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Competitive Culture = Cutting Corners?

Wednesday, November 24th, 2010

U.S. officials have been snooping around and raiding the offices of certain hedge funds recently, and there seems to be a cultural connection between them all…

  • Many of the hedge funds being investigated for insider trading were started by former traders for SAC (a private investment management firm).
  • SAC allow its employees to trade small amounts of company money once they’re hired, and if they do well they’re given more power. If they don’t do well, they get the boot.
  • This competitive culture creates a tension – SAC traders want to succeed professionally but don’t want to join Bernie Madoff in the clink for all eternity. Sometimes, the best intentions can land you there anyway.

Facts & Figures

  • SAC employs 800 people, including 20 lawyers and other nitpickers charged with keeping things in line with regulation
  • Level Global Investors LP and Diamondback Capital Management LLC, two hedge funds started by former SAC traders, were some of the first to be raided by federal agents
  • Richard Choo-Beng Lee, another former SAC employee, pled guilty to insider trading last year

Best Quote

“That eat-what-you-kill culture is highly competitive. A set-up where you have traders running their own portfolios instead of feeding into a centralized investment may make it more tempting for them to cut corners.” – Craig Lilly, an attorney at Greenberg Traurig LLP

Christmas In November for Tiffany

Wednesday, November 24th, 2010

Thinking about wrapping your gifts in a certain blue box this season? Whatever, Tiffany doesn’t really need your money.

  • The company has already seen profits way higher than projected, and the upcoming shopping nightmare known as Black Friday will probably boost sales even more.
  • Other luxury goods brands are looking up as well – both Coach and Hermes are reporting strong sales this quarter.
  • The National Retail Federation says this holiday season is probably going to be the best in four years. (If you’re a retailer, that is.)

Facts & Figures

  • Sales have increased by 14% over last year
  • The biggest increase in purchases is coming from big-ticket items – those that cost $500 or more
  • Sales of items under $500 have continued to decrease

Best Quote

“We continue to see bifurcated performance, with declines in sales and transactions below $500, but double-digit percentage increases in most every other higher priced category. This indicates to us diverging effects to one degree or another that the economy is having on consumer spending.” – Mark Aaron, Tiffany’s Investor Relations Chief

Microfinance Hits A Wall In India

Wednesday, November 24th, 2010

The great microcredit experiment in India was a wild success… but now it’s on the verge of collapsing entirely.

  • Politicians in India are accusing microfinance institutions of taking advantage of poor borrowers, and encouraging borrowers not to pay back their loans.
  • Microcredit is one of the only ways that poor people around the world can get loans to start small businesses. And in India, microfinance has become a booming industry in recent years.
  • Unfortunately, many people who receive microloans won’t be able to pay them back. So the loans tend to be really small, and their interest rates are really high. That means that entrepreneurs who do pay back their loans cover the cost of those who don’t pay.

Facts & Figures

  • Indian banks have about $4 billion tied up in the microfinance industry
  • In the past few weeks, less than 10% of borrowers made loan payments
  • SKS Microfinance charges a 24% interest rate on its microloans

Best Quote

“The money lender lives in the community. At least you can burn down his house. With these companies, it is loot and scoot.” – Reddy Subrahmanyam, Senior Official of the Indian Government

U.S. Companies Sitting On Piles Of Cash, Not Hiring

Wednesday, October 27th, 2010

Where did all the money go after the recession hit? Well, some of it appears to have gotten stuck at the top of the consumption chain...

  • Moody’s Investor Service reported this week that U.S. companies are “hoarding” almost $1 trillion with no intention of expanding business or hiring new employees.
  • The future of the economy is still unclear, so these companies are likely holding out on growth activities until they can be sure of success.
  • During the economic crisis, many companies cut costs, downsized, and sold corporate bonds to raise the cash.

Facts & Figures

Current cash holdings, by sector:

  • Technology – $207 billion
  • Pharmaceuticals – $124 billion
  • Energy – $105 billion
  • Consumer Products – $101 billion

Best Quote

“We believe companies are looking for greater certainty about the economy and signs of a permanent increase in sales before they let go of their cash hoards, which they suffered so much to build.” – Moody’s Investor Service report

U.S. To Build World’s Largest Solar-Power Plant

Wednesday, October 27th, 2010

China may be in the lead when it comes to investing in renewable energy, but the U.S. is about to take a 1,000 megawatt leap.

  • The Obama administration just approved a permit allowing a $6 billion solar thermal plant to be built on federal land in a California desert.
  • Solar thermal energy production isn’t the same as photovoltaic solar panels. The plant works by using mirrors to direct sunlight into a tube, where its heat generates steam and moves turbines.
  • The company building the plant, Solar Trust of America, intends to start construction immediately to take advantage of government incentives for renewable energy projects before the year ends.

Facts & Figures

  • This plant, along with 8 others recently approved by the CA Energy Commission, will produce enough power to sustain 800,000 homes.
  • CA law requires all state utilities generate 1/3 of their power from renewable energy by 2020.
  • Solar Trust estimates that this project alone will create 7,600 jobs.

The Hobbit Lives In New Zealand!

Wednesday, October 27th, 2010

New Zealand wants the new Hobbit films to be shot within its borders so badly that it’s changing labor laws to make it happen.

  • Just when it seemed the J.R.R. Tolkien film adaptation industry was moving to New Zealand for good, Warner Bros. almost pulled its latest project – a two-part adaptation of The Hobbit – out of the country.
  • After an actors’ union boycott threatened production, Warner Bros. management flew to New Zealand to discuss whether the movie could be made there or not. Thousands of Hobbit fans took to the streets to protest.
  • New Zealand’s government responded swiftly, promising Warner Bros. additional tax breaks on future movies, setting up a joint marketing deal, and changing the country’s labor laws to “clarify the differences between a contract worker and a movie production employee.”

Facts & Figures

  • The Hobbit film project is worth about $500 million to New Zealand.
  • Losing the film could have meant up to a $1.5 billion loss.
  • “The Hobbit,” by J.R.R. Tolkien, was first published in 1937.

Best Quote

“Making the two Hobbit movies here will not only safeguard work for thousands of New Zealanders, but it will also follow the success of the “Lord of the Rings” trilogy in once again promoting New Zealand on the world stage.” – John Key, Prime Minister of New Zealand

Kiva Partners With Accion To Microlend In The U.S.

Monday, October 25th, 2010

Poor entrepreneurs are everywhere, so why limit U.S.-based microfinance operations to overseas customers?

  • Kiva.org, an online nonprofit that helps anyone make microloans to foreign businesses via local institutions, is expanding its scope to include entrepreneurs in the United States.
  • Through a partnership with Accion Texas-Louisiana, Kiva will start to offer microloans to new and existing business owners in those states. Kiva’s model is a kind of “crowdfunding,” which allows lots of small donors to make a big impact.
  • Microfinance helps poor entrepreneurs get access to loans. These individuals are usually seen as too risky for traditional bank loans, so microloans can greatly increase their chances of success.

Facts & Figures

  • Accion is the third U.S. microfinance institution Kiva has partnered with since October 2009.
  • Less than 1% of the borrowers featured on Kiva’s website are based in the U.S.
  • The average U.S. microloan is about $7,000.

Best Quote

“Awareness of microfinance is really low here.” – Premal Shah, President of Kiva

Hotel Owners Not Sure About Online Review Sites

Monday, October 25th, 2010

Well, that’s not entirely true. Hoteliers with happy customers are reaping the benefits of increasingly visible recommendations. But not every hotel has happy customers…

  • The popular hotel review resource TripAdvisor.com is facing lawsuits from hotels claiming the site is bad for their businesses.
  • Anyone can post an anonymous review of a hotel on the site. TripAdvisor argues that this makes for the most honest reviews, but opponents say it creates a protected space for libel and defamation. Sites like TripAdvisor are usually exempt from these accusations because they just publish reviews – they don’t write or edit them.
  • TripAdvisor typically doesn’t remove old or inflammatory reviews, but it does allow hotel owners to post responses to negative reviews. In response to the popularity and influence of these review sites, consulting firms have sprung up promising to monitor and control online customer feedback.

Facts & Figures

  • There are 35 million hotel reviews on TripAdvisor.com.
  • TripAdvisor was sued in 2009 over a review that claimed the owner of a hotel restaurant was seen buying drinks for a prostitute.
  • Revinate, a San Francisco image protection firm, charges hotels hundreds of dollars a month to track online reviews.

Best Quote

“We have pretty happy customers, so something like TripAdvisor works in our favor.” – Niki Leondakis, President and CEO of Klimpton Hotels

Group Of 20 Wants The World’s Currencies To Stay Steady

Monday, October 25th, 2010

It doesn’t make sense at first, but sometimes countries actually want their currencies to be worth less. Of course, if everyone tried to do it at the same time, disaster would ensue…

  • The G-20 – a group of financial leaders from 19 nations and the European Union – met this weekend in South Korea to discuss economic policies related to global economic stability.
  • One of the goals of this meeting was to encourage countries to end “competitive devaluation of currencies.” Devaluing your country’s currency makes it cheaper for other countries to buy from you, and more expensive for your citizens to import goods from other countries. This can boost domestic production and export profits. When a country devalues its currency, other countries often do the same so they can remain competitive in the export market.
  • Both China and the U.S. were singled out for recently devaluing their currencies. Though the G-20 hasn’t set up specific regulations and wouldn’t have the power to enforce them if it had, the hope is that public shaming will keep finance ministers around the world in line.

Facts & Figures

  • China is currently taking in 4% more money than it is expending, reflecting a favorable balance of trade.
  • The U.S. is spending 3.2% more money than it is taking in, indicating a trade deficit.
  • As of Monday morning, one euro was worth $1.39, and one dollar was worth 81.31 yen.

Best Quote

“I want the market to value the fact that we were able to forge a certain level of agreement.” –  Yoshiko Noda, Japanese Finance Minister

U.S. Taxpayers Actually Profit From TARP

Friday, October 22nd, 2010

The mere mention of TARP sends many people into grumble-mode, but the emergency measure to bail out large financial institutions has actually turned the government a profit.

  • The Troubled Asset Relief Program traded banks much-needed capital in exchange for partial government ownership.
  • Now that two-thirds of TARP recipients have paid the money back, the government has seen a profit of about 8.2%. That’s more than the return on any U.S. Treasury bond, high-yield savings account, money-market fund, or CD.
  • Despite the return on investment, the public is not happy about TARP. Several politicians have lost primary elections this year because they voted in favor of the program, and authorities say the return rate is misleading because it doesn’t take into account the other costs of the bailouts.

Facts & Figures

  • The government has earned about $25.2 billion so far on $309 billion in TARP investments.
  • The return rate on 30-year Treasury bonds averaged 4.1% during the last two years.
  • Over the same period of time, high-yield savings rates averaged 0.36% – 0.92%.

Best Quote

“From the perspective of the taxpayers getting their money back, TARP has been a great success. But there are other costs as the government made it possible for the banks to pay back TARP. Those costs can turn out to be larger, and their legacy could last longer.” – Todd Petzel, Chief Investment Officer at Offit Capital Advisors LLC

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