Archive for September 4, 2012

The Walking Dead: Lehman the Zombie Bank

Before the fall of 2008 eager business school grads would have killed for a job at Lehman Brothers Holdings.  It was the 4th largest bank in the country, and anybody who had a Lehman Brothers job on their resume seemed to be set for life.  People dreamed of walking down Manhattan’s Seventh Avenue and going to work in the bank’s beautiful 32 story skyscraper, but after September 15th 2008 any dream anybody had about Lehman would have been a nightmare.  Lehman Brothers set the record for the largest bankruptcy filing in US history, and the financial damage is startling.

Here’s a quick refresher on the figures the company is dealing with:

$635 billion- The total assets Lehman claimed before filing for bankruptcy, $576.9 billion were in marketing securities

$613 billion- The amount of debt Lehman held as of May 2008

$398 billion- The estimated amount that Lehman’s liquidation could recover

Lehman officially came out of bankruptcy in March, nearly three and a half years after they declared.  Lehman may have helped tank the global economy, but despite everything the company still exists today and has around 340 employees scrambling to return money to creditors.  The company plans on gracefully bowing out of the financial scene by 2017, but before then the company has a lot of work to do.

Even though the company is out of bankruptcy they still have an awful stigma to shake.  When many people hear about Lehman’s recent work they first think, “Wait, I thought that bank went under?”, but after that confusion passes many wonder why they’re still even allowed to function after what happened.  Lehman’s PR team employees aren’t the only ones upset over the backlash.  According to a Bloomberg BusinessWeek article the new company bigwigs are sick of people questioning their existence.  They’re sick of the Frankenstein and zombie jokes, and they wish that people would treat the company with a little more respect.

To be fair it is a little hard for people to have confidence in a business that nearly obliterated the world’s economy, but if you think about it “zombie bank” is a pretty spot on way to describe the current state of Lehman.  They used to be alive and vibrant, but they’ve spend the past few years dead and buried under their own debt.  Now they have a little bit of life back in them, and they’re slowly shambling along with an all-consuming need to right their wrongs.  It almost seems like they’re taking on a futile task.  There’s no hope of breathing new life into Lehman, and a lot of people wish they never resurrected.

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JetBlue Founder Proposes Radical Plan for Combating High Jet Fuel Costs

JetBlue is the true underdog of the aviation industry.  When the company made its debut at the very end of the 20th century the American airline industry already had its big companies established, and none of them expected JetBlue to threaten their stranglehold on the market.  Then in the wake of 9/11 the company surprised everybody by still pulling in profits while the rest of the airline industry was in panic mode.  When other airlines finally saw the threat that JetBlue posed to them they fought back with launching several small rival companies, but they couldn’t compete with JetBlue’s rock bottom prices.  Many of the companies were disbanded or re-absorbed into their parents companies almost as quickly as they had appeared.

JetBlue received praise from customers, the airline industry, and even the government for years, but that started to change in October 2005. Their quarterly profit fell from $8.1 million to $2.7 million due to the high cost of fuel, and from that time on JetBlue and other airline companies found themselves burdened with the same fiscal problems.  Fuel prices keep climbing while global economic growth was falling, and when the recession finally hit in 2008 many airlines found themselves in dire financial straits.

Despite the slow economic recovery the airline industry is still hurting.  Despite the praise Jet Blue receives for its low prices and their popularity among flyers in the Americas, the company still isn’t anywhere near as successful as it once was.  Jet fuel is still very expensive and almost every airline has tried different ways to combat high fuel costs.  JetBlue’s founder David Neeleman has a different idea for combating high fuels costs, he wants to find a totally new resource to use for jet fuel production.  Neeleman is pouring money into natural gas, the fuel he believes has a chance of making air travel more affordable for consumers and more profitable for investors.

Neeleman’s idea makes a lot of sense if you look at recent events in the energy sector.  Countless companies have been spending years looking for ways to exploit the US’ huge reserves of natural gas, and Shell has already built a large gas-to-liquid plant that produces jet fuel from gas for a very reasonable price.  Neeleman isn’t the only airline big-wig looking for alternative resources for jet fuel, Richard Branson, the founder of Virgin Atlantic Airways, is hoping to reduce his airline’s use of traditional jet fuel by 50%.

Despite the seemingly promises results, some investors remain very wary of investing big bucks in JetBlue.  Converting natural gas to liquid fuel isn’t cheap, and realistically it could take years to see any transition benefits.  It’ll also cost a lot of money to make the proposed changes, and if airlines sink too much of their profits into funding research they could go under if their results aren’t as profitable as they had hoped.

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New HP Printing Program Could Put Hewlett-Packard Back on Top

Cloud computing may be the next big thing for consumers, but quite a few companies have tried to adapt or invent new cloud storage programs that have been market duds.  One of the biggest cloud computer losers is Hewlett-Packard, more commonly known by its initials of HP.  Over the years HP has debuted different cloud services, but all of their services were eventually cancelled due to a lack of public interest.  HP has had some poor fiscal years lately, the printers they’re known for haven’t been selling as well as they used to.  When HP revealed that it had a new “revolutionary” online publishing service it’s understandable to see why investors weren’t expecting much to come from it, but if their new program is as good as they say it is it could save HP from its fiscal black hole.

HP’s new program MagCloud not only allows people to create a magazine or brochure, it also allows people to sell their creations online for a price of their choosing.  Some could argue that MagCloud won’t stand a chance against established blog sites and the web in general, after all why would people spend money on print media when they could get the same information online for free?   The sheer quality of MagCloud printed media could help sway people over to the print side, but the cost of printing their work will be what really brings in people.  Traditional printing costs aren’t only costly, it’s also very difficult to have your work approved for printing.  Many companies won’t even think of printing a magazine or book that they didn’t think could sell a few thousand copies, but since HP has its own large digital presses cost is no longer an issue.

MagCloud also has the benefit of having some pop culture giants on its side.  MagCloud has an exclusive deal with Universal Studios that allows them to use characters from The Lorax in some of their programs.  If their Lorax programs are as popular as they hope they’ll be you can guarantee that MagCloud will have a lot more deals in its future.  News about the wonders of MagCloud services has hit the trading floor and investors seem to have renewed confidence in the company.  Hopefully the buzz around the product won’t just be buzz.  MagCloud could literally make or break HP, consumer excitement is one thing but getting actual profits is another matter entirely.

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US Stocks on the Rise After Positive Housing Market News

The alleged comeback of the housing market has been reported on various news outlet for months, but the average consumer has yet to see any evidence of a true comeback.  A pair of positive reports about the housing market  were able to finally show the true market turn around for both investors and consumers.

The National Association of Realtors reported that home sales were at their highest level in more than two years in August.  Sales rose 7.8% to an adjusted annual rate of 4.82 million, it may not sound like much but it’s actually the most the market has since May 2010.  The US government also reported that construction of single family homes in August was highest its been in more than two years.  Those two tidbits of information from the government and realtors were enough to get investors moving.  The stocks of home builders have been on a steady rise since the construction report was released, but today they rose considerably after 10am when news about the jump in home sales was reported.  D.R. Horton Inc, Beazer Homes USA Inc, and KB Home all saw their stock value increase today.

The Dow Jones industrial average was what really excited investors.  At its high for the day the Dow was up by just 62 points, but the index was near its highest close since December 2007, nine months before the global recession.  International construction based businesses like Seament Holding could see a spike in their profits.  Despite the positive numbers there are still some skeptical investors.  Even though the Dow was up this week, the Federal Express still warned that the global economy was headed for another slow down.  These mixed marketing singles just add to the general confusion over stocks and investments.  People aren’t sure if this economic upswing is a major sign that the economy is improving, or if it’s just a brief moment of prosperity in a bleak economic future.

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Will iPhone 5′s ‘Lightning’ Connector Bet Pay Off?

Is the iPhone 5′s new Lightning Connector a bigger problem than analysts seem to think?

From the day iPods debuted, you couldn’t miss the white wires. While all previous cables and headphones were black, Apple added a brilliant piece of branding to the world of mobile media: they changed cable colors. Today, you can always spot an Apple user. From the headphones in their ears to the charger cables dangling from wall outlets and USB sockets across the world, Apple white-washed them all. Today, the iPhone—Apple’s biggest selling product and smartphone originator—can be plugged in just about anywhere. Friends, colleagues, the guy sitting next to you in the library and even your local bartender can be counted on to help you out with a charge. But this ubiquitous charger utopia is about to come to an end.

With the unveiling of the iPhone 5 on Wednesday, Apple announced a whole slate of new changes including a larger screen, a faster processer and an 8 MP camera. But the blogosphere and tech journalists everywhere only saw one thing: the addition of the ‘Lightning’ connector. This miniaturized version of the omnipresent 30-pin connector offers a reversible design and a smaller, lighter cable that offers a faster charge and quicker transfers. It also requires all iPhone 5 buyers purchase a $29 adapter if they want to use the traditional 30-pin connection, still present on devices like docking stations, USB cables and other pervasive items.

Apple only compounded the ire of customers by releasing an order page in the U.K. proclaiming that the adapter came free with every purchase. This offer was later rescinded.

It is easy to see how this makes sense for Apple. The Lightning connector is smaller and requires fewer raw materials to make. If all those ubiquitous cables, cords and devices have to be replaced, one can hear the ka-ching noise a mile away. But with $40 headphones and $30 USB cables already a retail reality in the nation’s Apple stores, consumers are weary of these cash grabs. One wonders how much more customers can be expected to take.

But a look at Wall Street projections show no indication that analysts see this problem coming. Despite the fact that the launch of the iPhone 4S was the company’s first unsuccessful product launch, losing 10 percent on its stock price, analysts predict massive increases in the company’s current $664 per-share price. Analysts covering Apple with big names like Deutsche Bank, Barclay’s and Goldman Sachs all raised their stock price projections from the initial 10-15 percent estimate to over 25 percent after the iPhone’s newest features were unveiled.

Bloggers, tech journalists and business owners are not so sure. According to the Wall Street Journal, a Dallas hotel owner stated he bought 600 clock radios, all with the old connector. If iPhone has its way, every new phone user will be trying to balance their iPhone on top of a cradle dock and praying for the best. This scene is not consistant with iPhone’s interest in design and seamless plug-and-play integration. One thing is for sure: forcing customers to buy entirely new peripherals is a bet we can’t believe is going to pay off in Apple’s favor.

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Japan’s New Nuclear Energy Policy Worries Investors

The Fukushima meltdown has had a profound effect on nuclear energy policies

Nuclear power was hailed as a wonder energy source when it first came on the scene decades ago, but now countries that embraced nuclear power are re-thinking their choices.  Japan was known for their pro nuclear power stance, the country used to get 1/3 of their energy from nuclear power and government officials wanted to have 50% of their energy generated from nuclear power by 2030.  Japan would be the country you would least expect to turn its back on nuclear power, but today the country announced that it was planning to phase out the use of nuclear power of the last three decades.  Their goal of 50% nuclear power in 2030 was replaced with the goal to see the use of nuclear power end by the 2030s

This drastic change in their energy policy came about because of the Fukushima disaster in 2011 after the Tohoku earthquake and tsunami.  This new policy would limit reactors to a 40 year life span and drastically limit the construction of new plants.  The US, Britain, and France are deeply concerned about the change since they’re closely linked to Japan in both the recycling of nuclear fuel and the building of new nuclear power plants.  All three countries and many Japanese businessmen and investors are opposed to the new nuclear power policy for economic reasons.

Businesses and energy investors are worried about seeing a substantial drop in their profits.  Some insiders even suggest that the gradual 30 year phase out was done to appease Japanese and foreign investors by giving them time to divert their funds to more sustainable energy investments.  Others are worried more about the overall economy than individual investment profits, they believe that the zero-nuclear energy policy will take away thousands of jobs and wreak havoc on the stock market.

The Fukushima disaster and the recent decisions have had a domino effect on other country’s nuclear energy policies.  After the meltdown Germany decided to accelerate their gradual plan to phase out nuclear power plants.  They now hope to have them shut down within a decade and the country also plans to invest more in renewable energies.   Germany only received 20% of its energy from nuclear energy so the change isn’t that drastic, but other countries that heavily rely on nuclear power are starting to rethink their energy policies.

Despite the worry France displayed over the decision Japan made, the country announced sweeping changes to their nuclear energy policies shortly after Japan announced theirs.  The French President Francois Hollande accounted that he would close the country’s oldest power plant by the end of 2016, and that he also hoped to scale back the country’s dependence on nuclear energy by 25%.  France relies heavily on nuclear power for energy; they currently get 75% of the power from nuclear plants.

Since more prominent countries are phasing out the use of nuclear power, some predict that other countries will still do the same.  Either way this will have an effect on energy investments and the energy industry in general.

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End of a Sexy Empire: Abercrombie & Fitch Revenue Drastically Falls

The face that launched 1000 stores and disturbed countless employees. He is also in his 60s, says dude a lot, and dyes his hair because he isn’t an “old fart(his words)”

Is there any clothing company that has experienced more controversy than Abercrombie & Fitch?  In 2009 they were added to the Sweatshop Hall of Shame 2010 for their use of sweatshop labor. And who could forget the $40 million the Equal Employment Opportunity Commission demanded the company pay African-American, Asian, and Latino applicants that were discriminated against.  Somehow that wasn’t the only racial problem the company has had, in 2002 the Asian American league and other organizations weren’t too happy about the “Wong Brothers Laundry Service – Two Wongs Can Make It White” shirt the company sold.

The company’s racial criticisms pale in comparison to the complaints about age inappropriate sexuality.  Conservative and liberal organizations have blasted the company’s youthful nearly (or completely) naked models, sexual provocative underwear and shirts made for children, and negative gender stereotypes (making a shirt for women that says “show the twins” is apparently frowned upon).  A&F haters can rejoice and enjoy a bit of sweet schadenfreude, the company has had a terrible year and people are starting to doubt the company’s staying power.

Over the past year the retailer lost a third of their market value and sales in Europe and the US have taken a nose dive.  A&F closed 71 US stores in their most recent fiscal year and the store announced its plans to close 180 through 2015.  The company blames the sluggish economy, but some people think their terrible revenue is a result of the brand losing its “edgy” image.  Before when teens walked into the store they were overwhelmed by the music, scents, dim lighting and painfully trendy atmosphere, but now the atmosphere that brought people in is anything but unique to the store.  Its main demographic (impossibly beautiful 18-22 year olds) can walk into any store in the mall and get the “A&F atmosphere”.

The A&F CEO Mike Jeffries took over the company in 1992 and he put the store through an image makeover.  The company that used to specialize in safari and camping gear now sold high fashion clothing mixed with youth, sex, and a lot of signature scents.  Jeffries ideas boosted annual sales 20 fold and made the net income 56-fold, but in 2008 when the recession hit the company hit a huge bump on the road to success.  Soon teens and college students couldn’t afford to spend their parent’s money on $80 jeans and $40 shirts, and the aura of coolness the company exuded burned out fairly quickly.  People also began to detest corporate labels, so wearing a $50 shirt with the A&E moose and logo was a major fashion and moral don’t.  By this time the A&F target demographic had heard about the company’s discriminatory hiring practices, sexist clothing, and seemingly insane CEO; their target audience could no longer afford their expensive clothing nor did they want to give money to what looked like a terrible organization.

The company still hopes to draw in customers in China and Middle East, but their reign as the it clothing brand seems to be finished in the US and Europe.

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Bright Lights, Broke City: The Sad Tale of Allen Park Michigan-Part 2

Allen Park, a small Michigan city close to Detroit, hoped that a movie studio could bring some money into their community.  But after almost three years of problems the area is worse off than it was before.  Allen Park is now $31 million in debt, the situation is so severe that state officials are looking into taking control of the town.  Let the tale of Allen Park, Michigan serve as a reminder of the danger of all-or-nothing investments: placing all of your money and hopes in a single investment is sure to eventually lead to financial ruin. You can read part one here, this post is part two.

A year had barely passed when Lifton’s movie school was shut down in 2010, and when Lifton and the Allen Park government clashed over the school closing the financial flood gates opened.  The city was charging Lifton $168,000 for annual rent on an office complex and had even loaned him $225,000 for renovations.    Along with the money Lifton owed the city both residents and government officials were expecting a hefty payday from Lifton’s movie investments, but the city wouldn’t see any of the funds they had hoped to earn because shortly after the school shut down Lifton left the city.

Lifton fled Allen Park without paying the city a dime, and he managed to do it legally.  The city’s acting Administrator Dave Boomer claimed that Lifton was able to do this because of a hold-harmless agreement with the city, meaning that the city had legally agreed to not hold Lifton responsible for any losses, damages, and legal liability.  To add insult to injury the town also saw zero outside investors who were supposedly “interested” in helping fund the company.  People thought that Lifton had major investment connections in tinsel town, but in reality Lifton barely even tried to find investors.

The loss had a tremendous impact on the city, emotionally, physically, and economically.  Residents felt absolutely cheated by Lifton, many people were depending on the unionized jobs and other work the movie studio and school were supposed to bring in.  People also thought that the studio would bring prosperity, respect, and honor back to their town, but in the end Allen Park became the punch line to a devastating joke.  They were the town that got cheated by a Music Man-esq scheme, and people laughed at the thought of a second Hollywood located in the Midwest near a rust belt city.

Three years after Lifton made his studio plans public the city of Allen Park is worse off than they were in 2009.  The failed movie investment left the city with more debt than they could handle, thanks to their faulty investment they were out $31 million.  Their million dollar debt is only the tip of the financial iceberg for Allen Park.  The city owes $2.6 million in bonds each year and also has a deficit of $6 million, and Standard & Poor gave the city a terrible credit rating.

Residents aren’t just furious with Lifton, if anything they’re more upset with their local government and their terrible financial decisions.  The city spent $25.5 million on the old property they got for Unity Studios, but the land was really only worth $14 million.  Despite Lifton’s growing debt the local government did little to ensure that he’d make payments and despite his already terrible track record they continued to let him borrow money.  The bonds, the financial ace up the sleeve for many governments, are somehow putting the town in even deeper debt.  The annual $2.6 million payments leeches $20 million from the town’s general fund, another unthinkable financial blunder that residents believe proves they have an awful local government.

The town officials that originally approved the deal have all either stepped down or have been voted out of office, but the town’s troubles are far from over.  Allen Park is still millions of dollars in debt and nobody can agree on the best way to handle it.  Residents rejected a property tax increase to pay off their debt twice, and city union members weren’t happy to see a proposal to cut their income by 10% and have them cover 20% of their medical expenses.  The town was forced to cut $5 million from the police and fire departments, but they’re still no closer to solving their debt problem.

The state government has decided to step in, and the governor has until roughly the middle of September to decide if Allen Park needs an emergency manager to run the ruined city.  Many experts believe that the emergency take over is the only way to solve their financial crisis, but either way the town is in for some hard times.  It looks like the only way for the city to get out of their financial grave is to cut the salaries and benefits of municipal workers, scale back on public services (trash collection, EMS services, education), and raise taxes.  Regardless of the outcome the citizens of Allen Park will bear the brunt of the city’s ill-advised investments, and they’ll be paying for their city’s mistakes for a long time.

In the few years Unity Studios was active they only released a single movie, War Flowers in 2011.  The film went straight to video and got terrible reviews.

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Global Energy Panel Shows Return On Investment Strong For Clean Energy

Green businesses have seen a surge in porfits over the past few years thanks to the public’s growing concern over environmental issues.  Manufacturers who specialize in green versions of products like biodegradable packaging have been doing well, but the real money in green business seems to be in energy.

The International Energy Agency met Tuesday and urged all countries across the world to invest in clean energy. The meeting resulted in 25 specific recommendations aimed at helping countries become more energy efficient over the next several decades.

The recommendations ranged from phasing out inefficient fossil fuel subsidies to ensuring access to affordable energy were among the recommendations sent to energy ministers around the world as nations struggle to implement and properly spend scarce investment dollars.

IEA Executive Director Maria van der Hoeven told the New York Daily News this week that investment in clean energy made economic sense as every additional dollar invested could generate three dollars in future fuel savings by 2050.

These recommendations and projections follow a similar report released by the IEA in July touting the coming of age of the alternative energy sector. Based on work with world economies and technology producers, the IEA projects that global power generation from hydropower, wind, solar and other alternative sources is going to increase by 40 percent over the next five years. These projections are based on increased efficiency and lowered cost of fuel generating technologies.

The July report noted that 80 percent of the world’s energy mix currently exists in 15 key markets. By tracking developments in the energy varieties that exist outside of these 15, the IEA projects that clean energy will be within reach for many nations sooner rather than later.


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Charlotte Businesses Prepare To Maximize ROI During Democratic National Convention

In 2008, Barack Obama turned the state of North Carolina blue by a miniscule 14,000 votes. So when the Democratic party announced that the 2012 Democratic National Convention was going to be held in Charlotte, the decision was made with a keen eye toward the electoral map. It is easy to see that Mitt Romney cannot win the White House without turning North Carolina back to red. In short, the Democrats need North Carolina. But with the high price Charlotte has paid over the last few years becoming a convention city, does North Carolina need the DNC as well.

Charlotte has spent millions getting themselves into the convention business. The Charlotte Convention Center has cost taxpayers as much as $30 million annually through construction debt and incentives paid to lure convention hosts. To pay for it, Charlotte imposes a countywide 1 percent tax on restaurant and bar bills. According to the Charlotte Observer’s report, this taxation comes for a building that spends most of the year empty. The majority of the center’s halls are in use just 35 percent of the time. The average for halls of its size is 57 percent. It would take five DNC’s a year, every year, to meet original projections.

The prognosis is not much better for hotels and restaurants either. Typically the largest beneficiaries of large-scale events coming to town, Charlotte’s convention center produced just 142,000 room nights – 2.7 percent of all rooms sold in Mecklenburg, according to an Observer analysis of hospitality industry data.

But with 35,000 people descending on the Queen City this week, a whole slew of delegate events, catered affairs and local business fundraisers, there are opportunities for entrepreneurs to capitalize on this massive event. While the government in Charlotte has spent taxpayer money to host the convention, business owners hope to recoup some of that tax investment this week.

One group especially poised to capitalize is the LGBT community. As the Democratic Party prepares to ratify the most gay-friendly party platform in history, gay-themed bars and restaurants plan to host events across the Charlotte region. Lesbian-owned Irish pub Hartigans will host the entire Maryland delegation, according to MetroWeekly.com.

Expect many things from the DNC: partisan speeches, liberal rhetoric, minority and civil rights groups in full regalia. But one thing many business owners won’t expect until they see it is worthwhile returns on their already substantial taxable investments.

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