Friday Finance Weekly 84TH Edition

Greetings folks and a warm welcome to the 84TH Edition of Friday Finance Weekly. Let’s get the party started right away.

The US is considering a number of tax reforms in order to address the $17 Trillion deficit and one of the most controversial measures is the Home Mortgage Interest Deduction (HMID). For the benefit of us Canadians, in the US, individuals are able to write off interest paid on their mortgages against personal income taxes to a cap of $1M a year. Let’s give a quick example of how this works. Assume that the monthly mortgage payment is $1,000, amount of that payment due to interest is $800 and 35% is the personal tax rate. So every month, an individual will get a tax credit of $280 ($800*0.35), so while the payment is $1,000 a month the effective cash payment is $720. The HMID provides $100B in tax savings for the American people. One would think that this write off is only for the primary residence, but you would be wrong. The write off is for secondary homes, vacation homes, etc. To add to that HMID mostly benefits households with $75K – $500K in revenue .The median US income is around $50K, so most American’s don’t see a benefit. There is fierce opposition from the National Association of Realtors and they intend to lobby against it. In my view the HMID is effectively a subsidy and thus should be eliminated. I thought the US was moving towards controlling real-estate bubbles and such subsidies inflate property prices.  Well at least for the foreseeable future investment bankers can iron 5 shirts on Sunday (you may have to think about that a bit). (Source: Market Oracle)

“Wow.” That summed up a few Twitter reactions to news that billionaire hedge-fund manager John Paulson’s gold fund has lost 65% year-to-date, after tumbling 23% last month. Losses for his PFR Gold Fund came on the heels of the Fed’s effort to prepare the markets last month for the eventuality of a paring-back on stimulus. Gold sank 23%-plus in the second quarter, the steepest quarterly loss since the start of modern trading in the 1970s. Buffet was never a believer in gold and I share that sentiment. Some experts believe that gold may fall to $900/ounce, but given the economic uncertainly it may not go that low.  (Source: Market Watch)

Going up against Apple’s iPhone 5S, Samsung’s Galaxy Note III, LG’s G2 and a handful of other flagship phones this fall isn’t going to be easy for the Moto X, the first Motorola smartphone that will be heavily influenced by Google. From the looks of things though, Google is covering nearly all the bases. The phone will feature more customization options than any other handset on the market, it will be built in the U.S., it will reportedly feature a nearly stock version of Android Jelly Bean, it will be packed to the gills with sensors and according to The Wall Street Journal, it will be supported by a $500 million marketing blitz. Google has had a good year so far as it is up 29.82% on a year-to-date basis. Not sure Samsung will feel about this. Time will tell, but as a consumer this is fantastic news. Now when I want to buy a phone I only have to spend 6 months researching it and by the time I pick one, new models will be out. I can repeat the cycle until my old phone stops working and I will forced to pick. This solves the annual ‘need to upgrade’ dilemma. (Source: Boy Genius Report)

Rappers keep taking about their wealth and most of the time its all BS. Pitbull for example states that he is a billionaire but in 2012 he made $9.5. On the other side of the equation, Dr. Dre states he’s worth millions, when net-worth is estimated at $350M.  This is all presented in a nice graph (no its not very scientific as it mixes network figures with income figures): http://buswk.co/13zhR6f (Source: Business Week)

About 1,000 hopeful borrowers overran a branch of China’s central bank as a rumor spread that it was handing out zero-interest loans, media said on Thursday, illustrating how Chinese financial know-how badly lags growth in banking products. Police were called in on Tuesday to disperse the crowd, which had gathered for days outside the central bank in Beihai in the southern province of Guangxi, the Global Times said. The rumor had spread that the People’s Bank of China was distributing interest-free loans of between 50,000 yuan ($8,200) and 500,000 yuan. I bet the Chinese saw a Bank of America commercial and got confused. (Source: Reuters)

Have a fantastic weekend and please don’t hesitate to forward this newsletter. Many thanks,

Sam

Friday Finance Weekly 83RD Edition

Greetings folks and a warm welcome to the 83RD Edition of Friday Finance Weekly. My apologies for tardy state of this newsletter. I am switching to a new system over the next several weeks and this will ensure timely delivery of spicy finance news.

Zero Hedge recently wrote an article on 19 reasons to be deeply concerned about the Global Economy. Here is my top five:

  • Velocity of money in the US has plunged to an all-time low. Basically money is not flowing through the system and banks aren’t lending. If the velocity has slowed down due to increased credit standards that makes sense, but I think banks are hoarding cash to improve balance sheets. Both factors aren’t necessarily bad, but nothing will happen if both the chicken and the egg are stagnant. That being said, I hope the government doesn’t try to kick start things.
  • Fall of the Egyptian government will result in increased instability and a spike in oil prices. This is especially problematic as summer travel results in increased oil consumption. One has to wonder if oil traders are secretly funding instability movements in the Middle East. Okay that was my one Snowden moment of the day.
  • The European debt crisis is going to come in our radar again. The Portuguese Finance and Foreign Ministers quit within two days. Also it is expected that Italy will need another bailout within six months. Hey at least Berlusconi won’t party with the extra dough.
  • PIMCO the bond trading heavy weight is starting to see massive capital pullouts. In June, investors pulled out $9.6B in capital. It is the largest single outflow since 1993. That being said, it could be that more capital is flowing from debt to the equity market, which is considered to be a good sign. This is a ‘meh’ sign at best.
  • Perhaps the most troubling sign is that the percentage of companies providing negative earnings guidance for this quarter is at a level never seen before. Even Samsung was on this boat.

To sum up, all is not well, but summer is here and the beer is cold. I wouldn’t bother with the rest of the list as it’s a bit repetitive. (Source: Zero Hedge)

Six years in the making, Adidas is launching a radically new running shoe, the “Springblade,” on August 1.  The shoe has 16 “blades” extending from the sole, each one composed of a transparent, highly elastic polymer that is intended to return energy forward with each step. Springblade is aimed at those who don’t identify themselves as runners, specifically high school and college athletes who run as a means of conditioning for sport. Adidas themselves is in a much-needed boost in the running department. According to SportsOneSource, Adidas suffered a decline in running sales in the month of May while five other companies, including category leader Nike, recorded gains of at least 20 percent. If you are interested in check it out please click the following: http://bit.ly/1a8pLVy  While this shoe is revolutionary in every way, it has a small problem. Mud has a tendency of getting stuck in it. Thought that would have been a design requirement. (Source: USA Today)

In 2011, Nordstrom’s spent $270 million to buy HauteLook, which sells clothes to members in “flash sales,” online offers that expire within hours. Now, the Company is expanding its online presence through its investment in online specialty gift retailer, Wantful. The companies recently launched a joint platform, which works like this: after users enter some information about who they are buying for and how much they would like to spend, the company sends the gift recipient a customized catalogue of up to 12 potential items to select from. Nordstrom’s investment essentially functions as an inexpensive means for research and development, as the retailer strives to further grow its e-commerce business, which currently represents 11% of total revenue. Nordstrom has always been smart and continues to innovate. That being said this is a company that thrives on providing superior customer service. I am not sure how this will translate in the online space. (Source: Business Week)

Congress established the Interagency Working Group in 2009 to set guidelines on advertising healthy foods to children, and public comments on the guidelines are now being posted. General Mills appeared among the most alarmed by the IWG proposals, according to its comments on the Federal Trade Commission website (as disclosed by Scientific American in May). Of the 100 most commonly consumed foods and beverages in America, GM asserted, 88 would fail the IWG standards, and if everyone in America started following the health recommendations, General Mills asserts that the cost of feeding the entire nation would increase $503 billion per year. No worries, let’s just add it to the national debt. I wonder however if health care costs would decrease in such a case. (Source: Scientific America)

Have a fantastic weekend and please don’t hesitate to forward this newsletter. Many thanks,

Sam

Friday Finance Weekly 82ND Edition

Greetings folks and a warm welcome to the 82ND Edition of Friday Finance Weekly.

For this week, I want to try a new format and give you a quick dose of the most important finance news (3 positive and 3 negative). This is a summary from the Zero Hedge website, so I can’t take too much credit for it.

  • Positives –
    • Yahoo acquired Tumblr for $1.1B. Not sure if this is a good idea, Yahoo’s shares are flat for a week (0.72% decrease). Honestly I still don’t know what Tumblr does.
    • Average new home prices soar, unfortunately real income does not. I guess this is bitter sweet, loss of income is offset by increase in home values. Wait, there is no way this has happened before right?
    • Foreign banks have plenty of cash (thanks to the Fed). Basically the Fed is also supporting foreign banks operating in the US by depositing their cash. Translation you can bank anywhere.
    • Negatives –
      • Target misses Q1 significantly, YoY Revenue down $199MM, YoY EPS down $.27. This will change with their entry to Canada and the crazy new ‘Nice to meet you, neighbor’ campaign.
      • Student loan delinquency continues to climb. Here’s a though: maybe they should just make school cheaper.
      • Apple meets the “Fairness Doctorine”, as offshore cash gets scrutinized. Basically the IRS will take an opinion on whether the taxes paid were fair. Given their mountain of cash, I am sure Apple can bury the IRS with paperwork, but this will be precedent setting nevertheless.

(Source: Zero Hedge)

Google Inc. launched a paid streaming music service in the United States that will compete with the likes of Pandora and Spotify.  Google Play Music All Access will cost $9.99 per month, though the search advertising giant was offering 30-day free trials and a $7.99 monthly fee for those consumers who sign up before June 30. Consumers can access the service via Android mobile devices and PCs. The announcement came at Google’s annual developer conference in San Francisco.  As of Jan. 31, Pandora had 65.6 million active users-those who had accessed a Pandora account within the last 30 days-according to its annual report.  Spotify is a private company that claims 6 million paying subscribers and more than 24 million active users. Overall it’s a smart move by Google, but I wonder if they are too late to the game. Apple, for example, still hasn’t launched this service but while most think that this is due to negotiation issues with the labels – it just may not be that profitable. Streaming services need a point of differentiation and so far nothing comes close to a truly social music experience. (Source: Internet Retailer)

Approval rates on business loans from big banks (those with over $10 billion in assets) have improved dramatically over the past year, according to the Small Business Lending Index from Biz2Credit.  The index, which has been tracking bank approval rates since January 2011, compiles data from companies applying for loans from $25,000 to $3 million.  The index shows that big bank approval leapt in September 2012, and since then it has been steadily increasing. In April, big bank approval rates for small business loans reached a record high, peaking at 16.8%. In a year-to-year comparison, approvals at big banks are up over 50%. This is truly a positive sign as small business is where you see overall economic improvement and serious impacts on unemployment. That being said, I hope small business lending isn’t up because of government influence. If that was the case the underwriting standards would be impacts and write-offs would precipitate.  I guess it doesn’t matter, since the government will fund banking losses. (Source: The Financial Brand)

Okay, I rarely put links in this blog, but you have to check this out:

http://wapo.st/10YEXM8

Its title is, ‘These 31 charts will destroy your faith in humanity’. Topics include, trends by armed conflict type, human slavery, and some hilarious ones such as water consumption during showers. (Source: Washington Post)

Eliel Santos fishes the grates of New York City seven days a week, reeling in enough bounty to sustain him for the last eight years, he told the New York Post in April. The “fishing line” Santos, 38, uses is dental floss, with electrician’s tape and Blue-Touch mouse glue — equipment that “he controls with the precision of an archer,” the Post reported. His biggest catch ever was a $1,800 (pawned value) gold and diamond bracelet, but the most popular current items are iPhones, which texting-on-the-move pedestrians apparently have trouble hanging onto. Okay so since this is essentially a donation, people who have their stuff found by Santos should be eligible for a tax receipt, right? (Source: New York Post)

Have a fantastic weekend and for my American friends I hope you have a good long weekend. Don’t hesitate to forward this newsletter. Many thanks,

Sam

Friday Finance Weekly 81ST Edition

Greetings folks and a warm welcome to the 81ST Edition of Friday Finance Weekly. This weekend is supposed to be a scorcher…so enjoy! Go Canucks Go!

The bond markets are active in a big way. Both Nike and Apple issued huge bond offerings. Nike boosted the industry’s biggest cash hoard by entering the bond market for the first time in a decade, with a new $1 billion offering.  The athletic-footwear maker sold equal $500 million portions of 2.25 percent, 10-year debt and 30-year securities with a 3.625 percent coupon which is the lowest among similar corporate bonds issued in the U.S. this year (Bloomberg). The 2023 notes yield 58 basis points more than Treasuries, with the 2043 bonds paying a spread of 75. Nike’s sale adds to the $4 billion of cash and marketable securities the company had on Feb. 28 (Bloomberg). This is telling about the bond pricing, the markets are essentially saying that Nike is only marginally riskier than the US government. Proceeds are mainly for capital expenditures and acquisitions. The key word is acquisitions. Let’s see what they get up to. Apple somewhat dwarfed Nike, by issuing $17B in bonds. This is partly to quell investor demands of share buybacks or dividends. That being said, by issuing debt as opposed to repatriating its foreign cash reserve, Apple is expected to save $9.2B in taxes. Brilliant to say the least. Apple’s new iOS 7 is due out in September and if the past is any indication, they will continue to add piles of cash. I honestly think that the US government should borrow funds directly from the private sector. That’s a novel balance your budget strategy; unless of course the BC NDP has already proposed that. (Source: Bloomberg, CNET)

Some positive and negative news coming out of the states these days: The US debt ceiling deadline (yes it’s an actual thing now) has been pushed to mid-September. Previously it was set for August. The government boosted its total revenues as the economy has improved and there have been changes to the tax policy (basically gone up). Whew, those Washington politicians can now take a well-deserved summer break.  Perhaps they will contemplate creative ways of filibustering; reading the dictionary will no longer cut it. Now for the bad news: The richest Americans got richer during the first two years of the economic recovery while average net worth declined for 93% of the nation’s households (PewResearchCenter).  The Pew report says wealth held by the richest 7% of households rose 28% from 2009 through 2011, while the net worth of the other 93% of households dropped 4%.  Pew says the main reason for the widening gap is that affluent households have stocks and other financial holdings that increased in value, while the less wealthy have their homes as their main asset, which haven’t fully regained their value since the housing downturn. Interesting how they make no mention of new debt. (Source: Bloomberg, USA Today)

Monster Beverage Corp. has asked a federal court to halt efforts by San Francisco City Attorney Dennis Herrera to place restrictions on its popular energy drinks, arguing such regulations are a federal matter. In a lawsuit filed Monday in U.S. District Court in Riverside, Calif., Monster said the San Francisco city attorney’s office was acting illegally by trying to force it to cap serving sizes and limit marketing, among other curbs. The Corona, Calif.-based company is the leading seller of energy drinks in the U.S. based on volume. The move comes amid heightened scrutiny of energy drinks, which promise a lift from caffeine and ingredients such as taurine and ginseng but have raised safety concerns among public-health officials. Shares for the company are up 2.03% for the week and 9.39% for the year. Smart move by the energy companies, but this is reminiscent of actions taken by cigarette companies. I have a solution that will fix things. How about a health tax on food products considered bad for you? There is a tobacco tax, so why not apply it to fast good. The monies can be used to fund increased health care related expenses. Or perhaps start putting pictures of angry, testosterone fueled teenagers on monster energy cans. (Source: Wall St Journal)

Wealthy Russians have recently found a way around the country’s horrid traffic jams: fake ambulances, outfitted with plush interiors for relaxation while specially trained drivers use unauthorized lights and sirens to maneuver through cluttered streets. London’s Daily Telegraph reported in March that “ambulance” companies charge the equivalent of about $200 an hour for these taxis. (Source: Daily Telegraph)

Have a fantastic weekend and please don’t hesitate to forward this newsletter. Many thanks,

Sam

Friday Finance Weekly 80TH Edition

Greetings folks and warm welcome to the 80TH Edition of Friday Finance Weekly. My apologies for last week as I decided to talk a day off.

Clothing seller Gap Inc. said that it plans to start to franchise Old Navy stores in international markets in 2014, part of its plan to add business at home and globally.  “There is meaningful opportunity for our diverse portfolio of brands to gain share in the $1.4 trillion global apparel market,” said Gap CEO Glenn Murphy in a statement. The news comes as Gap presents its future goals at its 2013 investor meeting in San Francisco.  The company, which operates 3,100 company stores under the Gap, Banana Republic, Old Navy, Piperlime, Athleta and Intermix brands, did not specify how many stores it plans on franchising.  It also said it is looking into the possibility of opening company-owned Banana Republic and Gap stores in China.  In North America, the company said it plans to focus on expanding its smaller brands, athletic gear Athleta, e-commerce site PiperLime and boutique Intermix.  After having a few mediocre years, looks like The GAP is getting its grove back. Its shares are up 20.75% on a year to date basis and presently trade at $37.48/share. Franchising is a fantastic way to expand especially as the capital cost is limited. Let’s see if they can maintain their brand integrity. Given their price point let’s hope nobody try to make Old Navy knock offs. (Source: Business Week)

McDonald’s revealed a weaker-than-expected first-quarter profit as sales at its more established stores slumped across its geographic markets amid a still turbulent economy.  The Oak Brook, Ill.-based fast-food company reported net income of $1.27 billion, or $1.26 a share, compared with a year-earlier profit of $1.26 billion, or $1.23 a share.  Revenue for the three months ended March 31 was $6.6 billion, up 1% from $6.55 billion a year ago, edging just above the Street’s view of $6.59 billion. However, same-store sales, a key growth metric for sales at stores open longer than a year, slumped 1.2%.  McDonald’s continues to update its menu with health options to make it more relevant to today’s society.  It will be interesting to see if the McCafe concept is actually working. I would think that the switch to higher margin products would be boom for the company, but perhaps the target client doesn’t sip lattes. Regardless I wouldn’t read into this too much and the market seems to have agreed as the stock price has remained relatively flat (increase of 0.88%). Summer is generally good for fast food as more people eat on the go. (Source: Washington Post)

Dish Network has proposed a $25.5 billion merger with Sprint Nextel, exceeding the bid by Japan’s Softbank to buy the cellular carrier.  Satellite-TV provider Dish hasn’t formally withdrawn its offer to purchase cellular carrier Clearwire, which is majority-owned by Sprint but not controlled by Sprint. Dish said its offer for Sprint is not contingent on Sprint succeeding in its current bid to purchase the remaining Clearwire shares that it doesn’t own.  The merger would reduce joint costs by $1.3 billion in the first year and by $1.8 billion in three years, thanks in part to lower acquisition costs and other synergies, the company said.  The merged company would use Dish’s 700MHz spectrum to deliver Dish programming in a one-to-many setup to mobile devices.  The proposal would not be subject to a government review that foreign-owned SoftBank’s proposal is.  Dish, however, needs to raise an additional $9.3 billion to pay for the merger. This deal is a near certainty and as a result I would be bullish on this stop. This week Sprint was relatively flat on the markets. I doubt Softbank will increase their offer especially in light of the fact that the US government my squash it. Given Dish’s diversified income base it will be a real competitor to AT&T and Verizon. (Source: New Bay Media)

The economic theory underpinning austerity policies being followed by governments worldwide may be flawed.  That is the allegation made in a study by the University of Massachusetts. It claims to have found coding errors on the Excel spreadsheet used by the academics who produced the theory which could invalidate their conclusions.  It was economists Kenneth Rogoff and Carmen Reinhart who found that economic growth normally slows when a government’s debt exceeds 90 percent of the country’s annual economic output.  The observation and the subsequent conclusion that countries must cut public spending has meant hardship for millions. Hope nobody in Greece or Cyprus reads this. Regardless, maybe they were using the wrong version of Excel. (Source: Euronews)

In March, Washington state Rep. Ed Orcutt, apparently upset that bicyclists use the state’s roads without paying the state gasoline tax for highway maintenance, proposed a 5 percent tax on bicycles that cost more than $500, pointing out that bicyclists impose environmental costs as well. Since carbon dioxide is a major greenhouse gas, he wrote one constituent (and reported in the Huffington Post in March), bike riders’ “increased heart rate and respiration” over car drivers creates additional pollution. Damn, so do start taxing the gyms as well? (Source: Huffington Post)

Have a fantastic weekend folks. Too bad the rains are returning. Please don’t hesitate to forward this email. Many thanks,

Sam

Friday Finance Weekly 79TH Edition

Greetings folks and a warm welcome to the 79TH Edition of Friday Finance Weekly. Look at that, two editions in a row. Hope the rain isn’t getting everyone down.

Revised takeover offers for Australia’s Billabong International Ltd. have come in considerably lower than indicative bids, with the highest offer valuing the struggling surfwear firm at only A$287 million ($300 million), the Australian Financial Review reported.  A consortium comprising Billabong’s former U.S. boss Paul Naude and private equity firm Sycamore Partners has put forward an offer of about A$0.60 per share, while a rival group made up of private equity firm Altamont Capital Partners and U.S. clothing group VF Corp has offered less than A$0.50 per share, it said.  The offers are below Billabong’s share price at its last close on March 28 of A$0.73 and around half the A$1.10 initial indicative bids from both consortiums, which valued the company at A$527 million ($550 million).  Since the initial offers, Billabong has posted a first-half net loss of A$536.6 million and lowered its full-year guidance, citing difficult trading conditions in Europe and a disappointing performance from its Nixon watch brand.  In February 2012, Billabong rejected an A$850 million offer from TPG Capital TPG.UL as too low. Makes you wonder what Billabong was smoking (sorry I couldn’t resist). What’s next is they will evaluate their options through a liquidation scenario and make decision. Its Déjà vu – remember Groupon and Google? (Source: Reuters)

A day after the sudden exit of Lululemon’s chief product officer, the yoga-pants maker that continues to reel from the massive “sheer” pants recall last month was slapped with a downgrade to “sector perform” by RBC Capital Markets.  RBC analyst Howard Tubin said the departure of Sheree Waterson brings a “new level of uncertainty to the Lululemon story.  It is Ms. Waterson’s departure that is the impetus for our downgrade,” he said in a note to clients. The downgrade was from “outperform.”  Tubin goes on to note that Waterson has been a “strong creative asset” to the women’s sports apparel maker since she joined the company in 2008 and has been “instrumental in the design process.”  While I agree with RBC on this, the market seems to have brushed this aside as the share is up 8.19% for the week and is currently traded at $69.60. I think they should have used the sheer pants as a marketing opportunity. Perhaps launch a new line for professional.. eh.. dancers? (Source: Google Finance, Fox Business)

Toys ‘R’ Us has withdrawn its plans to go public in a move that was considered likely since its chief executive officer Gerald Storch announced plans to step down in February.  In its SEC filing, the retailer stated it was pulling its initial public offering, which was first registered in May 2010, because of unfavorable market conditions and a recent management change.  Storch stepped down in February, although he will remain as chairman, and the company has begun a search for his replacement.  The decision to withdraw the IPO came at the same time that Toys ‘R’ Us released its fourth-quarter results, which were below the previous year.  Net sales were $5.8 billion for the fourth quarter, a decrease of $155 million compared to the prior year, and net earnings were $239 million, compared to $343 million in the fourth quarter of 2011, a decrease of 30 percent. I am however curious as to know if the sales are down due to changing demographics (ie less children as our population is aging) or the lukewarm economy. Regardless, the future of entertainment is in interactive media. (Source: License Magazine)

The uber popular cross platform messaging app, Whatsapp we being courted by Google. Reports indicate that Google made a $1B offer for Whatsapp. Unfortunately they rebuffed the offer. Whatsapp currently has 250M users and the majority of users are free. They earn around $100M in total revenues annually, so Google was offering 10x revenue (a fair price). As the user base increases the infrastructure requirements will continue to increase and I am not sure if Whatsapp can cope (from a cost perspective). Google is in the best position to assist. Let’s see what the future holds. (Source: Guardian)

In March, Microsoft was fined 561 million euros (about $725 million) by the European Commission after, apparently, a programmer carelessly left out just one line of code in Microsoft’s Service Pack 1 of European versions of Windows 7. That one line would have triggered the system to offer web browsers other than Microsoft’s own Internet Explorer, which Microsoft had agreed to include to settle charges that it was monopolizing the web-browser business. Also in March, the government of Denmark said that Microsoft owed the country about a billion dollars in unpaid taxes when it took over a Danish company and tried to route its taxes through notorious tax havens such as Bermuda. According to a March Reuters report, Denmark is among the first European countries to challenge such U.S.-standard tax shenanigans and is expecting payment in full. The market doesn’t really seem to care as the shares have been stable over the last month (increase of 3%). But seriously, how did someone forget something so important? I guess this gets chalked up with history’s costliest oh crap moments. (Source: Guardian)

According to news reports in November, New York City physician Jack Berdy was doing a brisk business administering Botox injections (at up to $800) to poker players who were hoping to prevent facial expressions that might tip their hands. Accountants: This would qualify as a legitimate business expense right? (Source: Fox News)

Have a fantastic weekend and please don’t hesitate to forward this newsletter. Many thanks,

Sam

Friday Finance Weekly 78TH Edition

Greetings folks and a warm welcome to the 78TH Edition of Friday Finance Weekly. My sincere apologies for the long delay. Ran into some technology issues earlier this year and the weeks got away from me. Let’s get right to business.

Business is good in the U.S. auto industry, but car dealers are starting to worry about the squeeze on new car margins and what could happen if interest rates change.  “We’re getting lulled to sleep by these Japanese-like interest rates which are barely positive. Dealer profitability is somewhat overstated in the long term” because of the current low interest rates, Earl Hesterberg, chief executive of Houston auto retail chain Group 1 Automotive, Inc., speaking at a conference sponsored by the National Automobile Dealers Association and consultancy J.D. Power and Associates ahead of the New York auto show.  “We’re at 5.6% margins,” on new vehicles, Mr. Hesterberg says. “Before the downturn we were running 7%.” While margins are considered to be low, keep in mind that these are dealership margins and not manufacturer margins. Dealerships make most of their profits (approximately 80%) by way of service and parts. Gas prices are also stable for now but if North Korea sneezes the wrong way things may change quickly. (Source: Wall St Journal)

American consumers are showing remarkable resilience.  Despite the weight of higher payroll taxes and pump prices, consumer spending rose a surprisingly strong 0.3% in February from the prior month, after adjusting for inflation. That prompted a number of economists to boost their forecast sharply for personal spending and economic growth for the first quarter.  Moreover, a major indicator of consumer confidence edged up in March to its highest level since November, confounding analysts’ projections that the University of Michigan survey would slip as consumers also took in the news of the new government spending cuts under sequestration. When we combine with the fact that credit card delinquencies (2.47%) are at an 18 year low it appears that consumers are being responsible. You know what else? So far the automatic spending cuts that went into effect have had no impact. (Source: Money & Co, and CNN Money)

EDC (Export Development Canada) a federal entity that promotes export related activity, provided a $260M working capital facility to Telefonica to help them purchase Blackberry Products. The credit facility will allow the Spain based company to purchase phones and infrastructure for BIS/BES systems. Blackberry has done fairly well on a year to date basis with their shares up 26.61% and currently trading at $14.93 a share. With the Samsung Galaxy S4 coming up, I think Blackberry will have a limited impact in North America. In fact there were reports that ATT in the states didn’t even actively promote the Blackberry Z10. Analysts will wonder if Blackberry’s sales would have been strong without quasi-government support. That being said, Bombardier has received assistance for years. All things considered Blackberry’s fortunes will lie in Asia and South America so it may not matter. Honestly I think they will do well by simply not changing the size of their phones. Samsung’s next phone has a 5 inch screen! Other than helping creepy people read over your shoulder on the subway it serves no purpose; unless of course they make fashionable battery chargers to go with your phone. (Source: TechCrunch)

As you all know I am fairly random with my blog comments. I thought it would be of interest to give a few 2012 internet facts:

  • 2.2 billion email users worldwide
  • 144 billion total emails per day
  • 68.8% of all email is spam
  • 246 million domain name registrations
  • 2.4 billion global internet users
  • 40.5 years, average Facebook user
  • 37.3 years average Twitter user
  • 1.2 trillion Google searches
  • Top trending question on Ask.com “Will Rob and Kristen get back together?”

Humanity my friends, is doomed when more people care about Rob and Kristen’s escapades over things like “What’s going on in Syria?” (Source: Gizmodo)

First-World Products: The DogTread Treadmill is a modification of the familiar exercise machine in homes and health clubs, with special features for dog safety — a helpful invention in a nation in which over half of all pet dogs are too fat. (A somewhat higher percentage of cats are overweight, but it is unlikely that marketing a cat treadmill has ever been considered.) The Association for Pet Obesity Prevention (yes it’s a real thing) points out that pets can develop type 2 diabetes, high blood pressure and osteoarthritis, and that the problem stems from insufficient exercise and overindulgent owners. (The DogTread Treadmills sell for $499 to $899.). (Source: Mother Nature Network)

Thanks folks and a fantastic weekend. Please don’t hesitate to forward this newsletter.

Many thanks,

Sam

Friday Finance Weekly 77TH Edition

Greetings folks and a warm welcome to the 77TH Edition of Friday Finance Weekly. Washington politicians hoping the end of the world would prevent them from having to deal with the fiscal cliff…will have to think again.

News from the economy in general:

  • It is apparent that Uncle Sam is getting strict with foreign banks. HSBC was fined $1.9B for money laundering. Nobody was arrested of course and the bank agreed to pay the fine and admitted to violating the Bank Secrecy Act and the Trading with the Enemy Act. Their shares are actually up over the last month and it is apparent that the bank is easily able to absorb the fine. ING also agreed to pay a $619M fine due to their dealings with Cuba and Iran. Even UBS was fined $1.5B for a single wire transfer that manipulated LIBOR. I sincerely hope these large fines are helping the US close the deficits!  In addition to the hefty fines, more than two dozen foreign banks with at least $50 billion of global assets face stricter U.S. capital rules under a Federal Reserve plan that’s aimed at lowering risks to the financial system.   The Fed proposed that most of the banks also be forced to comply with more stringent liquidity rules and pass stress tests analyzing how they would fare in a severe economic downturn.  Lenders with more than $50 billion of global assets and more than $10 billion in the U.S. will be required to house their U.S. businesses, including securities trading, within regulated holding companies. Yikes, its hammer time! Somehow I don’t think American banks face the same level of scrutiny. In fact during the financial collapse some banks were forced to take government bailouts even though they didn’t need them. (Source: WSJ, Bloomberg)
  • Americans swiped their credit cards more often in October and borrowed more money to attend school and buy cars. The increase drove U.S. consumer debt to an all-time high.  The Federal Reserve said that consumers increased their borrowing by $14.2 billion in October from September. Total borrowing rose to a record $2.75 trillion.  Borrowing in the category that covers autos and student loans increased by $10.8 billion. Borrowing on credit cards rose by $3.4 billion, only the second monthly increase in the past five months. Hey tis the season for giving so give consumers a break, and the more you give the more you get… Bailouts that is. (Source: Post Crescent)
  • Just when you thought the online coupon industry was dead, JP Morgan decided to get in to the game. This time however, I think it’s a good idea. J.P. Morgan is buying daily-deals startup Bloomspot Inc. as it looks to target customers with merchant offers to spur card spending. The deal could enable J.P. Morgan, the largest U.S. credit-card lender and a major processor of card transactions for merchants, to generate new sources of revenue by tailoring discounts and other deals for retailers to cardholders based on spending patterns. The bank will use your spending habits to generate customized coupon solutions. This was always the missing link in the online coupon market. (Source: WSJ)

Let’s get into some consumer news:

  • Bausch & Lomb Inc. has hired investment bank Goldman Sachs Group Inc. to explore a sale after receiving informal expressions of interest from several large health-care companies, said people familiar with the matter. The eye-care company is hoping to command at least $10 billion, people familiar with its thinking said.  The Wall Street Journal reported in July that Bausch & Lomb could be ready to go public at the end of this year if it didn’t receive an attractive offer first. The Journal also reported that Bausch had received informal takeover inquiries from larger companies.  The decision to formally explore a sale instead of an initial public offering came partly because Bausch executives felt the company would secure a price that would meet its expectations in a sale, the people said. The IPO market is lukewarm right now and the strategy of trying to find a purchaser is a smart one. I have a feeling a company like Johnson and Johnson will make a move to further strengthen their position in this sector. (Source: WSJ)
  • Hudson’s Bay Co. trumpets high-profile brands such as Coach as a big part of its turnaround efforts, but behind the scenes the retailer is building an arsenal of its own private labels to fight growing competition from its suppliers’ standalone stores.  While HBC and other department stores count on stocking well-recognized lines to draw customers, the merchants also contend with those same companies running their own shops nearby – often in the same mall or down the street.  Now, HBC, which reports its first quarterly results as a reborn public company, is putting a new push on its own labels. In-house brands give merchants more leeway in setting prices without having to match a competitor’s discount, while scaling back on middlemen. Retailers are betting they can generate higher profit margins from their own brands, while taking on their suppliers on their own turf. The stock has barely moved since its IPO indicating that it was actually fairly priced. What a novel concept, fair pricing. Results over the holiday season may give it a boost. (Source: Globe and Mail)
  • This isn’t really finance news, unless you use it as a bellwether for higher than expected revenue figures. The top 10 accessory designer list was released and it is as follows 1. Coach 2. Gap 3. Calvin Klein 4. Guess 5. Nine West 6. Liz Claiborne (tie) 6. Tommy Hilfiger (tie) 8. Ralph Lauren 9. Ugg 10. Fossil. Guys you can thank me later. (Source: Glamour – afraid to admit it)

Plastic surgeons in Turkey and France told CNN in November that mustache implants have suddenly surged in popularity as Middle Eastern men use their increased lip bushiness to convey power and prestige. Surgeons extract follicles from hairier parts of the body in procedures that cost the equivalent of around $7,000 and show full results in about six months. An anthropology professor told CNN that, by tradition in Arab countries, a man of honor would “swear on my mustache,” use mustaches as collateral for loans, shave off a vanquished foe’s mustache as a reward, and gravely insult enemies with “Curse be upon your mustache!” Okay, so how does Movember fit into all this? (Source: CNN)

Have a Merry Christmas and a Happy New Year. My next newsletter will be out in 2013. Please don’t hesitate to forward this newsletter.

Many thanks,

Sam

Friday Finance Weekly 76TH Edition

Greetings folks and a warm welcome to the 76TH Edition of Friday Finance Weekly. Hope your Christmas shopping is going well and that you are gearing up for the holidays.

Let’s expand on the economy and get a pulse for what’s happening:

  • The rate of student loan debt delinquency has leaped above the delinquency rate for all other consumer debt including those of cars and credit cards, according to a study done by the Federal Reserve Bank of New York.  Student debt in the U.S. is now at $956 B, which is an increase of $42 B since last quarter. That means 11 % of student loans are 90 days delinquent. In fact student loans are the only consumer debt category this is currently growing. Is it that school is too expensive or is the problem really the lack of good jobs? Well the good news is that there is a solution, default on your debt and after seven years its record gets wiped out. (Source: Deseret News)
  • Following up on my employment comments there is some good news coming out of the states. The unemployment in the US fell to 7.7%, the lowest since December 2008. During the month of November a total of 146,000 jobs were added and the forecast was 85,000. Unfortunately increased levels of employment didn’t translate to increased consumer confidence as the University of Michigan consumer sentiment index fell to 74.5, down from 82.7. Canada added 59,300 jobs and the unemployment rate fell to 7.2%, down from 7.4% in October. I am however skeptical about reading too much into the jobs report during November/December as retailers tend to hire temporary staff for the holiday season. Santa’s helpers for example are unemployed all year except for the month of December (okay I tried). (Source: Globe and Mail)
  • Also there is a lot of fiscal cliff talks and let me give a worst case scenario summary. On Dec 31 a number of laws are due to expire, unless the president and congress can work something out. If nothing is resolved then things get interesting. Taxes would go up for almost every taxpayer and many businesses. The Bush-era tax cuts, which tax relief for middle and upper-class tax payers, would be a thing of the past.  So would President Obama’s payroll tax cut which added about a thousand dollars a year to the average worker’s income. Government spending would be slashed.  That means less money for most military, domestic and federal programs.  $26B in emergency unemployment-compensation would be gone. Medicare payments to doctors would be reduced by $11B. Federal programs would take the biggest hit.  They stand to lose a total of $65B. No big deal right? So why aren’t the republicans getting serious? (Source: Yahoo Finance)

Retail therapy, as if you weren’t sick of shopping:

  • Online spending rose 17% after Thanksgiving, one of the busiest days of the year for Internet retailers, as tablets and smartphones let customers shop anytime and anywhere.  Consumers spent about $1.46B on so-called Cyber Monday, compared with $1.25B a year ago, making it the heaviest online spending day in history, research firm ComScore Inc.  said in a statement. U.S. retail e-commerce spending reached $16.4B in the first 26 days of the holiday season, a 16% increase from the same time last year.  The convenience offered by mobile devices, especially tablets, is boosting sales for online retailers such as Amazon.com Inc. and EBay Inc. Consumers are no longer waiting for Black Friday to shop and they’re starting as early as Thursday evening, which will help Internet sales reach $43.4B this holiday season, or 10% of U.S. retail spending, excluding gas, food and cars, according to ComScore. During this time of the year the only exercise most people get is fighting the crowds in malls, so with online shopping we can add to our obesity problem. Quick buy health care stocks. (Source: Bloomberg Business Week)
  • Daily deals company LivingSocial is getting more antisocial by the day. The Groupon competitor said it was laying off 400 people, or almost 9 percent of its staff, because of falling demand for its services.  LivingSocial isn’t the only one in its nascent industry to face pressure. Groupon’s board of directors is reportedly considering whether to fire CEO Andrew Mason, who effectively admitted this week that his performance merits scrutiny. The company’s directors appear to have decided to let him stay, at least for now.  Indeed, only a few years into its existence, the entire online coupon business is struggling, with top players still trying to learn how to grow quickly and profitably enough to satisfy investors. The question is not how much more consolidation can go on so much as how many companies might be left to consolidate. According to trade publisher Daily Deal Media, in the last six months of 2011 alone nearly 800 daily deal companies closed their doors. Hey maybe its time Groupon gave a coupon for its shares? Its got to be at least 50% – 60% off. (Source: CBS Money Watch)

Among the federally funded projects highlighted in the “2012 Waste Book” of U.S. Sen. Tom Coburn were a $325,000 grant to develop a “robosquirrel” (to help study the somehow-confusing interaction between squirrels and rattlesnakes) and a $700,000 grant by the National Science Foundation for a New York theater company to create a musical about climate change and biodiversity (which actually opened this year, in Kansas City, and included among its concepts, according to one critic, “flying monkey poop”). Abuses of the food stamp program were also detailed, such as by one exotic dancer who, while earning $85,000, drew food stamps in an amount roughly equivalent to the sum she spent on “cosmetic enhancements.” Now the only thing that would make this story better would be if the exotic dancer was part of the musical. (Source: Fox ‘News’)

Have a fantastic weekend and please don’t hesitate to forward this newsletter. Many thanks,

Sam

Friday Finance Weekly 75TH Edition

Greetings folks and a warm welcome to the 75TH Edition of Friday Finance Weekly. To all my American friends, I hope you had a Happy Thanksgiving.

Let’s start with some economic/tech news:

  • The S&P 500 index had its best weekly gain since June of this year. The index is up 3.6% for the week and this is primarily due to the increased confidence of positive retail data from the Christmas shopping rush. Germany also surprised the markets as their business climate index rose unexpectedly. Honestly I’ve never heard of this index, but it sounds good. For now the markets seemed to have forgotten about the fact that the 7 year EU budget is at a standstill (no one can agree on how to proceed). The positive news drove the TSX higher this week and the Canadian Dollar closed above par. Great for Canadian Black Friday shoppers. (Source: Toronto Star, Bloomberg)
  • American retailers are set to profit from the strong Canadian dollar and discounted pricing. While retailers like the Bay, are advertising Black Friday deals of their own, higher duty-free limits, lower U.S. prices and a currency near par with the U.S. dollar will lead to at least a 25 percent increase in lost sales abroad in November and December, said Douglas Porter, deputy chief economist at the Bank of Montreal. (BMO) He says the sales drain will total C$5 billion.  That translates to a loss of around 25% to Canadian retailers over November/December. (Source: Bloomberg)
  • Advent International, a Boston-based buyout firm that invests in Europe and the U.S., raised 8.5 billion euros ($10.8 billion) for its latest fund, the largest pool raised for private-equity investments in two years. Advent International GPE VII LP, which began gathering money in March, is the biggest since Blackstone Group LP (BX) closed on $16.2 billion in 2010, according to London-based researcher Preqin Ltd. Advent, which had originally set a target of 7 billion euros, in October increased the maximum amount it could raise to 8.5 billion euros, a person with knowledge of the decision said at the time. Out of all the positive economic data, I am most encouraged by this piece of news. The private equity market is generally known as smart money, so if capital is increasing in this sector it is a sign that things have bottomed out. That being said, Mark Twain has the best advice for investing “October. This is one of the peculiarly dangerous months to speculate in stocks in. The others are July, January, September, April, November, May, March, June, December, August and February.”(Source: Business Week)

Retail news is up next:

  • Clothing retailer Abercrombie & Fitch Co stunned investors with unexpectedly improved third-quarter results and a full-year outlook that exceeded Wall Street forecasts, sending shares up as much as 30 percent.  The company got a handle on excess inventories that had sparked a round of discounting that worried investors. It also had pockets of sales strength in places like Scandinavia and China that helped revenue exceed expectations. Even troubled markets like Spain were not as bad as expected.  Abercrombie & Fitch was “being highly disciplined” with inventory management, and was working to ensure sales growth outpaced that of inventory, Chief Executive Mike Jeffries said on a call with analysts.  For the third quarter ended October 27, Abercrombie earned $71.5 million, or 87 cents a share, compared with $50.9 million, or 57 cents a share, in the same quarter last year. Analysts were expecting earnings of 59 cents a share. This means that other retails such as the GAP and Nike may have equally good news to share in the coming months. Their secret to success isn’t with inventory management. They make their stores so dark that you don’t see what you’re buying and use model like salespeople to intimidate you. I however don’t mind the hot pink muscle tee-shirt I got.  (Source: Reuters)
  • Nike Inc. last week unveiled the Nike Studio Wrap, a footwear product targeted at women who favor studio workouts like yoga and pilates.  The new product retails for about $110/pair. Yoga over the past decade has morphed into a multi-billion-dollar industry, with much of the thanks going to Lululemon, by Nike’s approach is novel. Now other brands are getting involved. Outdoor products brand The North Face is in its second year offering a line of yoga apparel. Under Armour Inc., a Baltimore-based rival to Nike in athletic footwear and apparel, has also made a play for female consumers through yoga.  Nike, too, offers a line of yoga apparel, but so far none of these competitors has done much damage to Lulu’s place in the market. Wait a minute, isn’t Yoga supposed to be done barefoot? Nike you never cease to amaze me. That’s why Nike’s shares are up 4.81% for the week. (Source: Portland Business Journal)

Former U.S. Sen. Larry Craig of Idaho, who made the “wide stance” famous when he explained his alleged, notorious restroom encounter with another man in June 2007, has been sued by the Federal Election Commission because he used $217,000 in campaign donations to fund his legal defense to the resulting indecent exposure charges. Craig pointed out that visiting the restroom (irrespective of any alleged activities there) occurred during the ordinary course of Senate travel and thus that he was entitled to spend campaign funds. You be the judge. (Source: AP)

Have a fantastic weekend and please don’t hesitate to forward this newsletter. Many thanks,
Sam