of raw materials. After all, they would bring in the raw materials and export products worldwide. Their economy is 50% export right now from what I have read. They are trying to stimulate internal, domestic demand to offset the weakness in their export economy. I expect quite a few more rate cuts in China over the next 1-2 years, which will stimulate their consumer economy at some point.

Dan Ross
http://www.BetterBizIdeas.com

China: Significant Policy Change in Property Market - loosening of credit to increase domestic consumption

So the number of real estate deals is down 72% Y-Y during their holiday period. Some people are now taking a "wait and see" approach and are staying on the sidelines. People say that the remaining potential buyers are "marginal" buyers who have to stretch to afford a home.

http://english.people.com.cn/90001/90776/90884/6510493.html

The government is easing credit requirements to buy property. This should help to sustain real estate prices. Please note, however, that Chinese finance rules say down payments of 30% are being reduced to 20%. I guess they never heard of our 0% down financing here stateside and the wonderful results it has generated :)

http://www3.uobgroup.com/assets/pdfs/Flash_1023A.pdf

Source: http://english.peopledaily.com.cn/200208/09/eng20020809_101182.shtml

Then there is the rumor of U.S. Investment banks selling their chinese owned properties. Chinese politicians/developers are worried that this may cause a drop in commercial real estate values.

http://english.people.com.cn/90001/90776/90884/6511242.html



My take: There are a few investment plays on China real estate.

XIN - XINYUAN Re: Holdings (real estate development) - It focuses on developing residential projects consisting of multiple residential buildings that include multi-layer apartment buildings, and sub-high-rise or high-rise apartment buildings, as well as auxiliary services and amenities comprising retail outlets, leisure and health facilities, and kindergartens and schools. The company also develops small scale residential properties; and leases certain properties, including an elementary school, a clubhouse, a kindergarten, and parking facilities, as well as offers real estate related services, including landscaping and installing intercom systems. As of December 31, 2007, it completed 14 projects with total gross floor area (GFA) of approximately 1,001,199 square meters; 7 projects with a total GFA of 1,069,144 square meters under construction; and 6 projects with a total GFA of 1,452,013 square meters under planning. The company was founded in 1997 and is headquartered in Beijing, the People�s Republic of China.

EJ - E House Holdings - Basically a real estate broker. More volume = more profits (once they cover their costs) This is the safer play on chinese real estate development. It primarily offers real estate agency services to real estate developers of residential properties. The company also provides real property brokerage services, and intends to provide listing and brokerage services, which include sales and rentals. E-House (China) Holdings focuses its secondary real estate brokerage services in three metropolitan areas within China, including Shanghai, Wuhan, and Hangzhou, as well as in Hong Kong and Macau. Its real estate consulting services include land acquisition consulting and real estate development consulting; and other consulting services to investors interested in purchasing businesses with land or other real estate assets, as well as to banks, real estate trade associations, and governmental property and planning agencies. The company�s real estate information services comprise the CRIC system, which supports its primary and secondary real estate services, and consulting and information services. The CRIC system consists of real estate sales data in China covering information on land, residential, office, and commercial spaces, as well as real estate related advertisements. The company was founded in 2000 and is headquartered in Shanghai, the People�s Republic of China.

Dan Ross
http://www.BetterBizIdeas.com/

Will lower oil prices cause social unrest and terrorism to rise? What about the impact to global capital markets?

Countries have a tendency to increase their government spending when times are good.

Governments would be best served by undertaking projects that have a short or defined time span / implementation. These would be capital spend projects like roads, bridges, power plants, water treatment centers and other "infrastructure projects." This way, when revenue sources fall they can cut their spending to get their budgets balanced and not run protracted deficits. Where governments get into trouble is when they increase spending notably by increasing social security benefits or other "welfare" type of projects that generate year-after-year (continual spending). When the revenue source declines the governments either have to run a deficit, cut the spending to the chagrin of those who become dependent on the services (who vote as well) or increase taxes. At some point the American taxpayer/consumer/economy is in for a BIG awakening due to continually rising national deficits and a RIDICULOUS national debt.

Argentina's economy is in trouble right now for this very reason. They spend too much each year on continual spending and can't pay back their loans.

In the gulf region (Saudi Arabia, UAE, Qatar, Kuwait, Bahrain and Oman) many governments are at risk of running deficits in 2009 due to a falling price of oil. Oil was $140 + a barrel in July 2008 and has fallen as low as the high 60s in recent days.

The rgemonitor ( http://www.rgemonitor.com ) ie estimating that the lowest breakeven oil price that would bring 2008-2009 budgets into balance "is in Saudi Arabia ($30/bbl), followed by UAE ($40/bbl) and Qatar ($55/bbl). Therefore, that means that Saudi Arabia can maintain the current level of budget spending even if the oil price were to fall to $30/bbl." However, this year Saudi Arabia is undertaking many capital projects and, as a result, they need oil to stay above $49/barrel in 2009 to avoid running a deficit. Apparently Merrill Lynch is estimating the average breakeven for GCC is $50/bbl. Bahrain and Oman are at risk of running 2009 deficit if the oil price remains around $70/barrel (IMF).

Another thought: If Saudi Arabia runs a deficit what will the impact be to the global capital markets? The Far East and Gulf Regions have been the biggest investors in the last few years, running large surpluses each year. Who will then have $$$ to invest in re-capitalizing banks or buying U.S. government paper? The demand for U.S. paper would decline in such an event and who would finance our deficits? This would lead to excess paper supply and the U.S. dollar falling in value. This, in turn, could cause inflationary pressures to come back.

Another thought (v2): Venezuelan President Hugo Chavez said Wednesday that his nation could withstand the global financial crisis even if the oil price falls to 55 U.S. dollars a barrel, Venezuela's national TV channel reported. On Tuesday, Economy and Finance Minister Ali Rodriguez Araque presented to lawmakers the Venezuelan budget for 2009, which was formulated based on an average oil price of 60 dollars per barrel. U.S. policymakers have to love this as falling oil will cause more social unrest in Venenzuala and Chavez has less free $$$ to hand out to other Latin American countries to support his rhetoric against the U.S.

Dan Ross
http://www.BetterBizIdeas.com

Great Observation by Cramer - Which companies saw this coming?

Dan Ross
http://www.BetterBizIdeas.com

Updated Las Vegas info.

Not sure if everyone is aware of this:

Boyd Gaming Corp. recently postponed work on its $4.8 billion Echelon resort in Las Vegas. The Las Vegas-based company, whose ratings were lowered by Moody's last week, also suspended its annual cash common dividend. They have a steel framed building up and that is all that will be completed for the next 6 to 12 months. Bet Vegas gov’t officials were happy to see that! NOT!

MGM Mirage announced wednesday they weren’t going to give out bonuses & their ratings were cut. Meantime, Kirk Kerkorian sold his Ford stake to protect his majority stake in MGM. Rumor has it that he needs to raise more $$$ to finish the CityCenter project so he’ll put $$$ to work with foreign investors.

Then, wednesday as well, LVS sands says that they need to raise a BOATLOAD of $$$$ ($2 billion) to finish their Macau (Cotai strip) property. Adelson, the CEO, thinks banks over there will be more receptive than U.S. banks. The Cotai Strip project in Macau, due to be completed in 2011, is to include retail malls plus hotels that will be operated by some of the biggest names in hospitality, such as Sheraton, St. Regis, Hilton, Conrad, Shangri-La and Traders.

http://biz.yahoo.com/ap/081022/las_vegas_sands_adelson.html?.v=1

Dan

Microsoft getting aggressive with Chinese Copyright Infringement

http://english.people.com.cn/90001/6518941.html

My take/thought: How does a U.S. or European based business, that pays for authorized, legal software, compete with a Chinese company that buys cheap, fake (stolen) software? It lowers their overall cost of doing business. Labor is already cheaper and it hurts the competitiveness of nations in competing in the global economy. That is the truth!

This boils down to:

(1) Microsoft wanting to be paid for their innovations and

(2) Countries/businesses being able to compete with each other on a global basis.

Those people who have their screens turn black can buy legitimate software from an approved microsoft re-seller and effectively push out of business non-legitimate software vendors. People who bought illegal software need to report such sellers to the authorities, who then need to punish/jail such offenders for THEFT.

Now, there are other options for those that DO NOT want to pay for Microsoft's "expensive" products. Go use Google's software or other software. See how it works for you/them in the global workplace. It DOES NOT work well since everyone else has Microsoft. Once they became the "global standard" the value of their sofware increased as the number of people on the network increased. The only people who can really utilize such software are people that use it for their own purposes or don't do business on a global scale, therefore not sharing their spreadsheet/documents with others, so that formatting doesn't become an issue.

Update: With Microsoft's announcement sales of Kingsoft software are up 50% in China. Over 100,000 people are now using their software and they are publicly traded in Hong Kong for those interested. Still a very, very small number but it will be worth watching over the next 5-10 years. I find the chinese culture is very patient, thinking in years and decades whereas the American culture is very short-term oriented, thinking days, weeks, and months (sometimes years.)

http://english.people.com.cn/90001/90781/6520298.htmlhttp://media.corporate-ir.net/media_files/irol/18/189890/news/Announcement2008InterimReport.pdf

Recession growing in more states - Great Video

Nice graphical representation of what is going on in the economy. Texas is fairing well (thank god) but CA and FL are getting POUNDED based on what I hear/see.

Here is another great video re: are we in a recession or not....



Dan Ross
http://www.betterbizideas.com/

Argentina Throws the Markets in the Crapper Today

So Japan was down 7% pre-market. Bottom line there is that the Japanese Yen, their currency, is SOARING vs. the EURO and U.S. $$$ so their exports and economy are going to get pinched in a big way. Either they sell for less profits overseas or increase prices. Their economy is PURELY export related. Their economy is NET savings (they loan their $$$ to the U.S. via gov't bonds), another reason why their currency is appreciating.

Then, as the day went on we get word that Argentina privatizes their pension funds for $30 billion. This is VERY interesting given that they are negotiating to re-structure their debt. Over 10,000 layoffs were announced today as well. Then the stock market started sliding and finished down 5% on the day.


Watch CBS Videos Online

http://news.yahoo.com/s/afp/20081022/bs_afp/financeeconomyargentina;_ylt=AjjrskeJsxVE0RGrFxe4LZCyBhIF

So here are a few other thoughts. Let me know re: your opinion.

1) Spain is a big trade partner/banker of Argentina, going back to colonial days. Their banks are in danger if Argentina defaults on $150 billion in debt. Seems like a reasonable thought/concern.
2) What is Citigroup's exposure?

3) I keep watching this video and think, the bank he won't mention by name is Citigroup. BAC is 10% international revenue, JPM about 25%-30% and Citigroup about 50%. If Citigroup goes belly up the counterparty risk WORLDWIDE would go through the roof and the entire world banking system could seize up......Yikes! I keep thinking....Citigroup, Citigroup, Citigroup..... Your thoughts?


Watch CBS Videos Online

I also need to publish this link re: someone mentions Citigroup and a few line items in their financial statements that were published earlier this year. Basically they had TONS of assets subject to being written down.

http://www.moneyshow.com/video/video.asp?t=4&wid=608DA58E31394BE0AAD5E89435E2FCBB1

Dan Ross
http://www.BetterBizIdeas.com/

MGM Not Giving Bonuses this year / Ratings Cut

I've been saying for awhile that Casinos (namely Vegas) were going to be trading down and impacted negatively in a big way ever since I went there in January and to Tahoe in February.

http://betterbizbooks.blogspot.com/2008/04/moreless-freebies-in-2008-from-casinos.html

To me, the rooms were too expensive, the food was too expensive and the freebies/comps. were going down the toilet. I expect a certain level and what I got vs. prior years was same quality and MORE expenive due to high occupancy rates. Given that the consumer was stretched, that the economy was declining, I was cautious about Vegas.

Well, yesterday MGM announced they were unlikely to give performance bonuses due to weak results. Then today their rating got cut and the stock price got pummelled. At the same time, Kirk Kerkorian announced he was going to sell his Ford Stake at a HUGE multibillion loss yesterday. Jim Cramer seems to think it is a defensive move given the decline in MGM stock and Kirk's 50%+ stake in the company. If he needs to raise capital to complete the 4800 hotel room / 2800 condo/hotel room City Center Project he will need to inject capital of his own into the company to maintain that majority ownership.



http://www.cnbc.com/id/27293136/?for=cnbc

As you can see from the stock charts neither have done well and, with things getting worse in the economy, I don't see things picking up anytime soon.



MPEL, for what it is worth, said they have enough cash on hand to finish the first two phases of their ENORMOUS project in Macau, City of Dreams. Their stock continues to languish. MPEL shares have bounced off their lows at $2.30 to close today at $4.15 (nearly a 100% bounce). I am still taking a "wait and see" attitude on MPEL as I don't see the stock price bouncing notably higher if MGM keeps on tanking.

http://biz.yahoo.com/ap/081017/melco_crown_dreams.html?.v=1

Last week a major casino developer announced they were going to stop progress on a casino project in Vegas. Most of the steelwork is done but they still are delaying it by 6 months to a year due to funding concerns and overall concerns re: the economy and filling rooms, etc. When casinos aren't getting finished in Vegas you know things are tough!

Oh, and today Harrahs announced completion of the 6th tower at Caesars Palace and they are finishing up their convention center there as well. Caesars, from what I have been told, is the most expensive casino ($$$ spent developing/renovating) in all of Las Vegas. It is regarded as the PREMIER property in Vegas for Harrahs.

http://biz.yahoo.com/ap/081021/nv_harrah_s_caesars_palace.html?.v=1

Dan Ross
http://www.BetterBizIdeas.com/

Joseph Stiglitz on the Credit Crunch

Free of charge on ITUNESU. It is one of the most popular downloads.

I guess he was speaking at Oxford in England when this was recorded.


http://deimos3.apple.com/WebObjects/Core.woa/Browse/ox-ac-uk-public.1628072299.01628072304.1703858239?i=1409537071


Dan Ross
http://www.BetterBizIdeas.com

Video Game Sales to Avoid Economic Slowdown?

The general investment thesis behind video games is as follows (no particular order);

1) More gamers due to multiple generations of people that have played video games. Really since Atari in the 80s the number of "gamers" has been growing. As you start to think about Chinese/World Youth you understand that there are HUGE growth opportunities in the next 10-20 years in this segment.

2) TIME. I cannot empasize this enough. In the video below, the mom's explanation is what it is all bout. She buys a video game vs. taking her kids to a movie because a movie only lasts 2 hours and then it is done. The kids will be entertained for days so the cost per hour of entertainment is LESS with video games.

3) Dropping console prices = more units sold.

4) More games are being produced, which will stimulate demand. Now that the game developers have an idea what consoles consumers like, and the associated demographics/development costs/sales expectations with each console, they will make their investments accordingly.

My Take: I think this segment of the economy will be LESS impacted than other sectors this Christmas season. I think the consumer is REALLY pulling back the reins right now and that overall sales data will come out in early November. People think it will be bad but I think it will be WORSE than they think. I hate being pessimistic :( I think patience is the name of the game when it comes to investing right now. Cash is king

Dan Ross
http://www.BetterBizIdeas.com/

Economic Slump is hitting China workers now

China's exports are drying up due to a weakening economy. Mattel and others don't need as many factories working given rising inventories and weakening demand.

I have to wonder if all the Chinese scandals are catching up to the economy as well. Toys with lead paint a few years ago, milk this year.....

Dan Ross

http://www.BetterBizIdeas.com

Commercial Real Estate - Updated Posts

So this ties to what I have been saying in some previous posts.

Private Equity investments (due to getting a BOATLOAD of investment $$$ from foreign investors) soared in the 2002-2007 period. Many of these investors, such as Cerberus with Chrysler (mentioned before), have made some bone headed investments. We can also add mortgage industry related investments as well.....

Private Equity came into the commerical real estate market over the last few years and really drove up real estate prices. Unlike REITs they leveraged their balance sheet (REITs have structural impediments in their business model (with leverage) due to paying out a HIGH percentage of income each years as dividends.)

As businesses lose access to credit and experience weak economic conditions many will fail. This will then cause commercial real estate losses (ie. unoccupied retail space at malls/strip malls.)

On top of this, think about all the consolidation in the banking space right now. Do you think all these banks will be occupied 2 years from now? In Dallas we have some corners where there are 4-6 banks on four corners of a shopping center. Heck, I have seen ONE corner in Plano, a northern suburb of Dallas, where there are FOUR major banks operating. I'll post a picture/update in the near future.

It takes awhile for industry specific buildings (banks with vaults/layouts, drivethrus) to be re-purposed into some other industry. Someone has to come up with a creative idea for re-using the space and then that industry/concept leases/purchases those assets, typically at a SIGNIFICANT discount versus what the primary industry was using them for. The classic example of this is OLD MOVIE theaters. Many were turned into stadium seating type theaters or dining theaters (where you eat/watch movies at the same time.) Many former Food Lion grocery stores were turned into postal offices, Laser Tag (whirlyball places), salvation army centers and other concepts after they had to close down TONS of locations in the early 90s.



Dan Ross
http://www.BetterBizIdeas.com/

Financial Futures - How Americans feel about their finances today

I am VERY quickly becoming a HUGE fan of this public television station.

Good programming, relevant info., etc.

The below video is HIGHLY relevant given the financial turbulence of the last year and, more specifically, the last two months.

I am particularly interested in groups 2 & 3 in the below video.

My Take:
Group 2 - If the father was an investment advisor why did he start a 529 only two years ago for his son's college education, ESPECIALLY given that his son must have shown some apptitude for math/science. Maybe they didn't know MIT is where he wanted to go but college SHOULD have been in their plans. Do you agree or disagree with my assessment? Post comments

Group 3 - Given that my folks and many of my friends parents are now retiring or are retired I hear their concerns quite a bit. The volatility is SCARING THE HECK out of them. Additionally, many fear the well being of subsequent generations.....



Dan Ross
http://www.betterbizideas.com/

CNBC.com Article: Pakistan Asks for $10 Billion from IMF

Pakistan Asks for $10 Billion from IMF
The Pakistaini government will ask for $10 billion from the Internaitional Monetary Fund on Monday, CNBC has learned.
http://www.cnbc.com/id/27245782/

My take: So, given that these guys have nukes how would you feel if they declared bankruptcy and the whole country’s economy went to hell in a hand basket? Talk about a jihad nightmare! I think this is something DEFINITELY to consider when looking at each presidential candidate’s position on Pakistan. Sorry but Obama is VERY weak on that position…..

Conspiracy theory related thought. I find the timing of this to be VERY eerily close to the presidential elections, don’t you? I mean, they know that Bush has really given them A LOT of $$$ and who is likely to give them more $$$ over the next 5-10 years, McCain or Obama?

Dan Ross

http://www.BetterBizIdeas.com/

Food costs coming down?

I ate at wendys today. My #1 combo, medium sized was $5.50. Given that commodity prices and gas prices are coming down do you think consumers will see any relief at the grocery store or restaurants anytime soon? I don't think so myself ....Post your thoughts....

Dan Ross

http://www.BetterBizIdeas.com

Chrysler CEO says industry Ripe For Consolidation??

Chrysler's CEO says auto industry ripe for mergers

Chrysler's Nardelli says US sales slump creates environment for auto industry consolidation

Chrysler LLC Chief Executive Bob Nardelli said Thursday that a steep decline in U.S. auto sales has created an environment for industry consolidation, but he would not comment on reports that talks are accelerating for General Motors Corp. to acquire his company.

Cerberus bought its stake in Chrysler in 2007 from Daimler AG in a $7.4 billion deal. Cerberus and Daimler confirmed last month that they are in talks for the private equity firm to acquire Daimler's remaining 19.9 percent Chrysler stake.


http://biz.yahoo.com/ap/081016/gm_chrysler_merger_talks.html

Speaking on the CNBC cable channel, Nardelli said Chrysler has been open about looking for partners and creating alliances, but he would not address the GM discussions. However, he said the U.S. auto sales slump has set the stage for industry consolidation.

"It certainly creates an environment for consolidation where you can get synergies of productivity that will allow you to be more competitive, not only here in the U.S. market, but on a global basis," he said.

GM has discussed a merger or acquisition with Cerberus Capital Management LP, the New York private equity firm that owns 80.1 percent of Chrysler, a person familiar with the negotiations told The Associated Press last week.

My Take: Look, the private equity guys have gotten their tails kicked in the mortgage industry. They got in over their heads with Chrysler and I think they are trying to find a way to get out of this deal ASAP!

If you have read the papers over the last few years you would know that the private equity guys raised a TON of $$$ and chased ALOT of investment deals and have been BURNED by many of their investments. This one really has my eyebrows raised since GM has no $$$ to buy other companies as their existing business is hemorhaging $1 billion a month!. They are a DYING company themselves!

Owning an auto company as people talk about the next "great depression" seems pretty NUTS to me, let alone talking about one U.S. auto company running at 60%-70% capacity buying out another one. Consolidation will likely happen but due to BANKRUPTCY. Will the "greater fool" theory winout and GM buys Chrysler?

Dan Ross
http://www.BetterBizIdeas.com/

Advanced Battery Technologies (ABAT) Announces New Contract

Advanced Battery Technologies Announces New Contract

What is interesting here is that you have a $45 million company (2Q'07-2q'08 revenue) that just signed a contract for $27 million and the stock only moved up 8%? That just shows how beaten down investors are right now. I hope to buy some shares at current levels over the next few months. I think, in the long-term, they'll pay off handsomely, as Lithium Ion Batteries become more popular in vehicles.

One interesting sidebar is A123 Power, which was to go public late in the summer/this past fall. The private company never got their IPO done and it should be interesting to see what kind of buzz there is with oil coming down and gas prices coming down. Those folks were working with GM and their Chevy Volt batteries for cars.

ABAT does LI-ION batteries for electric bicycles, scooters, Buses and, in the future, cars......The technology still has a way to go but I like a company that actually makes $$$ in a business where too many competitors lose $$$ by buying marketshare (low margin sellers) or overinvest in overhead WAY too early in the game. Based in China, where most manufacturing happens, this is an interesting company to watch over the next few years.

Dan Ross
http://www.BetterBizIdeas.com

Fannie Mae Eases Credit To Aid Mortgage Lending - 1999

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&partner=permalink&exprod=permalink

Archives
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders. The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Dan Ross
http://www.BetterBizIdeas.com

Was Jim Cramer right to say "Sell" before an 18% decline in the market

I, for one, am a fan of Jim Cramer. I think the guy is right more than he is wrong and that, had anyone listened to what he said EARLY last week, they would have saved some $$$. A KEY element is that he said, "if you need the money in the next 5 years then don't hold that money in stocks" which is what MANY financial consultants would and SHOULD tell people

I know COUNTLESS people that have watched all their gains since 2001 and 2003 disappear. I know some people that are cutting spending because, guess what, they have to send their kids to college in the next 5 years and they now don't have the $$$.

Oh, and today's 11% gain in the markets STILL hasn't even remotely CLOSELY come to ending any short-term downtrend. Until we get up over the 20 day moving average and then break the 20 week moving average I am not going to be a big BULL. Now, is the market due to bounce/rebound off of a technically oversold state? You betcha! I see S&P 1100 VERY possible as the market rebounds





Dan Ross
http://www.betterbizideas.com/

Brilliant Candy Idea - Credit Crunch

Some people see lemons while others see lemonade. Well, in this womans case she did one better. She has turned a challenge into an opportunity

Laura Santini created Credit Crunch, honeycomb covered in milk chocolate or dark chocolate. Ironically, you'll need a credit card to buy it online, but it is only 3.99 pounds at Chocolate Society.

Dan Ross
http://www.betterbizideas.com/

History of Market Crashes / Recoveries

The attached video has some great charts showing historic stock market crashes and how long it took the market to recover back to previous levels.

This isn't like other crashes because unemployment/weak business DID NOT lead us into this recession. It will only occur AFTER the financial crisis, exaggerating the problem. Prior to the most recent downturn everything I had been reading/seeing indicated that the foreclosure problem would peak in May of 2009 and that unemployment would peak somewhere between 7% and 7.5%. In 2001/2002 unemployment peaked at 5.5%-6%.

My guess is that all of these previous estimates will be revised UPWARDS and that the economic rebound will take longer than people are projecting.



Dan Ross
http://www.BetterBizIdeas.com

Two more Banks Siezed by FDIC

http://www.foxbusiness.com/story/markets/banks-bite-bullet/

Two banks -- one in Illinois and one in Michigan -- failed on Friday night, the Federal Deposit Insurance Corp. said, underscoring just how much the credit crunch is hurting financial institutions.

The FDIC said that depositors in both would continue to have uninterrupted access to their money, and they would still be insure. It estimates that the two failures will cost its insurance fund between $46 million and $53.5 million.

Dan Ross
http://www.BetterBizIdeas.com

Foreclosure Alley Video - Powerful Stuff

As this financial chaos ensues the country I stumbled across this video. For people such as myself living in Texas, where foreclosures are up but property values aren't down 50%-70% (they never went up 30% a year either), this is a powerful video regarding what can happen when a home is foreclosed. Tragic stuff and it really helps to humanize the situation.



This is the take from a CA restaurant owner. He doesn't see this as a recession. He sees today's economy as a depression. Tough to argue that in states like FL and CA where the market went boom/bust.



Dan Ross
http://www.BetterBizIdeas.com

North Dallas (collin county/Denton Count) Home appreciation vs. Riverside CA

I've been looking for some good numbers to put the current housing/financial crisis into context. I think the below numbers provide such an idea for everyone out there. The counties below are in the "suburbian sprawl" where growth occurred during the mortgage crisis. New subdivisions occurred in droves in these respective counties in CA & TX.

Median Price
Riverside County Denton County Collin County
CA TX TX
August 2000 162,000 143,500 164,000
August 2001 185000 157,000 173,400
August 2002 215000 153,100 175,700
August 2003 260000 158,900 178,100
August 2004 334000 158,200 182,600
August 2005 388000 163,100 191,400
August 2006 420000 163,900 193,400
August 2007 394000 176,500 210,000
August 2008 247000 169,200 211,800
+50% overall +18% overall +29% overall

Source: http://www.LATimes.com
Source: http://recenter.tamu.edu/data/hs/hs212b.htm

Dan Ross
http://www.BetterBizIdeas.com

Dow Jones Headed to 7500?

http://www.cnbc.com/id/15840232?video=884149897

Dan Ross
http://www.BetterBizIdeas.com

1 in 3 Americans owe more on their home than it is worth

People are estimating that 1 in 3 people now owe MORE on their home than it is worth. Quite a sobering statistic.


Watch CBS Videos Online

Dan Ross
http://www.BetterBizIdeas.com

Cook County Illinois Sheriffs are now refusing to enforce foreclosure evictions for renters

This is going to be interesting because

1) Many tenants are at NO fault and weren't told by their landlord re: the foreclosure
2) Many paid their bills and are being uprooted with little to no warning
3) It is going to have implications re: the default / foreclosure process in Chicago and, perhaps, throughout the U.S. if other people stop enforcing the evictions.

I personally understand where the sheriff is coming from. He wants to do WHAT IS RIGHT, which is ALOT of relief to a taxpayer who simply asks that much of his/her elected government officials / workers.


Watch CBS Videos Online

Dan Ross
http://www.betterbizideas.com/

Stock Market collapses today....down 7 + %

http://www.smallcapinvestor.com/smallcapnews/todaystrading/2008-10-09-5e6eda6665?utm_source=newsletter&utm_medium=email&utm_campaign=scidaily

"The Russell 2000 (NYSE:IWM) shed 47.36, or 8.67%, to 499.20, which marked the lowest daily close since Sept. 30, 2003. For the year, the Russell is now down 34.8%, while the Dow is off 35.3% and the S&P 500 is down 37.4%. The Russell has now closed lower seven consecutive sessions, and 9 of 10. In those 10 days, small caps have collapsed 29.2% in one of the most relentless and powerful bearish displays in market history.

Small-cap stocks continue to under perform the large-cap products through the teeth of this collapse. Just three weeks ago, the Russell 2000 was only down 1.6% for the year, while the Dow was down 14.1%, so the percentage loss spread between the two favored the Russell by 12.5%. Now, the difference is less than 1%. Clearly, the market has made a powerful statement that small caps are seen as more risky during a runaway bear market collapse. Small caps led the way up on the bull market move and they have been leading the way down the last 14 days of trading."



Dan Ross
http://www.BetterBizIdeas.com

Great Roubini Videos re: the Recession from Tech Ticker

This guy predicted this economic debacle two years ago. People laughed at him then.....Last year people paid ATTENTION to him as things began to unravel and nowadays everyone in places of power are listening to his every word.

Worth the listen....He now predicts another 20% drop through next year. "Things are worse than I imagined" per his comments...



He then predicts a 2 year recession, with main street following the financial crisis. He has some VERY sound economic datapoints.



Finally, another big bank institution could go insolvent per his comments. Citibank appears to be his guess. I don't think there is a CHANCE IN HECK that Citibank will be allowed to buy Wachovia given their financial straits. Wells Fargo is the likely winner then....



Dan Ross
http://www.betterbizideas.com/

Politics on the Mind of Americans.....At least online at CBS

The top 6 most watched videos are of Palin, McCain or Obama. 4 of the 6 are Palin videos......

http://www.cbsnews.com/video/entertainment/2.shtml

Dan Ross
http://www.BetterBizIdeas.com

Wall Street Bailout - MBS, CDOs, Credit Default Swaps and their Impact

A 1995 CBS video on 60 minutes re: derivatives.


Watch CBS Videos Online

a 2008 updated version....that hopefully helps people understand why this mess is happening.


Watch CBS Videos Online

Dan Ross
http://www.betterbizideas.com/

Auto Sales Getting Pummelled

This video supports what I've read/heard lately re: auto sales and credit availability. As credit is MUCH more expensive and less available today the auto companies are going to get PUMMELLED in the next few months.

Declining sales = worse capacity utilization and greater losses.

I've heard Subprime approval rates used to be 60% acceptance and now it is 20%. Prime approval rates were 80% and are now approaching 60%.



Dan Ross
http://www.BetterBizIdeas.com

Chinese Products Getting PUMMELLED

And deservedly so.......

Lets go through some history

Dog food with melamine in it awhile back.

Then it was toys exported with lead paint.

Now it is milk with melamine, candy with melamine & infant formula with melamine. Over 20 dairy companies now have been found guilty of doing this. This is NOT some limited issue.

The real questions is "Are Chinese products safe?" It is going to temporarily hurt exports, hurting chinese exporters.....and for a DAMN good reason. While cheaper costs attract businesses there if consumers won't buy a darn chinese product there will be ZERO benefit of producing in China. The first guy over china's product safety was SENTENCED to death over a year ago and apparently the problems with their countries product safety continue.

"Melamine, which is high in nitrogen, is used to make plastics and fertilizers and experts say some amount of the chemical may be transferred from the environment during food processing. But in China's case, suppliers trying to boost output are believed to have diluted their milk, adding melamine because its nitrogen content can fool tests aimed at verifying protein content.
Melamine can cause kidney stones, leading to kidney failure. Infants are particularly vulnerable. Melamine has been associated with contaminated infant formula and other Chinese products containing milk protein. On Wednesday, the Chinese government identified 15 more Chinese dairy companies as producing milk products contaminated with melamine, bringing the total to 20 companies. At least 100 batches of milk powder have been found to contain the chemical, according to data on the food safety administration's Web site."

Dan Ross
http://www.BetterBizIdeas.com