Showing posts with label Business. Show all posts
Showing posts with label Business. Show all posts
Saturday, January 23, 2010
Bank, or banana?
Banks May Get Help to Escape Risk Limits
By LOUISE STORY and ERIC DASH
Only a year after the government stepped in to aid Goldman Sachs and Morgan Stanley by granting them access to the federal safety net, policy makers are developing an exit path that would allow them and others to escape limits on banks being proposed by the Obama administration.
President Obama wants to limit the scope of risk-taking by barring banks with federally insured deposits from trading securities for their own accounts and from owning hedge funds and private equity funds. The plan, policy makers said on Friday, would effectively require bank holding companies — which Goldman and Morgan became at the height of the financial crisis — to divest themselves of these lucrative operations.
But Treasury Department officials are also seeking to give banks that do not like the proposed rules the option of dropping their status as holding companies to keep their trading and other investment businesses.
Don't like the rules? We'll change 'em fer ya. No probelma.
The move is likely to turn the spotlight on Goldman, which could be one of the biggest potential beneficiaries because it makes sizable profits from proprietary trading and runs many private equity and hedge funds. Goldman traders are known for taking large trading positions, even as they manage trades for clients. It is less clear that Morgan Stanley would consider such a step, because it has aggressively raised deposits and reduced trading operations since its big losses during the crisis. Officials from each bank declined to comment on Friday.
Allowing Goldman, or other institutions, to abandon their bank charters carries risks. Such a plan could create a two-tier system, where Goldman could pursue business activities different from its bailed-out peers like JPMorgan Chase. Goldman would lose access to the Federal Reserve’s overnight lending program, which provides emergency financing. But investors may still assume that the government would bail out Goldman if it had trouble, elevating the risk of moral hazard.
Simon Johnson, a former chief economist at the International Monetary Fund, said allowing either bank to revert to a securities firm would do little to address the underlying problem. They are so large and interconnected that a collapse would imperil the global financial system, he said. “You can call them an investment bank, a hedge fund, or a banana, but they are still too big to fail,” Mr. Johnson said.
Who could put it better?
Andrew Williams, a Treasury spokesman, confirmed that the proposal would allow the banks to reverse their decision to become bank holding companies. But he said the Fed would still closely regulate companies like Goldman because they would still be systemically important. “There is no escape hatch,” he said. “There is nowhere to hide. Large, interconnected, highly leveraged financial firms must be regulated on a comprehensive, consolidated basis, the same as those for big firms who run banks.”
How?
While bank holding company status is generally permanent, investors have speculated for months that Goldman might seek a way to unshackle itself from some of the additional government regulation that goes with it. Goldman officials have said privately it would like to shed its holding company status, although they have stated publicly that they do not plan to change the company’s charter. On Thursday, David A. Viniar, the bank’s chief financial officer, said the topic was not under discussion. “I just think it’s unrealistic,” Mr. Viniar said in a call with reporters. “I think we’re living in a world where basically every major financial institution is going to be regulated by the Fed.”
But Goldman could change its tune if the Treasury created guidelines for banks to shed their holding company status. The first step for Goldman would be to dispose of its debt, which is backed by the government, or wait until it expires in about two years, the person with knowledge of the plan said.
In addition to the federal bailout, the government agreed that the Federal Deposit Insurance Corporation would back some bank debt issued when the markets were frozen and banks could not otherwise raise money. Goldman has issued $21 billion of the debt.
The Treasury will include the exit strategy in the legislative proposal it is preparing to send to Congress, Mr. Williams said. Lawmakers could make significant changes to the proposal. The plan does not now clarify what proprietary trading activities would be limited. Officials said banks would not be permitted to use their own capital for “trading unrelated to serving customers.” They also said that the rules would require banks that own hedge funds and private equity funds to dispose of them over several years.
Mr. Obama called the ban on trading “the Volcker Rule,” in recognition of the former Fed chairman, Paul A. Volcker, who has championed the proposal to prohibit bank holding companies from owning, investing in or sponsoring hedge funds or private equity funds and from engaging in proprietary trading. Big losses by banks in the trading of financial securities helped fuel the credit crisis in 2008.
Friday, January 8, 2010
To Slow Growth, China Raises an Interest Rate
Workers demolishing a house to make way for a residential area in Changzhi, Shanxi Province, last month. Real estate construction is rising briskly, thanks to a surge in lending by government-controlled banks.
China’s central bank raised a key interest rate slightly Thursday for the first time in nearly five months, in what economists interpreted as the beginning of a broader move to tighten monetary policy and forestall inflation.
After breaking stride a year ago during the global economic slowdown, the Chinese economy resumed galloping growth over the summer. Government investments, real estate construction and consumer spending are all rising briskly, thanks to a surge in lending by government-controlled banks.
Even exports have begun to recover despite continued economic weakness in the European Union and the United States, China’s two biggest overseas markets.
How? Other Asian markets?
More Photos
Victor Fung, the nonexecutive chairman of Li & Fung, a Hong Kong-based trading and supply chain management company that is one of the world’s largest, said that overseas demand had not been strong enough to sustain the strength in China's shipments seen last month. But he added that his own staff was somewhat more optimistic than he is, as are some investment bank economists.
Slide Show
A Booming Economy in China
China’s central bank raised a key interest rate slightly Thursday for the first time in nearly five months, in what economists interpreted as the beginning of a broader move to tighten monetary policy and forestall inflation.
After breaking stride a year ago during the global economic slowdown, the Chinese economy resumed galloping growth over the summer. Government investments, real estate construction and consumer spending are all rising briskly, thanks to a surge in lending by government-controlled banks.
Even exports have begun to recover despite continued economic weakness in the European Union and the United States, China’s two biggest overseas markets.
How? Other Asian markets?
More Photos
Victor Fung, the nonexecutive chairman of Li & Fung, a Hong Kong-based trading and supply chain management company that is one of the world’s largest, said that overseas demand had not been strong enough to sustain the strength in China's shipments seen last month. But he added that his own staff was somewhat more optimistic than he is, as are some investment bank economists.
Slide Show A Booming Economy in China
Shorting China
James Chanos made his hedge fund fortune predicting problems at companies and shorting their stock.
James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.
Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.
The very next post (above) is a discussion of ginancial steps China took to slow growth.
As America’s pre-eminent short-seller — he bets big money that companies’ strategies will fail — Mr. Chanos’s narrative runs counter to the prevailing wisdom on China. Most economists and governments expect Chinese growth momentum to continue this year, buoyed by what remains of a $586 billion government stimulus program that began last year, meant to lift exports and consumption among Chinese consumers.
He thinks China might be overstating its growth rate ("cooking its books") , and that it has excess credit available ("Bubbles are best identified by credit excesses, not valuation excesses.")
Still, betting against China will not be easy. Because foreigners are restricted from investing in stocks listed inside China, Mr. Chanos has said he is searching for other ways to make his bets, including focusing on construction- and infrastructure-related companies that sell cement, coal, steel and iron ore.
Uh-oh. Cemex.
Mr. Chanos, 51, whose hedge fund, Kynikos Associates, based in New York, has $6 billion under management, is hardly the only skeptic on China. But he is certainly the most prominent and vocal.
For all his record of prescience — in addition to predicting Enron’s demise, he also spotted the looming problems of Tyco International, the Boston Market restaurant chain and, more recently, home builders and some of the world’s biggest banks — his detractors say that he knows little or nothing about China or its economy and that his bearish calls should be ignored.
Easy to dismiss bears, when one wants to see sunshine.
“I find it interesting that people who couldn’t spell China 10 years ago are now experts on China,” said Jim Rogers, who co-founded the Quantum Fund with George Soros and now lives in Singapore. “China is not in a bubble.”
;Cowboy Jim had written that he'd be moving. He also predicted an unending bull market for commodities.
“The Chinese,” he warned in an interview in November with Politico.com, “are in danger of producing huge quantities of goods and products that they will be unable to sell.” In December, he appeared on CNBC to discuss how he had already begun taking short positions, hoping to profit from a China collapse.
In recent months, a growing number of analysts, and some Chinese officials, have also warned that asset bubbles might emerge in China.
The nation’s huge stimulus program and record bank lending, estimated to have doubled last year from 2008, pumped billions of dollars into the economy, reigniting growth. But many analysts now say that money, along with huge foreign inflows of “speculative capital,” has been funneled into the stock and real estate markets. A result, they say, has been soaring prices and a resumption of the building boom that was under way in early 2008 — one that Mr. Chanos and others have called wasteful and overdone.
“It’s going to be a bust,” said Gordon G. Chang, whose book, “The Coming Collapse of China” (Random House), warned in 2001 of such a crash.
2001? Guess he didn't get that one right.
Friends and colleagues say Mr. Chanos is comfortable betting against the crowd — even if that crowd includes the likes of Warren E. Buffett and Wilbur L. Ross Jr., two other towering figures of the investment world.
That is contrarian.
“His record is impressive,” said Byron R. Wien, vice chairman of Blackstone Advisory Services. “He’s no fly-by-night charlatan. And I’m bullish on China.”
Mr. Chanos often responds to critics of short-selling by pointing to the critical role they played in identifying problems at Enron, Boston Market and other “financial disasters” over the years.
“They are often the ones wearing the white hats when it comes to looking for and identifying the bad guys,” he has said.
James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true.
Now Mr. Chanos, a wealthy hedge fund investor, is working to bust the myth of the biggest conglomerate of all: China Inc.
The very next post (above) is a discussion of ginancial steps China took to slow growth.
As America’s pre-eminent short-seller — he bets big money that companies’ strategies will fail — Mr. Chanos’s narrative runs counter to the prevailing wisdom on China. Most economists and governments expect Chinese growth momentum to continue this year, buoyed by what remains of a $586 billion government stimulus program that began last year, meant to lift exports and consumption among Chinese consumers.
He thinks China might be overstating its growth rate ("cooking its books") , and that it has excess credit available ("Bubbles are best identified by credit excesses, not valuation excesses.")
Still, betting against China will not be easy. Because foreigners are restricted from investing in stocks listed inside China, Mr. Chanos has said he is searching for other ways to make his bets, including focusing on construction- and infrastructure-related companies that sell cement, coal, steel and iron ore.
Uh-oh. Cemex.
Mr. Chanos, 51, whose hedge fund, Kynikos Associates, based in New York, has $6 billion under management, is hardly the only skeptic on China. But he is certainly the most prominent and vocal.
For all his record of prescience — in addition to predicting Enron’s demise, he also spotted the looming problems of Tyco International, the Boston Market restaurant chain and, more recently, home builders and some of the world’s biggest banks — his detractors say that he knows little or nothing about China or its economy and that his bearish calls should be ignored.
Easy to dismiss bears, when one wants to see sunshine.
“I find it interesting that people who couldn’t spell China 10 years ago are now experts on China,” said Jim Rogers, who co-founded the Quantum Fund with George Soros and now lives in Singapore. “China is not in a bubble.”
;Cowboy Jim had written that he'd be moving. He also predicted an unending bull market for commodities.
“The Chinese,” he warned in an interview in November with Politico.com, “are in danger of producing huge quantities of goods and products that they will be unable to sell.” In December, he appeared on CNBC to discuss how he had already begun taking short positions, hoping to profit from a China collapse.
In recent months, a growing number of analysts, and some Chinese officials, have also warned that asset bubbles might emerge in China.
The nation’s huge stimulus program and record bank lending, estimated to have doubled last year from 2008, pumped billions of dollars into the economy, reigniting growth. But many analysts now say that money, along with huge foreign inflows of “speculative capital,” has been funneled into the stock and real estate markets. A result, they say, has been soaring prices and a resumption of the building boom that was under way in early 2008 — one that Mr. Chanos and others have called wasteful and overdone.
“It’s going to be a bust,” said Gordon G. Chang, whose book, “The Coming Collapse of China” (Random House), warned in 2001 of such a crash.
2001? Guess he didn't get that one right.
Friends and colleagues say Mr. Chanos is comfortable betting against the crowd — even if that crowd includes the likes of Warren E. Buffett and Wilbur L. Ross Jr., two other towering figures of the investment world.
That is contrarian.
“His record is impressive,” said Byron R. Wien, vice chairman of Blackstone Advisory Services. “He’s no fly-by-night charlatan. And I’m bullish on China.”
Mr. Chanos often responds to critics of short-selling by pointing to the critical role they played in identifying problems at Enron, Boston Market and other “financial disasters” over the years.
“They are often the ones wearing the white hats when it comes to looking for and identifying the bad guys,” he has said.
Wednesday, December 30, 2009
Financier criticizes banker pay
From today's Money & Investing section of the Wall Street Journal, a small article with quite some significance.
Guy Hands of Terra Criticizes Banker Pay
By JAMES MAWSON
Guy Hands, founder of buyout firm Terra Firma Capital Partners, questioned banker pay and warned globalization is delivering a "massive transfer of economic power from the west to the east" in his annual letter to investors.
The firm's entry as first hit on google result page: Terra Firma, the Private Equity firm. Rather self-assured, calling itself the firm. Its webpage has this logo: We aim to be the leading contrarian investment firm, responsibly delivering superior returns over the long term.’
Mr. Hands, who each year sends a topical book to investors, this year picked economist Roger Bootle's "The Trouble with Markets." His Christmas letter accompanying the book also criticized how bankers are remunerated.
Finally, someone not a politician making sense on this issue.
It said: "It cannot be right to continue with a system which allows risk to be taken in the knowledge that, if things go right, bankers will take on average 60% to 80% of the profits generated through compensation and, if they go wrong, shareholders and ultimately the Government will pick up the costs."
And the government is also to blame: not just Lehman should have been allowed to fail. More, firms such as Citigroup should never have been allowed to get that big.
Mr. Hands also was pessimistic about the U.K. and the West, having moved offshore from the U.K. to the Channel Islands earlier in the year: "We need to question the accepted wisdom that a truly global market benefits all citizens in western developed nations. Indeed, I suspect we will, in time, see globalization as the driver that delivered a massive transfer of economic power from the west to the east."
Didn't that happen with petrodollars?
Terra Firma struck its first Australian deal earlier in the year, having bought Consolidated Pastoral, and was optimistic about its portfolio, including music company EMI Group.
Guy Hands of Terra Criticizes Banker Pay
By JAMES MAWSON
Guy Hands, founder of buyout firm Terra Firma Capital Partners, questioned banker pay and warned globalization is delivering a "massive transfer of economic power from the west to the east" in his annual letter to investors.
The firm's entry as first hit on google result page:
Mr. Hands, who each year sends a topical book to investors, this year picked economist Roger Bootle's "The Trouble with Markets." His Christmas letter accompanying the book also criticized how bankers are remunerated.
Finally, someone not a politician making sense on this issue.
It said: "It cannot be right to continue with a system which allows risk to be taken in the knowledge that, if things go right, bankers will take on average 60% to 80% of the profits generated through compensation and, if they go wrong, shareholders and ultimately the Government will pick up the costs."
And the government is also to blame: not just Lehman should have been allowed to fail. More, firms such as Citigroup should never have been allowed to get that big.
Mr. Hands also was pessimistic about the U.K. and the West, having moved offshore from the U.K. to the Channel Islands earlier in the year: "We need to question the accepted wisdom that a truly global market benefits all citizens in western developed nations. Indeed, I suspect we will, in time, see globalization as the driver that delivered a massive transfer of economic power from the west to the east."
Didn't that happen with petrodollars?
Terra Firma struck its first Australian deal earlier in the year, having bought Consolidated Pastoral, and was optimistic about its portfolio, including music company EMI Group.
Thursday, December 24, 2009
Quite a set
At a reception shortly after he became chief executive officer of American International Group Inc., Robert Benmosche told a group of AIG executives that a part of his anatomy was bigger than the government's. His five-month tenure at the insurer is putting his swagger to the test.
That's the Benmosche I remember meeting at Metlife when he first joined: arrogant, as in having or showing feelings of unwarranted importance out of overbearing pride.
Overbearing fits, too.
Mr. Benmosche, more than any other leader of a bailed-out American company, has styled himself as a bulwark against government intrusion into the corner office. Although he sees his main mission as repaying roughly $87 billion in taxpayer money pumped into AIG, he doesn't want the government to tell him how to do his job.
He didn't want anyone telling him anything.
"Look, if you want me to come in here and just blow up the company, which is what you're doing, I'm not taking the job," Mr. Benmosche recalls telling government officials in New York and Washington when he was being screened.
Mr. Benmosche told government officials that he thought plans to quickly sell off assets to repay U.S. money were misguided. If you sell from weakness, you won't get good prices, he told them.
Good point. Selling from weakness is not good.
On his first day on the job, Mr. Benmosche met with senior managers at AIG's lower Manhattan headquarters. He exhorted them to come together to solve the company's problems, and said he didn't want to hear "whining and a lot of crying" about AIG's woes.
Also a good point.
He used the F-word liberally, prompting some executives to quietly tally up the number of times he used it, according to a person familiar with the situation. "I was aggressive in my language, but I was trying to set a tone that life will be different and some things are not negotiable," Mr. Benmosche says.
Who is this person who is always familiar with the situation? At any rate, he obviously used it for effect. And it isn't as if the executives had not heard, or used, it before.
In the ensuing weeks, Mr. Benmosche traveled around the nation meeting hundreds of AIG employees. In August, at a reception prior to a dinner with 20 or so executives at an AIG life-insurance unit in Houston, Mr. Benmosche said "my b -- are bigger than the government's," apparently to make the point that he wasn't easily intimidated, say two people familiar with the matter.
Sounds like him.
Mr. Benmosche says he doesn't recall saying such a thing. "If I said it, I would apologize, as it was not appropriate," he says, adding that sometimes "you have to be a little bit provocative if you're going to get people to believe in you and know you're not afraid."
There are different ways to express resolve and be provocative, and not all involve comparing the size of one's balls to the government's, or anyone else's. That sort of crude measure is a macho gesture that says more than the measurer realizes.
No one who is around Benmosche for a short while would presume him to be afraid of much anything, without his genitals being served up for assessment.
In late August, Mr. Benmosche made a previously scheduled trip to his vacation home and vineyard in Croatia. He showed off the sprawling property to several journalists, complaining at the same time about the demonization of AIG employees on Capitol Hill.
Around that time the name of AIG kept popping up as the financial crisis threatened to spiral out of control.
Around that time, some of the comments he made at employee meetings trickled out. Bloomberg News reported that he had said regulators were to blame for AIG's problems and that New York Attorney General Andrew Cuomo, who had demanded the names of AIG employees who received retention bonuses, should not be in office.
Blame the regulators; an old shill game. But Benmosche's political analysis was a brand new one.
James Millstein, the Treasury's point person on the AIG bailout, worried that the comments would undermine the company by reigniting populist anger. He called Mr. Benmosche in Croatia. "Bob, what are you doing?" Mr. Millstein asked.
"I got a bit into it and said a bunch of stupid things," Mr. Benmosche replied, saying he didn't realize the comments would become public. AIG issued a statement saying Mr. Benmosche regretted his remarks about Mr. Cuomo, who didn't end up releasing the names.
Ah, yes, the old Washington excuse, which Alex Rodriguez used so effectively: I was young, I was stupid, and I apologize. C'mon. An executive who got to Benmosche levels is not naive enough to believe pointed comments of one kind or another would not be leaked.
Dana Milbank wrote a book about the proliferation of apologies, Homo Politicus: the strange and barbaric tribes of the Beltway that simply fits perfectly. I took note of reading it, and of how it fit, beginning i March of 2008, and then through the political campaign.
That's the Benmosche I remember meeting at Metlife when he first joined: arrogant, as in having or showing feelings of unwarranted importance out of overbearing pride.
Overbearing fits, too.Mr. Benmosche, more than any other leader of a bailed-out American company, has styled himself as a bulwark against government intrusion into the corner office. Although he sees his main mission as repaying roughly $87 billion in taxpayer money pumped into AIG, he doesn't want the government to tell him how to do his job.
He didn't want anyone telling him anything.
"Look, if you want me to come in here and just blow up the company, which is what you're doing, I'm not taking the job," Mr. Benmosche recalls telling government officials in New York and Washington when he was being screened.
Mr. Benmosche told government officials that he thought plans to quickly sell off assets to repay U.S. money were misguided. If you sell from weakness, you won't get good prices, he told them.
Good point. Selling from weakness is not good.
On his first day on the job, Mr. Benmosche met with senior managers at AIG's lower Manhattan headquarters. He exhorted them to come together to solve the company's problems, and said he didn't want to hear "whining and a lot of crying" about AIG's woes.
Also a good point.
He used the F-word liberally, prompting some executives to quietly tally up the number of times he used it, according to a person familiar with the situation. "I was aggressive in my language, but I was trying to set a tone that life will be different and some things are not negotiable," Mr. Benmosche says.
Who is this person who is always familiar with the situation? At any rate, he obviously used it for effect. And it isn't as if the executives had not heard, or used, it before.
In the ensuing weeks, Mr. Benmosche traveled around the nation meeting hundreds of AIG employees. In August, at a reception prior to a dinner with 20 or so executives at an AIG life-insurance unit in Houston, Mr. Benmosche said "my b -- are bigger than the government's," apparently to make the point that he wasn't easily intimidated, say two people familiar with the matter.
Sounds like him.
Mr. Benmosche says he doesn't recall saying such a thing. "If I said it, I would apologize, as it was not appropriate," he says, adding that sometimes "you have to be a little bit provocative if you're going to get people to believe in you and know you're not afraid."
There are different ways to express resolve and be provocative, and not all involve comparing the size of one's balls to the government's, or anyone else's. That sort of crude measure is a macho gesture that says more than the measurer realizes.
No one who is around Benmosche for a short while would presume him to be afraid of much anything, without his genitals being served up for assessment.
In late August, Mr. Benmosche made a previously scheduled trip to his vacation home and vineyard in Croatia. He showed off the sprawling property to several journalists, complaining at the same time about the demonization of AIG employees on Capitol Hill.
Around that time the name of AIG kept popping up as the financial crisis threatened to spiral out of control.
Around that time, some of the comments he made at employee meetings trickled out. Bloomberg News reported that he had said regulators were to blame for AIG's problems and that New York Attorney General Andrew Cuomo, who had demanded the names of AIG employees who received retention bonuses, should not be in office.
Blame the regulators; an old shill game. But Benmosche's political analysis was a brand new one.
James Millstein, the Treasury's point person on the AIG bailout, worried that the comments would undermine the company by reigniting populist anger. He called Mr. Benmosche in Croatia. "Bob, what are you doing?" Mr. Millstein asked.
"I got a bit into it and said a bunch of stupid things," Mr. Benmosche replied, saying he didn't realize the comments would become public. AIG issued a statement saying Mr. Benmosche regretted his remarks about Mr. Cuomo, who didn't end up releasing the names.
Ah, yes, the old Washington excuse, which Alex Rodriguez used so effectively: I was young, I was stupid, and I apologize. C'mon. An executive who got to Benmosche levels is not naive enough to believe pointed comments of one kind or another would not be leaked.
Dana Milbank wrote a book about the proliferation of apologies, Homo Politicus: the strange and barbaric tribes of the Beltway that simply fits perfectly. I took note of reading it, and of how it fit, beginning i March of 2008, and then through the political campaign.
Tuesday, November 24, 2009
Mexico's Taste for Ketchup
Mexicans eat more ketchup by sales value than consumers in all but eight other countries. Many of them slather the thick red sauce on chicken, pasta and eggs—even pizza.
At the start of 2007, U.S. ketchup giant H.J. Heinz Co. held less than 1% of the Mexican ketchup market. In fact, Mexico was such a low priority that Heinz had fewer than 10 salespeople in the country, which is nearly three times as large as Texas. Tuesday, when Heinz releases quarterly earnings, its executives plan to boast that Heinz now accounts for 12% of the ketchup poured in Mexico, where a spokesman says the company now has 150 ketchup sales and marketing employees.
Mexicans love sweet food, and as the middle class grows, they seek out foods that represent that sort of progress: Mexico is one of Coca-Cola's biggest markets.
Though Heinz doesn't break out its ketchup sales in Mexico, the entire Mexican market for ketchup is a tiny fraction of the company's total annual sales of around $10 billion. Still, Heinz is excited about Mexico because the company's combined retail and food-service sales of ketchup there are growing at an annual rate of 25%, and Mr. Johnson said he expects that growth rate to continue for the next five years. By contrast, Heinz's overall sales, excluding the impact of currency translation, grew 5.5% during the fiscal year ended April 29, 2009.
In April 2005, Heinz's Latin American management bought a small manufacturer in Guadalajara that supplied its own ketchup, mustard and hot sauces to restaurant chains. Among its clients were Mexican outlets of Domino's Pizza Inc., Burger King Holdings Inc. and Yum Brands Inc.'s KFC brand.
Soon, Heinz began to see how popular ketchup was with Mexicans. Janet Aceves, a 28-year-old office worker is a case in point. At a Domino's one day last week, Ms. Aceves poured Heinz ketchup all over her cheese pizza before taking a big bite. The pizza sauce didn't provide enough zing for her taste buds, she said, adding, "It needs more."
I can not imagine putting ketchup on pizza; that's what powdered garlic and red pepper flakers are for, but, that's me.
Heinz's Mexico team scored a coup in mid-2006 by winning the contract to supply Domino's. Although the ketchup would be distributed in Domino's-branded packets, Mr. Pocaterra said the contract introduced millions of Mexican consumers to the taste of Heinz, which is a bit sweeter in Mexico than the company's U.S. ketchup formulation.
Sodas are sweeter in Mexico, too, than in the US (and that is incredible).
At the start of 2007, U.S. ketchup giant H.J. Heinz Co. held less than 1% of the Mexican ketchup market. In fact, Mexico was such a low priority that Heinz had fewer than 10 salespeople in the country, which is nearly three times as large as Texas. Tuesday, when Heinz releases quarterly earnings, its executives plan to boast that Heinz now accounts for 12% of the ketchup poured in Mexico, where a spokesman says the company now has 150 ketchup sales and marketing employees.
Mexicans love sweet food, and as the middle class grows, they seek out foods that represent that sort of progress: Mexico is one of Coca-Cola's biggest markets.
Though Heinz doesn't break out its ketchup sales in Mexico, the entire Mexican market for ketchup is a tiny fraction of the company's total annual sales of around $10 billion. Still, Heinz is excited about Mexico because the company's combined retail and food-service sales of ketchup there are growing at an annual rate of 25%, and Mr. Johnson said he expects that growth rate to continue for the next five years. By contrast, Heinz's overall sales, excluding the impact of currency translation, grew 5.5% during the fiscal year ended April 29, 2009.
In April 2005, Heinz's Latin American management bought a small manufacturer in Guadalajara that supplied its own ketchup, mustard and hot sauces to restaurant chains. Among its clients were Mexican outlets of Domino's Pizza Inc., Burger King Holdings Inc. and Yum Brands Inc.'s KFC brand.
Soon, Heinz began to see how popular ketchup was with Mexicans. Janet Aceves, a 28-year-old office worker is a case in point. At a Domino's one day last week, Ms. Aceves poured Heinz ketchup all over her cheese pizza before taking a big bite. The pizza sauce didn't provide enough zing for her taste buds, she said, adding, "It needs more."
I can not imagine putting ketchup on pizza; that's what powdered garlic and red pepper flakers are for, but, that's me.
Heinz's Mexico team scored a coup in mid-2006 by winning the contract to supply Domino's. Although the ketchup would be distributed in Domino's-branded packets, Mr. Pocaterra said the contract introduced millions of Mexican consumers to the taste of Heinz, which is a bit sweeter in Mexico than the company's U.S. ketchup formulation.
Sodas are sweeter in Mexico, too, than in the US (and that is incredible).
Tuesday, November 17, 2009
Hype? Illusion?
The entire business of wine tasting is a lot of nonsense, for me. This article explores the measuring of wines by experts.
They pour, sip and, with passion and snobbery, glorify or doom wines. But studies say the wine-rating system is badly flawed. How the experts fare against a coin toss.
Not always too good, or well.
But what if the successive judgments of the same wine, by the same wine expert, vary so widely that the ratings and medals on which wines base their reputations are merely a powerful illusion? That is the conclusion reached in two recent papers in the Journal of Wine Economics.
And so on. The end finally arrives.
As a consumer, accepting that one taster's tobacco and leather is another's blueberries and currants, that a 91 and a 96 rating are interchangeable, or that a wine winning a gold medal in one competition is likely thrown in the pooper in others presents a challenge. If you ignore the web of medals and ratings, how do you decide where to spend your money?
Leather? Gimme a break.
One answer would be to do more experimenting, and to be more price-sensitive, refusing to pay for medals and ratings points. Another tack is to continue to rely on the medals and ratings, adopting an approach often attributed to physicist Neils Bohr, who was said to have had a horseshoe hanging over his office door for good luck. When asked how a physicist could believe in such things, he said, "I am told it works even if you don't believe in it." Or you could just shrug and embrace the attitude of Julia Child, who, when asked what was her favorite wine, replied "gin."
Amen, Julia.
Friday, November 13, 2009
Heady ideas about beer
Russell Ackoff died Oct. 29 at the age of 90.
I've highlighted some of the comments I really liked.
* Management - November 11, 2009
Russell Ackoff: 1919-2009
A Management Philosopher With Heady Ideas About Beer
By STEPHEN MILLER
An evangelist of the big picture, Russell Ackoff was a management theorist who helped U.S. corporations by reimagining their challenges as opportunities to restructure.
Mr. Ackoff, who died Oct. 29 at age 90, was an expert in conceptualizing problems. He liked to say they came in three flavors: problems, messes and puzzles, and each needed its own distinctive toolkit.
Mr. Ackoff was one of a small group of management-studies pioneers who changed the way corporations thought about their businesses. Peter Drucker once wrote to Mr. Ackoff that his early work "saved me -- as it saved countless others -- from descending into mindless 'model building' -- the disease that all but destroyed so many of the business schools."
No fan of most business education himself, Mr. Ackoff nevertheless ran a business graduate center at the Wharton School of the University of Pennsylvania. There, he trained generations of management graduate students in an unconventional program that he said had "no curriculum, no classes, no examinations, no admission requirements -- only exit requirements."
Acerbic and aphoristic, Mr. Ackoff was fond of sayings such as "All of our social problems arise out of doing the wrong thing righter. The more efficient you are at doing the wrong thing, the wronger you become. It is much better to do the right thing wronger than the wrong thing righter! If you do the right thing wrong and correct it, you get better!"
Mr. Ackoff published such sentiments in a series of books. He also wrote about how to manage in the face of extreme uncertainty, such as the crises presented by the oil shocks and inflation of the 1970s.
Mr. Ackoff implemented his ideas through consulting with hundreds of companies, and later in his career, with governments. He helped General Motors create its OnStar navigation system, and had a three-decade association with Anheuser-Busch in which he helped the St. Louis brewer achieve national dominance.
Working with August Busch III, later Anheuser-Busch's chairman, Mr. Ackoff in the early 1960s helped design an expansion strategy that included building new breweries and warehouses, after potential sites were identified via computer modeling, a highly unusual approach at the time.
Mr. Ackoff also studied Anheuser-Busch's marketing strategy, and came to the conclusion that increasing advertising budgets had little effect on sales. (Neither did the taste of the beer, he found through blind taste tests.)
Yet Busch markets very heavily.
"This was incredibly valuable," says Bill Finnie, a former director of strategic planning for Anheuser-Busch who studied for his Ph.D. under Mr. Ackoff. "It gave Anheuser-Busch the confidence to maintain its marketing budget flat from 1961 to 1976. We quadrupled sales."
According to Mr. Finnie, reduced marketing costs were passed on to the consumer, making Budweiser inexpensive compared with local brands that had dominated the market through the 1950s.
In Mr. Ackoff's more than 30 years working with Anheuser-Busch beginning in 1960, the company's national market share grew to more 40% from 7%.
In return for his insights, Anheuser-Busch sponsored Mr. Ackoff's academic pursuits, including Wharton's Ackoff Center for the Advancement of Systems Approaches.
But Mr. Ackoff grew frustrated with management studies, which he felt were too limited in their focus on private industry rather than looking at organizations in the public sector as well.
At the same time, academic departments objected to qualitative approach that lacked statistical backing, and Mr. Ackoff disappeared from reading lists in the 1970s and 1980s. Yet he remained in demand by corporate clients and increasingly by governments, such as Iran, where in the 1970s he helped design a way of clamping down on cigarette smuggling.
Born in Philadelphia, Mr. Ackoff sometimes credited his undergraduate studies in architecture at the University of Pennsylvania with sparking his interest in holistic systems.
After serving in the Army in the Philippines during World War II, he completed a doctorate in the philosophy of science at Penn in 1947, and in 1951 joined with his Ph.D. supervisor, C. West Churchman, to found one of the first schools of operations research, at the Case Institute of Technology in Cleveland, which later became Case Western Reserve University. In 1964, the Wharton School recruited Mr. Ackoff and a handful of colleagues from Case.
In a field he regarded as littered with charlatans, Mr. Ackoff rejected the term "guru," favoring "teacher," in the belief that he was helping his clients design their own solutions. He delighted in crossing discipline boundaries, and his influence sometimes turned up in unexpected places -- Mr. Ackoff was part of a team that redesigned the White House Communications Agency during the administration of President Bill Clinton.
"He is representative of what I fear is a dying breed -- management scholars willing to tackle big and broad business themes," says Roger Martin, dean of the Rotman School of Management at the University of Toronto.
I've highlighted some of the comments I really liked.
* Management - November 11, 2009
Russell Ackoff: 1919-2009
A Management Philosopher With Heady Ideas About Beer
By STEPHEN MILLER
An evangelist of the big picture, Russell Ackoff was a management theorist who helped U.S. corporations by reimagining their challenges as opportunities to restructure.
Mr. Ackoff, who died Oct. 29 at age 90, was an expert in conceptualizing problems. He liked to say they came in three flavors: problems, messes and puzzles, and each needed its own distinctive toolkit.
Mr. Ackoff was one of a small group of management-studies pioneers who changed the way corporations thought about their businesses. Peter Drucker once wrote to Mr. Ackoff that his early work "saved me -- as it saved countless others -- from descending into mindless 'model building' -- the disease that all but destroyed so many of the business schools."
No fan of most business education himself, Mr. Ackoff nevertheless ran a business graduate center at the Wharton School of the University of Pennsylvania. There, he trained generations of management graduate students in an unconventional program that he said had "no curriculum, no classes, no examinations, no admission requirements -- only exit requirements."
Acerbic and aphoristic, Mr. Ackoff was fond of sayings such as "All of our social problems arise out of doing the wrong thing righter. The more efficient you are at doing the wrong thing, the wronger you become. It is much better to do the right thing wronger than the wrong thing righter! If you do the right thing wrong and correct it, you get better!"
Mr. Ackoff published such sentiments in a series of books. He also wrote about how to manage in the face of extreme uncertainty, such as the crises presented by the oil shocks and inflation of the 1970s.
Mr. Ackoff implemented his ideas through consulting with hundreds of companies, and later in his career, with governments. He helped General Motors create its OnStar navigation system, and had a three-decade association with Anheuser-Busch in which he helped the St. Louis brewer achieve national dominance.
Working with August Busch III, later Anheuser-Busch's chairman, Mr. Ackoff in the early 1960s helped design an expansion strategy that included building new breweries and warehouses, after potential sites were identified via computer modeling, a highly unusual approach at the time.
Mr. Ackoff also studied Anheuser-Busch's marketing strategy, and came to the conclusion that increasing advertising budgets had little effect on sales. (Neither did the taste of the beer, he found through blind taste tests.)
Yet Busch markets very heavily.
"This was incredibly valuable," says Bill Finnie, a former director of strategic planning for Anheuser-Busch who studied for his Ph.D. under Mr. Ackoff. "It gave Anheuser-Busch the confidence to maintain its marketing budget flat from 1961 to 1976. We quadrupled sales."
According to Mr. Finnie, reduced marketing costs were passed on to the consumer, making Budweiser inexpensive compared with local brands that had dominated the market through the 1950s.
In Mr. Ackoff's more than 30 years working with Anheuser-Busch beginning in 1960, the company's national market share grew to more 40% from 7%.
In return for his insights, Anheuser-Busch sponsored Mr. Ackoff's academic pursuits, including Wharton's Ackoff Center for the Advancement of Systems Approaches.
But Mr. Ackoff grew frustrated with management studies, which he felt were too limited in their focus on private industry rather than looking at organizations in the public sector as well.
At the same time, academic departments objected to qualitative approach that lacked statistical backing, and Mr. Ackoff disappeared from reading lists in the 1970s and 1980s. Yet he remained in demand by corporate clients and increasingly by governments, such as Iran, where in the 1970s he helped design a way of clamping down on cigarette smuggling.
Born in Philadelphia, Mr. Ackoff sometimes credited his undergraduate studies in architecture at the University of Pennsylvania with sparking his interest in holistic systems.
After serving in the Army in the Philippines during World War II, he completed a doctorate in the philosophy of science at Penn in 1947, and in 1951 joined with his Ph.D. supervisor, C. West Churchman, to found one of the first schools of operations research, at the Case Institute of Technology in Cleveland, which later became Case Western Reserve University. In 1964, the Wharton School recruited Mr. Ackoff and a handful of colleagues from Case.
In a field he regarded as littered with charlatans, Mr. Ackoff rejected the term "guru," favoring "teacher," in the belief that he was helping his clients design their own solutions. He delighted in crossing discipline boundaries, and his influence sometimes turned up in unexpected places -- Mr. Ackoff was part of a team that redesigned the White House Communications Agency during the administration of President Bill Clinton.
"He is representative of what I fear is a dying breed -- management scholars willing to tackle big and broad business themes," says Roger Martin, dean of the Rotman School of Management at the University of Toronto.
Curbing size of bog firms
President Franklin D. Roosevelt signed the Glass-Steagall Act, passed in 1933, separating commercial and investment banking.
And Bill Clinton signed the bill that repealed the Act.
And Bill Clinton signed the bill that repealed the Act.
Saturday, November 7, 2009
Don't help, but help
DEAL SPIN: Berkshire Hathaway's MidAmerican Energy is building windmills under David Sokol.
Mr. Sokol is considered a top candidate to one day succeed Mr. Buffett, and his rising status at Berkshire puts a spotlight on his company's wind-power plans. MidAmerican has spent about $4 billion on wind projects and has billions more in the pipeline to finance wind and other alternative-energy projects around the country.
Sokol is CEO of MidAmerican Energy. Wind power will be viable if fossil fuel prices go higher, as Buffet is said to believe will happen.
Messrs. Buffett and Sokol aren't on an environmental crusade. MidAmerican owns a vast number of coal-fired power plants, among the biggest emitters of greenhouse gases. Electric-power companies in the U.S. produce about 40% of the country's energy-related carbon-dioxide emissions, according to Energy Department data.
Fair enough. They're in business to make money for their companies.
Earlier this year, Mr. Sokol testified before Congress against legislation supported by many environmentalists to establish a market to trade carbon credits, arguing it would "impose a huge and unacceptable double cost on customers."
Government should stay out of the market, for its presence is onerous. Banks and Wall Street said the same thing, o, three years ago.
Mr. Sokol, who has said the wind-power industry still requires government support, also is trying to solve one of the longstanding problems of alternative energy -- how to store excess energy when the wind is blowing and transmit energy when it isn't.
But whilst the government shoiuld stay out of the market, lest it hamper competition and the American people, it should subsidize the market this capitalist is in to make a profit. Curious logic it is: stay out, but help.
Mr. Sokol is considered a top candidate to one day succeed Mr. Buffett, and his rising status at Berkshire puts a spotlight on his company's wind-power plans. MidAmerican has spent about $4 billion on wind projects and has billions more in the pipeline to finance wind and other alternative-energy projects around the country.
Sokol is CEO of MidAmerican Energy. Wind power will be viable if fossil fuel prices go higher, as Buffet is said to believe will happen.
Messrs. Buffett and Sokol aren't on an environmental crusade. MidAmerican owns a vast number of coal-fired power plants, among the biggest emitters of greenhouse gases. Electric-power companies in the U.S. produce about 40% of the country's energy-related carbon-dioxide emissions, according to Energy Department data.
Fair enough. They're in business to make money for their companies.
Earlier this year, Mr. Sokol testified before Congress against legislation supported by many environmentalists to establish a market to trade carbon credits, arguing it would "impose a huge and unacceptable double cost on customers."
Government should stay out of the market, for its presence is onerous. Banks and Wall Street said the same thing, o, three years ago.
Mr. Sokol, who has said the wind-power industry still requires government support, also is trying to solve one of the longstanding problems of alternative energy -- how to store excess energy when the wind is blowing and transmit energy when it isn't.
But whilst the government shoiuld stay out of the market, lest it hamper competition and the American people, it should subsidize the market this capitalist is in to make a profit. Curious logic it is: stay out, but help.
Wednesday, November 4, 2009
Working the railroad
“This is all happening because my father didn’t buy me a train set as a kid,” Mr. Buffett joked in an interview.
America’s best-known investor, Warren E. Buffett, is making his biggest bet yet on the nation’s economic future by buying, of all things, a railroad.
After deftly capitalizing on the financial crisis with a series of bold deals, Mr. Buffett on Tuesday agreed to buy the 131-year-old Burlington Northern Santa Fe Corporation.
If I recall correctly, that Santa Fe part of the conglomerated name is th eold, renown Hutchinson, Topeka and Santa Fe.
Even as the credit markets have improved and banks have become less skittish about lending, few companies can muster Mr. Buffett’s financial firepower. Berkshire will borrow $8 billion to supplement $8 billion in cash from its books, paying off the debt in three annual installments.
Although it has the cash, Berkshire will borrow, presumably for tax advantages.
The Journal's article had these interesting details:
On Sunday afternoon, Burlington also hired Evercore Partners and its chairman, Roger Altman -- in part because of Mr. Altman's long relationship with Burlington lead board member Ed Whitacre. Both men worked on deals involving SBC Communications, where Mr. Whitacre was CEO, and General Motors, where Mr. Whitacre is lead independent board member.
Interlocking ties.
America’s best-known investor, Warren E. Buffett, is making his biggest bet yet on the nation’s economic future by buying, of all things, a railroad.
After deftly capitalizing on the financial crisis with a series of bold deals, Mr. Buffett on Tuesday agreed to buy the 131-year-old Burlington Northern Santa Fe Corporation.
If I recall correctly, that Santa Fe part of the conglomerated name is th eold, renown Hutchinson, Topeka and Santa Fe.
Even as the credit markets have improved and banks have become less skittish about lending, few companies can muster Mr. Buffett’s financial firepower. Berkshire will borrow $8 billion to supplement $8 billion in cash from its books, paying off the debt in three annual installments.
Although it has the cash, Berkshire will borrow, presumably for tax advantages.
The Journal's article had these interesting details:
On Sunday afternoon, Burlington also hired Evercore Partners and its chairman, Roger Altman -- in part because of Mr. Altman's long relationship with Burlington lead board member Ed Whitacre. Both men worked on deals involving SBC Communications, where Mr. Whitacre was CEO, and General Motors, where Mr. Whitacre is lead independent board member.
Interlocking ties.
Thursday, October 29, 2009
Politicians Butt In
Montana Rep. Denny Rehberg was no fan of the $58 billion federal rescue of General Motors Co., saying he worried taxpayer money would be wasted and the restructuring process would be vulnerable to "political pressure." Now the lawmaker says it's his "patriotic duty" to wade into GM's affairs.His logic is curious: he opposed the bailout because of possible political pressure, and now he exercises political pressure -- for patriotic reasons, of course.
Along with Montana's two Democratic senators, the Republican congressman is battling to get GM to reinstate a contract with a Montana palladium mine nullified in bankruptcy court. "The simple fact is, when GM took federal dollars, they lost some of their autonomy," Mr. Rehberg says.
'xactly. Not that his are the only hands in where they should not be.
Tuesday, October 20, 2009
Eyes didn't have it
Lewis and Mack are easily identifiable, as is Geithner; Fuld not so, not in this picture. Perhaps it is Fuld's mouth that makes him easily recognizable, though the eyes fit in his infamous scowl. His arrogance and chutzpah come through readily in this article.In the summer of 2008, two months before Lehman Brothers filed for bankruptcy, Richard S. Fuld Jr., the firm's chairman, was continuing his desperate efforts to find a lifeline. They had begun in March, shortly after the demise of Bear Stearns, when Mr. Fuld called the legendary investor Warren E. Buffett seeking a capital infusion, to no avail. Lehman had raised money elsewhere, but that didn't help for long, and its condition again was worsening.
This article is adapted from "Too Big to Fail: How Wall Street and Washington Fought to Save the Financial System — And Themselves." The book, being published Tuesday by Viking, reveals how officials in Washington, worried about the impact of Lehman's possible failure on the financial system, for months helped orchestrate efforts by Mr. Fuld to seek a solution for the firm and stave off its collapse. The conversations recounted are based on hundreds of hours of interviews with dozens of participants, many of whom agreed to speak on the condition that they not be identified as sources.
I've selected a few paragraphs that display Fuld's chutzpah and ego. In the summer of 2008 Lehman Brothers was teetering, buffeted by the market and the general ensuing panic. Fuld started to consider makin gthe firm a bank holding company, so to get Fed funding. Baxter is Tom Baxter, Geithner's general counsel.
Mr. Baxter, who had cut short a trip to Martha’s Vineyard to participate, walked through some of the requirements, which would transform Lehman’s aggressive culture, minimizing risk and making it a more staid institution, in league with traditional banks.
Regardless of the technical issues, Mr. Geithner said, “I’m a little worried you could be seen as acting in desperation,” and the signal that Lehman would send to the markets with such a move.
A talk with Mack of Morgan Stanley did not result in any action. The logical choice seemed to be Bank of America. Fuld's lawyer, Rudgin Cohen (chairman of Sullivan & Cromwell), called Greg Curl, BofA's top deal maker.
Mr. Curl, though intrigued to be getting a call on a Saturday night, was noncommittal; he could tell they must be desperate. “Hmm ... let me talk to the boss,” he said. “I’ll call you right back.” (The boss was Ken Lewis, the silver-haired chief executive of Bank of America.)
A half-hour later, Mr. Curl called back to say he’d hear them out, and Mr. Cohen set up a three-way call with Mr. Fuld.
“We can be your investment banking arm,” Mr. Fuld explained, the idea being for Bank of America to take a minority position in Lehman and for the two to merge their investment banking groups. He invited Mr. Curl to meet in person.
So he's asking for his firm to be rescued, and offers BofA a minority position.
Mr. Fuld walked him though his proposal. He wanted to sell a stake of up to one-third of Lehman to Bank of America and merge their investment banking operations under the Lehman umbrella.
33% of Lehman for BofA to rescue Lehman.
Mr. Curl was dumbfounded, though he characteristically gave no sign of what he was thinking. Far from the plea for help he had been expecting, the pitch he was hearing struck him as a reverse takeover: Bank of America would be paying Mr. Fuld to run its investment banking franchise for it.
A perfect example of Fuld's temerity. Curl demurred, saying he'd need to consult with his boss, Lewis.
Even before meeting with Mr. Curl, Mr. Fuld had been ringing Mr. Paulson about Bank of America, trying to get Mr. Paulson to make a call on behalf of Lehman. “I think it’s a hard sell, but I think the only way you’re going to do it is go to him directly,” Mr. Paulson had told him. “I’m not going to call Ken Lewis and tell him to buy Lehman Brothers.”
This is interesting in itself, in the context of BofA eventually buying Merrill Lynch.
Later, in New York, a secret meeting between Fuld and Lewis was arranged.
Mr. Fuld explained that he would want at least $25 a share from Bank of America to buy Lehman; Lehman’s shares had closed that day at $18.32. Mr. Lewis thought the number was far too high and couldn’t see the strategic rationale. Unless he could buy the firm for next to nothing, the deal wasn’t worth it. But he held his tongue.
His firm is about to implode, and Fuld asks for a premium over the merket price. Lewis turned him down.
Mr. Fuld was beside himself. He called Mr. Paulson to relay the bad news. The only possible suitor left was a group of Korean banks, who had expressed an interest in a separate deal. Mr. Fuld pressed Mr. Paulson to call them on his behalf — a request that Mr. Paulson resisted.
Then Fuld asks the Treasury Secretary to arrange a blind date. The Koreans turned him down, and Lehman is gone, bankrupt.
Beer's glory days fade
Lack of marketing imagination at home is one reason why Femsa, the company that makes Dos Equis, has been overtaken south of the border by archrival Grupo Modelo SAB, maker of Corona beer. But some industry watchers also say Femsa—whose formal name is Fomento Economico Mexicano SAB—has lost its love for the beer business, with its convenience stores and Coca-Cola bottling business moving front and center.
There are tiendas, convenience stores, everywhere in the Mexico I've seen: Ajijic, Melaque and Guadalajara, in Jalisco state; Zihuatanejo, Troncones and Taxco in Guerrero state; Oaxaca City and Puerto Escondido in Oaxaca state.
In the past two decades, Femsa—which makes Sol, Tecate, Indio, and Bohemia as well as Dos Equis—has seen its share of Mexico's beer market fall to 43% from a once-dominant 55%. Modelo overall has a 57% share, with its Corona brand accounting for 31% on its own.
This caught my eye in this story: Femsa has 43% market share, Modelo 57% market share; that adds up to 100% of the market.
Femsa is one of Mexico's storied companies. The city of Monterrey grew up around Femsa's predecessor company, Cerveceria Cuauhtémoc, founded in 1890. Most of Monterrey's modern companies are offshoots of Femsa, whose name translates as "Mexican Economic Development Inc." —a name that hints at the company founders' ambitions and purpose.
Femsa has been partners with Coca-Cola Co. since 1993. That relationship was strengthened in 2003, when Femsa acquired Panamerican Beverages Inc., in the process becoming Coke's second largest bottler world-wide, and the largest soft drink company in Latin America.
Soda in Mexico is far sweeter than in the US.
There are tiendas, convenience stores, everywhere in the Mexico I've seen: Ajijic, Melaque and Guadalajara, in Jalisco state; Zihuatanejo, Troncones and Taxco in Guerrero state; Oaxaca City and Puerto Escondido in Oaxaca state.
In the past two decades, Femsa—which makes Sol, Tecate, Indio, and Bohemia as well as Dos Equis—has seen its share of Mexico's beer market fall to 43% from a once-dominant 55%. Modelo overall has a 57% share, with its Corona brand accounting for 31% on its own.
This caught my eye in this story: Femsa has 43% market share, Modelo 57% market share; that adds up to 100% of the market.
Femsa is one of Mexico's storied companies. The city of Monterrey grew up around Femsa's predecessor company, Cerveceria Cuauhtémoc, founded in 1890. Most of Monterrey's modern companies are offshoots of Femsa, whose name translates as "Mexican Economic Development Inc." —a name that hints at the company founders' ambitions and purpose.
Femsa has been partners with Coca-Cola Co. since 1993. That relationship was strengthened in 2003, when Femsa acquired Panamerican Beverages Inc., in the process becoming Coke's second largest bottler world-wide, and the largest soft drink company in Latin America.
Soda in Mexico is far sweeter than in the US.
Monopoly
This week, game players and enthusiasts from 40 countries will descend upon Las Vegas to compete in the Monopoly World Championship, held roughly every four years. The winner of the Hasbro Inc.-sponsored tournament will take home $20,580 -- the precise sum stashed in the title's make-believe bank.But one man who is perhaps the game's most obsessive follower won't be attending.
Ralph Anspach, an 83-year-old economics professor, spent decades locked in a real-life battle with Monopoly and its corporate owners. The campaign dented his finances, sent him on a nationwide trek for intelligence and sparked a legal case that reached the steps of the Supreme Court.
Prof. Anspach's woes began with a real-life trademark fight for the right to sell his own game, called Anti-Monopoly. Along the way, he says he helped to publicize the little-known origins of the classic American game.
The official history of Monopoly, a version of which appears on Hasbro's Web site, describes how Charles B. Darrow developed Monopoly during the Great Depression. Parker Brothers, which was later acquired by Hasbro, bought the impoverished heater salesman's patent in 1935 and registered the Monopoly trademark. Since then, the company says, an estimated 750 million copies of Monopoly have been sold worldwide.
The Monopoly "legend," as Hasbro calls it, "is a corporate fairy tale," says Prof. Anspach, who argues that the company fails to acknowledge key players in the game's genesis.
Prof. Anspach played his first game of Monopoly as a child in the mid-1930s in Czechoslovakia. In 1938, his family fled Europe to America on the cusp of the Holocaust. Years later, he earned a Ph.D. in economics from the University of California at Berkeley and began teaching at San Francisco State University. One day in the 1970s, Prof. Anspach tried to explain oil cartels and the downside of monopolies to his 8-year-old son, William. The economist searched toy stores for a more philosophically pleasing alternative to Monopoly, but found nothing.
I remember playing it, as a kid, for such a long time that my knees were sore from squatting in front of the board.
He then set out to create a game that would be a sort of "Monopoly backwards," in which players compete to break up existing monopolies rather than create them. He called it "Anti-Monopoly." The game sold 200,000 copies the first year.
In February 1974, Prof. Anspach received a letter from an attorney for Parker Brothers requesting he immediately stop peddling Anti-Monopoly. The company objected to the use of its trademarked Monopoly name.
3
Friday, October 16, 2009
H&M: Weather to blame
A snippet on top of page B1 in todays's Wall Street Journal has this headline: H&M says weather caused poor sales. Say wha?
Worse-than-expected September sales at Swedish fashion retailer Hennes & Mauritz AB, which operates the cheap-and-chic H&M chain, shows increasing competitive pressure from two sides: even cheaper discount stores and mid-market retailers dropping prices.
Competition, price pressure.
H&M, the world's third-largest clothing retailer by sales after Gap Inc. and Inditex SA of Spain, said sales in stores open for at least a year fell 8% in September from the same month last year. Analysts had forecast a decline of only 7%.
As a reason for the poor performance, the company cited "the recession and unusually warm weather in September in most of H&M's markets," which limited shoppers' interest in the fake fur vests and knee-high boots of H&M's fall collection.
Naughty weather.
Worse-than-expected September sales at Swedish fashion retailer Hennes & Mauritz AB, which operates the cheap-and-chic H&M chain, shows increasing competitive pressure from two sides: even cheaper discount stores and mid-market retailers dropping prices.
Competition, price pressure.
H&M, the world's third-largest clothing retailer by sales after Gap Inc. and Inditex SA of Spain, said sales in stores open for at least a year fell 8% in September from the same month last year. Analysts had forecast a decline of only 7%.
As a reason for the poor performance, the company cited "the recession and unusually warm weather in September in most of H&M's markets," which limited shoppers' interest in the fake fur vests and knee-high boots of H&M's fall collection.
Naughty weather.
Wednesday, October 7, 2009
Tuesday, October 6, 2009
A new bubble?
Saw this story on last night's broadcast.
The Business of Life Insurance: Betting on Your Own Mortality
Wall Street Wants to Securitize Life Insurance and Some See Another Debacle in the Offing
by Bill Weir
Oct. 5, 2009—
After Dr. Eddie Powell lost both his legs to a hospital infection, he desperately needed financial help to support his practice and three children in medical school. So the 61-year-old did what more and more cash-strapped Baby Boomers are doing these days: He sold his life insurance. "For close to a million dollars of insurance, I got a hundred and some thousand dollars," Powell said.
Coventry, a life settlement company, took Powell's policies, bundled them with others and sold them to banks or hedge funds as investments. Since they pay the premium every month, the sooner he dies the more money they will make. And now, Wall Street wants in on the action and the life settlement industry welcomes the potential spike in business.
"The 'ick' factor is there and we're certainly aware of it," said Russell Dorsett, president of the Life Insurance Settlement Association. "The secondary market simply lets individuals bet on their own mortality. So, say that I am going to live longer than you think I am. I will take the money now rather than having to wait to die in order to get it. It's no different than the life insurance business itself. Basically mortality, morbidity is a multitrillion dollar market."
For critics, the move to securitize the life insurance industry harkens back to the early days of the subprime mortgage boom. That crisis began when banks gave loans to people who couldn't afford them, but it got much worse when Wall Street used exotic forms of investments (called collateralized debt obligations) to bet that those loans would go bad.
With Wall Street's trillions in play, banks had more incentive to issue more subprime loans. When those loans went bad, the investors got rich but the housing market -- and the entire economy -- nearly collapsed.
If Wall Street is allowed to bet on the early death of seniors or the terminally ill, some worry it could not only strain the insurance industry, but also create a market for shady brokers to prey on the sick and elderly while adversely affecting the health policy of the nation.
"People who have bets on early death will find themselves lobbying against effective health care," said Michael Greenberger, a University of Maryland law professor and former director with the Commodity Futures Trading Commission. "There's no two ways about it, this is an accident waiting to happen in terms of investment&. It's setting up the same wild financial infrastructure that turns out to be nothing more than a casino, unrelated to the underlying transaction."
While a life settlement spokesman acknowledges that around $40 billion worth of policies have been sold in the past five years, he says that number is a small percentage of the multi-trillion dollar industry and could never pose a risk to the system. "We estimate that maybe 1 or 2 percent of policies might qualify for a life settlement at some point," said Dorsett. "While that number will grow due to demographics it's still relatively small compared to the economy as a whole."
As for Dr. Powell, he says he regrets his decision to sell his life insurance for pennies on the dollar. "I made a stupid mistake," he said. Every few months, a representative from Coventry calls to see if he is still breathing. He plans to keep answering for a long time. "My grandma lived to be 115&you've got a long time before Eddie Powell dies," he said.
But if Coventry gets its way, there will soon be plenty of investors on Wall Street hoping, and betting, he is wrong.
Copyright © 2009 ABC News Internet Ventures
The Business of Life Insurance: Betting on Your Own Mortality
Wall Street Wants to Securitize Life Insurance and Some See Another Debacle in the Offing
by Bill Weir
Oct. 5, 2009—
After Dr. Eddie Powell lost both his legs to a hospital infection, he desperately needed financial help to support his practice and three children in medical school. So the 61-year-old did what more and more cash-strapped Baby Boomers are doing these days: He sold his life insurance. "For close to a million dollars of insurance, I got a hundred and some thousand dollars," Powell said.
Coventry, a life settlement company, took Powell's policies, bundled them with others and sold them to banks or hedge funds as investments. Since they pay the premium every month, the sooner he dies the more money they will make. And now, Wall Street wants in on the action and the life settlement industry welcomes the potential spike in business.
"The 'ick' factor is there and we're certainly aware of it," said Russell Dorsett, president of the Life Insurance Settlement Association. "The secondary market simply lets individuals bet on their own mortality. So, say that I am going to live longer than you think I am. I will take the money now rather than having to wait to die in order to get it. It's no different than the life insurance business itself. Basically mortality, morbidity is a multitrillion dollar market."
For critics, the move to securitize the life insurance industry harkens back to the early days of the subprime mortgage boom. That crisis began when banks gave loans to people who couldn't afford them, but it got much worse when Wall Street used exotic forms of investments (called collateralized debt obligations) to bet that those loans would go bad.
With Wall Street's trillions in play, banks had more incentive to issue more subprime loans. When those loans went bad, the investors got rich but the housing market -- and the entire economy -- nearly collapsed.
If Wall Street is allowed to bet on the early death of seniors or the terminally ill, some worry it could not only strain the insurance industry, but also create a market for shady brokers to prey on the sick and elderly while adversely affecting the health policy of the nation.
"People who have bets on early death will find themselves lobbying against effective health care," said Michael Greenberger, a University of Maryland law professor and former director with the Commodity Futures Trading Commission. "There's no two ways about it, this is an accident waiting to happen in terms of investment&. It's setting up the same wild financial infrastructure that turns out to be nothing more than a casino, unrelated to the underlying transaction."
While a life settlement spokesman acknowledges that around $40 billion worth of policies have been sold in the past five years, he says that number is a small percentage of the multi-trillion dollar industry and could never pose a risk to the system. "We estimate that maybe 1 or 2 percent of policies might qualify for a life settlement at some point," said Dorsett. "While that number will grow due to demographics it's still relatively small compared to the economy as a whole."
As for Dr. Powell, he says he regrets his decision to sell his life insurance for pennies on the dollar. "I made a stupid mistake," he said. Every few months, a representative from Coventry calls to see if he is still breathing. He plans to keep answering for a long time. "My grandma lived to be 115&you've got a long time before Eddie Powell dies," he said.
But if Coventry gets its way, there will soon be plenty of investors on Wall Street hoping, and betting, he is wrong.
Copyright © 2009 ABC News Internet Ventures
Monday, October 5, 2009
Political Alliances Shift in Fight Over Climate Bill
The flurry of companies quitting the U.S. Chamber of Commerce is highlighting how the climate-change issue is straining traditional alliances in Washington, as some businesses seek to profit from overhauling the energy market and others try to cut deals to head off tougher regulation.
Some companies and industry groups that have in the past worked with Republicans to fight efforts to curb the use of fossil fuels -- such as Detroit's auto makers -- are now expressing support for action on climate change. Some support legislation to put a price on the carbon-dioxide emissions that contribute to global warming, while others support preserving the Environmental Protection Agency's authority to regulate such greenhouse gases.
Companies are following their own interests, and there is no monolithic business stance. In the coming fight for legislation, it will be impossible for the Administration to be charged with being anti-business.
Environmentalists have cheered the recent defections from the Chamber, hoping they might weaken one of the best-funded opponents of the climate legislation.
Some companies and industry groups that have in the past worked with Republicans to fight efforts to curb the use of fossil fuels -- such as Detroit's auto makers -- are now expressing support for action on climate change. Some support legislation to put a price on the carbon-dioxide emissions that contribute to global warming, while others support preserving the Environmental Protection Agency's authority to regulate such greenhouse gases.
Companies are following their own interests, and there is no monolithic business stance. In the coming fight for legislation, it will be impossible for the Administration to be charged with being anti-business.
Environmentalists have cheered the recent defections from the Chamber, hoping they might weaken one of the best-funded opponents of the climate legislation.
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