Dan Ross
So I have posted earlier on my blog re: Citigroup and my thoughts that they were in dire straights. The reason that The government gave four banks $25 billion was so that no one would shoot Citigroup after they were the only ones getting $$$. They would stand out from everyone else.
Now this guy from Institutional Risk Analytics is saying JPM will need more $$$?
Both $$$ mentioned are very scary. Guess I'll keep on building cash for awhile! My Jan-09 target for cash building is now moving to March-09.
Dan Ross
http://www.betterbizbooks.com/
So, as the week comes to an end, what did we see and, more importantly, what SHOULD we be forecasting?
1) Unemployment levels on two reports wednesday (challenger gray and some other private report), then one more on friday (gov't data) confirmed that unemployment is at 6.5% and 10 million people. I thought we were due for a record unemployment rate (in my generation) but this number is climbing quicker than I thought. What concerns me is the number of people who are REMAINING on unemployment (continued claims) within the data. I believe that number is at its highest levels in nearly 25years. WOW! Below is a 14 year graph I found in an AP press release. I could have pulled the data myself but I am a bit pressed for time today. I have got tons of stuff to get done in the next 1-2 weeks before family comes into town as I am sure everyone reading this does too :)
2) Obama won the election on Tuesday and the stock market slid 10% on Wed/Thurs. as the market was reacting to his tax policies and their impact? No, the lousy unemployment data came out on Wednesday, which shocked the hell out of everyone. On top of that, U.S. auto companies began pandering for $$$ on Wednesday looking for a handout from Uncle Sam. Lets remember that just about every U.S. poll had Obama winning this for weeks, maybe even months now.
Here is a picture of the situation Obama is going to be walking into.
Here is my take on the U.S. auto companies and their situation: I don't see how Uncle Sam can hand out BILLIONS to many banks that irresponsibly lent out $$$ and had senior executives that directly profited from those risky lending behaviors. The impact reaches globally. While we worry about job loss here in the U.S. as well as in industrialized nations developing nations worry that a financial crisis will turn into a HUMANITARIAN crisis where the world's poor are forgotten and die of starvation. That point should NOT be lost on everyone. I am NOT liberal but I do like to think of myself as socially responsible.
Getting back to the point, to bail out Wall Street, who are apparently going to get FAT bonuses this year, and turn a blind eye to blue collar workers is LUDICROUS.
Now, having said that, lets realize a few things about the auto industry.
1) They have been uncompetitive for 25 years and have been saying the same rhetoric for as many years. The graph below highlights this.
2) There is more health care costs in a car than steel. Some cost containment/restructuring has to happen BIG TIME.
3) Letting one of them go into bankruptcy would have a MAJOR ripple through on the economy (suppliers, cities, etc.)
Where I take exception to giving them $$$ is this:
1) What will be different? What will fundamentally change that will enable them to make money or gain marketshare back? I just don't see why we should toss good $$$ after bad $$$.
2) No company should be allowed to pay dividends. These loans shouldn't be flowing to the shareholders as these guys are LOSING $$$.
3) While giving $$$ to bankers is bad, at least we know they are doing things differently today, right? I mean the percentage of people geting approved for loans has dropped NOTABLY in this credit crisis and those that can get a loan are oftentimes having to pay a higher interest rate to get financing. RISK is now being priced into the banking system whereas it was NOT before.
K, that's about it for now......This issue just gets me IRRATE.
3) Thursday (and throughout the week) was the first REAL numbers of retail sales for October. We also had Cisco comment about October sales. They were the first technology comment to really comment on a full month of October sales and are regarded as an industry "bellweather" company.
* Auto sales were off 25% + for the auto industry.
* Wal-mart was up 2.8% month-over-month. Quite impressive
* Most department store chains were down 10%-20% based on comparison store sales (comps.) This Christmas sale season is really starting to look bleak quickly
* I also noticed that Walmart was running some SERIOUS sales on Saturday a.m. such as a Compaq Computer for $299 and a 46" LCD for $799.
So we found out that consumers continued to take on debt in September but they must have REALLY cut back in October. More comments after the graph below
Americans are clearly becoming more pessimistic as a result of the loss of jobs. The Reuters/University of Michigan preliminary index of consumer sentiment fell to 56.3 in November, the lowest level since 1980, from 57.6 the prior month, according to the Bloomberg survey median.
4) Finally, and it would be RIDICULOUS of me to neglect this. Oil is in the low 60s and many people here in the loan star state are finding regular unleaded as low as $1.90 a gallon now. I've seen $2 - $2.05 being quite common but a few are lower. Why is gas 40 cents more now for premium vs. 20 cents before? I have noticed a widening of that gap in the last few years.
Good luck to all in the next week. I hope everyone has a wonderful holiday season ahead.
Dan Ross
http://www.betterbizideas.com/
For those seeking info. on private equity Venture Capital (VC) is one of the biggest components. This is "value add" type of creation, in my opinion. They take people with an idea, give them $$$ and management tips, and then watched their garden grow.
I don't see as much "value creation" in private equity as I do in VC work. Too much private equity (LBO stuff) is financial engineering/optimization. While some companies are PHENOMENTAL at changing management structures, practices, etc. they tend to be more evolutionary vs. revolutionary.
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/
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/
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/
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