Archive for September 2nd, 2007
Filed under: Indices, Economic data, Politics, Sunday Funnies, Headline news, Housing
“Don’t come whining to us with your problems” could be the summary of both President Bush’s declaration Friday afternoon basically repeating the commentary of Federal Reserve Chairman Ben Bernanke earlier in the day. This is not to say that sympathy cannot be found for those home owners caught in the squeeze of rising interest rates and lower home values. However, people who entered the housing market late speculating on continued rising prices hoping for quick flips will be left without a chair because the music has stopped playing. All except the funeral march perhaps.
Big Ben said “It is not the responsibility of the Federal Reserve-nor would it be appropriate- to protect lenders and investors from the consequences of their financial decisions.”
Continue reading Sunday Funnies: Bush & Bernanke use same speech writer
Permalink | Email this | Comments
Share This
 No Comments »
Filed under: Google (GOOG), Apple Inc (AAPL), General Electric (GE), AT and T (T), small business
Most young companies dream of getting their first heavyweight customer — a huge player, central to their industry, like Google Inc. (NASDAQ: GOOG), or better yet, a General Electric (NYSE: GE).
Snaring such a customer can change an entrepreneur’s fortunes overnight. Of course. But how do you gain the attention and trust of a large and important company? It’s certainly tough — but there are some strategies to help out.
First of all, make sure you are in a niche that large companies don’t consider core to their business, advises Steve Waldis, who is the CEO and founder of Synchronoss Technologies (NASDAQ: SNCR). The company develops software for the telecom industry and even powers the activation for Apple’s (NASDAQ: AAPL) iPhone. This was the result of a deep customer relationship with AT&T (NYSE: T).
Continue reading Entrepreneur’s Journal: How to snare big-time customers
Permalink | Email this | Comments
Share This
No Comments »
Filed under: Law, Scandals
I could swear securities lawyers have invented a sophisticated computer program capable of seeking out public companies to target with class-action lawsuits. A company reports a bad quarter, the stock tanks, and then for the next few weeks, press releases seem to come out daily announcing a class-action lawsuit “commenced … on behalf of purchasers of … stock issued pursuant or traceable to the false and misleading Registration Statement filed with the Securities and Exchange Commission in connection with the Company’s … initial public stock offering.”
The press release will then mention some important dates and vague accusations of securities fraud.
Heelys Inc. (NASDAQ: HLYS) the maker of the annoying skate shoes that so many young kids are wearing is the latest target of these lawsuits. Take a look:
These firms put out the press releases in an effort to find plaintiffs, and then hope to get the cases to discovery so they can fish for signs of wrongdoing.
Continue reading Lawyers line up to sue Heelys (HLYS)
Permalink | Email this | Comments
Share This
No Comments »
Filed under: Law, Personal finance
As the SEC considers a proposal to raise the minimum liquid net worth for hedge fund investors from $1 million to $2.5 million, the agency is receiving hundreds of letters (WSJ, subscription required) from individual investors. Many of these experts make excellent arguments for why, if anything, the net worth thresholds should be raised. Here are some of the best arguments: One of them asked why small investors should be restricted from hedge funds, but not speculative Pink Sheets stocks? Another summed up the laissez-faire argument pretty succinctly: “Stay out of my wallet, stop trying to protect me from myself, stop presuming to know more than I do about my own life, risk-tolerance, and financial sophistication.”
The problem with hedge funds is that it makes very little sense to regulate them in such a sweeping, unilateral way. Why should a conservative fund that specializes in lightly leveraged merger arbitrage or covered calls be regulated the same way as a highly leveraged fund that trades Pokemon card futures? It just doesn’t make sense.
But since the whole idea of hedge funds it that they’re not regulated, treating each fund differently would require investigation of each one — which defeats the whole purpose.
Continue reading Should unsophisticated investors be allowed to invest in hedge funds?
Permalink | Email this | Comments
Share This
No Comments »
Filed under: Deals, Rumors, Coach Inc (COH)
 According to the New York Post, luxury goods maker Burberry Ltd. (OTC: BBRYF) could be a buyout target for a competitor like Coach Inc. (NYSE: COH). The speculation started with a research report from Merrill Lynch. According to the Post, “Merger activity is likely to pick up this year in the $218 billion industry as family-owned companies face generational transitions, while ‘predators’ such as LVMH Moet Hennessy Louis Vuitton SA are flush with cash.”
With the private equity boom subsiding, strategic mergers and acquisitions are likely to take center-stage — ya know, those deals that take place based on some goal other than financial engineering.
If you’re interested in finding other fashion stocks that might be in play (or might just make good investments for other reasons), ApparelSearch.com has a pretty comprehensive list of the publicly traded fashion stocks. Buyout targets generally will trade at reasonable P/E and P/Cash Flow ratios, and will have clean balance sheets.
Given the status of the credit markets, companies seeking to acquire will need to have strong cash flow and balance sheets as well.
Permalink | Email this | Comments
Share This
No Comments »
Filed under: Major movement, Forecasts, Good news, Bad news, Private equity, Market matters, Bank of America (BAC), Economic data, Stocks to Sell, Housing
From my experience in the banking industry in the 1980s and 1990s, I’ve noticed that one of the best predictors of a collapse in a particular asset class - such as commercial real estate or oil and gas exploration — is the rapid rise in lending against that class.
During the 1980s, I consulted to the Federal Deposit Insurance Corporation’s (FDIC) Liquidation Division. This division takes over banks that fail and sells their assets in an effort to raise the cash needed to pay the bank’s depositors.
In 1982, when I consulted to the Liquidation Division, it was experiencing a rise in bank failures as a result of too much lending to commercial real estate and oil and gas explorers in states such as Texas and Oklahoma. Rising prices attracted new entrants and banks were more than happy to lend money to them. When prices fell, due to excess supply fueled by the loans, the new entrants went out of business. And the banks could not get their money back so they failed.
Continue reading How to predict the next meltdown
Permalink | Email this | Comments
Share This
No Comments »
After drinking water out of the bailout fire hydrant, I think most people are scrambling to get an idea of what is happening. An issue placed on the back burner by many politicians is suddenly garnering massive media playtime. Amazingly, Americans in a large percentage are against any bailout talks or consideration. The nationwide MSNBC and a local station KTLA ran unscientific polls asking the questions, “do you support a government bailout for the mortgage industry?” The answer was a resounding NO. In fact, from a brief review of these polls 95 percent of Americans are against any form of corporate welfare. They realize that deep down this is only a ploy for the government to subsidize maverick hedge funds, Wall Street circus acts, renegade brokers, and Vegas inspired buyer gambling. They want you to believe that they are doing it for the person on the street. How are they going to help out expensive counties such as Los Angeles where the median home price is $547,000? And what about those that have been foreclosed or are being foreclosed on? Don’t they deserve a retroactive bailout? Come to think of it, why don’t they give me money I invested in tech stocks back in 1999 that was wiped out since these companies had P/E ratios higher than Barry Bonds’ batting average. Or the money I lost in Vegas two months ago on blackjack (I suspect that the dealer was a former hedge fund manager since he asked if I wanted margin and wanted to flip a home in Henderson). A decade of conspicuous housing consumption has left the nation hanging on a thread looking for more bubbles to fuel their credit addiction. What other highflying act will allow American consumers, a large part of the economy, to continue their spending marathon? We’ve already seen that mortgage equity withdrawals had a lot to do with bolstering the economy over the past years. Unfortunately you can’t tap into your home equity line of credit if you are swimming underwater Jacque Cousteau style. See, like any Ponzi Scheme, those that get in early do well on the backs of those that come in late. And like any good Ponzi Scheme those coming in at the end are left holding the manure filled bag of worthless mortgage backed securities; it turns out a 600 square foot Real Home of Genius isn’t really worth $500,000.
Then we have the fear mongering by the politicians and the media. The new line that I’m hearing dished out is “well you wouldn’t want your entire neighborhood full of foreclosures eh?” Instead of drop kicking my monitor Jackie Chan style at this completely stupid and moronic assertion, I will show you that at any given time, only a very small percentage of all housing units are up for sale. So why all the brouhaha? Because housing prices are set at the margin; meaning, homes are priced by the units that are currently sitting on the market. And the fact of the matter is we’ve been operating on a one-trick pony economy where housing has kept us out of any recession and has provided the fuel to keep this SUV of spending going forward. But now that housing is depreciating we are realizing that yes, this economy is based on housing. Otherwise, who really cares that housing prices are trending downward? If we are such a diverse economy this one tiny sector shouldn’t mean so much; but it does because of the massive credit bubble we are living in.
So today we will examine 3 new factors that you should keep in the back of your mind since I have a feeling this housing mess won’t go away anytime soon. First, home prices are set at the margin so we will examine the actual numbers. Since politicians and the media like churning information and creating a fear cycle we will carefully look at housing supply in relation to units being sold. And again, anyone following this housing bubble isn’t surprised. In fact, it was predicted here a very long time ago. You may be saying, “but I feel safe because daddy Bernanke is here to save the day, he saw this coming.” Let us take a trip down memory lane:
“At this juncture . . . the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained,” Ben Bernanke Quote to Congress’ Joint Economic Committee. March 2007
“Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited,” Bernanke said in May 2007.
“In particular, the further tightening of credit conditions, if sustained, would increase the risk that the current weakness in housing could be deeper or more prolonged than previously expected, with possible adverse effects on consumer spending and the economy more generally.” –August 31 Ben Bernanke
Wrong, wrong, and now you get it. Even the last statement is misleading because how did we go from “fundamental factors” being okay in May to “weakness in housing” in August? So given that the Fed Chairman didn’t see this coming even as early as May of this year, do you have confidence that these other yahoo politicians have the right policy decision in mind? We can discuss other policy mistakes regarding the current administration but that would require much more than this housing blog.
The second factor we will look at is income discrepancies. Current home prices are not in line with current family incomes. Unless you think making $14,000 and buying a $720,000 home is perfectly fine and makes economic sense. Finally we will examine the current market panic. Bubbles burst in typical fashion (see Manias, Panics, and Crashes) and this credit bubble will pop in the same way. We can pull the Band-Aid off fast or continue the absurd policies and allow for more guerilla mortgage products to enter the market.
Prices set at the margins
At any given point in time there is only a small fraction of homes on the market for sale. Drive down any street of the 88 cities in Los Angeles and you will see homes for sale, but not many. Unless you are driving in some home builder subdivision in Arizona or a condo high-rise in Florida, the majority of this country isn’t selling each and every single home on the block. But the media now has this fear mongering idea that if the market corrects, every person is going to be bumming cigarettes under the San Gabriel River. So instead of their verbal attacks on the public let us take a look at the actual numbers for Southern California:
*Data Source: Census.gov
There are approximately 6,000,000 housing units in Southern California. Keep in mind this includes apartments, rentals, and owner occupied homes. Now how many homes are for sale as of today in SoCal? How about 139,689 or to make it more tangible, only 2.33 percent of all available housing units in the area. Doesn’t seem like the entire neighborhood is going to hell in a hand basket as the media would like us to believe. And keep in mind that we are seeing record foreclosures and inventory here in Southern California and as of today, we are still only seeing 2.33 percent of all available units on the market for sale. See, not everyone bought into this housing bubble. Some people decided to rent. As I’ve pointed out the majority of households in Los Angeles County rent. Some people decided that they would rather save their money and wait the market out. Some are simply going to rent because they unfortunately cannot afford a home. This idea that everyone should own their home is dangerous and has also led us into this mortgage market debacle. If you are unable to buy a home without a shady zero down mortgage maybe you should wait until you can buy a home with more conventional financing. Others, bought before this entire bubble game started. So they are still sitting pretty on equity and have no plans of selling. There are also approximately 20 percent of people in Los Angeles that own their homes outright; many of these people are retired or nearing retirement and have no vision of flipping their homes. So the battle comes down to those that want to buy and those that want to sell right now. It looks like more and more people are wanting to sell and less and less people want to buy (or at least buy at current market prices). And why would you buy right now with prices decreasing each and every day? In addition, the prospect of you flipping and turning a profit now is as likely as finding Michael Vick at a PETA fundraiser as an honorary member.
Show me the Income!
Again the media likes to believe that everyone is earning $300,000 so a $547,000 median home price isn’t so far fetched. I’ve discussed this affluent façade in a previous article but let us take a quick look at income statistics for this country:
Household income (overall percent of US households over):
Income Percent of Households over:
$65,000 34.72%
$80,000 25.6%
$91,705 20.0%
$100,000 17.8%
$118,200 10%
$166,200 5%
$200,000 2.67%
$250,000 1.5%
$1,600,000 0.12%
So what does this tell us? In order for a family to comfortably afford a median priced home in Los Angeles County they would need to make $200,000. As you can see from the above data, only 2.67% of all households make this much. And I doubt any family making $200,000 will want to buy a Real Home of Genius as they would probably prefer to rent in a better neighborhood and invest the massive difference they are saving from buying a home. Are there tax benefits to owning? Of course. Many housing pundits want to use some voodoo economics to make you think spending $1 so you can get two quarters back is smart math. If you really need a tax break buy a rental property in a non-bubble city; you’ll get cash-flow, the benefit of owning real estate, and the feeling of owning a home if that is something that you desperately need. With all this talk, isn’t it fascinating that the media doesn’t state the obvious? That homes are massively overpriced! Incomes cannot support current prices without using mythical fantasy world exotic mortgages that seem to be a thing of yesteryear. 2/28 mortgages, option ARMS, negative amortization, stated (liar) income loans, and all variations of these dubious mortgages will come under the congressional microscope in months to come, just watch.
Smoking the Housing Bubble Peace Pipe
We’ve been living in a housing obsessed society. In fact, I’ll be happy in a few years where you will be able to go to a party and not have to listen to some wannabe Trump talk about his recent flip in the Valley and how he pocketed $50,000. The hardest part listening to this hogwash is knowing that they are part of this speculation bust that we are now seeing; deep down anyone that has a basic idea of finance and economics knew that this couldn’t go on forever. And here it stops in Q3 of 2007. In fact, I haven’t heard much of this talk in the last year. Yet in this housing bubble decade we have seen the media eat up the housing game and carry the party line. Take a look at some of the shows that have made the air in recent years:
Property Ladder
Discovery Home’s “Flip That House”
A&E’s “Flip This House,”
HGTV’s “Bought and Sold,”
Bravo’s “Flipping Out”
TLC’s “Real Estate Pros.”
The Apprentice
And the list goes on. Everyone suddenly had housing religion. But the good thing about bubbles is after the pop, slowly the talk dissipates. Remember the technology bubble? For years this was all the talk and anything with a dot com was worth putting your entire retirement funds into. How much talk have we had about these once high flying companies after 2001? Not much. I think by 2009 we’ll be more concerned about cleaning up the mess of 2 back-to-back bubbles, that is if we don’t see another bubble after this one. And yes, housing is very different from stocks. But what do you think funded this game? Mortgage backed securities. Where did these MBS trade? Hopefully you realize that not everything is linear but following the interconnectedness of this credit bubble you can understand why we are truly in an epic once in a lifetime housing bubble.
Do you think politicians and the media are handling this housing bubble burst correctly?
 Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information.
Share This
No Comments »
Filed under: Rumors, Products and services, Consumer experience, Competitive strategy, Google (GOOG), Apple Inc (AAPL), AT and T (T), iPhone, Smartphones
The Boston Globe reports that Google Inc.’s (NASDAQ: GOOG) Google Phone pursues a radically different business strategy than Apple Inc.’s (NASDAQ: AAPL) iPhone. But the tiny glimpses of the Google Phone revealed in this article suggest that the Google Phone will not pose a significant threat to the iPhone.
How does the Google Phone compare to the iPhone? Here are three points of comparison:
- Simpler. The Google Phone is simpler and less flashy than the iPhone according to one person who saw a prototype. He praised Google Phone’s ability to scroll through icons horizontally, making different features easily accessible despite the limited screen space.
- 3D interface. Another person who saw the Google Phone was struck by its three-dimensional, animated buttons on the screen. That prototype had a small QWERTY keyboard, like a Treo or a BlackBerry, rather than relying on a touch-screen, as the iPhone does.
- Open business strategy. Google won’t do everything itself and it won’t be locked into a single distribution partnership. Google will create distribution partnerships with different mobile carriers, unlike Apple, which is wed to AT&T Inc. (NYSE: T) for five years. Through advertising shown on the Google Phone’s screen, consumers could pay in different ways — helping to subsidize the price of the phone itself or the consumer’s monthly bill. (Some of that ad revenue could also go to carriers that help market Google’s phone in their stores.) Finally, Google won’t manufacture the phone itself, but will offer an operating system and applications such as the e-mail and word processing applications it already provides to PC users.
Based on these rumors — which are admittedly a risky basis for an analysis — my overall assessment is that the Google Phone is not a significant threat to the iPhone. That’s because Google does not excel at the kind of consumer marketing at which Steve Jobs is an industry master.
Moreover, it is unlikely that Google really cares to make the Google Phone an iPhone killer. Google probably views the Google Phone as just another platform on which to sell advertising. By contrast, Apple’s strategy suggests that it views the iPhone as a significant source of revenue growth — and its stock has followed suit.
Nevertheless, the Google Phone open business strategy highlights two iPhone weaknesses: it’s expensive and its partnership with AT&T could be an important limiting factor. If Google can exploit these weaknesses to offer consumers a better value, its Google Phone could achieve significant market penetration — but probably not enough to threaten the iPhone’s future sales.
Peter Cohan is President of Peter S. Cohan & Associates, a management consulting and venture capital firm. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
Permalink | Email this | Linking Blogs | Comments
Share This
No Comments »
Filed under: Deals, Rumors
As Doug McIntyre recently pointed out on BloggingStocks, there’s really no reason to assume that the success Whole Foods Market (NASDAQ: WFMI) had in consummating its acquisition of Wild Oats will have any effect on other deals.
But it’s still fun to to speculate, and The Detroit News is doing just that: Is a merger of struggling book retailers Barnes & Noble Inc. (NYSE: BKS) and Borders Group Inc. (NYSE: BGP) on the way?
If so, there is only one category that such a merger could be classified under: Two drunken sailors trying to hold each other up. As for anti-trust concerns, how could consumers be effected by the merger of two companies that sell overpriced — compared to Amazon.com (NASDAQ: AMZN) — books at stores people don’t go to anymore?
The Whole Foods deal was about a rapidly growing enterprise trying to expand its empire, and that one made it through the courts. It’s hard to imagine regulators stopping the merger of two struggling companies in a contracting industry, even if they wanted to.
Whether such a deal would do anything to help shareholders of the combined entity remains to be seen, if such a deal does indeed come to pass.
Permalink | Email this | Comments
Share This
No Comments »
Filed under: Rumors, Products and services, Consumer experience, Competitive strategy, Google (GOOG), Apple Inc (AAPL), AT and T (T), iPhone, Smartphones
The Boston Globe reports that Google Inc.’s (NASDAQ: GOOG) Google Phone pursues a radically different business strategy than Apple Inc.’s (NASDAQ: AAPL) iPhone. But the tiny glimpses of the Google Phone revealed in this article suggest that the Google Phone will not pose a significant threat to the iPhone.
How does the Google Phone compare to the iPhone? Here are three points of comparison:
- Simpler. The Google Phone is simpler and less flashy than the iPhone according to one person who saw a prototype. He praised Google Phone’s ability to scroll through icons horizontally, making different features easily accessible despite the limited screen space.
- 3D interface. Another person who saw the Google Phone was struck by its three-dimensional, animated buttons on the screen. That prototype had a small QWERTY keyboard, like a Treo or a BlackBerry, rather than relying on a touch-screen, as the iPhone does.
Continue reading Is the Google (GOOG) Phone an Apple (AAPL) iPhone killer?
Permalink | Email this | Comments
Share This
No Comments »
|
Entries (RSS)