Archive for October 11, 2012

The Perfect Storm: Reflecting on Hurricane Sandy

My cat is deaf and I don’t think he even knew that anything was wrong during the storm.  I hope that this picture of him sleeping on Junot Diaz literature lifts your spirits.

I’m in Southern New Jersey and I was very fortunate enough to only have a few broken tree branches and some powerless hours from Hurricane Sandy, but other people weren’t nearly as lucky.  The north section of Atlantic City’s infamous boardwalk was destroyed, and many businesses along the Jersey shore will be paying for damages and repairs for months.  The flooding in New York City was catastrophic; the MTA still isn’t sure when the subways will be fully up and running again.

Millions of people across the Mid-Atlantic states and the Northeast are still waiting for their power to come back on, and some may have to wait several days before they can turn on their lights again.  Fires have broken out because of natural gas leaks, certain areas are more or less inaccessible because of storm damage, and a lot of little kids are about to experience some major disappointment when they try to go trick-or-treating.

Hurricane Sandy has been called “The Perfect Storm” and a “Frankenstorm”, but to many investors and business owners the storm was simply a “disaster”.  Financial losses can’t possibly compare to the homes, property, loved ones, and cherished places people lost, but they’re still rather significant.  For the first time in over a century Wall Street was shut down for two days in a row, and some people estimate that it will take $50 billion to fully repair all of the damage Sandy has caused.

This blog usually tries to look at the humorous and ridiculous side of business, but there isn’t anything humorous about what Hurricane Sandy caused.  Many people feel compelled to donate their time or money to helping storm victims, but some people are trying to take advantage of the kindness of others.  Beware of fake charities, they always pop up in times of need and it can be easy to fall prey to them.  The Red Cross has helped with countless natural disasters, and they’ve already started to receive funds for Hurricane Sandy victims.

When disasters like this happen people often feel scared or helpless, but in these situations you’re never powerless.  Donate time or money to charities, check in on elderly or enfeebled neighbors, take a first aid class.  There’s always some good you can do in dire times, although it can be easy to forget that.  We should all take time to reflect on everything that has taken place, to remember the good things we still have and empathize with others.  Today we’ll think, and tomorrow we’ll get back to posting memes.


Collection Agencies will Receive Federal Monitoring

People like to joke that debt collectors and repo men are the only people who benefit from a terrible economy, but that old sad joke may lose its meaning soon.  Ever since 2008 more and more people have been harassed by collection agencies, and the word “harassed” shouldn’t be taken lightly here.  Some debt collectors were threatening to inform employers, family members, and friends about debt problems.  Others threatened jail time, and the repossession of other things they weren’t even trying to collect.

Besides being amoral, these debt collection tactics are 100% illegal.  After making various laws and trying to educate people on proper debt collection, the federal government has decided to step in and monitor collection agencies.  As of January 2nd 2013, the Consumer Financial Protection Bureau (CFPB) will be supervising collection companies that earn $10 million or more in profits from their collections.  The CFPB claims that they’ll be making sure that these companies disclose factual information to the people they’re trying to collect from, and also try to keep things civil between collectors and their targets.

The CFPB will be focusing on three main kinds of collection agencies:

-companies that buy up debts for pennies on the dollar and then get to keep whatever they collect for themselves

-companies that get a fee to collect debts on behalf of other companies

-lawyers who pursue debt collection through litigation.

These three agencies were causing the most trouble for citizens, and some people claim that these collectors charged people far more than they should have in order to make a profit.  In September the CFPB began monitoring credit report bureaus for the first time, but this isn’t the only industry the bureau will monitor.  The CFPB is also planning on overseeing auto financing loans, installment loans, and remittances.


Low Earnings Cause Problems for Investors

The stock market sure is unpredictable.  I don’t even think it’s been 24 hours since I wrote that stocks may be safer than bonds in the long run,  and I get to work and see a news story about the stock market taking a nose dive.  Companies in the S&P 500-stock index are expected to report low earnings for the month of October.  McDonalds and DuPont have already reported some dismal earnings, but experts are expecting October’s earnings report to be the lowest its been in three years.  Around 60% of the 145 indexed members missed their initial estimated revenue, and if these trends continue the American economy will be in a lot of trouble.

It’s difficult to predict what will happen in a system where everything is more or less determined by chance.  So many bizarre things can affect how well certain stocks do, anything from an upcoming election, a natural disaster, or even a weird internet rumor have the potential to turn a stock completely upside down.

Some analysts are blaming the terrible market on the upcoming elections.  So many states (and even the nation itself) could fall under the control of a different political party, and one election win or loss could change certain economic policies.  A new senator could decide that they want to pour state funds into a privately owned solar energy provider, and another new senator could decide that they want to put a heavier tax on businesses that decide to outsource work out of state.  Others think that the poor market is a direct result of excessive mutual fund selling and the devaluation of bonds.  Either way some investors won’t be sleeping easy tonight.


The True Bond Risk

If financial terms were like a family, stocks would be the wildly unpredictable teenager, and bonds would be stocks’ surprisingly well behaved twin brother.  People who wanted to make money without having to take a lot of risks would put their money in bonds.  They would put money into a bond (usually issued by the government, even though there are other institutions that issue bonds), let it gather interest over a few decades, and eventually they would cash them in.

The interest gathered in bonds is the only feature of the financial note that could be considered risky.  Even though you never know what state the economy will be in when you decide to cash them in, most bonds will have a considerable amount of interest gathered to make a good enough profit.  After millions of people lost thousands from their retirement funds after the 2008 financial crisis, people were scrambling to get their money out of the stock market and into bonds and bond funds.  In the short term it seemed like the only way to keep their money safe, but now the current state of the market could have made that bond move a big mistake.

Some of the people who moved their money from stocks to bonds may have been kicking themselves after they got a look at the S&P last week.  As of October 16th the S&P stock index gained a whopping 115% since March of 2009, and if some people chose to keep their money in the market they could have seen some substantial returns.  Unfortunately the stock market isn’t the only think threatening bond holders.  Many people don’t truly understand the risks that come along with putting money into bonds, the interest rate on your bond could end up losing you a lot of money.  Usually if people hold bonds until the mature they don’t lose money unless the issuer decides to default, but if the issuer decides to raise interest rates the bond prices go up and the bond profits go down.

Explaining in-depth the risks behind bonds and bond funds is complicated, but this website does a very good job of accurately summing up the problems that come along with putting all your eggs into the bond basket.  Some people (the author included) are still very wary of putting any money into the stock market, but if you want to have a better chance of having a comfortable retirement it may be time to look to Wall Street.


Rosneft’s Big Purchase Means Big ROI for BP

Rosneft, one of Russia’s biggest oil companies, has been buying out oil companies for quite some time.  TNK-BP was one of the largest integrated oil companies in the international market, and now that they’ve officially been bought by Rosneft they’ll be part of a rather formidable oil company.  With TNK-BP under its control, Russia will be producing more oil and gas than Exxon-Mobile.  After some pretty dismal fiscal months it looks like BP could be back on top soon.  Usually being bought out of a significant business venture spells doom for companies, but BP managed to beat the odds when Rosneft bought their share of the TNK-BP project.

If you were to ask the average person which oil company they think is doing best in this global economy, it’s safe to say that nobody would name BP.  The BP oil spill happened in the spring of 2010, but global investors haven’t forgotten about the damage the spill cause.  People are still waiting to see the long term ecological effects, but the short and long term business effects are the ones investors are worried about.  Exhausted workers, shoddy equipment, and a terrible disaster management team have painted BP as a careless business.  And careless businesses don’t look good to investors who are expecting a significant ROI.

BP will be making a considerable profit after the deal is done.  At the very least they’ll be able to walk away with $13 billion, which will ultimately bring more than $30 billion on its total return on the $8 billion investment they made in the TNK-BP project in 2003.  It’s a pretty good day to be a BP executive or a Russian oil investor.


Sci-Fi Syphilis: Epic Marketing Mistakes

Marketing is such an essential and simple tool in the business world.  A corporate rebranding effort has the ability to completely alter the public’s perception of a company.  If they’re done correctly business could see a substantial increase in profits, but if they aren’t handled well they could lead to disaster.  If there’s one think we like at ROIZone, it’s the mistakes of others.  Lets take some time today to look at some of the latest branding fiascoes

The SciFi Channel STD

The SciFi Channel wasn’t exactly a major player in the cable network business, but it still has a decent sized and loyal fan base.  The company wanted to make their network appeal to the “texting generation” so they changed their name from SciFi to SyFy.  It would be an understatement to say that fans weren’t happy.  They thought that the spelling looked very awkward and didn’t see the point in changing the name of a channel without truly changing the name.  This fan backlash may have blown over if it wasn’t for a rather unfortunate coincidence.  The innovation consultants over at Syfy obviously weren’t familiar with slang, because if they were they would have known that syfy is a pretty well-known nickname for syphilis.  It’s almost tragically ironic that a channel changed its name to a slang term for STDs in order to appeal to more people.  Most people don’t like watching or buying things associated with disease, so it’s safe to say that this rebranding effort crashed and burned.

The Gap Logo that Ousted the Company CEO

Corporate logos are some of the most recognizable symbols in the world.  People in China, Nigeria, and France may not all speak the same language, but you can bet that thousands of people there would recognize McDonald’s golden arches.  In 2010 The Gap decided to change its logo with little fanfare from the company, but consumers made themselves known when the logo made its debut.  The iconic white letters on a blue background was scrapped in favor of a “cleaner” looking design, but customers thought the logo looked “ugly” “sparse” and “wrong”.  The terrible consumer response has made the GAP rebranding effort synonymous with terrible brand consulting and poor planning.  The customer response was so overwhelmingly negative that executives decided to change the logo back after only a week after its launch, and mere weeks after the rebranding disaster the company President Marka Hansen resigned.

Comcast Confuses and Infuriates Customers with Xfinity

Quick question: how many of you reading this article thought that Xfinity was Comcast’s name for special high speed services?  Xfinity is the name Comcast gave its cable, phone, and internet services in the beginning of 2010, but the business still chose to keep the company name as Comcast.  This bizarre name change confused customers and investors, and soon the company was flooded with complaints and questions about their new “services”.  Some people believe that Comcast changed the name of their services in hopes of slowing down the negative publicity the company was receiving.  If that belief is true the Comcast name change would be the epitome of irony; some customers were so angry and confused about the change that they stopped using Comcast’s services all together.


Oil Prices, Politicians, and the Economy

Since the OPEC crisis of the 70s American businessmen and politicians have allegedly been looking for a way to lower the price of gas.  The Koch Brothers received some criticism this week for claiming that gas prices will go up if Obama is re-elected, while carefully ignoring the fact their company lobbied to keep oil barrel prices up.  Newt Gingrich may have a had a chance to snap the GOP nomination if he didn’t start his disastrous $1 gas campaign.  Both presidential candidates have different stances on American energy, but Romney’s stance on energy and oil prices has gained a lot of media attention.

Mitt Romney has said that Obama’s energy policies have failed since the prices for electricity, gasoline, and heating oil went up during his administration.  The argument seems accurate, but in reality it’s a far too simplistic look on the energy economy.  Despite what people say or think, the markets control the cost of energy, not politicians.  In fact if we were to look back since LBJ, almost every president since then has had a failed energy policy.

Energy market economics are complex, so the solution to lowering prices won’t be simple.  Romney claimed that more oil drilling and production would lead to lower energy costs.  In theory that would make sense, after all a larger supply of oil would be able to help meet the growing demand for it, but in the economic sense that simply isn’t true.

Oil production has actually increased since Obama took office.  When he was elected the US was producing 5 million barrels of crude oil a day, and now the US is up to 6.6 million.  Crude oil isn’t the only determiner of gas prices, refinery costs account for 18% of all gasoline prices.  If you live in an area close to oil refineries, you’ll be paying a bit less for your gas than others.   There’s also the logistics of accessing all of the oil the country has, much of our oil reserves are trapped deep in shale that’s underneath heavily populated areas.  The US would also need a massive infrastructure update to handle the transportation and refining of the oil it mines.  A project like that would cost billions of dollars, something the US can’t afford.

It’s possible that oil prices could decrease one day, but that doesn’t look like it’s coming anytime soon.  So the next time one of your friends wonders aloud why the president doesn’t simply change gas prices, show them this post.


Citibank Chairman Vikram Pandit Steps Down

Vikram Pandit 2006-2012.  Goodnight sweet prince, may fiscally irresponsible angles fly thee to thy rest

If there’s one unexpected and unexplained big financial news story this year, there’s no doubt that it’s the rather abrupt resignation of the Citigroup’s chairmen.  Yesterday Vikram Pandit announced that he was stepping down as the chairman of Citigroup, and the reasons that were given for his departure only managed to raise more questions about Citigroup’s financial situation.

Citigroup’s Board of Directors claimed they ousted Pandit because of his mismanagement of the bank.  They claimed that his decisions caused setbacks with regulators for reform and also lost its investors a lot of credibility.  The explanation that was given was vague at its best, but when you take a look at the past year for Citigroup Pandit’s ousting makes a lot more sense.  According to an anonymous board member, in March Pandit’s actions caused regulators to reject Citigroup’s plan to boost payouts for shareholders.   There was also the $2.9 billion writedown on the Smith-Barney brokerage unit which resulted in a two-level cut in Citigroup’s credit rating.

Apparently the bank’s group of directors have been upset with Pandit’s performance for a while, even as early as 2009 they were debating if it would be best to replace him or not.  The time they wasted making a decision didn’t just hurt investors, but also the bank’s 262,000 employees.  According to Pandit’s replacement Michael Corbat the trouble he caused could result in a significant company “shake-up”.  Nobody knows what the shake-up will bring, but many are predicting that Citibank will have to cut out a few hundred jobs to make up for their financial loses.


Free Plane Tix and Oval Office Pix: Businesses Benefit from the 2012 Presidential Election

Who said that democracy and politics doesn’t pay off anymore?  The 2012 election is going to be one for the history books (and will be the most important election of your life, just like the last one. and the next one.), and some businesses are doing their best to cash in on the election hype.  7-11 has been making money off the democratic process since 2000.  Their 7-Election marketing campaign encourages customers to buy either red or blue coffee cups to show which candidate they’re backing.  Their “Every Cup Counts” campaign has been eerily accurate since its debut, their end cup tallies almost always predict who America’s next president will be.

The convenience store chain is launching another presidential marketing campaign that utilizes social media.  Their “Mobile Oval” bus (that is a pretty spot-on replica of the Oval Office) will roam the country in hopes that people will snap photos and share them on major social media platforms.  The chain claims that it’s a unique way to get young voters excited about the upcoming election, but it’s also a pretty great “hidden” marketing campaign.

If you think 7-11′s election oriented marketing campaign is pretty intense, just wait until you hear what JetBlue is doing to promote their company with the 2012 election.  They’ve decided to make leaving the country easier for the obnoxious and vocal group of people who always threaten to leave the country if their candidate doesn’t get elected.  Their “Election Protection” campaign will provide 1,006 people (which would produce 2,012 flight legs) with free round-trip tickets to leave the country and most likely annoy or fit in with the ex-pat crowd in their country of choice.

The campaign is ingenious because the company didn’t really have to do much to promote it.  So many people threaten to leave the country after elections, and almost every American knows somebody who’s made that threat.  People can vote for the worthy 1,006 through Facebook, and after Election Day the company will choose the winners.  Hopefully their campaign will be as successful as their “Carmageddon” marketing campaign in California last year.  JetBlue offered $4 flights between Burbank and Long Beach on the day that the 405 freeway was closed.  The marketing campaign only cost the company around $10,000, but in generated a whopping $9 million- $12 million worth of media attention.

So far it looks like Romney supporters are planning to escape to the Bahamas, and Obama backers will flee to Costa Rica.  We may not know who will win the presidency in 2012, but we know that these companies will be making big bucks regardless of which candidate comes out on top.



Fall Madness: America’s Pumpkin Spice Psychosis

EDIT: After publishing this post I learned about Pringles’ newest flavors, one of which is pumpkin spice.  If anybody knows about bizarre pumpkin spice products, please do not hesitate to comment so we can all bask in the awfulness.

It’s that time of year again!  The leaves are falling, people are planning their outrageous Halloween costumes, and consumers are going absolutely nuts over pumpkin spice everything.  For a brief moment at the beginning of this month people were horrified and angered over a possible shortage of Starbucks pumpkin spice lattes.  But since them the company was able to avoid the nightmare scenario of running out of America’s favorite flavor, now coffee drinkers and baristas can now sleep at night (if they aren’t jacked up from gallons of pumpkin spice coffee drinks).

On the heels of its latte fiasco Starbucks announced their plans to sell a pumpkin spice flavored ice cream, but they aren’t the only business that’s putting a little extra spice into the autumn season.  Dunkin donuts has their own line of popular pumpkin spice drinks, along with pumpkin spice muffins and other baked goods.  Breweries have made seasonal brews with a spicy pumpkin twist.  Hershey has special pumpkin spice Halloween candy.  Nearly every baker in the country has put their own twist on the pumpkin spice flavor, and those who don’t will be missing out on a pretty sizable portion of consumers.

Maybe it’s just the season or maybe it’s just the taste, but nobody can quite put their finger on why US consumers go absolutely nuts for pumpkin spice.  The flavor is so popular that it has somehow managed to expand beyond foods and drinks.  Candle makers have pumpkin spice scented products.  A small retailer has invented their own pumpkin spice air freshener.  Walgreens even has its very own strange and sexy pumpkin spice costume.  Maybe it’s best for businesses to not question the American consumer’s insatiable need for pumpkin spice products; maybe it’s best to just enjoy the financial bounty it brings.  But there is one thing that people do know: whoever makes pumpkin spice products will hate gingerbread and peppermint with a passion in December.