2007 September 22 | money blog

22 09 2007

Gap’s (GPS) Old Navy gets a new creative director

Posted by: in Stocks Money News

Filed under: Management, Marketing and advertising, Gap Inc (GPS)

Gap Inc. (NYSE: GPS) recently hired a new CEO and now, in a further effort to revitalize its Old Navy brand, the company has hired Todd Oldham to become the creative director for the Old Navy brand.

The New York Times described the new job for Todd Oldham, who has previous experience at Target Corp. (NYSE: TGT) and La-Z-Boy Inc. (NYSE: LZB), as his “biggest challenge yet”: “Dawn Robertson, the president of Old Navy, said Mr. Oldham would focus on shoppers in their 20s, whom the chain has identified as its target market after years of ‘trying to be all things to all people.’”

If you’re a fan of Bravo’s Top Design show, you may recognize Oldham’s name: he’s the host.

If recognizing the problem is the first step to fixing it, then Old Navy is well on its way: The Old Navy brand doesn’t stand for anything right now and by focusing on a more targeted demographic, Old Navy may be able to return to its glory days.

Oldham is an interesting choice however: He’s been out of the fashion industry for years, but maybe fresh blood is exactly what’s needed.

Given that Old Navy is bigger than Gap and Banana Republic, a substantial portion of the company’s future, and shareholders’ money, rests on the shoulders of Oldham.

22 09 2007

Borders’ (BGP) new strategy: Dump overseas stores

Posted by: in Stocks Money News

Filed under: Deals, Private equity

As I’ve written several times, Borders Group Inc. (NYSE: BGP), has been struggling mightily lately to revitalize itself amid stiff competition from companies like Wal-Mart Stores Inc. (NYSE: WMT) and Amazon.com (NASDAQ: AMZN). Slashing the rewards program seemed like a strange way to try to increase customer loyalty, and some have suggested that the best thing for the company’s future would be to arrange a merger with Barnes & Noble Inc. (NYSE: BKS).

For now, Borders shareholders will have to settle for a much less exciting form of change: the company announced that it will be selling most of its British and Irish subsidiaries to Risk Capital Partners, a private equity firm, for a base price of $20 million, with a possible earn-out that could double the total value of the deal. Borders will maintain a 17% stake in the newly private subsidiaries.

According to Reuters, ” Another private equity firm, Pacific Equity Partners, has bid for Borders’ Australian and New Zealand stores in a deal expected to be worth more than A$100 million ($87 million).”

Borders is planning to launch its own e-commerce site to compete with Amazon, but it’s hard to imagine what the company’s competitive advantage will be there. Borders is a struggling company with no clear plan for its future, and is currently closing in on a 10-year low.

Continue reading As KKR and Goldman Sachs (GS) walk on Harman (HAR), other deals in trouble

22 09 2007

As KKR and Goldman Sachs (GS) walk on Harman (HAR), other deals in trouble

Posted by: in Stocks Money News

Filed under: Earnings reports, Deals, Private equity, First Data (FDC)

At mid-summer, it would have been hard to imagine any of the large private equity deals like First Data Corp. (NYSE: FDC) and Harman International (NYSE: HAR). Harman is hardly an unknown entity. It was started more than 50 years ago. It built the first car radio in 1948. The company has a large customer base that includes most of the major car companies.

In the fiscal year ending June 30, Harman’s revenue rose 9% to $3.55 billion. Net income was up 23% to $314 million. Not bad. But, in the fourth quarter of the fiscal, operating income was down, as cost of sales and expenses both rose.

Yesterday. KKR and Goldman Sachs (NYSE: GS) said that they were pulling the plug on the $8 billion deal to take Harman private. The said that Harman had breached the “material adverse effect” clause of the buyout agreement. In other words, Harman’s business had gotten much worse.

Maybe. What the court will ask, and this is almost certainly going to court, is whether Harman’s financial situation took a significant turn for the worse. Or, did they buyers simply believe that the credit markets had turned against them by making capital unusually expensive. Better to face,and perhaps lose a lawsuit than to default on billions of dollars worth of bonds.

Continue reading Comfort Zone Investing: Returns vs. risk — higher is more

22 09 2007

Comfort Zone Investing: Returns vs. risk — higher is more

Posted by: in Stocks Money News

Filed under: Getting started, Comfort Zone Investing

Ted Allrich is the founder of The Online Investor and author of the just released book: Comfort Zone Investing: Build Wealth And Sleep Well At Night. In this weekly column, he’ll offer advice to investors who are just getting started.

I got a letter from Marvin. He didn’t give me his email address so I couldn’t answer him. So this one is for him, and everyone else who might share his concern.

Here’s what he wrote: Do you have any information on a company called XXXXX? They say they drill for oil and if one invests $22,000 dollars, one could earn 100% returns within 18 - 24 months. I feel uncomfortable investing such money through someone who is just contacting me by phone. Marvin

22 09 2007

Digg-ing Facebook

Posted by: in Stocks Money News

Filed under: Next big thing

Not long ago, Digg was the super-cool site. It got on the covers of national magazines and was the talk of the tech digerati. Of course, things have changed - and now Facebook is the “in” thing. But Digg is not giving up. That is, the site has been adding social networking features, such as sharing, messaging, and so on.

So is it going to make a difference? Well, I had a chance to interview Robb Hecht, who is an expert on social networking and operates MEDIA 2.0. According to him:

“Digg has excellent intentions making its site more of a social networking play akin to MySpace and Facebook. Via adding 50+ new social features, the site clearly has plans to continue to grow and reach mainstream users by giving them the capability to shape their identities (digitally self actualize) within the Digg community.

“But, while Digg goes mainstream, it will alienate its core tech savvy community who will likely leave for other niche properties focused on tech — that is, the site’s initial power users. This seems okay with Digg. Instead of looking back to its core base, the site appears to want to forge ahead and shed its ‘geek hub’ image and reshape its brand reputation to take on MySpace and Facebook.

“As social networking tools proliferate across the internet, Digg may be on to something. With internet users being bombarded with social networking invites from all their friends, the trusted key brand names in the space will draw the most users. Digg wants its brand to be among the top three. And I think its new features will take it to the next level.”

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.

22 09 2007

Real Homes of Genius: Today we Salute you Bell. 551 Square feet for $349,999. No Bubble Here.

Posted by: in Real-estate news

The market has gone completely bipolar. A few weeks ago, the market was tanking and practically every day, we were hearing about one after another lending institution collapsing. Now, we are riding the stock market to prosperity once again thanks to the Federal Reserve and easy money (you can use these interchangeably). Even though we still hear about lending institutions tanking this is already baked into the market since data doesn’t matter anymore. This past week was full of pyrotechnic housing fireworks. Let us recap the week:

Fed drops funds rate to 4.75

Stock market soars like an eagle on methamphetamines

Dollar index falls below key support levels

Gold shining at 27 year highs

Oil prices keep chugging along

And guess what happened to the 10 year Treasury note?:

It actually went up! I’m not sure why so many in the housing industry think that the Fed has some kind of direct impact on the direction of long-term interest rates. Do you now get that they are simply bailing out Wall Street and hedge funds? Take a look at the stock market and you should get a clear idea who has gained the most benefit. They have a massive impact and influence on direction but this doesn’t always hold true. Fears of a falling dollar, inflation, and rocketing commodities had a larger impact on the direction of rates. And LIBOR rates that most adjustable rate mortgages track is still holding strong. We aren’t having a 30 year conventional fixed mortgage crises; we are having an exotic banana republic mortgage credit debacle. Thanks Ben for that .5 cut which does very little for 9+ percent subprime loans! Making lending standards more lax at this juncture may not get you into MENSA so let us take a look at a case example. Today we salute you Bell with our Real Home of Genius Award.

Today’s home is one of the smallest Real Homes of Genius ever featured coming in at an eye-popping 551 square feet. This 1 bedroom 1 bath home is the envy of the neighborhood. Who said you couldn’t have a white picket fence in Los Angeles County? This place can be your’s for only $349,999. Make sure you mention to your broker that you are looking for the Bernanke Special since it’ll save you $100 a month. What was this home initially listed for?

Price Reduced: 09/13/07 — $370,000 to $349,999

A $20,001 discount is not a bad incentive. I would not have looked any further if it was $20,000, but I’m a fan of one dollar bills with that great green portrait of Mr. Washington. In fact, I’m hearing that in a few years they’ll be collectibles since they’ll stop printing them and only dish out bills in denominations of $10 or more. I’m not buying a $100,000 boat but show me one at $99,999 and then we are talking. What does the sales history on this place tell us?

Sale History

10/26/2005: $299,500

12/30/1998: $78,100

06/29/1998: $95,970

Say what? 5 figures in Los Angeles County and within the past 10 years? This place had an 18 percent decline in 1998. This 18 percent decline amounted to $17,870. We already got that discount in a few weeks plus a few extra dollars; we’ll need those extra dollars for higher energy costs. Do you realize that this home went up by a multiple of 4 in 9 years according to the current sales price? Somehow I doubt incomes went up by this margin. Let us assume that they sell this home at the current price:

$349,999 – six percent commission of $20,999 = $329,000. A profit of nearly $30,000 if they stay in the home until the end of October and pay no capital gains tax on their profit. Again, this is assuming they sell it at their current price. Let us take a look at the neighborhood information:

Average/Household: $41,464

Median Rent Price: $900

So let us say that a hypothetical family in this area was to buy this place. Let us run their monthly budget:

PITI: $2,465 (5 percent down and 30 year fixed mortgage)

Monthly Net Income: $2,868 (filing as married with 2 exemptions)

So this family is left with $403 of disposable income each month. They are spending an unbelievable 85 percent of their income on housing. 401k? Forget it. Roth IRAs? If there is money after food. Do you see why this makes no sense? No investor would purchase this place since they would be negative cash-flowing by $1,565 a month. I know that here in California finding cash flowing properties is like finding a leprechaun. Even so, the number of investment properties bought in California has exploded over the past seven years. This was the flipping, mortgage-equity-withdrawal, and other people’s money (OPM) crowd. Apparently, this mantra is straight from the Fed because they have no respect for your American dollar and are using this OPM strategy. Too bad the other people are you and your family. Now that we are seeing depreciation in California, who do you think will buy these homes? Income ratios do not make sense so families in the immediate area are very unlikely to buy these places. Investors will not buy unless they want to feed an alligator property with no appreciation. Could it be that we have been living in a major Ponzi bubble here in Southern California and the game has now stopped? No amount of rate dropping will change the above facts.

Today we salute you Bell with our Real Homes of Genius Award.

Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information.

22 09 2007

Do you invest like Peter Lynch did? Maybe you should!

Posted by: in Stocks Money News

Filed under: Mutual funds, Personal finance

Few professional money managers have had the success Peter Lynch has had. The former Fidelity manager of the widely-held Magellan mutual fund racked up great return year after another in his tenure at Fidelity. After he retired in the 1990s, Lynch wrote a few books (which are worthy reads, I might add), and aimed them at the “everyman” of investing: the normal American consumer (hopefully, investor).

Along with Vanguard founder John Bogle, Lynch is someone I’ve followed for some time, and following much of what he said has, well, done right by me. But, after having talked with many a business associate and family member in the past year — as the market has swayed to and fro — few of them follow Lynch’s investing strategy. That is, if they have an investing strategy at all beyond pumping 0.5% into that 401k and putting 50% of their portfolios into their employer’s stock. Yikes!

The average mutual fund is a dog and laggard, yet salespeople rope everyday people into these expensive funds by the boatload. Bogle would have said, “just buy index funds and be done with it”. Lynch would have said, “check the price-to-earnings ratio, make an informed choice, and be done with it. Both are exemplary ways to examine and adjust your portfolio.

Does it take some self-education? Sure it does — but hey, it’s only your money, right? Why would anyone pay an underperforming fund manager when buying a no-cost index fund produces better returns? Yes, in many cases the situation is a bit more complex than that, and tax rules and holding periods (among other things) come into play. Still, do you invest like Peter Lynch did? If not, why?

22 09 2007

Wilbur Ross — ‘The King of Bankruptcy’ — mortgages the future

Posted by: in Stocks Money News

Filed under: Private equity

Wilbur Ross loves distress. When industries are suffering near death - such was the case with steel and textile mills - Ross has figured out creative ways to capitalize on things and, yes, make a tidy fortune.

His latest target? It’s the mortgage sector.

No doubt, it’s not easy to be bullish on this. But Ross’ philosophy is that - where there is bankruptcy, there is opportunity.

So according to a story on Bloomberg, Ross is willing to pay a cool $435 million for loan servicing division of American Home Mortgage Investment Corp.

The servicing business is usually a cash cow and as a result, should be a good foundation for consolidating the industry.

As with any savvy investor, Ross looks to the long term. That is, he knows that mortgages are necessary. So why not buy up a big piece of the market when prices are dirt cheap?

Seems smart to me.

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Edgar Online Guide to Decoding Financial Statements. He also operates DealProfiles.com.