Are We Asking to be Fooled by Prices?

JCP, coupons, & shopper psychology- NYT

Ron Johnson, J.C. Penney's chief executive, left recently due to what some might call a lack of knowledge about the Penney's customer.  The article references a Penney's shopper named Tracie Fobes who, like many, get a thrill from using a coupon to get a great deal.  It is a rush for shoppers like Tracie to hunt down a deal, go out of their way to where they will get the best price, and hand over a coupon in order to get the best discount possible.

See the current JCP stock price here.

Johnson stopped the practice of offering coupons and sales in J.C. Penney and as a result, saw sales drop precipitously and was accused of not knowing his customers.  Penney has recently reversed the policy and is back to maintaining its usual prices, only to slash them and offer coupons to shoppers.  While customers see the red slashed prices and see the sale signs and feel good about them, the article points out that customers of stores like J.C. Penney are not actually paying less for the products they are purchasing.  Otherwise, how could Penney stay in business, much less turn a profit?  The chain has combatted this by simply continuing to raise prices and then discount them through promotions, sales and coupons.

And customers are used to using coupons and promotions to shop for the best deal.  Walmart (click WMT for current stock price) is one of the select few retailers who can pull off having 'everyday low prices.'  Consumers are so used to waiting for deals and waiting for that coupon in the mail that to take that away from them, reduces their desire to go to those stores.  The consumer no longer feels the same satisfaction out of their purchase because buying something at a price that is low, but is not technically 'on sale' is not the same as buying something with a high price tag that they pay the same low price for by presenting a coupon at the register.  Having one, generically low price, the article points out- only works assuming that consumers have a decent idea of how much a product ought to cost.  In many cases, consumers do not have any idea so this strategy is not effective.

Personally, I very much enjoy getting a great deal.  Everyday low prices are great, but if the price is low to begin with, the perception of quality may be different than if the price were higher, then discounted.  Clearly, there is a lot that goes into pricing products and it is imperative that retailers pricing strategy takes into account the feeling that consumers get from using a coupon or simply feeling like they are getting a good deal.

Easier Money for Mortgages

Signs of Easier Money for Mortgages- NYT

Over the past 2.5 years, I've lost count of how many times customers have made a comment to the effect of "What are you going to ask from me next, my firstborn child?"  This article, from the New York Times, gives me hope that perhaps I will be hearing less of this kind of remark in the coming months and years.

Click here for current mortgage interest rates courtesy of Bankrate.com.

Banks are beginning to loosen up on their strangle-hold of credit, tinkering with one aspect of a loan at a time.  For example, if someone has a less than stellar credit score, but has an excellent income, they may be willing to lend at a higher loan to value percentage.  Or conversely, if a borrower has a fantastic credit score, but can only put down 5% on the property they are purchasing, again- the banks these days are willing to work with that person.  Or at least consider it.  

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Mortgage requirements are still quite rigorous but there are signs that banks are becoming just a bit more flexible... for people they consider qualified.  The piggyback loan (a first mortgage and a line of credit attached) allows borrowers to obtain more than 80% financing while avoiding the mortgage insurance that they would otherwise have to pay for going over 80% loan to value.  Another means of working with the customer (more extreme in my opinion) is that offering by NASA Federal Credit Union and Navy Federal Credit Union- these two institutions are offering 100% financing to some borrowers in markets that they consider to have stabilized or where home values are on the upswing.  In my own experience, the only 100% financing that I see is for VA loans.  

It is a great thing to have more options available, especially as fees for FHA (Federal Housing Administration) loans inch higher. The upfront mortgage premium (which can be rolled into the loan amount) is 1.75% and the mortgage insurance premium (the monthly add-on for mortgage insurance) rose from 1.25% to 1.35% as of April 1st.  The biggest change in my opinion, is the fact that the mortgage premium used to only be paid until the loan amount was less than 78% of the value of the home.  As of April 1st, in most circumstances, the mortgage premium is due for the entire life of the loan.  This greatly increases the cost of the loan over its life and may be a real game-changer.

I look forward to seeing where banks go from here... will they continue to loosen the reigns a little bit?  Will the housing market continue to pick up?  Will the refinance market die out?  These questions are extremely relevant to my day-to-day activities and I will continue to keep a close eye on them.

Big 4 Cell Carriers Fighting Over Prime Airwaves

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Control of the airwaves- upcoming auction - WSJ online

The top 4 cellular carriers in the US- AT&T, Verizon, Spring and T-Mobile are fighting over the available airspace in the US.  The matter of controlling airspace is becoming increasingly more important to each of these companies as Americans become more and more dependent upon their individual mobile devices, both for personal use and for work.  

The Federal Communication Commission is planning to auction off airspace, currently used by broadcast television companies, to wireless carriers.  The issue is which company or companies will be permitted to acquire this valuable space.  The airwaves in question are lower frequency waves that are ideal for transmitting data over long distances, particularly in rural areas.  The number 3 & 4 carriers currently have very few low-frequency airwaves making their acquisition of these airwaves even more important for them.  As it stands now, they are not able to compete to the best of their ability.  If they are allowed to at least bid on the low-frequency airwaves, it would open up a new realm of competition to the smaller carriers.  There is, of course, also a benefit to the consumers as well.  As a consumer, I want as many carriers and as many options out there.  It is to my benefit to have multiple carriers competing for my business and as a result, allowing the consumer the best price possible.  I for one, would not argue with that!

More information about this topic can be found here:

http://www.startribune.com/lifestyle/202591521.html?refer=y

Beating the Bond Market Through Managed Bond Funds

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Beating the Bond Market- WSJ

Over the past year, more than $230 billion has poured into actively managed bond funds.  A mere $63 billion has been invested in indexed bond funds during the same time period.  So why is so much more money being put into managed funds versus index funds?  Last year, 79% of intermediate-term bond funds beat their comparable index fund.  The difference is rather significant- about 1.8 percentage points over the past 12 months.  The long-term managed bond beats the index fund by 2.5 points.  

In the past, bond fund managers struggled just to keep up with the indexes.  Beating them is a boon that no one expected.  That said, however, taking a look at historical returns for the two, should point out to anyone that the managed funds probably cannot beat the indexes forever.  

So why are managed bond funds able to beat indexed funds?  The article points out that indexes don't make an effort to buy the best-performing securities at the time or to avoid the worst... their goal is to mirror everything that is available in the market and to keep prices extremely low.  When a hot bond fund comes to the market, the managed funds can buy into it and take advantage of what is hot at any given moment.  The index fund just keeps on mirroring the index.

It is certainly worthwhile considering the risks before putting all of your money into the managed funds.    With the increased return of the fund, of course, comes an increased risk.  Taking history into account, you may just decide the risk is not worth it and that an index is still the way to go.

For more information about bond funds and their specifics, Fidelity.com provides some interesting information.  

President Obama's Effective Tax Rate

WSJ- Obama Tax Rate

The President's effective tax rate for the 2012 tax year was 18.4%.  The Obamas paid $112,214 in federal income taxes on adjusted gross income of $608,611.  In 2011, the first family paid an effective tax rate of 20.5%- a higher rate due to the higher amount of royalties coming in from the president's book sales.  

The release of the president's tax return information comes at a time when debate about the amount of taxes the wealthy ought to pay begins to heat up again.  The president is making another push for a "grand bargain" on deficit reduction.  On the left side of the aisle, "democrats believe any deficit-reduction package would have to include significant new federal revenues from increased taxes on wealthy people."  Meanwhile, republicans take an opposing viewpoint... they believe that any further major deficit reduction measure has to come from reducing the level of spending done by the federal government.  In particular, they want to rein in the spending on entitlement programs like Medicare and Medicaid.

Epidemic of Tax Return Identity Theft

WSJ- tax returns

Identity thieves are stealing thousands of tax return refunds that should be going to deserving tax payers.  The IRS has no reason to question the fraudulent return until... the real filer goes to bat for themselves when their return is rejected because one has already been filed in their name.  This scam is becoming increasingly more common and at this point is costing taxpayers an estimated $5 billion per year.  And the problem is likely to continue to increase as the trend of e-filing grows.  The IRS states that tax-fraud cases of identity theft have increased by 650% since 2008.

The frustrating part for the prosecutors tasked with bringing the scammers to justice is the fact that the IRS will not provide the most key piece of evidence to the prosecutors in these cases- namely the fraudulent return itself.  Federal authorities and IRS criminal investigators, rather than local law enforcement, handle these types of cases and because of the volume of tasks that they must handle, it can take many months for a tax-fraud case to be resolved... with the victim being stuck in limbo the entire time.  Whatever the resolution, one must be found soon as a recent report by NBC News pointed out that even after a taxpayer's account is flagged when their identity is stolen, some continue to be victims of identity theft year after year.

Online Sales Tax On the Horizon?

Amazon & Sales Tax- wsj

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As is evident from Amazon's huge success as an online retailer, millions of consumers prefer to shop via Amazon.com for millions of products.  One of the reasons Amazon is so popular is because it offers, well, everything, and as an online retailer, charges no sales tax.  This has long been a point of contention for brick & mortar retailers as not only do they have to compete with Amazon's already discounted prices, but then charge sales tax on top of that.  A two-fold cost increase to drive more customers to online retailers.

Amazon's advantage, however, is being chipped away at gradually as the issue of sales tax for online retailers gets more and more attention.  It will be interesting to see where this issue goes and how it will effect e-commerce and the retail industry as a whole.

Secret Menus Generating Buzz

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Secret Menus!

A few restaurants, mainly fast food, and now Panera Bread (PNRA), have created 'Secret Menus' for in-the-know customers.  These 'secret menus' offer restaurant items that are not featured on the regular menu.  

Ron Schlach, founder of Panera Bread says ""Secret menus allow us to speak to one audience without the investment and infrastructure of putting an item on the menu."  He also adds that secret menus are simply "Very cool."  The cache of ordering from a secret menu may be enough for some customers to try it... it certainly sounds like a great way to generate buzz about a restaurant.

In added bonus- for the additional buzz generated, there is very little cost.  The secret menu is mostly communicated via social media and word of mouth.  

I will say though, that I actually stumbled upon Panera's secret menu recently while browsing the website to see if it was worth a trip.  The menu, not prominent on the website but still accessible with not too much effort is here.  Other chains with secret menus include In-N-Out Burger, Taco Bell, and according to some customers, McDonald's (although McDonald's executives seem to disagree).

In my opinion, this idea is genius... It creates a bond with the customers who feel special just knowing about the secret menu and many will appreciate the cache of ordering off of a menu that is not posted for all to see.  Not to mention, the social media/word of mouth-only advertising is extremely cost-effective and keeps the 'in-the-know' exclusivity factor intact.

More information on secret menus can be found here from US News- Money section.   

  

Ron Johnson Takes a Run at JC Penney

Article from The New Yorker

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Ron Johnson- JC Penney’s new CEO, had helped turn Target around into a hipper place to shop.  He has also brought great success to Apple, helping in the creation of the Apple Store itself.  Clearly, he is no stranger to turnarounds in multiple industries. 

Johnson planned on ‘revolutionizing’ JC Penney.  Penney has been known for its deep discount sales and for the simple fact that walking into a Penney’s customers are certain they will find lots of sales to pique their interest.  From Johnson’s point of view, sales are ubiquitous and finding a sale is no great feat for a customer.  He chose to re-focus Penney on what he called “fair and square pricing”- every day low prices, no coupons or sales required.  With this strategy, he struck out to reposition JC Penney as “America’s Favorite Store”.  Second to the ‘fair and square pricing’, he plans to create mini-shops throughout the store to create a boutique feel despite the vast size of the store.

14 months later and over the past year, JC Penney’s revenues have fallen by 25% and Penney lost about a billion dollars.  The company’s stock price has fallen sixty percent since Johnson announced his big plans, which caused the stock to jump 24%.  Mark Cohen, professor at Columbia University and a former CEO of Sears Canada says “There is nothing good to say about what he’s done… Penney had been run into a ditch when he took it over.  But, rather than getting it back on the road, he’s essentially set it on fire.”

The article emphasizes how important it is to know one’s customers before making such sweeping changes.  What Johnson did not realize is how very attached his customers were to the sales and coupon promotions they had come to expect and love.  The article also points out the flaws in the implementation of the changes.  Stores opened before the remodeling was complete and created a hectic atmosphere that was unpleasant to shop in.  Old customers were driven away because of the atmosphere and there was no incentive to bring in new customers. 

Johnson’s reputation preceding the JC Penney debacle was impressive.  The article speculates that perhaps this was a job that he simply should not have taken on.  The article closes with an apropos quote from Warren Buffet:  “When a manager with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact.”

Sales of Luxury Vehicles Speak of Increased Optimism

Automakers & Their Luxury Brands- NYT

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Sales of luxury vehicles are rising even as the economy takes its time turning around.  Analysts say that this is a sign that (at least) luxury consumers are feeling more optimistic about the state of the economy and the economy’s future.  The market for luxury cars is expanding in multiple directions from compact luxury cars to leather and wood-trimmed SUVs to the updated models from ultraluxury brands like Bentley. 

The article points out that “luxury sales generate profits for automakers, encouraging even the most mainstream companies to compete in expensive segments.”   Ford, for example, is pouring money into revamping its Lincoln luxury brand.  So far the results have been mixed as to the level of success this endeavor has had.

Joseph Phillippi, of consulting firm AutoTrends adds “The luxury manufacturers have to up the ante because a lot of regular cars now come with bells and whistles like heated steering wheels.”

Financial Affairs of Cyprus

Cyprus's Financial Crisis- nyt

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Cyprus is facing imminent collapse of its banking sector if an accord cannot be struck to save the financially troubled island nation.  Cyprus is struggling to come up with a new plan before Thursday 3/21- the day that the bank holiday ends.  If a deal is not reached by Thursday, the Finance Ministry will order banks to remain closed until next Tuesday.  The idea behind this is to prevent a run on banks from happening. 

A run on banks, is however, even more likely because of the way the negotiations to reach a deal began.   The initial plan was to take a tax on deposit accounts across the board- sparing those with funds under a certain amount, causing mass outrage.  Cyprus is looking to Russia for help and Russiaindeed has a vested interest in helping the ailing country.   The article states that Russians have about $30 billion on deposit in Cypriot banks.  Such a proposed tax would have a grave effect not just on Cypriots but on the Russian people as well.

This morning, Wednesday, the minister of finance of Cyprus, Mr. Sarris met with Russia’s minister of finance and later with the Russian deputy prime minister.  Mr. Sarris has said “We will stay here until we reach some agreement,”.

Various alternative solutions that have been brought up include tapping the national pension fund or issuing new debt.  The church of Cyprus has even proposed collateralizing its many property holdings, against which the state could issue a new round of sovereign bonds to raise funds.  The article points out that the church is a huge stakeholder in Cyprus’s biggest banks, including Hellenic Bank- Cyprus’s third-largest bank and Bank of Cyprus, its largest bank.

How did Cyprus’s banking system get to this precarious state?  Unfortunately, they were greatly impacted by the severe recession in Greece.  Cyprusissued many loans to Greek businesses that have since failed and racked up huge losses as a result.  They have also been hit with losses from Greek debt holdings, purchased when interest rates made the investment attractive.

Cypriots are outraged by the state of affairs and especially so at the initially proposed deposit tax- should they really be the ones paying for the bank’s mistakes?  I will continue to watch this situation in the ensuing days to see where we go from here.

Underwater Mortgages Coming Up for Air

Hope for housing- wsj

During 2012, 1.7 million Americans climbed out of “underwater” status and have regained equity in their home.  Data from research firm CoreLogic was released stating that 21.5% of households with mortgages were underwater in 2012’s fourth quarter compared with the 25.2% of households in the fourth quarter of 2011.  CoreLogic economist Sam Khater opines that “Home equity is the biggest source of wealth, so if equity is increasing that has a very large effect on household spending and consumer psychology…”.  He points out that the increase in equity filters all the way down from homeowner’s and realtors to furniture stores selling furniture for new homeowner’s to fill their homes with.

Unfortunately, the total number of US households with underwater mortgages is still a whopping 10.4 million… down from 12.1 million at the end of 2011.

Phoenix, one of the most dramatically impacted cities, has seen fairly astonishing growth in housing prices.  The Case-Shiller index revealed Phoenixhome prices climbed 23% in 2012.  When home prices were severely depressed, investors scooped up many homes for cash, thereby reducing some of the glut of houses on the market.  The number of months supply of homes on the market is now down to 2 months which has also helped push home prices up as there is a smaller supply available.

This is all good news but we will have to see how the rest of the country fares as time goes on.

Apps: Now a $25 Billion Industry

Apps- wsj

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The app industry is booming!  Apple got the industry off the ground about 5 years ago and today, global revenues from Apps are expected to hit $25 billion.  While Apple gave the industry its start, Google and Apple’s stores today are about equal in number of apps catalogs and usage but Apple still dominates in terms of revenue, making about 3x what Google brings in.  Microsoft, Blackberry and Amazon are also getting in on the app craze to some degree. 

Some of the massive growth in apps is due to the fact that when they started out, they were just for smartphones.  Today, we have apps for tablets and television also.  The app turnover rate is quite high as well; The article states that  about 63% of apps used today differ from the apps being used just one year ago.  Consumers tend to be intrigued and perhaps download a wide variety of apps but in actuality, only use about 8 of those apps.  With such a high number of apps available to the consumer and still more being thought up and put into the market every day, the pressure is on to create something truly unique that will add utility to consumers’ day to day lives.

How Does a 36% APR Sound?

NYT Car Title Loans

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This latest post is from a NYT blog discussing Car Title Loans.  Car title loans are short-term loans that are secured by the title of the borrower’s car.  If the borrower cannot repay the loan at the end of the term- they are forced to renew.  Or lose their car.  Either way, they are incurring fee upon fee upon fee.  The entire concept of title loans seems predatory to me.  First, the loans are typically made based not on the borrower’s credit-worthiness or income, but rather on the value of the car!  This seems absurd to me… and a glaring problem, illustrated by the fact that the “average car title borrower renews the loan eight times, paying $2,142 in interest for $951 in credit”.  This is an absolutely insane interest rate setting even a decently qualified borrower up for disaster.  These ‘short-term’ loans therefore wind up turning into much longer-term loans and wind up being an extremely costly way to borrow money.  The problem is that they are being targeted to low-income individuals who may not be qualified for the loan because the loan itself is based on the car’s value not their individual income.  On top of that, if a repossession does occur (about one in six loans) a fee is incurred of $350-$400 which, added on top of the already crippling balance, puts the borrower even further in debt.  And they have no car.

The report that the blogger talks about suggests more regulation on title loans with guidelines to “include loan terms of at least 90 days, and an annual percentage rate of no more than 36 percent.”  No more than 36%?  Ouch.

236k Jobs Added in February

US Jobs Update

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The U.S. economy gained 236,000 jobs in the month of February and unemployment is at a 4-year low.  The surprisingly high number of jobs added to the economy pushed down the unemployment rate to 7.7%.  The job growth occurred across many sectors… One particularly positive sign is that 48,000 construction jobs were added leading some to believe that the (slow) recovery in the housing market is aiding job creation.

It’s not all good news, however, and there are always multiple ways of interpreting the data.  Economists also noted that the size of the labor force as a whole contracted by 130,000.  While some of this is due to individuals retiring and leaving the workforce, discouraged unemployed individuals continue to give up their search for jobs which also pushes down the workforce and unemployment.  The number of government employees shrank by 10,000 jobs and with the upcoming sequester, economists anticipate spring will be see a weaker labor market yet.

Michelle Meyer, senior United States economist at Bank of America Merrill Lynch estimates that the unemployment rate will stabilize at 7.5% later this year.

Stock Markets Soaring

Record High for Stocks

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Stock markets reached a record high this week but the economy and job growth is still fairly stagnant and the gulf may widen further with impending budget cuts.  This article pointed out that even though stock prices are climbing higher and higher, that doesn’t automatically translate into a growing economy. 

Ethan Harris, co-head of global economics at Bank of America Merrill Lynch is quoted saying “So far in this recovery, corporations have captured an unusually high share of the income gains… The U.S. corporate sector is in a lot better health than the overall economy.  And until we get a full recovery in the labor market, this will persist.” 

With so many people still unable to find gainful employment, corporations are keeping a larger share of their profits since they face very little pressure to raise salaries.  The article calls this ‘a golden age for corporate profits, especially among multinational giants that are also benefiting from faster growth in emerging economies like China and India.

Time will tell if the gains in the stock market endure and how far behind the general health of the economy lags.

Is Barnes & Noble Here to Stay?

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B&N- WSJ.com

Barnes & Noble chairman and biggest shareholder is considering purchasing consumer stores and the Barnes & Noble website but is not interested in picking up Nook Media LLC.  What does the split mean for Barnes & Noble?

The article points out that the company’s market capitalization was $2.2 billion in 2001 and is now only about $809 million.  Consumers are increasingly turning to digital forms of book-buying and reading- whether they purchase tangible books from Amazon or buy books for their e-readers and tablets, the physical bookstore landscape is facing a steep decline.  The company’s physical bookstores, however, remain profitable for the company with only 20 stores not turning a profit currently.  Whether or not the company’s stores can continue to be profitable remains to be seen and rests heavily on consumers’ views of e-readers and online book-buying.

Merging Two Corporate Cultures into One

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Merging 2 cultures- NYT

The magazines of Time Inc and the Meredith Corporation will soon be combined into one publicly traded company but how smoothly will the merger go for the executives and employees?  The corporate cultures of the two companies appear to be very different and when the former Meredith president took the reigns at Time Inc, he lasted just 6 months.  Time cited differences in approach and leadership style as the reason he was asked to leave. 

Ironing out the financial details in buy-outs and mergers can be extremely challenging but ironing out cultural differences in the executives and employees can be just as challenging.  Each company’s employees are used to conducting their daily work-lives in a certain manner and a merger does not automatically change corporate culture.  Rather, it is a slower process of employees adapting and fitting in as they see how their counterparts from the merging company do things.  A key component of employee happiness in the workplace is how well they ‘fit’ in the job.  When an employee experiences a merger, the ‘fit’ that they may have felt previously may no longer be there and they may have a tough road to finding a new way to fit in, if they are even able to do so.  Mergers can be difficult for top executives all the way down to line employees.

For further reading, an interesting article here about the 10 all-time best and worse company mergers.

Bringing Back the Women

WSJ online

This article shows some employers humanizing its employees and giving more consideration to their personal lives- in particular, those of women who choose to become mothers.  In 2011, about 76% of mothers with children under 18 were either already in the workforce or looking to enter the workforce.  Employers that are not willing to work with mothers are losing out on a lot of available talent that is willing and able to work and enhance the company. 

Consulting firm, McKinsey & Co. is reaching out to female employees no longer employed by the firm, to touch base and see how they feel about coming back to work.  This is not company policy, but rather something that the firm is doing quietly, presumably to regain some of its lost talent. 

The idea of bringing individuals who have not been employed for some time back to the firm seems to be catching on… Goldman Sachs has implemented “returnships”- described as jobs that are paid and short-term offered to individuals who have been out of the workforce for a few years.

Photo from Forbes.com

While a complex situation, hopefully more businesses will create a win-win situation by re-recruiting the lost talent of women workers who exited the workforce due to motherhood.  It is encouraging to see employers taking a more humanistic view of their employees as people and not just workers who generate income for the firm.

The photo on the left comes from a Forbes.com article about keeping women in the workforce that is also a good read.

Business Lending Picking Up Steam

http://online.wsj.com/article/SB10001424127887324449104578314140876408204.html?user=welcome&mg=id-wsj

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Business lending is picking up steam but are banks moving too fast?  Some banks are increasing the amount of business loans being granted offering cheaper and more flexible terms.  While this is generally a good sign, some are concerned that banks are relinquishing their tightening of credit too soon.  The trend is being seen in banks of all sizes- for example, Wells Fargo, the 4^th largest bank in the nation, is seeing outstanding loans increase by 12% in 2012.  The State Bank of Southern Utah, a community lender, saw a 9% increase for 2012.  Overall, commercial and industrial loans were up by 16% for 2012.

Wells Fargo says that the bulk of the increase it’s seeing in it’s commercial lending unit is coming from business owners who put off buying necessary equipment due to the recession, but now feel comfortable taking out a loan to make the investment in new equipment.

The chairman of Signature, Scott Shay, notes that he has seen a shift in the industry, saying “I do think some other banks are become more willing to make loans…” and added that they “are having a downward impact on prices.” The shift seems to be in the best interest of business-owners, large and small, as the article points out a few instances of banks practically fighting over who gets to make the loan to a business.  Certainly good news for business owners!

Is it time to streamline the mortgage process? I know my customers think so!

Streamline mortgages?

Perhaps we have overcorrected our lending practices since 2008 and are disallowing well-qualified applicants from getting in the homes they deserve or from refinancing their current property.  It was absolutely necessary to tighten credit and strictly verify income and assets in order to avoid another financial meltdown but maybe we have over-complicated the process while ensuring we are more cautious in our lending.

I hear on a daily basis that the mortgage process is too difficult these days and people make jokes about having to provide a blood sample and their firstborn child just to get a mortgage.  Maybe this argument has teeth… On the other hand, I have only been in this industry since 2010 so the tight credit conditions are what I am used to.  No-doc loans and anything close to a no-doc loan sounds ludicrous to me.  But it would certainly make my job easier if credit were relaxed just a little.

Mobile phone sales are down but smart phone sales continue to grow

Mobile Phone Sales- WSJ

The article points out that mobile phone sales worldwide declined in 2012 by 1.7% due in large part to ‘tough economic conditions, shifting consumer preferences and intense market competition.’  While world-wide phone sales were down 1.7% from 2011 sales, sales of smartphones in the fourth quarter of 2012 were up 38.3% over Q4 2011.

Apple and Samsung continue to increase their market share… from 46.4% to 52% comparing Q3 2011 to Q4 2011.  Apple and Samsung, the article points out, have great success based on their brand recognition and reputation… their success is as much due to brand recognition as due to the quality of their actual products. In an economy where most people do not have a great deal of disposable income, customers who are loyal to Apple of Samsung will still pay the premium price for their products as opposed to customers of other companies who may be less loyal and may opt for a cheaper product.

I’m interested to watch what happens as the market becomes more mature and more highly saturated with smartphone users.  Additionally, it will be interesting to see in what direction the industry heads as the economy grows stronger and individual disposable income increases.

Hope for bookstore lovers!

Bookish.com

WSJ online- Bookish.com

Bookish.com has launched!  The website was created by three major publishing companies to fill the widening void left in the hearts of book-lovers everywhere.  As physical bookstores continue to close their doors while online bookselling continues to grow, the art of browsing is being taken away from booklovers.  Half the fun of visiting a bookstore is browsing through the shelves and tables of new books, judging books by their covers, and discovering new authors and new work by familiar authors.  Flipping through a new book at the store is a treat that I know I will greatly miss when there is no longer a bookstore within driving distance.

The aim of Bookish.com is to give booklovers a sort of online world in which to browse books… The site provides reviews, both professional and from online users, links to the author’s website, link to where you can buy the book (though some books are offered directly through the site) and provides a recommendation engine as well.  There will also be some original content on the site- generated by publishers and by the site’s own staff as well. 

I’m looking forward to spending some time browsing around Bookish.com and seeing where it takes me!

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U.S. Federal Government Suing S&P

US Gov Sues S&P

The U.S. government has alleged that S&P, the largest rating firm in the U.S., is guilty of “falsely” representing the ratings on complex securities as being “objective, independent” and “uninfluenced by any conflicts of interest.”  The charge is of civil fraud and is the first federal enforcement action against a credit-rating firm over the financial crisis.  The U.S. government is suing S&P for mail fraud, wire fraud and financial-institution fraud alleging they were intentionally slow in downgrading securities trying to hold onto clients and deals as long as possible.

S&P is vehemently denying the claims.  Not helping their case is the fact that on March 19, 2007, one of their analysts revised the lyrics to the Talking Heads’ “Burning Down the House” and sent them out to a few colleagues as follows:

"Housing market went softer/Cooling down/Strong market is now much weaker/Subprime is boi-ling o-ver/Bringing down the house."

At best, it seems the analyst was taking whimsical liberties with song lyrics to a popular song… at worst, it is condemning evidence that at least some of S&P’s analysts were aware of how grave the situation could become.

It will certainly be interesting to watch and see what comes of this lawsuit.

Click here to see Talking Heads' "Burning Down the House"

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Yahoo Looking Forward to a Brighter Future

New CEO for Yahoo- NYT

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Marissa Mayer took over the reigns as CEO of Yahoo in July 2012 and is making waves.  The article credits Ms. Mayer with doing more for the company in her first 6 months than the past 5 CEO’s could accomplish in the last 5 years.  Ms. Mayer’s focus is on “people and products” she says and her focus seems is paying off as evidenced by Yahoo’s Q4 results.  Following news of the 4th quarter earnings, Yahoo's stock price (YHOO) climbed to a four-year high.

While Wall Street seems enamored by the new CEO at the moment, time will tell if the apparent turnaround is here to stay.  One area where Yahoo has a lot of growth potential is in the mobile realm.  Per the article, Yahoo lacks mobile hardware and does not have a browser or a mobile operating platform of its own.  Tech giants like Google, Apple and Amazon continue to outspend Yahoo in research and development- this will have to change if Yahoo is going to make a sustained comeback.

Is the internet running artists out of the music business?

Music Streaming & Royalties- NYT

I remember when I bought my first cassette tape...Mariah Carey's ‘Emotions’… I remember when I bought my first CD- it was the Cranberries.  I don’t remember the last time that I set foot in an FYE or other music store with a physical location.  These days, my entire music collection is on my macbook and a portion of it is on my iPhone.  Some of the music is from my CD collection but for approximately the last 7 or 8 years, the entirety of my music comes from iTunes downloads.

Needless to say, the way we are consuming music is evolving rapidly.  The only thing I miss from ‘the old days’ is poring over the liner notes that accompanied each CD purchase- seeing who the artist was thanking, who collaborated with the artist, and reading and memorizing the lyrics that were at my fingertips.  As a whole, I am very happy with the current accessibility of music.

Image from: http://www.metalinsider.net
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Were I an artist, however, I think I would have a very different opinion.  The New York Times article linked above paints a picture of the effect that the evolving music industry has had on artists.  While top 40 artists who regularly go on tour are not having to pinch pennies, the evolution has effected many artists who haven’t yet ‘hit the big time.’  Royalties from streaming music plays are counted in pennies and take quite a while to add up to any significant amount of income.  With that said, however, the article points out that royalties from CD’s started out very small and today are quite significant- although today CD’s are going the way of cassette tapes.  Time will tell if streaming music royalties will rise as this becomes the preferred way to listen to music.

A New Kind of Degree?

http://online.wsj.com/article/SB10001424127887323301104578255992379228564.html?mod=WSJ_hps_LEFTTopStories

Having experienced nearly all of my education thus far in the most traditional of settings, I am only slowly warming up to the idea of online classes.  I have taken a handful of online classes in my pursuit of higher education and while I find that you can certainly have a great professor and have interesting material presented to you, I myself do not learn to the best of my ability in an online setting.  I feel there is a lot to be said, especially in an MBA program, for a traditional classroom setting where you can chat with your peers face to face prior to class, essentially networking in an informal manner.

The idea that online classes could go to a whole new level and become just a virtual testing arena seems a bit absurd to me under most scenarios.  I think that it does make sense when you are considering someone who has a lot of hands-on knowledge in their day-to-day life but never formalized it in a degree.  But for someone who took most of the required psychology classes or biology classes in college but didn't quite complete their degree... and then decides to use the MOOC (massive open online courses) setting to finish their degree?  I know that I personally wouldn't stand a chance unless I had been actively using the knowledge I'd learned in those classes on a regular basis.

iPhone- What's all the Fuss?

http://online.wsj.com/article/SB10001424127887324539304578262360860151882.html?mod=WSJ_hps_LEFTTopStories

Will people really be saying "what's the fuss about?" when it comes to the iPhone in a few years?  I find this very hard to believe.  Apple just seems to have a way to create more hype than most any other company in the marketplace today.  The article points out that Q4 2012, more than half of the iPhones purchased were older models- being sold at deep discounts.  Is appetite for the iPhone waning or are people not interested in spending money on the latest & greatest when the latest doesn't quite have enough to distinguish it from the previous latest & greatest?  

Apple has done such a good job building their brand reputation so that it truly stands out from all of its competitors.  One of the contributing factors is the price of goods.  For better or worse, Apple products are expensive for most consumers and opting for the iPhone over another smartphone may not be worth it to some.  

It will certainly be interesting to see in which direction Apple takes the iPhone next.

What's a Mortgage Mulligan?

BOFA's mortgage mulligan- WSJ

How could I resist an article with a title like this?

Google defines 'mulligan' as an informal golf term- 'an extra stroke allowed after a poor shot, not counted on the scorecard.'  So what is Bank of America up to?

When BOFA bought Countrywide in 2008, it became the top home lender in the US... But this was short-lived.  Once the housing market crashed and many people found themselves in homes with mortgages that were under water, Bank of America, like many banks faced very tough times.

The article points out that Bank of America pulled out of the mortgage business at precisely the wrong time.  With record low interest rates pulling in hordes of refinance business, Bank of America could possibly have made up some of its massive losses.  Now the bank is trying to get back into the lending business.  Interest rates can only stay so low for so long and I wonder if BOFA is jumping back into the game too late.

Another point of interest is the article's take on BOFA's customer service levels.  Coming from a position where I am constantly hearing how long the underwriting process takes and how long the entire mortgage loan process takes, it's very nice to hear that it isn't just the bank that I work for!

Hoping to make the most of my MBA...

WSJ- is an MBA really worth it?

Degrees today certainly aren't what they were 10 years ago.  Or even 5 years ago.  The linked article from the Wall Street Journal, was disheartening at best and crushing at worst.  I am certainly hoping to make the most of my MBA but am also concerned that while I am working on my degree, so too is a large percentage of the workforce.

It used to be that a college degree was the ticket to a decent job and the beginning of a (hopefully) illustrious career.  And then a graduate degree became the golden ticket to a better, higher paying job.  Since 2008, however, so many people have gone back to school- some with great ambition of moving up the ladder but many with the idea that they would work on furthering their education while they waited for the economy to turn around.

As I am nearing the halfway point of my pursuit of an MBA, I worry that it will not take me where I want to go.  I think for this reason it is especially important to pin point your niche in the business world, something that I am still trying to figure out.  If nothing else, I would hope that higher education will help me find that niche that I'm looking for and hopefully, set me at least a half a notch higher than other interviewees when it comes time to seek my fortune in the job market.