Although it's embarrassing, it's never hard to admit, that I am a Detroit Lions fan. By the numbers the Lions are the worst franchise in the history of sports. As a fan, the Lions are the worst franchise in the history of sports. One playoff win in the past 5o some years. When the highlight of the season doesn't occur when football is being played, that is the NFL draft, that is a bad sign. A portion of my day each week during the season is following the latest Lions news and following what is going on around the NFL. Each week, just like during the draft, I get my hopes up that the Lions could do something positive only for them to either come close and devastatingly fall short, or for them just to be blown out.
After 50 years something has to give right? Wrong. The way the NFL is set up, it is the most fair sport in terms of creating competitiveness between different teams. For example the salary cap prevents teams from gaining an edge over other teams by one owner (cough the Yankees) a ridiculous amount more than other owners. Each year the worst teams receive the best picks in the draft so the bad teams can rebuild their team and become more competitive. So why have the Lions never caught up to the competition?
There has been one constant to the Lions during the past 50 years. Mr. William Clay Ford, the owner. A lot of Lions fans have been calling for William Clay Ford's head for several years. He does a lot of good things though. Just a few years ago he financed a state of the art facility for the fans and the players, he pays his staff top dollars and from my understanding he treats them well. Regardless, he is the reason for the Lions incompetence. This year more than the past failures have been even more unbearable to watch as a fan. The Lions are playing their hearts out this year, each and every play they are playing as hard as they can, but the talent on the field is so far inferior to their opponents they don't have a shot at winning. As a fan, each week all you can do is feel bad for the players because they try so hard but don't have a chance.
So why do they lack all this talent? The answer again is William Clay Ford. I don't fault him for hiring Matt Millen. Millen was hired to get over the hump, the Lions were stuck at 9-7 and 8-8 for four straight years and they needed a new GM that would get them into the playoffs and win them some games. Along came Millen who lost all the momentum and in completely dismantling an above average team in the process and creating the joke of the league in six years, all while securing a 5 year extension to his contract. Finally, Millen was fired this year but his incompetence will plague the Lions for years to come.
WCF has made mistake after mistake managing this team. He is the one that kept Millen too long. It's obvious after 50 years of failure there is only one person to blame the atrocity on.
Now Ford and the other auto companies are asking for a government bailout. It's not what you can do for this country, it's what this country can do for you... wait a second. We're talking about throwing money at companies who have been in a decline for the past 15 years. It's almost understandable bailing out financial companies that are dependent on cash to lend to other companies, but auto companies?
Let's relate this back to WCF. Last year the Lions were the only team in the most profitable sport to actually lose money. Well maybe it was due to the poor ticket sales, oh wait, every single game was still sold out... how is it possible to lose money then? Who knows, ask WCF.
Unfortunately, the auto industry is a dying business. The main problems are due to the business models used by the companies. The basic principles of economics is supply and demand. Due to the lucrative contracts that the auto companies have with the unions, the supply that they have been producing outweighs demand by a long shot, which is causing the record losses. As demand continues to decrease and the auto companies continue to produce at the cars at the rate they do, there is no way that they can become profitable.
So what will a government bailout do for the auto industries? Give them cash flow so they can continue to operating under a flowed business model that will never be successful, just like the Lions.
Luckily I have the choice on how much of the money from my pocket supports the Lions. I have gone to at least two Lions games for the past 5 years. This year I am not going to a single game because although I am a fan of the team, I refuse to financially support a team that is not competitive due to the choices of ownership.
Unfortunately, I don't have a say where my money is spent for tax purposes when the government decides to bailout an industry which refuses to adapt to the economics of the new world.
Saturday, November 8, 2008
Thursday, October 23, 2008
Making a new Saturday routine
I got a phone call Saturday from my family in Pittsburgh saying that they were in Chicago to bring Sophie, my cousin's 4 year old girl to the American Doll store. I was planning on watching my beloved Michigan State Spartans take on the Buckeyes who I hate with the utmost passion. Unfortunately, I knew what the outcome of the game was going to be before it started even though most of the "experts" were counting on MSU to pull it off. Seriously, if these "experts" ever watched MSU play a game, they would have known they are still a long ways off from being a true competitive team... sure they can walk all over crap teams like Notre Dame, Iowa and Northwestern, but they don't have the defense to support their slow paced running game.
So, off I headed to the American Girl store to meet up with my aunt and cousins. I'd be lying to you if I said this was my first time in the American Doll store, I'd be lying if I said I wasn't just a little bit excited to see Sophie in action. In fact, my first time in the store was the previous Saturday. My girlfriend was visiting from Cincinnati and we were down on the Magnificent Mile and she dragged me in to show me the dolls she had when she was young. I've always heard lots about the store, but when I entered I was in disbelief.
The American Girl store recently moved to a larger location, two floors of dolls, clothing, different stores within the store, and stories. The place was a an absolute zoo. Girls of all ages were going crazy running from one display to another, grabbing dolls, trying on the life size clothes that matched their doll. I turned to say something to my girlfriend but realized she was 20 yards away from me darting to the Molly display.
Once I finally caught up to her, after I received the life story on Molly, after I received the life story on all of Molly's friends, after I was lucky enough to see all the outfits and accessories that my girlfriend once owned, we went for a walk around the store. Each doll had their own section of the store which included all their different outfits, their rollerblades, their snowboards, and their animals. Each had a movie with them acting out the story of their life.
Upstairs there's the personalization center, where you could make an American Doll that looked like yourself. There's a hair salon with miniature barber chairs for the dolls where professional doll beauticians would do the dolls hair any way imaginable (and believe me, little girls have quite the imagination). There's a shirt making shop where you could make a shirt of you and your doll. There's even a tea room where you and your doll can have a tea party (reservations are required). But the best was the doll hospital where the girls could drop off the dolls that were broke or had marks on them and they would be changed into a gown and wheeled off in a miniature wheel chair to be repaired.
I looked up how much money American Girl Doll was sold for to Mattel. This a doll that is sold for a huge margin (I'm assuming based on the $90 price tag) and a never ending number of accessories to keep the product alive. They've built an experience that people will base weekend plans and drive 500 miles to go to the store. They've built an unbelievable business model. Each doll comes with a book about the American Girl's adventures. So the girl picks a doll and already the doll has a history that the girl connects to and instantly is hooked to. All the company has to do is come up with two or three new outfits a year and keep getting the next generation of girls hooked (and I can't imagine dolls will EVER go out of fashion). They primarily sell the dolls from a magazine, so beyond the cost of printing and distribution of the magazines, they have the COGS and the salaries of what I'd imagine to be a small staff. On top of all that, they have a huge brand name that creates a huge barrier to entry for any competition. They sold the company for $700 million to Mattel in 1998. A lot of money, I can't find any financial information in my quick research, but Mattel did release their 3rd quarter earnings noting that American Girl segment was up 11%.
With that said, I'm disappointed that I'm going to be in Cincinnati this Saturday, officially putting an end to my new Saturday routine. I got twice the enjoyment this past weekend though seeing Sophie as excited as a little girl can be in and out of the store. The entire rest of the day Sophie was telling anyone that would listen that she visited the American Girl store and found a new best friend, Mia.
So, off I headed to the American Girl store to meet up with my aunt and cousins. I'd be lying to you if I said this was my first time in the American Doll store, I'd be lying if I said I wasn't just a little bit excited to see Sophie in action. In fact, my first time in the store was the previous Saturday. My girlfriend was visiting from Cincinnati and we were down on the Magnificent Mile and she dragged me in to show me the dolls she had when she was young. I've always heard lots about the store, but when I entered I was in disbelief.
The American Girl store recently moved to a larger location, two floors of dolls, clothing, different stores within the store, and stories. The place was a an absolute zoo. Girls of all ages were going crazy running from one display to another, grabbing dolls, trying on the life size clothes that matched their doll. I turned to say something to my girlfriend but realized she was 20 yards away from me darting to the Molly display.
Once I finally caught up to her, after I received the life story on Molly, after I received the life story on all of Molly's friends, after I was lucky enough to see all the outfits and accessories that my girlfriend once owned, we went for a walk around the store. Each doll had their own section of the store which included all their different outfits, their rollerblades, their snowboards, and their animals. Each had a movie with them acting out the story of their life.
Upstairs there's the personalization center, where you could make an American Doll that looked like yourself. There's a hair salon with miniature barber chairs for the dolls where professional doll beauticians would do the dolls hair any way imaginable (and believe me, little girls have quite the imagination). There's a shirt making shop where you could make a shirt of you and your doll. There's even a tea room where you and your doll can have a tea party (reservations are required). But the best was the doll hospital where the girls could drop off the dolls that were broke or had marks on them and they would be changed into a gown and wheeled off in a miniature wheel chair to be repaired.
I looked up how much money American Girl Doll was sold for to Mattel. This a doll that is sold for a huge margin (I'm assuming based on the $90 price tag) and a never ending number of accessories to keep the product alive. They've built an experience that people will base weekend plans and drive 500 miles to go to the store. They've built an unbelievable business model. Each doll comes with a book about the American Girl's adventures. So the girl picks a doll and already the doll has a history that the girl connects to and instantly is hooked to. All the company has to do is come up with two or three new outfits a year and keep getting the next generation of girls hooked (and I can't imagine dolls will EVER go out of fashion). They primarily sell the dolls from a magazine, so beyond the cost of printing and distribution of the magazines, they have the COGS and the salaries of what I'd imagine to be a small staff. On top of all that, they have a huge brand name that creates a huge barrier to entry for any competition. They sold the company for $700 million to Mattel in 1998. A lot of money, I can't find any financial information in my quick research, but Mattel did release their 3rd quarter earnings noting that American Girl segment was up 11%.
With that said, I'm disappointed that I'm going to be in Cincinnati this Saturday, officially putting an end to my new Saturday routine. I got twice the enjoyment this past weekend though seeing Sophie as excited as a little girl can be in and out of the store. The entire rest of the day Sophie was telling anyone that would listen that she visited the American Girl store and found a new best friend, Mia.
Friday, October 17, 2008
Ted Spread vs. Consumer Confidence
The most depressing and addictive part of my day is checking my 401-k. I'm a 23 year old male that started my professional career as a financial risk consultant just over a year ago in the city of Chicago. I'm lucky enough to be working for a company that provides a match 401-k match program (although it is very weak in comparison to what my company's competitors offer) and there was no question I was going to take advantage of the program. Although I made good, conservative decisions (at least for now) when choosing what funds to place my money in since my retirement is far off, my return now is still much less than desirable. It's funny that I get excited, and absolutely addicted, to look at my 401-k every hour of the day. Looking at my 401-k is like being a Lion's fan, I can't wait to see it (because it's my investment) and for some reason I always have hope (which is where the addictiveness), yet it always disappoints (although for the first time in the past 50 years the Lions made a GREAT trade).
The market is a crazy thing that is filled with unpredictable variables. After another lackluster week, there may be hope, but unfortunately it is not too promising. There are two main focal points that need to be considered for the market to turn around.
The first factor is the Ted Spread, which is the good news. The Ted Spread is the difference between the 3-month LIBOR rate (the interest rate bankers charge other bankers to loan money) and the 3-month T-bill rate and it measures the credit risk in the market. The whole reason the market is in this funk is the banks are failing. What's going on is the banks are lacking liquidity to loan money to consumers, businesses and each other. Therefore, the cost of lending is high and consequently credit risk is also high. This is evidenced by the record highs of the Ted Spread (the higher the Ted Spread, the higher the credit risk).
Well, that is exciting and all, but where is that good news you speak of?
This week the Ted Spread finally fell. The Ted Spread was 20 basis points in early 2007, right before the sub prime started affecting the market. On October 10th it reached a high of 464 basis points. For the past seven days it has fallen and now sits at 363 basis points. This is the first time that the Ted Spread has decreased 7 consecutive days since December. There's no doubt that a 363 basis point spread is something to get too excited about, but there is no doubt that it is a sign that the bail out is working (at least in the short term).
The decreasing Ted Spread is a sign that banks are starting to trust each other and are willing to invest in each other. So why did the Dow fall today, and why is my 401-k continuing to depress me?
What drives the market is consumers willing to purchase the products/services that the firms are selling. It's wonderful that the banks are beginning to believe in each other but in order for the market to turn around, consumers need to buy in too. I can't blame consumers for not investing their life's savings because the Ted Spread decreased 101 basis points in the week, that for the first time since December the Ted Spread decreased seven consecutive days (I sure as hell haven't bought in yet). It's a start though. There's no doubt most consumers don't know what the Ted Spread is, why should they? Warren Buffett was urging people to start investing in the market today, he's a billionaire whose made his fortune investing, does he know something we don't?
My question is, can the banks continue to believe in each other, can the Ted Spread continue to drop off to level of healthy economy, if consumers aren't believing in what the banks are doing? It's possible that the consumers are beginning to understand that they can't live on credit alone and the consumers that can afford to take loans are the only consumers doing so, which would improve the LIBOR rate.
There's no doubt that there are many more factors that are causing the bear market (i.e. the housing market that is not allowing first time home owners to upgrade to a larger home, we'll save that for another post), and that there are other factors that are reducing financial institutions liquidity (i.e. FAS 157, also saving for another post), but the fact is the key underlying indicator is showing improvement, yet that means nothing if the consumers are not buying in.
The market is a crazy thing that is filled with unpredictable variables. After another lackluster week, there may be hope, but unfortunately it is not too promising. There are two main focal points that need to be considered for the market to turn around.
The first factor is the Ted Spread, which is the good news. The Ted Spread is the difference between the 3-month LIBOR rate (the interest rate bankers charge other bankers to loan money) and the 3-month T-bill rate and it measures the credit risk in the market. The whole reason the market is in this funk is the banks are failing. What's going on is the banks are lacking liquidity to loan money to consumers, businesses and each other. Therefore, the cost of lending is high and consequently credit risk is also high. This is evidenced by the record highs of the Ted Spread (the higher the Ted Spread, the higher the credit risk).
Well, that is exciting and all, but where is that good news you speak of?
This week the Ted Spread finally fell. The Ted Spread was 20 basis points in early 2007, right before the sub prime started affecting the market. On October 10th it reached a high of 464 basis points. For the past seven days it has fallen and now sits at 363 basis points. This is the first time that the Ted Spread has decreased 7 consecutive days since December. There's no doubt that a 363 basis point spread is something to get too excited about, but there is no doubt that it is a sign that the bail out is working (at least in the short term).
The decreasing Ted Spread is a sign that banks are starting to trust each other and are willing to invest in each other. So why did the Dow fall today, and why is my 401-k continuing to depress me?
What drives the market is consumers willing to purchase the products/services that the firms are selling. It's wonderful that the banks are beginning to believe in each other but in order for the market to turn around, consumers need to buy in too. I can't blame consumers for not investing their life's savings because the Ted Spread decreased 101 basis points in the week, that for the first time since December the Ted Spread decreased seven consecutive days (I sure as hell haven't bought in yet). It's a start though. There's no doubt most consumers don't know what the Ted Spread is, why should they? Warren Buffett was urging people to start investing in the market today, he's a billionaire whose made his fortune investing, does he know something we don't?
My question is, can the banks continue to believe in each other, can the Ted Spread continue to drop off to level of healthy economy, if consumers aren't believing in what the banks are doing? It's possible that the consumers are beginning to understand that they can't live on credit alone and the consumers that can afford to take loans are the only consumers doing so, which would improve the LIBOR rate.
There's no doubt that there are many more factors that are causing the bear market (i.e. the housing market that is not allowing first time home owners to upgrade to a larger home, we'll save that for another post), and that there are other factors that are reducing financial institutions liquidity (i.e. FAS 157, also saving for another post), but the fact is the key underlying indicator is showing improvement, yet that means nothing if the consumers are not buying in.
Subscribe to:
Posts (Atom)