See Kenn’s short interview concerning the economic turmoil in Greece.
Micron expected to report profit
Experts think earnings could range from ‘favorable’ to ‘explosive’ in the 2nd profitable quarter in a row.
BY JOE ESTRELLA - jestrella@idahostatesman.com
Copyright: © 2010 Idaho Statesman
Published: 03/31/10
Analysts predict Micron Technology’s second-quarter earnings announcement Wednesday will reflect the higher chip prices, increased demand and lower manufacturing costs that three months ago gave Micron its first profitable quarter since 2006.
Another good Micron quarter could boost business and consumer confidence in the Treasure Valley, where joblessness has climbed for more than two years as Micron laid off workers, smaller employers closed, home and business construction collapsed and state government shrank. But no one predicts Micron will resume large-scale local hiring.
Micron earned $204 million, or 23 cents a share, in the quarter that ended last November, ending a string of losses totaling $3.7 billion from 2007 to 2009.
Some of the most optimistic predictions come from Kevin Jones, an analyst with Harmonic Investment Advisors in Boise. He said Micron’s fall-quarter profit came from a 50 percent increase in revenues compared with the prior quarter, a 25 percent jump in demand and a 21 percent boost in memory-chip prices.
Jones sees potentially bigger things ahead.
“Typically, you see weakness in prices and demand in February and March. We haven’t seen that this year,” Jones said. “That’s indicative of the kind of explosive growth you can get when you get things moving in the right direction.”
Some experts predict prices for dynamic random-access memory, Micron’s principal product, could rise 40 percent in 2010, Jones said. An early indicator was an announcement by Micron partner Nanya Technology Corp. that it will raise the price of some of its computer chip products by 10 percent next month.
Bill Dezellem, of Yakima-Wash.-based Tieton Capital Management, said the higher chip prices are a result of the worldwide credit crunch that helped reduce an oversupply of chips by forcing Germany’s Quimondo AG, the world’s second-largest computer-memory manufacturer, into bankruptcy.
Most of Micron’s competitors have been unable to obtain the money they need to upgrade their operations, forcing some to shut facilities and take even more manufacturing capacity off-line, Dezellem said.
“So, ironically, Micron benefited from the credit crunch,” he said.
Mike Howard, a former Micron employee now a senior analyst with iSuppli, a technology research company, forecasts an increase in second-quarter revenues of about 9 percent. That would produce a favorable second quarter earnings report and set the stage for even better results in upcoming quarters, he said.
He said “scuttlebutt” coming from Micron is that the company’s financial picture has improved enough to allow the company to begin rescinding some of the 2008 pay cuts that trimmed salaries by 5 percent for the average employee and up to 20 percent for executives.
But Howard said he does not expect Micron to immediately begin replacing some of the more than 2,000 workers laid off at the height of the economic downturn.
“It is returning to normal operations,” Howard said. “But you can’t predict the world economy. Long-term, I think it would be better not to put the foot down on the gas pedal when it comes to hiring.”
Micron did not return calls seeking comment.
Joe Estrella: 377-6465
Read more: http://www.idahostatesman.com/2010/03/31/1136353/micron-expected-to-report-profit.html#ixzz0jxe1iL1c
Mar 26th
Independent Market Commentary
This week all eyes were on Congress as they sought to pass Healthcare legislation. Most people were wondering what it meant for them from a personal perspective, however, we were focused on a little discussed aspect of the healthcare bill.
Most discussions to date regarding the cost of the Healthcare bill have centered on the costs the government is going to bear. Little has been said about where else there may be a financial impact. I have been concerned about the lack of cost detail available and companies have been reluctant to discuss the potential impact on their profitability. That all changed this week as a number of “old line” companies issued statements regarding the financial impact on their operations. The reason we saw the announcements out of the “old line” companies is that they tend to have legacy health care plans where the employer bears most if not all of the employee’s healthcare costs. Catepillar announced that they will be taking a $100 million charge in the current quarter. Deere will record a $150 million charge which amounts to 11.5% of their anticipated 2010 income. I was somewhat surprised by the magnitude of the charge at Deere. As companies prepare to release Q1 earnings, we should be able to get a clearer picture of the potential costs. It should prove to be an interesting earnings season, but I guess they have mostly been interesting in the last year. Have a great weekend!
Mar 26th
Pepsi Gets a Makeover
Courtesy of The Economist
Pepsi gets a makeover
Taking the challenge
The giant drinks-and-snacks firm attempts to wean itself off sugar, salt and fat
Mar 25th 2010 | NEW YORK | From The Economist print edition
COCA-COLA once famously defined its market as “throat share”, meaning its stake in the entire liquid intake of all humanity. Not to be outdone, Indra Nooyi, the boss of Coke’s arch-rival, PepsiCo, wants her firm to be “seen as one of the defining companies of the first half of the 21st century”, a “model of how to conduct business in the modern world.” More specifically, she argues that Pepsi, which makes crisps (potato chips) and other fatty, salty snacks as well as sugary drinks, should be part of the solution, not the cause, of “one of the world’s biggest public-health challenges, a challenge fundamentally linked to our industry: obesity.”
To that end, on March 22nd she unveiled a series of targets to improve the healthiness of Pepsi’s wares. By 2015 the firm aims to reduce the salt in some of its biggest brands by 25%; by 2020, it hopes to reduce the amount of added sugar in its drinks by 25% and the amount of saturated fat in certain snacks by 15%. Pepsi also recently announced that it would be removing all its sugary drinks from schools around the world by 2012.
Although Ms Nooyi talks about the need to “cherish” employees, and once wrote to the parents of her senior managers thanking them for bringing up such wonderful offspring, she rejects the notion that these goals are soft-headed or decorative. She argues that they are necessary to prevent food companies from going the way of tobacco firms, which are perennially held responsible by governments for the health problems associated with their products, and penalised accordingly. As it is, several countries in Europe and various localities in America have banned trans fats, a particularly unhealthy ingredient in much junk food. A bill introduced earlier this month in New York’s state assembly proposes banning salt in restaurants. Michelle Obama, America’s first lady, has launched a campaign against obesity among children.
In the 1990s virtually all of Pepsi’s products were bad for you—or “fun for you”, as the firm likes to put it. Under Ms Nooyi, who became boss in 2006, it has stepped up its diversification into products it calls “better for you” and “good for you”, including fruit juices, nuts and porridge (oatmeal, to Americans). Ms Nooyi does not see this as a case of trading profits for virtue. Instead, she insists both are possible—an idea expressed in the firm’s syrupy motto: “Performance with purpose.”
There is no shortage of sceptics, both about the sincerity of Pepsi’s social mission and, more recently, its performance, which was decidedly flat in 2009. Indeed, this week, at the firm’s first meeting with investment analysts since 2006, in New York’s Yankee Stadium, Ms Nooyi admitted to a series of disappointments, before promising that lessons had been learned and that “we won’t make the same mistakes.” As well as being hurt by the economic downturn, Pepsi suffered from a flawed financial hedging strategy that left it paying too much for commodities. And it has suffered from some recent marketing disasters, including a campaign for Tropicana fruit juice that is widely regarded as one of the worst brand makeovers since Coca-Cola launched New Coke.
Yet investors seem to be taking seriously Ms Nooyi’s claim that Pepsi’s future is bright. It helps that the firm has raised its dividend and announced a big share buyback. Investors also seem to be reappraising Pepsi’s decision last year to acquire the two independent firms that bottle its drinks. The deal had received a tepid reception, not least because Coca-Cola had insisted that keeping syrup-making and bottling separate made sense. Now, however, Coca-Cola has decided to follow Pepsi’s lead by acquiring its main bottler—a move Ms Nooyi describes as “vindication”.
The hope is that integrating the bottling company into Pepsi will bring greater control over an increasingly diverse drinks portfolio, and promote cross-marketing between the food and drink divisions (not something that Coca-Cola’s acquisition will help with much, as it does not own a large snack operation). Pepsi, which jointly markets several different brands, dubs the clout this gives it with retailers and customers “Power of One”. The bottling acquisition should boost this tactic by ending the need to negotiate a division of the spoils on every big deal. When Wal-Mart calls asking for a joint promotion of, say, Pepsi and Doritos, as it did for the Super Bowl in February, Pepsi can “respond in 24 hours, instead of six weeks.”
Ms Nooyi wants to take this idea further, with a strategy she snappily dubs “Power of Power of One”. By that she means partnerships with other firms to cut the cost of procurement, or research and development. Pepsi has already signed a supplies and ad-purchasing deal with Anheuser-Busch, a big brewer.
In the long run, much will depend on the success of Pepsi’s strategy to convince the public and regulators that it is on the side of reducing obesity, not creating it. This strategy will have several prongs, including reducing the amount of obviously unhealthy ingredients in its existing products, adding new healthier products to its portfolio, promoting healthier lifestyles and trying to point the finger of blame away from how many calories people consume to how few calories they burn. “Why aren’t we going after computer and cable-TV companies for creating a sedentary lifestyle?” asks Ms Nooyi.
Pepsi’s growing portfolio of “good for you” products now accounts for around $10 billion in revenues (nearly a fifth of the total). Ms Nooyi expects that figure to grow to $30 billion within ten years. The firm has been hiring an army of experts on health to work in its research and development business, to give credibility to its claim that it is applying science to creating products that are better for its customers. Mahmood Khan, a British-born doctor recruited to run Pepsi’s R&D at the start of 2008, says he has been “pleasantly surprised by how rapidly this new health agenda has been embraced.”
Pepsi already claims to be making significant progress in making its “fun-for-you products better for you” by voluntarily removing trans fats long before it was required to do so, and reducing the amount of sugar, fat and salt. There is now less salt in a packet of crisps, claims Dr Khan, than in a slice of white bread.
Quaker, which makes porridge, cereal, cereal bars and rice crackers, is Pepsi’s leading healthy brand. Pepsi hopes to use its expertise in product design and packaging to make these goods more enticing, especially to children at breakfast time. It is already testing oatmeal drinks and biscuits, as well as new flavours of porridge. Quaker Oats packaging will also get a more contemporary look, although the black-hatted Quaker mascot will survive. “Our goal”, says Ms Nooyi, in typically forthright style, “is to rewrite the rules of breakfast.”
There is no doubting the seriousness of Ms Nooyi’s drive to increase Pepsi’s sales of healthy products. But it will not be easy to push them without undermining sales of its other, less wholesome wares or appearing to nanny its customers. Moreover, politicians and public-health campaigners may not regard selling more healthy products, while continuing to profit handsomely from unhealthy ones, as the best way to tackle obesity.
Mar 26th
Office Rents
Office rents
Mar 25th 2010 | From The Economist print edition
London is the world’s most expensive city in which to rent and operate office space, according to CB Richard Ellis, a property consultancy. “West End” rents have increased by 11% in dollar terms over the past 12 months, although that increase is mainly down to the appreciation of sterling against the dollar. Office rents in São Paulo have increased by 61%, partly due to newly built office space coming to market, but for the most part caused by the depreciation of the dollar against the real by 35%. In Tokyo, the most expensive city twelve months ago, rents have fallen by nearly 30%. They have also fallen by more than a quarter in Dubai, which three months ago opened the world’s tallest building, the Burj Khalifa.
Courtesy of Forefield
If you’ve lost your job, or are changing jobs, you may be wondering what to do with your 401(k) plan account. It’s important to understand your options.
What will I be entitled to?
If you leave your job (voluntarily or involuntarily), you’ll be entitled to a distribution of your vested balance. Your vested balance always includes your own contributions (pretax, after-tax, and Roth) and typically any investment earnings on those amounts. It also includes employer contributions (and earnings) that have satisfied your plan’s vesting schedule.
In general, you must be 100% vested in your employer’s contributions after 3 years of service (“cliff vesting”), or you must vest gradually, 20% per year until you’re fully vested after 6 years (“graded vesting”). Plans can have faster vesting schedules, and some even have 100% immediate vesting. You’ll also be 100% vested once you’ve reached your plan’s normal retirement age.
It’s important for you to understand how your particular plan’s vesting schedule works, because you’ll forfeit any employer contributions that haven’t vested by the time you leave your job. Your summary plan description (SPD) will spell out how the vesting schedule for your particular plan works. If you don’t have one, ask your plan administrator for it. If you’re on the cusp of vesting, it may make sense to wait a bit before leaving, if you have that luxury.
Don’t spend it, roll it!
While this pool of dollars may look attractive, don’t spend it unless you absolutely need to. If you take a distribution you’ll be taxed, at ordinary income tax rates, on the entire value of your account except for any after-tax or Roth 401(k) contributions you’ve made. And, if you’re not yet age 55, an additional 10% penalty may apply to the taxable portion of your payout. (There won’t be any tax-free qualified distributions of earnings from Roth 401(k) accounts until 2011 at the earliest, because there’s a 5-year holding requirement, and Roth 401(k)s first became available in 2006. And special rules may apply if you receive a lump-sum distribution and you were born before 1936, or if the lump-sum includes employer stock.)
If your vested balance is more than $5,000, you can leave your money in your employer’s plan until you reach normal retirement age. But your employer must also allow you to make a direct rollover to an IRA or to another employer’s 401(k) plan. As the name suggests, in a direct rollover the money passes directly from your 401(k) plan account to the IRA or other plan. This is preferable to a “60-day rollover,” where you get the check and then roll the money over yourself, because your employer has to withhold 20% of the taxable portion of a 60-day rollover. You can still roll over the entire amount of your distribution, but you’ll need to come up with the 20% that’s been withheld until you recapture that amount when you file your income tax return.
Should I roll over to my new employer’s 401(k) plan or to an IRA?
Assuming both options are available to you, there’s no right or wrong answer to this question. There are strong arguments to be made on both sides. You need to weigh all of the factors, and make a decision based on your own needs and priorities. It’s best to have a professional assist you with this, since the decision you make may have significant consequences–both now and in the future.
Reasons to roll over to an IRA:
- You generally have more investment choices with an IRA than with an employer’s 401(k) plan. You typically may freely move your money around to the various investments offered by your IRA trustee, and you may divide up your balance among as many of those investments as you want. By contrast, employer-sponsored plans typically give you a limited menu of investments (usually mutual funds) from which to choose.
- You can freely allocate your IRA dollars among different IRA trustees/custodians. There’s no limit on how many direct, trustee-to-trustee IRA transfers you can do in a year. This gives you flexibility to change trustees often if you are dissatisfied with investment performance or customer service. It can also allow you to have IRA accounts with more than one institution for added diversification. With an employer’s plan, you can’t move the funds to a different trustee unless you leave your job and roll over the funds.
- An IRA may give you more flexibility with distributions. Your distribution options in a 401(k) plan depend on the terms of that particular plan, and your options may be limited. However, with an IRA, the timing and amount of distributions is generally at your discretion (until you reach age 70½ and must start taking required minimum distributions in the case of a traditional IRA).
- You can roll over (essentially “convert”) your 401(k) plan distribution to a Roth IRA. You’ll have to pay taxes on the amount you roll over (minus any after-tax contributions you’ve made), but any qualified distributions from the Roth IRA in the future will be tax free.
Reasons to roll over to your new employer’s 401(k) plan:
- Many employer-sponsored plans have loan provisions. If you roll over your retirement funds to a new employer’s plan that permits loans, you may be able to borrow up to 50% of the amount you roll over if you need the money. You can’t borrow from an IRA–you can only access the money in an IRA by taking a distribution, which may be subject to income tax and penalties. (You can, however, give yourself a short-term loan from an IRA by taking a distribution, and then rolling the dollars back to an IRA within 60 days.)
- A rollover to your new employer’s 401(k) plan may provide greater creditor protection than a rollover to an IRA. Most 401(k) plans receive unlimited protection from your creditors under federal law. Your creditors (with certain exceptions) cannot attach your plan funds to satisfy any of your debts and obligations, regardless of whether you’ve declared bankruptcy. In contrast, any amounts you roll over to a traditional or Roth IRA are generally protected under federal law only if you declare bankruptcy. Any creditor protection your IRA may receive in cases outside of bankruptcy will generally depend on the laws of your particular state. If you are concerned about asset protection, be sure to seek the assistance of a qualified professional.
- You may be able to postpone required minimum distributions. For IRAs, these distributions must begin by April 1 following the year you reach age 70½. However, if you work past that age and are still participating in your employer’s 401(k) plan, you can delay your first distribution from that plan until April 1 following the year of your retirement. (You also must own no more than 5% of the company.)
- If your distribution includes Roth 401(k) contributions and earnings, you can roll those amounts over to either a Roth IRA or your new employer’s Roth 401(k) plan (if it accepts rollovers). If you roll the funds over to a Roth IRA, the Roth IRA holding period will determine when you can begin receiving tax-free qualified distributions from the IRA. So if you’re establishing a Roth IRA for the first time, your Roth 401(k) dollars will be subject to a brand new 5-year holding period. On the other hand, if you roll the dollars over to your new employer’s Roth 401 (k) plan, your existing 5-year holding period will carry over to the new plan. This may enable you to receive tax-free qualified distributions sooner.
When evaluating whether to initiate a rollover always be sure to (1) ask about possible surrender charges that may be imposed by your employer plan, or new surrender charges that your IRA may impose, (2) compare investment fees and expenses charged by your IRA (and investment funds) with those charged by your employer plan (if any), and (3) understand any accumulated rights or guarantees that you may be giving up by transferring funds out of your employer plan.
What if I really do need to use the money?
In some cases, you have no choice–you need to use the funds. If so, try to minimize the tax impact. For example, if you have nontaxable after-tax contributions in your account, keep in mind that you can roll over just the taxable portion of your distribution and keep the nontaxable portion for yourself. For example, if you’re entitled to a distribution of $50,000 that includes $10,000 of your own nontaxable after-tax contributions, you can roll the $40,000 of taxable dollars into a traditional IRA, and keep the rest for yourself. You’ll have $10,000 to use, and you’ll pay no current income taxes.
What about outstanding plan loans?
In general, if you have an outstanding plan loan, you’ll need to pay it back, or the outstanding balance will be taxed as if it had been distributed to you in cash. If you can’t pay the loan back before you leave, you’ll still have 60 days to roll over the amount that’s been treated as a distribution to your IRA. Of course, you’ll need to come up with the dollars from other sources.
Mar 20th
“House and Stock Prices Only Go Up…”
From NPR.org, a backgrounder on the couple that run the urban myth-busting website Snopes.com. In the interest of disclosure, I’ve used the site from time to time to investigate items I’ve read online, usually forwarded by a friend or family member who’s well-meaning but less skeptical than yours truly. Wonder if the Mikklesons ever tracked down the myth “house and stock prices only go up”…
Mom-And-Pop Site Busts The Web’s Biggest Myths
March 20, 2010
Did you hear about how criminals use drug-soaked business cards to incapacitate their victims? Turns out, that’s not true.
How about the claim that Jesus will be portrayed as gay in an upcoming film? Also false.
Or that Oliver North warned Congress about Osama bin Laden years ago? Wrong again.
You’d think it would take an army to truth-squad the rapid-fire rumors of the World Wide Web. But at Snopes.com, that task falls to husband-and-wife myth debunkers David and Barbara Mikkelson.
Snopes.com is the go-to Web site for debunking the hottest rumors, hoaxes and urban legends, attracting roughly 5 million viewers a month. NPR’s Guy Raz visited the Mikkelsons at their world headquarters — a modest, pre-fab home next to a creek in Agoura Hills, Calif.
The Mikkelsons may be Internet pioneers, but David and Barbara use plenty of old-fashioned tools in their work — like books. Lots of them. Books on word etymologies, history and urban legends, stacked two-deep in the couple’s library.
“Our contractor thought I was a little bit odd when I said, ‘I want these shelves built so sturdy that you could lay a dead body on each of them,’” Barbara says.
In the living room, a cat and computer are close at hand. A trio of live rats play in their cage nearby (they lost their roaming privileges after chewing too many wires). In the back is David’s “office,” which he says “is actually a bedroom for cats — in which they have graciously consented to sublet space.”
The Mikkelsons estimate they have several thousand articles on their site right now. Their list of the “25 Hottest Urban Legends” is regularly updated with new myths and some “dopplegangers” — stories that have been around forever in one form or another.
“They’re kind of like the equivalent of Pink Floyd’s Dark Side of the Moon on the Billboard chart,” says David. “They’re just there for years, and they never go away.”
It’s hard not to notice trends if you’re a rumor reporter. Stories that stick around for years often involve computer viruses or missing children. Rumors involving immigration or terrorism tend to recirculate with the times.
David even made up an urban legend of his own once — that the famous Mr. Ed was actually a zebra. Zebras are more docile, he argues, than horses.
And sometimes, it turns out that the urban legends the Mikkelsons debunk are actually true.
“Several years ago, there was this narrative going around,” David tells Guy Raz. “It was about some group of FBI agents who had supposedly taken over a psychiatric hospital.”
“It was this wonderfully funny narrative about an agent trying to convince a pizza delivery place to send a dozen pizzas to a psychiatric hospital full of FBI agents, none of whom had any cash on them, so by the way, will you take a check?”
David tracked down an agent involved in the case, who corroborated the story. It was a debunker’s lesson in suspending disbelief.
“What we’ve learned over time is there’s pretty much nothing that you can immediately dismiss as too absurd to be true,” David says.
Mar 20th
“Schooling Greenspan”
Barry Ritholtz recently posted to his blog a response to former Federal Reserve Chair Alan Greenspan’s Brookings Institution paper on the financial crisis. Greenspan apparently accepts that regulatory failures contributed to the crisis but argues that low interest rates, which of course his Fed (and he, specifically) argued for and maintained, did not contribute to the problem at hand.
Ritholtz response is not only spot-on, but it concisely explains what readers are paying hundreds of dollars to purchase (and hundreds of hours reading) in the heaps of books economists and others are spewing on the topic. I’ve reprinted Ritholtz’s comment below.
1. Starting in January 2001, the FOMC began lowering rates, eventually to 1%. They kept rates below 2% for 36 months, and at 1% for over a year. This was unprecedented.
2. While these rates had myriad effects, lets focus on just two: The impact on Housing, and on global bond managers.
3. Since homes are (typically) a leveraged credit purchase, lowering the cost of that credit has an inverse effect on prices — i.e., cheaper mortgages = more expensive houses. Since most people budget monthly, carrying costs are more important than actual purchase prices. Hence, a big drop in interest rates can cause a spike in home prices, with monthly payments remaining fairly similar.
Bottom line: Ultra low rates were the initial fuel sending home prices higher.
4. At the same time, bond managers were scrambling for yield. Pension funds, trusts, foundations require a certain annual gain, and without it, they have issues. Note that most of these managers by their own charters cannot purchase junk, they can only buy investment grade paper.
5. Wall Street had been securitizing collateralized debt for years. They turned credit cards, student loans, auto financing, and of course, mortgages into paper.
6. Making loans to people with weaker credit scores, lower incomes, or more debt was a risky proposition, and hence, generated higher yields for that risk. By collateralizing these subprime mortgages, Securitizers could generate higher yielding paper for the managers of bond funds. And because the rating agencies — Moody’s, S&P, and Fitch were totally corrupt — the securitizers could purchase AAA ratings. Hence, all manner of unqualified junk paper could be sold to these funds that were only allowed to purchase investment grade paper.
Here is the first point where lack of oversight comes in (vis-à-vis the ratings agencies). But we never would have gotten to that issue BUT FOR the ultra low rates.
Read the rest of Ritholtz’s article here.
Courtesy of NPR News
By Mark Memmott
The homeless often go unseen, even when they’re right there on the street.
In New York City, one charity is using technology to get us to notice those who have so little.
The Chronicle of Philanthropy writes about a project by the group Pathways to Housing. The hook: An image of a homeless man, ’sleeping on the sidewalk and shivering in the cold in downtown Manhattan,” is projected on the side of a building. “Words also projected … (that) ask passersby to send a text message to help get him off the streets.”
If someone does, that “triggers a new video loop in which the man gets up and walks in the door of his new apartment. … (And) as the man gets up, the organization’s name and website address are projected next to the image. The person who sent the text message receives a message back asking if they would like to make a $5 donation that would be added to their cellphone bill.”
See a video about how it works here:
Aug 13th
“Reading Is Fundamental”
Author: Kenn Lamson
Comments: 0
As an investment and economic research firm we spend a great deal of our time poring over data and reading news and considering the analysis of specialists and industry leaders. Here’s a brief list of items we’ve read recently that our readers may find interesting: