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Could You Be Tricked Into A Trade By A Cute Name? Probably.

Thursday, November 19th, 2009

There are lots of risky and complicated investment vehicles available that can mislead investors with the power of cute-sounding acronyms…

  • A psychological phenomenon called “fluency” makes acronyms that sound like familiar words (like “ELKS,” “LYONS,” and “NINJAS”) more appealing than the complicated, clunky investment vehicles they stand for.
  • The same phenomenon extends to stock ticker symbols as well, with snappy and pronounceable symbols tending to outperform clunkier symbols in short-term gains.
  • Investors should be especially cautious when considering stocks or other investment vehicles represented by acronyms rather than their full names. Is it possible that the name is designed to deflect attention from potential risks?

Facts & Figures

  • In an experiment involving ordinary people judging the safety of various fake food additives, easily-pronounceable additives were perceived to be 29% safer than those with hard-to-pronounce names.
  • When Harley-Davidson changed its stock ticker symbol from HDI to HOG, the stock price rose by 5%.
  • Some choice acronyms and what they stand for: BIMBOs (Buy-In Management Buyouts); STRYPES (Structured Yield Product Exchangeable for Stock); SPARQS (Stock Participation Accreting Redemption Quarterly-Pay Securities); PRIDES (Preferred Redeemable Increased Dividend Equity Securities).

Goldman Takes One For The Team, Offers $500,000,000 Olive Branch

Thursday, November 19th, 2009

In an unusual display of corporate responsibility, Goldman Sachs admits its part in the financial crisis and tries to make nice with the small business community.

  • Goldman CEO Lloyd Blankfein made a statement acknowledging his company’s role in the global meltdown and offering an apology for its actions.
  • Attached to the apology is a $500 million donation to go toward supporting small businesses, which will be administered by rock star investor and Berkshire Hathaway CEO Warren Buffet.
  • The company has recently been the object of public outrage for issuing record executive bonuses after accepting bailout funds funded with taxpayer money (which it has since repaid).

Facts & Figures

  • Goldman’s compensation and bonuses this year already total $17 billion and could reach $23 billion by the end of the year.
  • The $500 million pledge represents approximately 2% of compensation funds set aside for 2009.
  • In the third quarter of 2009, Goldman Sachs earned more than $100 million on 36 different trading days.

Best Quote

“We participated in things that were clearly wrong and have reason to regret. We apologize.” – Lloyd Blankfein, CEO of Goldman Sachs

U.S. Nonprofits Brace For Less Cheer This Holiday Season

Thursday, November 19th, 2009

American-based charities are still reeling from the significant decline in charitable contributions and starting to prepare for a lean holiday season.

  • The same number of people are giving money to  nonprofit organizations as before the recession, just with smaller donations.
  • Many nonprofits are having to make the tough decisions to cut back on staff while the demand for their services has only increased.
  • Charities report that volunteerism is up this fall.

Facts & Figures

  • 74% of Americans plan to increase their charitable giving once the economy improves.
  • The most successful fundraising organizations expect to see their income go down by an average of 9% this year.
  • State unemployment rates remain at 10%.

Best Quote

“I say this to our staff all the time: ‘Our mission is not in a recession.’” – Nancy Brown, CEO of American Heart Association

Consumption Gap Widens Between Haves and Have-Nots

Thursday, November 19th, 2009

While wealthier American shoppers have returned to patronizing high-end department stores, middle class consumers struggle to afford basics at Walmart.

  • Consumers at all income levels are focused on the value of their purchase and on not overspending.
  • Luxury chains report shoppers buying items such as shoes and dresses, while discount stores say their consumers are focused on food and socks.
  • Shoppers focused on saving in these economically tight times cannot afford to purchase items outside of the bare essentials.

Facts and Figures

  • The wealthy reigned in their spending most severely during the financial meltdown last fall.
  • Walmart has had to lower their prices to encourage their regular shoppers to continue buying.
  • Nordstrom’s third-quarter profit rose as sales improved compared with 2009.

Best Quote

“I used to consider shopping enertainment, but now I don’t think it’s enertainment.” – Patricia Murnane, Shopper and Risk Manager from New York

David Beckham May Be the King of Retail… In Madrid Anyway

Thursday, November 19th, 2009

Cristiano Ronaldo, soccer’s most expensive athlete, did not trigger a merchandising monster sale on the same scale as David Beckham did when he started playing for Real Madrid.

  • David Beckham, former English soccer team captain and Manchester United star, came to Real Madrid in 2003 with a large contract in hand and with high merchandising expectations. Basically, he sold a lot of jerseys!
  • Cristiano Ronaldo, the Portugese star forward, was the 2008 FIFA world player of the year and also came from Manchester United to Real Madrid.
  • The lack of jersey sales is somewhat being blamed on the economy, but perhaps it also indicates that Ronaldo is just not as popular as Beckham.

Facts & Figures

  • Ronaldo signed a new $133 million contract with Real Madrid in June, which is approximately three times more than Beckham received when he joined the club.
  • When Beckham joined Real Madrid, team income soared 27%. With the addition of Ronaldo in 2010, team income is expected to rise 3.5%.
  • Real Madrid jersey sales are roughly 20% lower now than they were during the Beckham era.

Best Quote

“There was a spike when Cristiano Ronaldo signed in the summer but there’s not such a big demand now. The economic crisis is taking its toll.” – Eugino Martinez, Shop Owner in Madrid, Spain

Black Friday Calls for Heightened Security This Year

Tuesday, November 17th, 2009

Retailers are stepping up the security and optimizing purchase flow in hopes of improving shopper experiences for the biggest shopping day of the year: the day after Thanksgiving.

  • After the death of an employee who was trampled at a Wal-Mart store last year, stores are gearing up for a big day of retail sales and traffic at all locations by applying strategies used by the Super Bowl and the Olympics.
  • Wal-Mart for example, will have a customized plan for each store, with a flow for each potential buyer that will hopefully improve sales and reduce accidents.
  • Some stores will enforce special rules like, “no running,” and, “wait in line,” but according to experts, anything is possible.

Facts & Figures

  • Wal-Mart stores will open on time at either 5 or 6 a.m depending on the store, but customers will have to wait on a line until a salesperson is available to supervise their shopping.
  • The National Retail Federation created a comprehensive set of guidelines for crowd control at stores, and say that large markdowns and huge discounts create larger crowds and more chaos.
  • Most stores hold dress rehearsals and simulations with their staff in preparation for Black Friday.

Best Quote

“No matter how seamless and airtight you think this [Black Friday] is, the unexpected can happen,” – Ellen Davis, Spokeswoman for the National Retail Federation

Investments in Art Roaring Back

Friday, November 13th, 2009

Huge sales continue to beat expectations as collectors and investors start to buy art again.

  • Pieces by Andy Warhol, David Hockney and Alice Neal were among large lots sold for prices that have not been seen since before the recession.
  • Large auction houses like Sotheby’s or Christie’s host auctions and then take a percentage of the sale price of every lot.
  • Auction houses lowered expectations by 50-75% so that when they make large sales, it looks as if the numbers are better than they actually are. Still, selling a large amount of high-priced art is impressive, regardless of the recession.

Facts & Figures

  • Warhol’s 1962 “200 One Dollar Bills” sold at a Sotheby’s auction for $43.8 million. The seller originally paid $385,000 for the piece in 1986.
  • The Sotheby’s auction totaled $134.4 million against the company’s earlier/ estimate of $97.7 million.
  • Sotheby’s highest auction total was $362 million in May of 2008.

Best Quote

“The art vacation is over. Art has come back more than stocks or housing.” – Jack Tilton, New York Art Dealer

Governors In It To Win For Their Schools

Friday, November 13th, 2009

The Obama Administration is encouraging state-level education reforms with the inclusion of $4.35 billion “Race to the Top” incentive built into the federal stimulus.

  • Race to the Top is a federal grant that ties teacher and principal salaries to student test scores, adopts internationally benchmarked academic standards, improves lowest-performing schools, creates systems to track students long-term, and allows for the inclusion of more charter schools.
  • Although considered small by Washington standards, the grant is propelling state legislators to make changes so that their states are eligible for the funding.
  • In October, Governor Schwarzenegger (of California) signed a bill that links teacher pay to student test performance, after calling a special legislative session in August.

Facts & Figures

  • The United States educates an estimated 50 million students every year.
  • If distributed to each and every student, Race to the Top would provide an addtional $87 per year.
  • Grant distribution begins in January 2010.

Best Quote

“They don’t want to be on the losing side of this. Everybody wants to be the education governor, but nobody has asked them to prove it in the past several years. This year the onus is back on them.” – Charles Barone, Democrats for Education Reform

How Do You Get a $2,000 Dress for $100? Rent it!

Friday, November 13th, 2009
Will rental haute couture be all the rage?
  • Rent the Runway is a new website that lets women rent dresses from high-end designers for about a tenth of their retail asking price.
  • Although the launch has been met with enthusiasm, the business model does face a few risks. Fashion tends to have a short shelf-life compared to rental DVDs. The site is also invitation-only, which limits its customer base. There’s also the enormous customer service risk. If your Netflix movie arrives a day late, that’s one thing, but if the dress for your Saturday wedding comes the following Monday, Rent the Runway has a big problem.
  • Retail stores in big cities have rented dresses for years, but the company believes its online convenience will create a surge in the market even though women won’t be able to try dresses on beforehand.

Facts & Figures

  • The rentals run $50 to $200 for a four-night loan and are shipped directly to the customer.
  • Each dress order includes a duplicate dress in a back-up size for no additional charge.
  • More than 20,000 women signed up for the service for its first week.

Best Quote

“Here was this young girl who loves fashion and was willing to spend a good portion of her salary on a dress that she’s only going to wear once or twice, and I thought, there has to be a solution for this.” – Jennifer Human, Co-Founder of Rent the Runway

“Avatar” Brings NewsCorp Into The Film Business In A Big Way

Friday, November 13th, 2009

Avatar is one of the most expensive movies ever made, but will it earn for its investors?

  • Avatar is a new film about a foreign planet and the humans who naturally want to invade it. Director James Cameron (Titanic and Terminator) has worked on the movie for 15 years.
  • Although the film is being released through 20th Century Fox, the film company is carrying a small percentage, as little as 40%, of the production budget. Private equity groups pick up at least 60% of the budget.
  • Because the marketing campaign and technology used in the film are so wide-scaled and elaborate, companies such as Panasonic and Weta Digital have contributed to production and promotion in exchange for advice and cross-marketing opportunities.

Facts & Figures

  • Avatar has an estimated $500 million budget attached to it, including a $150 million marketing campaign.
  • Highly complicated and advanced technology was used in the creation of Avatar, and the creators of that technology will turn their involvement in the film into an advertisement for their emerging business and technology.
  • Because the film is showing in 3-D, ticket prices will be about 30% higher than in conventional theaters.

Best Quote

“We’re turning it into a business, as opposed to a path where everybody’s supposed to service ‘Avatar.’” – Vince Page, Co-Developer of Digital Technology for “Avatar’s” production.

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