Baoxiaodao
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I was fully invested this whole year, but I changed things around to lever up -- selling things like DELL that held up well, down only 10% from where I'd bought.
Things I added:
5% of portfolio put into BAC $10 strike calls
17% of portfolio put into BAC 2019 warrants.
34% in AIG 2021 warrants.
Yes, die by the sword perhaps.
I would not do this even in my wildest dream. Really can't handle risks. Good luck Eric. I hope this works well for you!
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http://online.wsj.com/article/SB10001424053111903454504576485920161518138.html?mod=ITP_marketplace_1
By JEFF BENNETT
TRAVERSE CITY, Mich.—Chrysler Group LLC and Fiat SpA Chief Executive Sergio Marchionne said he will change Chrysler's board by month's end and said he could retire sometime after 2015.
"There is going to be a guy after me, I guarantee you," he said. "Don't focus on the date, I would focus on the process."
Meanwhile, plans by Chinese companies to export autos pose an "enormous" risk to established car makers based in Europe and North America, Mr. Marchionne said during his keynote speech at an annual automotive conference here.
That Mr. Marchionne would remake Chrysler's board had been expected after Fiat took a 53.5% share of Chrysler last month by purchasing stakes from the U.S. and Canadian governments. But until Wednesday, the CEO hadn't confirmed such plans.
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Agence France Presse/Getty Images
Chrysler Group Chief Executive and Fiat CEO Sergio Marchionne, in June
"We will have discussions with the board over the next couple of days and I think, hopefully, we will have a resolution by the end of the month," Mr. Marchionne said on the conference's sidelines. "I think it's to be reasonably expected [some directors will leave], without it being traumatic."
The U.S. and Canada received stakes in Chrysler and the right to appoint directors after lending to the auto maker during its 2009 bankruptcy. The U.S.-appointed directors are Chairman C. Robert Kidder, Douglas Steenland, Robert Thompson and Scott Stuart. George F.J. Gosbee represents Canada's interests.
Regarding his own position, Mr. Marchionne said he has "always believed my successor would come from the inside."
"This large management team, where we have 22 people representing nine nationalities, is designed to be a proving ground for people to sit and manage," he said. "It's more than likely my successor will come from that structure."
More
Auto Sales Sluggish
His discussion of a possible successor sent Fiat shares down 1.7% to €5.98 ($8.49) in Milan trading.
Mr. Marchionne last week said he formed a Group Executive Council that will be responsible for running day-to-day business and for setting a unified, long-term strategy for Fiat and Chrysler. Until then, Mr. Marchionne had a team of about two dozen Chrysler executives reporting to him, and a similar situation at Fiat.
Regarding China, auto makers there currently "produce almost entirely for the enormous domestic market, but their future plans for the export market are significant," he said. "Even assuming China were to export only 10% of what it produces, the risk we face in our home markets is enormous."
Western auto makers "cannot afford to be unprepared for the ascent of China" and "need to continue to work to make our industrial base more competitive, because the day of reckoning is inevitably coming," he said.
Western auto makers also can't count on dramatic growth in Asia to drive prosperity so must make their North American and European operations more competitive, he said.
Mr. Marchionne also said Chrysler and the auto workers' union are attempting to hammer out a new contract that rewards workers while protecting the company's competitiveness.
"Our relationship with the UAW is crucial," he said during his keynote address. "It is not my intention to engage in public negotiations, but my general observation is that the tone of dialogue has been incredibly productive."
The auto maker is focusing discussions on creating merit-bonus programs. It also plans to pull work that had been outsourced to parts suppliers back into its assembly plants rather than raise hourly wages. The UAW wants to protect union jobs and recover some of the concessions workers gave up before the company's bankruptcy filing.
UAW President Bob King is attempting to reach labor agreements with Chrysler, Ford Motor Co. and General Motors Co. simultaneously. Talks with all three started last week.
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It is hard to imagine officials in Japan are just as faceless as those in China in a disaster. But it happened. I guess Japanese had the lost decades for a reason.
http://www.nytimes.com/2011/08/01/world/asia/01radiation.html?scp=3&sq=ken%20belson&st=cse
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This excellent WSJ article showed us even in a democratic country, where business is booming, ridiculous things can happen.
The Ailing Health of a Growing Nation
By AMOL SHARMA, GEETA ANAND and MEGHA BAHREE
JODHPUR, India—Mohammad Arif visited his wife, Ruksana, in the labor ward of Umaid Hospital here on Feb. 13. She was to have a cesarean-section the next day. It would be her first child.
"You're going to deliver on Valentine's Day," Mr. Arif told his wife.
"Everything will be fine, with God's will," she said.
Hospital Needs Lifeline
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Krishna Pokharel/The Wall Street Journal
A nurse at Umaid Hospital in Jodhpur, India, tends to a newborn with complications in the hospital nursery in July.
Instead, the young family fell victim to the dysfunction plaguing India's public-health system, an overstretched and underfunded patchwork on which the vast majority of India's 1.2 billion people rely.
On Valentine's Day, 20-year-old Ms. Ruksana gave birth to a baby girl. But the young mother's bleeding couldn't be stopped. Umaid Hospital was about to descend into crisis: Up and down the maternity ward, new mothers were mysteriously starting to die.
A few days later, Ms. Ruksana's doctor, Ranjana Desai, pulled Mr. Arif aside and told him, "Along with medicines, she also needs your prayers."
India supplies doctors to hospitals the world over. Within India itself, a thriving private health-care industry—serving a growing middle class and the wealthy—is a byproduct of the nation's economic ascendancy. By some important measures, India's health is improving: Over two decades, life expectancy has risen to 64 years in 2008 from 58 in 1991. Infant mortality has declined as well.
Poor families in India who can't afford private hospitals must rely on the severely underfund public health system, often with disastrous results. WSJ's Pracheta Sharma reports from Kolkata.
Yet maternal and infant health remains an area where India particularly lags behind. Last month in the state of Bihar, 49 children died from an unidentified viral infection over a few weeks in three districts. A month ago at a hospital in the city of Kolkata, 22 babies died in four days.
India's infant-mortality rate—50 deaths per 1,000 births—is worse than Brazil's and China's. India's poorer neighbor, Bangladesh, also does better.
Overall, the nation's vast, government-run health system can be a dangerous place. Hospitals are decades out of date, short-staffed and filthy. Patients frequently sleep two to a bed. The Indian government invests only 1% of gross domestic product in health care, according to the Organization for Economic Cooperation and Development. Only seven countries spend less.
The nation faces a health crisis on two fronts, experts say. Not only has it failed to solve developing-world health problems such as high infant mortality and malaria, but now it also faces a sharp rise in rich-country health problems, such as diabetes. India has 50 million diabetics, the most of any country, as diets and lifestyles have changed amid rising prosperity.
Efforts to improve maternal health are having unintended consequences. In 2005 India started paying women $30 to have their babies in hospitals instead of at home. Partly as a result, last year hospitals performed 17 million deliveries, up from just 750,000 in 2006. Many hospitals simply can't handle the traffic, government and hospital officials say.
Related
India's Quack Doctors Pick Up the Slack
One Family's Futile Quest to Get Help for Their Baby
Overall, India's central government set a goal in 2005 of doubling national health-care expenditures to 2% of GDP. It has fallen far short of that, officials say, partly because of the need to improve other social programs, such as education.
"We have so many competing social priorities," says Anuradha Gupta, a senior official at the health ministry who works on maternal and child issues.
Umaid Hospital, constructed in 1937 in an Art Deco style, stands in the heart of Jodhpur, a historic fortress-city of 1.4 million in the western state of Rajasthan, one of India's poorest. Funded by the government, Umaid provides care to the poor and specializes in women and children.
The hospital performs 20,000 deliveries a year—about one every 30 minutes—a more-than-tripling since 2003, says Superintendent Narendra Chhangani. Most births occur in a labor room barely changed in some three-quarters of a century. The hospital's 400 obstetrics beds are served by 15 gynecologists, Dr. Chhangani says, half the number needed.
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The Wall Street Journal
Nurses and a cat at North 24 Parganas District Hospital, where one pediatrician sees about 500 kids a day.
Recruiting new doctors is tough, Dr. Chhangani says, because the pay is low and conditions are poor. Patients' families sleep on floors and in a courtyard next to the labor wards. The smell of urine hangs in the corridors. Wobbly ceiling fans stir the air.
In February, a government survey of the hospital found that needles weren't always disinfected and noted an incident of a rat bite in the nursery. Dr. Chhangani says the report exaggerated the hospital's hygiene problems and didn't reflect the practical realities of an urban Indian hospital.
Those realities can create an environment ripe for the kind of disaster that struck in February, just as Mr. Arif arrived with his pregnant wife, Ms. Ruksana. She checked in to Umaid on Feb. 4.
Ms. Ruksana, 5-foot-2-inches, was herself born in the countryside outside Jodhpur. She completed the fifth grade before her father pulled her out of school to help with chores.
When she was 15, she had an arranged marriage with Mr. Arif but didn't move in with him for another two years because she was so young. The day Ms. Ruksana found out she was pregnant last year, she and Mr. Arif went to celebrate at a fair with folk singers and food stalls, enjoying a fast-food dish of buttered bread and thick vegetable curry.
It was probably a bit of a splurge. Their household of seven, including an extended family of relatives, earns a total of less than $100 a month dyeing and ironing scarves and bedsheets from a nearby factory.
At Umaid Hospital, doctors decided Ms. Ruksana, partly because of her size, should have a C-section. She delivered her baby girl on the afternoon of Feb. 14. Her name: Mehek, which means "fragrance."
Q&A
On Monday, Aug. 1, Amol Sharma, Geeta Anand, Megha Bahree and Krishna Pokharel — the reporters who worked on this story — will be answering your questions about India's public health crisis. Tweet @wsjindia with the hashtag #FlawedMiracle or email your questions to indiarealtime@wsj.com. They'll blog the answers between 4 and 7pm IST, 6:30 and 9:30 am EST on blogs.wsj.com/indiarealtime
Read more in on our series Flawed Miracle here.
Ms. Ruksana left the operating room in high spirits. But late that night, she noticed the dressing over the stitches was wet.
She was bleeding at the site of her wound. It got worse overnight. The doctors on duty couldn't stop the blood.
The next morning, Dr. Desai, a senior gynecologist at Umaid, came to see Ms. Ruksana. Her blood was taking 10 times longer than normal to clot. Her arms showed green patches, indicating heavy internal bleeding.
Her husband, Mr. Arif, a shy 25-year-old who speaks just above a whisper, nervously asked Dr. Desai, "Why is this happening? What's going on?"
Dr. Desai was already having a busy week, as usual. Her team of four gynecologists routinely sees 350 patients per week. Interrupting her examination of Ms. Ruksana, she raced to a nearby ward to tend to a woman stricken with jaundice whose dead fetus needed to be surgically removed.
Dr. Desai, who has two decades' experience, couldn't explain Ms. Ruksana's condition. But the doctor says she had a sinking feeling. In the previous two days alone, four women at Umaid had died from uncontrollable postpartum bleeding. Typically, the hospital averaged five or six maternal deaths per month. Dr. Desai called in other gynecologists and the region's top internal medicine specialist.
The hospital's blood bank didn't have enough blood on hand, so Mr. Arif says doctors told him he needed to come up with 10 vials for his wife's transfusions. He raced to round up relatives and friends to give blood.
How India Stacks Up
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Late that afternoon, Ms. Ruksana transferred to Mahatma Gandhi Hospital, another government institution in Jodhpur that handles critical cases. Dr. Desai searched online for clues to the problem. She phoned obstetricians as far away as Boston. "I was traumatized, I was losing confidence," Dr. Desai says.
The next day, Feb. 16, more patients emerged with uncontrollable bleeding, and two died.
Dr. Chhangani, the hospital's superintendent, says that up to that point his gynecologists had been telling him they believed the deaths were due to ordinary complications. But by Feb. 16, he says, he was anxious. He called his superior, Dr. R.K. Aseri, the principal of nearby Dr. S.N. Medical College, which oversees the local public hospitals.
"Something unnatural is going on," said Dr. Chhangani. "We are worried."
Dr. Aseri assembled a group of local specialists. After a 3½-hour meeting, they decided that all drugs used in deliveries should be swapped out in case they were infected.
That evening, Dr. Chhangani and Dr. Aseri visited Umaid's operating room and labor room and made an impassioned plea to the staff for proper hygiene. "You should always put on your mask and change your shoes when you enter the operating theater," Dr. Chhangani says he told hospital staff. "Don't allow anyone in who shouldn't be there."
Some doctors suggested shutting down the operating rooms until the mystery was solved. Dr. Desai said in a recent interview that such a move simply wasn't realistic. "There are so many poor patients here. They can't afford to go anywhere else."
The next few days, more patients died and still more fell ill. Ms. Ruksana was now one of three of Dr. Desai's patients suffering from mysterious, severe postoperative complications. Dr. Desai gave Mr. Arif a grim update one afternoon. "Her condition is very critical. We're failing to understand why we can't stop the bleeding."
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The Wall Street Journal
Moksuda Siddiki learns of the death of her baby—one of 22 to die at a Kolkata hospital in just four days.
The crisis depleted the hospital's already low supplies of surgical caps, face masks and other basic gear. So hospital staffers told the relatives of critically ill patients to go buy their own.
Families were instructed to bring back gloves, syringes, catheters, an abdominal drain and other items, according to a survey by a human-rights group, the People's Union for Civil Liberties, and health-care activists. Some families said they spent anywhere from a few hundred dollars to several thousand dollars of their own money on the supplies, according to the report.
Dr. Chhangani calls it an "exaggeration" that families had to buy their own medical supplies.
As the crisis escalated, tempers flared. Family members roamed the corridors, shouting at doctors and demanding explanations for why their loved ones were dying and why they were being asked to provide their own blood and hospital supplies.
At the Mahatma Gandhi Hospital intensive-care unit, Ms. Ruksana suffered kidney failure and septic shock. But she was hanging on.
Dr. Chhangani, Umaid's superintendent, increasingly focused on the possibility of contaminated medications. On Feb. 22—seven days after Ms. Ruksana first began bleeding uncontrollably—a lab technician reported finding contamination in bottles of saline solution administered intravenously after blood loss or surgery. The fluid was infected with bacteria that produce lethal endotoxins, chemicals that can cause multiple organ failure.
The finding was too late for Ms. Ruksana. That day, she died.
Over the course of a month, she and 15 other new mothers died at Umaid Hospital. Two gravely ill women survived.
Mr. Arif and his relatives pooled $10 to hire a car to take her body home. They held a funeral that afternoon, attended by about 100 family and friends.
Dr. Desai, who says she had been suffering nightmares about Ms. Ruksana and her other patients, spoke to Mr. Arif the day of the funeral. Mr. Arif tried to soothe her. "Whatever had to happen has happened. It was God's will. Don't cry," he says he told the doctor.
For Mr. Arif, raising Mehek without her mother hasn't been easy. He has been getting help from his sister and from Ms. Ruksana's family. One afternoon in July, he made the 65-mile journey from Jodhpur to Ms. Ruksana's hometown, where Mehek had been staying with the in-laws for a few days. Ms. Ruksana's parents and their 10 children share a small house with two bedrooms and one bathroom with a coconut-size sink.
On a scorching afternoon, family gathered in the living room to play with Mehek, now five months old, sporting a small dot on her eyebrow to ward off evil spirits. Ms. Ruksana's mother, Jareena Bano, looking down at Mehek in her lap, says simply, "She's our Ruksana now."
There was plenty of blame to go around in Umaid Hospital's wave of deaths. India's Central Drugs Laboratory, a government facility in the city of Kolkata, determined that the IV fluid, made by Parenteral Surgicals Ltd. of Indore, was contaminated with dangerous bacteria.
Authorities arrested a quality-control official at Parenteral, Sanjay Shah, on charges of conspiracy, poisoning and violations of India's Drugs and Cosmetics Act of 1940. He is in jail pending trial. His lawyer, Mahendra Singhvi, declined to comment.
In a statement, Parenteral's director, Manoj Khandelwal, blamed the hospital, saying poor storage of the IV bottles at Umaid Hospital was the likely cause of the contamination. He also said there was no concrete evidence that the IV fluids caused the deaths.
Dr. Chhangani denies the hospital erred in storage. He says a shipment of 4,000 IV bottles from Parenteral arrived in early February and the fluids were so badly needed that they weren't stored before being distributed to labor wards.
A state government investigation into the Jodhpur deaths blamed the hospital staff for lax procurement of medicines. One issue identified by the investigators: Parenteral wasn't on the hospital's list of approved IV vendors, but when a supplier shipped Parenteral products, the hospital didn't catch the error.
Umaid's head of gynecology and the employees running the hospital's drug store have been suspended indefinitely. A separate report by the central health ministry accused Umaid officials of "callousness" for moving too slowly to investigate the deaths.
In recent months, at least two hospitals in the same state, Rajasthan, said they found fungus contamination in bottles of IV fluids made by other manufacturers.
Officials in two other states also recently seized contaminated IV fluid from hospitals. In one case, patients themselves noticed a fungus growing in the IVs and alerted officials. There were no deaths; the problems were apparently caught early enough.
Dr. Chhangani is now spending more than $500,000 in state funds on renovations that will, among other things, double the Umaid labor ward's capacity to 80 beds, create a proper waiting room and coat the walls with antibacterial paint.
One afternoon earlier this year, a government official paid a visit to Mr. Arif's house. He had come to deliver the standard government payment to close the matter of the death of his wife, Ms. Ruksana: a check for 500,000 rupees, or about $11,000.
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Q: Given that the Dodd-Frank Act falls far short of your prescription for reform, how would you assess the law, one year after its enactment?
Allison: We hear the big banks complain loudly about overregulation and the impact of Dodd-Frank. But they brought on Dodd-Frank through their own irresponsible conduct, and this is not the first time that we've seen a crisis followed by the imposition of additional regulation. Look at Sarbanes-Oxley early last decade. Many banks were complaining that it was going to raise costs and stifle innovation and competition. Nobody complains about it now. But Sarbanes-Oxley didn't prevent the latest crisis. I think it's totally understandable why the government had to enact Dodd-Frank. There was tremendous outrage, and justifiable outrage among the public, among shareholders and customers of the banks, and among people in government, and something needed to be done.
Although I think that Dodd-Frank was an understandable outcome of the crisis and that the banks' own actions brought on Dodd-Frank, I believe it's time to take a deeper look at how we regulate the financial industry. In the past, additional laws and regulations have almost always been enacted as a reaction to a crisis. That was true, for example, with Glass-Steagall and Sarbanes-Oxley. So the crafting of regulations is usually backward-looking - aiming to prevent the failures and misdeeds blamed for the last crisis. By focusing on the obvious manifestations, the symptoms, of the last crisis, new regulation hasn't addressed the underlying forces that repeatedly drive these banks to the brink of failure by taking excessive risks, and also cause them to lose sight of their clients' interests in their headlong pursuit of profits.
So I think the question is: how can we come up with a regulatory regime that actually harnesses the forces of competition, innovation and profit-seeking in ways that actually work to the long-term advantage of customers, shareholders, and the general public? I think it's possible to do that in ways that don't inhibit competition, innovation and efficiency, and actually improve the industry's performance by shifting the focus of competition to risk-performance for clients and shareholders.
We should also take a broader look at the organizational framework for regulating the financial industry. Although there's going to be greater coordination among regulators thanks to Dodd-Frank, the configuration of regulators still reflects the old product-oriented structure of the financial industry 40 years ago. And that's true of Congressional oversight bodies as well. Just as the big banks should reconstitute themselves into client-centered, independent businesses, the regulatory and oversight frameworks should also move from product centered to client centered. For instance, we should consolidate regulation and oversight of financial businesses serving individuals and have a separate structure for comprehensive regulation and oversight of capital markets businesses serving corporations and institutions.
We've painfully learned that there were major segments of the financial industry that were not regulated at all, others that were inadequately regulated, and some that were under multiple regulators competing with each other, which led to a race to the bottom in relaxing regulations and oversight. If we step back from the pressures of responding to the last crisis and take a look at how and why the industry has evolved over the last 40 years, we'll see the need for more completely revamping regulations and the regulatory framework in ways that will reshape the industry to better meet the needs of clients, shareholders and the public, and to provide more effective, efficient and comprehensive oversight. Dodd-Frank makes progress in that direction, but it could be improved in time.
Q: You spent several years as president and CEO of TIAA-CREF, and you write about how mutual fund fees are taking a big bite out of middle class savings. Do you think this is an important reason why so much of the economic growth over the last several decades has ended up in the hands of the wealthy?
Allison: I think that most people at all levels of income and wealth are being overcharged for financial services from the megabanks. I'm sure that even the very wealthy are not aware of how much they're paying for financial services, because the full prices are composed of transactions fees, activity fees, management fees, bundling fees, etc. that aren't presented comprehensively to clients.
But I do think that there is a collective intelligence about pricing and performance of the big banks out there in the marketplace, and that could be one of several reasons why savings rates in the U.S. have been low for many years. It is surely one reason why retail assets are growing more rapidly in mutual fund companies than in big retail brokerage firms, most of which are owned by megabanks. I think the public needs to be much better informed about how much they're paying for financial services from the big banks and about the real returns on their assets, net of fees. That information would probably reduce further the flows of savings into the mega-banks.
Q: Your public persona is not that of a rabble-rouser or a flame-thrower. Have people been surprised that you're calling for breaking up the mega-banks?
Allison: Well, I think the people who know me well probably aren't terribly surprised. Even though I had a great career at Merrill and am very proud of what my colleagues and I accomplished there, my views of what needed to be done were often out of the mainstream. I was frequently advocating for improving ways we did business and strengthening corporate governance, and we did make progress and, I think, lead the industry in those areas for some time. Unfortunately, Merrill became a much different company during the last decade. Like some other major financial firms, it abandoned constrains on risk-taking as it obsessively pursued profit.
There's a tendency is to frame stories of the financial crisis around personalities and colorful conflicts. So I can see why it's kind of interesting that I was a leader in the industry and now am criticizing the structure and business models of the industry that I was part of building years ago. But the real story isn't about me or leaders who later ran the megabanks during the boom and crash. It's about what's in the interests of the American public, what's needed to help stabilize and make more efficient the financial system in the United States. To focus on personalities is to miss the point, to distract from understanding the underlying forces pressuring the industry and the flawed responses to those pressures that have diminished potential benefits to the public at large, to the customers and the shareholders. That's what we ought to be focusing on. And that's why I think that my e-book doesn't go into personalities. It is novel, I think, in probing more deeply the underlying reasons why the megabanks keep getting themselves into trouble and falling short of meeting their responsibilities to help clients optimize their financial situations and promoting efficient, stable markets.
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Herb Allison recently spoke to American Banker about his new e-book, "The Megabanks Mess." Here is an edited transcript of the interview:
Q: You wrote this paper, which became an e-book, during the summer of 2008, before the collapse of Lehman, before TARP, before the bailouts of AIG and Citi and Bank of America. What were you initially planning to do with it when you wrote it?
Allison: To be accurate, I wrote most of it that summer. The e-book includes more recent events and quotes. But the basic themes were all in the early draft in the summer of 2008. Back then, I didn't contemplate releasing it as an e-book. I was thinking about having it published as a long article somewhere. I didn't intend to write a 200 or 300 page book. I didn't think that this discussion really needed that. But that plan was interrupted when Secretary Paulson asked me to take over Fannie Mae. I didn't feel it was appropriate for me to publish anything related to financial policy while I was serving in Washington running Fannie Mae and then TARP.
Q: You started at Merrill Lynch in the early 1970s. What are the biggest ways that the culture of Wall Street has changed in those last 40 years?
Allison: Some of that's outlined in the e-book. In the early 70s the financial industry was much simpler and slower changing. Regulations like Glass-Steagall had segmented the industry into product areas such as commercial banking, investment banking, securities brokerage and insurance. There was much less competition for business. Regulations prevented companies from competing with firms outside their product segment. Banks were prohibited in some states from expanding beyond a single branch, or across state lines. Pricing was regulated in ways that assured high profit margins. For example, commissions on stock trading were fixed by the New York Stock Exchange. Interest rates on bank deposits were held down by Regulation Q. Banks and investment banks had steady business from clients they viewed as house accounts. In Wall Street's culture back then, investment bankers considered it impolite or even crass to compete for each other's clients.
The forces of change began building in the mid-70s. New kinds of institutional investors, like mutual funds, were growing fast and gaining market power to force reductions in trading commissions. In 1975, the New York Stock Exchange abolished fixed commissions. In essence the bottom fell out for pricing stock trades. Securities firms started looking for new ways of making money. Merrill Lynch invented the cash management account, which was a way of taking advantage of high interest rates to dis-intermediate bank deposits. The banks' regulators responded by relaxing Reg Q restrictions on deposit rates and allowing the banks to expand geographically and to broaden their product lines. So you began to see institutions in formerly separate sectors of the financial industry colliding and competing to generate profit margins.
All of that was accompanied by major innovations in finance, such as modern portfolio theory, the capital asset pricing model and the Black-Scholes options pricing model, which opened up opportunities to create new kinds of products and services that could offset the declines in profit from traditional cash products like stock and bond trading, deposit taking and corporate lending. So it was fortunate for the industry that these new financial innovations coincided with a period of deregulation, as did the advances in computing that enabled financial firms to offer a far wider range of products and to expand globally and increase size dramatically through acquisitions. In recent decades we've seen increasing experimentation with unproven products and much greater leveraging of balance sheets in the quest for profits, leading to greater vulnerability to banking crises and greater stress on business models.
That's a long answer. In short, the industry was completely transformed over the last 40 years from a highly segmented, highly regulated, relatively uncompetitive environment, to one today, and over the last 15, 20 years, of intense competition, of rapid innovation, with many of these innovations producing less and less real value added. The later innovations have been increasingly extreme product extensions like derivatives of derivatives, securitizations of securitizations and funds of funds, accompanied by much higher leverage in order to generate greater return on equity.
Q: You were president and COO of Merrill Lynch when Long-Term Capital Management collapsed in 1998. You've been credited as coming up with the framework for the private-sector bailout that averted a catastrophe at that time. Did that experience inform your thinking over the years about the too-big-to-fail problem?
Allison: Yes. That was one of a series of banking crises you can trace back to at least the early '80s with the first of the Latin America debt crises. Then there was the stock market crash in 1987 followed by another Latin American debt crisis, this time in Mexico in the early '90s. Then came the Asian currency crisis, the LTCM crisis and a few years later the dot-com crash and the failures of Enron, Tyco, Arthur Anderson and others.
All those put pressure on the banks and each time the Fed had to inject large amounts of cash into the financial system to bolster the largest banks. Long-Term Capital Management was a private-sector bailout, as you know. And what you saw in that crisis was that the banks had taken massive risk on a counterparty that they didn't fully understand. To me, all those crises are parts of a pattern where banks are driven to take excessive risk and often to abuse their own clients and shareholders, all for the sake of maximizing profit.
Q: In the book you talk about the industry changing from client-focused businesses to product-focused businesses.
Allison: That's right. The rise of institutional investors, who themselves were competing to outdo each other's portfolio returns, Milton Friedman's dictum that the primary social purpose of business is to increase profits, and the advent of takeover firms and private equity firms put great pressure on these companies to grow profits so they wouldn't be taken over by private-equity investors or by banks searching for additional profit.
So as margins on traditional products were collapsing, one way banks could grow profit was to acquire other financial institutions and slash their combined expenses, which would increase their stock multiples and the value of their stock as currency for still more acquisitions. So we saw an accelerating race, dependent on increasing profits. The bigger, more aggressive banks gradually, almost imperceptibly, shifted their focus from meeting clients' needs and maintaining their loyalty to looking inward at how financial engineering might generate and sustain profits.
Q: Your e-book is titled "The Megabanks Mess." How would you define a megabank? Are we talking about essentially six banks in the United States — JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley?
Allison: In effect, yes. And if you look at the structure of the industry today, you'll see that those six institutions handle about half of banking and investment banking activity. So these are mammoth, highly diversified, extremely complex financial institutions. They dominate the industry and they're very powerful.
Here's an important point. A lot of the recent books on the financial crisis are dramatic accounts of individuals' greed or managerial failures. I think it's much more constructive to try to understand better what are the underlying forces that have caused this extraordinary consolidation in the financial industry and have put intense pressure on the banks to relentlessly increase profitability by whatever means possible, including extreme leverage, introducing and pushing unproven products, and masking the full prices of their services - putting their own interests above the interests of their clients. Obviously, some people in the industry broke the law or otherwise cheated their customers. Others were negligent or irresponsible.
But broadly attributing the failings of financial industry to evildoers or to greed on Wall Street is a misreading of what was really going on. I think that the great majority of people in the financial industry, including those in the largest banks, embody traits like honesty, hard work and reliability that most Americans admire. But they were - and still are - under tremendous pressure. If they didn't meet or exceed their goals, their jobs were in jeopardy. So they took greater and greater risks that ultimately put themselves and their institutions in jeopardy and vulnerable to failure. And repeatedly the institutions had to be bailed out by the Federal Reserve through massive injections of cash into the system, and through positive yield curves that allowed them to be recapitalized over a period of time.
Q: You describe the megabanks as rife with conflicts of interest, and you call for them to be broken up into smaller independent companies, each of which is focused on serving a set of clients with distinctive needs. Explain why this is necessary.
Allison: I think it's in the interests of the institutions' own shareholders, not to mention their customers and the general public, that they disaggregate themselves into fully independent new companies, each focused on a particular client segment. If you look at the performance of these banks, leaving aside the fact that they all would have been destroyed without bailouts because of excessive risk-taking, you see that their price/earning and price/book multiples, even after government-assisted improvement in their earnings, stock values and equity capital, are no better than those of regional banks, and worse than broader market multiples.
And you're now seeing increasing comment in the press, among analysts and within the industry that market volumes, trading spreads and securitization may not return to pre-crash levels in the foreseeable future, and that the megabanks' business models may no longer be able to deliver the results that investors demand. Already they've had to reduce leverage substantially, and new regulations may force them to increase capital ratios further. And you see a number of them announcing headcount reductions and reducing bonus accruals. I think there's plenty of evidence that their business model — the diversified financial services company — has become obsolete.
Of course, the big banks will disagree with that conclusion. They'll say something like this: "Look, how can we compete globally against the megabanks elsewhere if we aren't a megabank ourselves? Our broad capital base, diversification of businesses and scale are critical to our leadership in the markets." But that argument doesn't hold up. First of all, it assumes that the capital and earnings of the banks' more stable businesses, like retail brokerage and banking, can reduce the overall impact of losses in their capital markets activities in a crisis. But that assumption proved false during the crash, when all of their businesses subsided simultaneously. The capital markets businesses had been woefully undercapitalized, and the businesses that had been considered more stable needed all their capital to support their own activities.
The crash showed that each business of the conglomerate needs to be fully capitalized to withstand its own stress scenario. If a more stable business is expected to cushion losses in a megabanks' other businesses during a crises, then that business must have more capital, and be charged a higher cost of equity, in order to provide that cushion. In other words, there's no truth to the assumption that the diverse businesses of a financial conglomerate reduce overall risk and require less capital than those businesses would need if they were separate from each other. They don't benefit financially from being combined. So in effect what they were doing was under-charging for capital on the retail side, let's say, as they were using that business to backstop the other businesses. If you really deconstruct the capital needs of the various activities, you will find that each needs to be fully capitalized for the risk that it's taking, and if you do that, and you no longer have these implicit subsidies, they would need more capital. They don't benefit financially from being combined within megabanks.
And if you looked at the groupings of the megabanks' subsidiaries that serve individuals or corporations or investment companies, you'd see they could be just as competitive, if not more competitive, by operating independently from the other groups. For instance, the capital markets businesses of most megabanks are world leaders. They could be appropriately capitalized and funded if they were stand-alone businesses, and they would have to reduce their systemic risk in order to assure that they could fund themselves in the wholesale markets.
The capital markets businesses of the megabanks could compete just as well without the retail side, and retail could compete just as well and probably better without the capital markets side. Today, one of the mantras of the megabanks is cross-selling - distributing products of each subsidiary through the others. But if, say, their retail businesses really put the interests of their customers first, they'd be totally objective about where they sourced their products and might select products from other companies rather than from their affiliates. Cross-selling is the epitome of a corporate-centered, self-centered approach to doing the business, not a client-centered approach. The banks shouldn't be setting goals for increasing the number of their own products they sell to their own clients. The target ought to be providing their clients with the best possible products from whatever source. And if they did that, they would also be charging lower prices, and becoming more competitive and more trusted.
If you look at satisfaction surveys of financial firms, you see that the megabanks score very low in trust among their own retail clients and the general public. Other, more focused, client-centered financial firms have much higher trust levels. Look at where the growth has been in the retail services businesses. It's been with major institutional investors like Vanguard, Capital Group and Fidelity that focus more on delivering returns, and are more transparent about their total fees and performance for clients than are the major banks. So to sum it all up, I think that the megabanks' shareholders, employees and clients, would be much better off if those banks were broken up, and the resulting independent firms each focused on a particular client base, and were more open about their pricing and actual performance for clients. I think we'd have a much healthier financial system because there'd be a lot less systemic risk as well, since each business would be more transparent and funded according to its risk profile.
And then, if the banks were to adjust their internal measures of profitability for the particular risk of each activity, and gear employee compensation to risk-adjusted profitability even using imperfect risk models, they would create real incentives internally to control risk, to moderate leverage. The megabanks got no lasting benefits from the illusory profits coming from higher leverage before the crash, because those profits entailed much higher risk and were reversed after the crash. If those profits had been adjusted for risk, they would have been far lower than actually reported. So compensation would have been lower as well. There'd be a whole lot less public anger about compensation. Executives and employees would have still been very well compensated, but not for those illusory profits that later were written off.
Q: There's a paradox in what you're saying. You're saying that if the banks were to move from a more profit-focused business model to a client-focused one, they would actually produce higher, more reliable returns to their shareholders. Why should that be the case?
Allison: You're absolutely right. That looks like a paradox. And in fact that's the irony of all this. What has their current approach, focused solely on profits on them, gotten them? With a sole focus on profits, the level of profits is never enough. It always has to be more, next quarter and next year. And so they grew faster than the economy in their pursuit of profits. To keep the game going, they had to increase risk in all kinds of ways. And so they ended up facing collapse.
They all would have failed were it not for massive federal intervention to save the financial system. Even with all that assistance, they inflicted huge losses on their shareholders. We should keep this in mind: their shareholders would have lost their entire investment if the megabanks had been allowed to collapse. AEven with the bailout, Citi's shareholders lost over 90 percent of their value, and other megabank shares fell 50 to 80 percent. So the shareholders are eventually badly damaged by this almost blind, obsessive pursuit of profit. If a bank's overriding objective is to grow profit, it inevitably loosens constrains on its conduct. It loses sight of the main purpose of its business, its social purposes, which are to help clients improve their financial situations and to finance the economy efficiently and reliably over time. We now have a financial system that, even after the bailouts, is more concentrated than before, so the system is even more vulnerable to problems in those banks down the road.
If the megabanks were truly concerned about producing long-term returns to shareholders and customers, they'd adopt a more balanced set of objectives. They'd include, in addition to profit, improvements in efficiency that lower prices and improve competitiveness, and careful control over risk. Their compensation plans would reward balanced achievement of those objectives, so there would be strong incentives to benefit clients and to control risk. Employees would have to generate true economic profits, risk adjusted, and greater benefits for clients in order to be rewarded. So I think you'd more prudent long-term decision-making. The client-focused businesses would have higher, steadier returns over time and would be better able to avoid what I call the megabanks mess of massive bailouts.
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http://www.spinoffprofiles.com/
This one covers companies world wide. You can just buy one issue to get the upcoming spinoffs' list.
FatPitch is no longer working. The guy decided to move into money management.. you have to get into his fund now. And it only works for small money.
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NVR sure was a good investment, their success seems to be related to using option contracts to buy land vs direct buying and pre-selling versus keeping inventories...
this is the past, what's relevant now is the future, how durable are NVR's competitive advantages?
having listened to several conference calls, it sounds like other builders are moving towards using more options to buy land and more pre-selling versus speculation.....
so the "durability" might be in question, additionally, what used to be a competitive advantage in a down market might turn out to be a disadvantage in a recovery, example, PHM's $3 B land might become a competitive advantage once the cycle turns, availability shrinks and conversion from raw land to finished lots takes 1-2 years
regards
rijk
I remember when people asked on the VIC why other home builders have not imitated NVR's strategy since it was so obvious, the answer was people and execution. The most durable competitive advantage is always the human assets. NVR builds when the sale is closed; others build and hope people will come. It is true when things look bright at the bottom, asset-heavy builder should do better. But I believe over time, builders like NVR will do way better simply because they only build to sell, which results in a light-asset model. This is the key difference between the two kinds of builders. However, this is only my opinion, and I am not even familiar with the home-building business although I read a lot about NVR.
In NVR and AAB's case, I do not believe we should draw a conclusion too early on whether it should sell at a premium or discout to their book value. It is dangerous to assume that AAB or NVR should trade at a discount to BV simply because its peers are trading at a discount. We talked a lot about bias here, and certainly this is one of them. I could be proved wrong in the end, but I do not want to commit an opinion well before I did my homework.
I purchased AMA.ax at 4.4 cents last year and am buying more of it recently. The funny thing is that I did not know there are lots of stocks in AU are penny stocks. So when I started from "A", this is one of the first stocks I looked at. If I surrendered to my natural dislike about penny stocks, I would have missed one of the best investments in terms of IRR in my life. Fortunately, I forced myself to read through the annual reports, and that aroused my interests. In fact, it is so easy to figure out that a beginner can tell you this is a no brainer.
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buffett has repeatedly stated that it is only a matter of time for construction to rebound with family formations > 1 million and new starts < 500k
since the sector is clearly out of favor, there might be some interesting opportunities here...
most home builders that are still around have adjusted their business models to current economic reality and operate at break even levels at a fraction of the peak years activity....
an "orientational dive" in the sector yields the following quantitative information, feedback and qualitative comments would be highly appreciated.....
the companies are ranked from strong to weak (financial staying power), i used average 2001-2004 earning to estimate earnings power, knowing that this method is far from accurate but represent, i hope, a conservative valuation approach
MDC
- very strong equity buffer/staying power, $1 B equity, $1 B debt, $1 B cash
- earnings power $200 M and MC $1.2 B = P/E 6
- Whitman sold in 2010 with significant loss????
- $200 M fully provided DTA
- P/BV= 1.2
DHI
- strong equity buffer/staying power with $2.6 B equity, $2 B debt and $1 B cash
- earnings power $500 M and MC $4 B = P/E 8
- $900 k fully provided DTA
- P/BV=1.4
RYL
- reasonable equity buffer/staying power $540 M equity, $900 M debt, $600 M cash
- earnings power $200 M and MC $750 M = P/E 3.5!!!!!
- P/BV = 1.4
- $250 M fully provided DTA
PHM
- reasonable equity buffer/staying power with equity $2 B, debt $3.4 B and cash $1.4 B
- earnings power of $500 M and MC $3 B = P/E 6
- owns $3 B land, entitled land might get scarce and takes time to develop, looks like a good competitive advantage
- $2 B fully provided DTA
- P/BV= 1.7
LEN
- reasonable equity buffer/staying power, $3 B equity, $3 B debt, $1 B cash
- earnings power $600 M and MC $3.5 B = P/E 6
- $1 B fully provided DTA
- P/BV= 1.3
- earnings from Rialto distressed real estate investment fund
NVR
- incredible ROA & ROE 2001-2005
- earnings power $350 M and MC $4.4 B = P/E 12
- P/BV=2.4 expensive……
- no losses during housing crisis???
BZH
- cheap but no equity buffer/no staying power
KBH
- cash $800k, debt $1.8 B, equity $440k
- high leverage, minimal equity buffer in case housing doesn’t recover soon
- very cheap based on earnings power of $300 M and MC $750= P/E 2.5!!!!!!
- too risky……..
TOL
- earnings power $250 M and MC $3.5 B = P/E 14, too expensive……
Why pay more than book for a commodity business with absolutely no barrier to entry, especially when there are better businesses that might benefit from normalization of construction? Home builders that survived the late 80's and early 90's real estate recession barely scraped by for many years until prospects improved around Y2K.
Well, you better look at NVR's performance to understand why it is trading at a premium to BV. I had the chance to buy it
@ a little over 100, but wonder why I did not pull the trigger. There is a writeup on VIC in detail, it will be of tremendous help to understand the business.
Some of the best investments were discovered in a lousy business. NVR is one of them. If we have the bias towards certain categories, we would never undercover those gems.
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For those like yields, I recommend mega-cap Australia banks, which is yielding 6-7%. I am no expert on banks, so do your own DD. In general, financials in AU are quite cheap at the moment.
I'm actually not very keen on AU banks. AU has a real estate bubble that rivals the US and their banks have been quite aggressive about lending. Also they are very dependent on wholesale funding. Here is a 2009 analysis done by Ben Claremon from The Inoculated Investor about Australian banks. http://www.scribd.com/doc/17035987/Analysis-of-Australian-Bank-Fundamentals
The Australian banks do pay a nice dividend, but that's partly because the interest rates are quite high in Australia and the stocks have to compete for yield. You can get a 5-6% yield on insured savings accounts in Australia. In Taiwan, it's very common to see buses with advertisements for people to open up Australian denominated savings accounts since the interest yield is so high (in Taiwan is less than 1%.) I wonder how much of the current rise in AUD is due to people pushing their currency into higher yield AUD savings accounts...
Zero argument here. I like AUD for other reasons and fully realized there is a housing bubble going on.
I have been studying banks for some years and never felt very confident to put money in them other than MHCs and fully converted banks in the US. Maybe these are just beyond my abilities.
Thanks for the comments.
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http://mevsemt.blogspot.com/2011/06/q2-2011-returns.html
I'm up a little over 12 percent, check out the link above for details...
You should totally contact cmattporter and exchange ideas!
:D
I guess it is easy to get anxiety after some members posted eye-popping returns. Congratulations. And I am glad finally I felt nothing when people have better results than mine, or I have better results than other people. That is a great prize I won :P
Fan, this is a wise perspective. I'm one of those board members who is up a lot this year, but the truth is that the intrinsic value of what I hold is hardly up at all. Why should I take credit for the fact that Mr. Market, a crazy man, happened to agree with me during this period?
You are being modest. I am looking at Spain and Ireland companies and will let you guys know if I find anything interesting.
For those like yields, I recommend mega-cap Australia banks, which is yielding 6-7%. I am no expert on banks, so do your own DD. In general, financials in AU are quite cheap at the moment.
I have a very large exposure to AU dollars and I still believe this is one of the currencies that will outperform. That is part of the reason I bought stocks in the AU market.
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Darn.... after so many years, I finally know how to use SEDI. It has to go to the summary reports....
Thanks!!
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I have been pondering this for a long time. Please give some answers :)
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http://mevsemt.blogspot.com/2011/06/q2-2011-returns.html
I'm up a little over 12 percent, check out the link above for details...
You should totally contact cmattporter and exchange ideas!
:D
I guess it is easy to get anxiety after some members posted eye-popping returns. Congratulations. And I am glad finally I felt nothing when people have better results than mine, or I have better results than other people. That is a great prize I won :P
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He is one of the few people I really pay attention to. Can't exaggerate his contribution to this profession.
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I forgot to mention Delti is going to pay 2.72/share in dividend this year, another 60% increase over the previous year.
This is a update I wrote a month ago:
"I just talked to the CFO(Frank) of Delti. Here are the key points about the questions in the message below.
1. Delti is going to pay dividends, and there is a small possibility they are going to buy back shares in the future. Delti is going to expand its warehousing capacity again this year by a whopping 70%. Pre-stocking will definitely suck up a lot of liquidity. Delti's shares are also being held by some very large funds and those guys are counting on the dividend. Management treaded the water recently implying a reduction of dividend and the stock dropped from 59 to 50 in a matter of days.
The bad news is that Delti just can't find good places to deploy its ever-increasing cash. They have looked at different product lines but doing so will require different level of attention from the management. Frank made a few examples on the phone and I finally understand it is probably better for Delti to focus on the tires, and not to think something else. If this is true, then my previous comment about the web property value is way off the mark. The good news is tires are totally different animals from other products. It is less glamorous yet more profitable and tricky. If the new information is true, Delti's intrinsic value is probably around 90-100 per share(in a private transaction), not the previous estimate 120-150.
On the acquisition side, do not expect anyone makes an offer any time soon and to be honest I do not want to be a seller now. Frank is very conservative and suggested no offer available on the horizon. But that is not my reasoning. The reason Zappos was acquired is that it fit right into the culture of Amazon, just like the Diapers. But how Delti is going to fit into a company like Amazon? Companies like Zappos take customers like God and fend off their competitors by offering very good customer service. Delti has only 100 people and it can never afford it if Delti is going to offer the best price. They are just totally different business models. There are many people who will offer 100+ to do an LBO, but I doubt any incumbents will take Delti out at that price. An army of PE shops wanted to do an MBO with Delti, but the management said NO. I admire their ethics, in a big way. They had the opportunity to take advantage of minority shareholders like me, and they chose to not to do it. That is rare in today's world.
2. Delti's profit margin is a mystery to me over the years. It has been going up and up. The answer is simple, in the last few years, supply just could not keep up with demand and Delti has to raise price to keep the demand down. It sounds incredible, but it is true. Tires are not like books or computer games. They have to be made from raw materials. They are bulky and the capacity is limited. This is especially true today as the commodity price is rising(fast). Delti is having a very hard time finding tires to sell. This year after the expansion of warehouse is finished, the tires will be sold at a more "normal" price. Simply incredible.
In the last winter, competitors increased prices by 20%. But Delti only increased price by 10%. I was really overwhelmed by the numbers. I think 1% increase of gross margin will increase EPS by 10%. 1000 bps......
Delti is operating in an ideal environment because the cost to buy tires will increase over the years. If there is a inflation, it will help Delti on two sides. First, Delti stocks early in the year. If the price goes up, Delti will benefit from the rise and it will offset part of the inventory costs. Second, inflation will help companies like Delti with extremelly low Capex.
3. TyrePac is a very good buy but do not expect anything in 3 years. It is more like a joint-venture and it will probably not be consolidated. But anything can happen. China is a place where people are extremely fond of following the crowd. If the brand builds trust in the market, the takeoff will be more dramatic than that in any other country. In other words, it is very difficult to build trust in the China market. But once you have the trust and you are early, the payoff is extremely large. I think I would write another email to Frank to make my point clearer.
4. As I said, if management wanted to do an MBO, they would have done that 3 years ago. Those guys are very ethical.
My impression is that Delti is going to have another good year. But do not get me wrong. The EPS will increase only marginally because the extremely favorable weather last year generated unusually high profits. Delti is trying hard to climb up the the value chain. It is still small compared to those tire manufacturers. So as it grows larger, it will have a better negotiation position. That will lead to further increase of gross margin. So we will see a large increase in intrinsic value again even though the EPS increases less.
Delti is a very safe bet going forward to reap 15-20% return over the next decade, much safer than Google, Apple and Facebook. If we count Asia market in, Delti probably only has 2-3% of world market. I have witnessed how fast the lowest cost operators conquer their markets, and Delti is on its way!"
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I do not care what this book is about. When JG has a new book, I buy it!
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Anyone have any thoughts on this investor? I am interested in following investors of micro-caps to learn from them, however, I have been following his fund on gurufocus for a while and it seems his fund is doing rather poorly. It is very difficult for me to find any long-term performance for him as there doesn't seem to be much on the web, it seems he is highly regarded.
I have never heard this name. Personally, I do not give websites like gurufocus or motley fool much merits. Too many promotional peeps out there. A few of them might be good but you never know.
Valueforum seems to be good and if you are an American, try BankInvestor.com.
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If you want to see how good talents are screwed up by the Chinese elites, watch this same song, same singers on the biggest national stage, and compare it to the first link:
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It would be nice if they allowed historical trades to be loaded. Having to wait 3 more years for a 3 year track record is a real turn off.
I would say 3 years are still too short a time span. It is better to look at a 8-10 years track record in which an investor is properly seasoned.
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You guys probably think the fee Visa is outrageous. It is peanuts compared to this one.
'Kard' Marketer Sues Kardashian Sisters
American Banker | Tuesday, January 11, 2011
By Sean Sposito
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RELATED LINKS
Viewpoint: Lessons Learned from the Kardashians - December 2, 2010
After Outcry Over Fees, Kardashian 'Kard' Is Kaput - November 30, 2010
Don't Laugh. There's a Business Case for the Kardashian 'Kard' - November 18, 2010
Reality TV Sisters Plug Prepaid Card - November 2, 2010
The company behind the celebrity-sponsored Kardashian Kard has sued the Kardashian sisters reality television stars for dropping their endorsement shortly after the prepaid card's introduction.
The card came under fire for charging up to a year's worth of fees up-front. On a month-by-month basis, the card's fee structure was not out of line with what many prepaid cards charge, but the requirement to pay so much at the time of purchase spotlighted the card's cost of ownership, leading some to declare it predatory.
"The bottom line is, we got thrown under the bus," said Christopher L. Rudd, the attorney for Revenue Resource Group LLC, the prepaid card marketer behind the Kardashian Kard. "We brought out a card that was, in many ways, a bargain compared to some of its competitors, and we got trashed for it."
About three weeks after the card's early-November debut, the Kardashians pulled their endorsement, and the website that sold the card was shut down. Revenue Resource Group is suing for at least $75 million after the Kardashians reneged on a two-year contract to promote the card, Rudd said. He added that two rappers had been ready to sign up to promote similar products before the Kardashians pulled out. He would not name the rappers.
The prepaid product behind the Kardashian branding "had some neat facets," he said. "It really did. It had a lot of neat features that made it great for other licensees."
Shortly after the card's introduction, Connecticut's attorney general, Richard Blumenthal, blasted the product, calling it "filled with 'gotcha' fees and charges … raising concerns about potential threats to consumers, particularly young adults," according to a press release issued at the time.
Though the card could not be purchased by minors, analysts said its celebrity endorsement strongly suggested a focus on teenagers.
Sunrise Community Bank, the holding company for the card's issuer, University National Bank in St. Paul, Minn., had no comment.
The card's cost was $59.95 for six months, or $99.95 for a year; these prices included the card's $7.95 monthly fee and an initial load of five dollars.
Upon its introduction, many perceived the card as a "premium" prepaid product. The Kardashian sisters' celebrity status, paired with the card's high purchase cost, lent it a sense of exclusivity.
Some said the high up-front cost also addressed a long-standing issue for prepaid card companies — that their products are commonly seen as disposable by end users, who buy them for a specific purchase. If users pay as much as a year in fees up-front, they may feel a greater attachment to the card and use it more, observers said
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At this point pretty high (about 60%) but I have a long time horizon (over 10 years) and am willing to take some downside (In the last crash, my portfolio was down 50% but it increased 109% the next year and more than overcame the loss). These names will be volaltile. That portfolio also had some subprime lenders and a larger allocation to O&G. I have transitioned to higher FCF stocks since the 2008 crash. With the China bubble potential I may stay more focused on cheap US ideas versus resource plays.
Packer
It is rare to see anyone who has a 10-year horizon. I wish I could have the same patience like you.
Bruce Berkowitz on BAC
in General Discussion
Posted
This is an excellent point. Thanks! In BAC I do not TRUST!