Financial Methods

Virtual Family Dinner

Accenture is working on technology to allow a Virtual Family Dinner where people in separate cities can sit down 'together' for a family dinner.

http://apnews.myway.com/article/20061224/D8M7AR8G0.html

Flat Panel TV Margins Flattening

Yesterday, Best Buy (BBY) said that lower TV prices were having a negative impact on net income.  This prompted downgrades on Best Buy and Circuit City (CC)from Prudential Equity Group analyst Mark Rowen.

David Gaffen's blog MarketBeat at the Wall Street Journal

“We have always assumed that, one day, discount retailers would commoditize the excess profits out of the flat-panel TV business, but we did not expect to see it occur this holiday season,” writes Mr. Rowen, who does not own either stock. “While we may be jumping the gun based on one data point, we are concerned, because if BBY can’t make outsized profits on flat-panel TVs now, when will it be able to?” ¹

Although lower margins are squeezing profits, sales in flat panel TV's are very strong.

Within consumer electronics, flat-panel TVs experienced a very strong double-digit comparable store sales gain due to higher volumes (driven by declining prices), improved assortments of TVs in larger screen sizes, and the addition of more Magnolia Home Theater store-within-a-store experiences. Total television comparable store sales grew by the solid-double-digits as flat-panel TV growth was partially offset by declines in comparable store sales of tube and projection TVs.²

Since the beginning of October, Best Buy is down 4.2%, Circuit City is down 6.1%.

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Source:

1. David Gaffen. We Got to Move These Color TVs.
Wall Street Journal. December 13, 2006.
http://blogs.wsj.com/marketbeat/2006/12/13/we-got-to-move-these-color-tvs/

2. Best Buy Inc. Press Release.
December 12, 2006.

© 2006 Michael Cale

More Ethanol Fuel = Higher Food Prices

Howard Simons of Bianco Research LLC (courtesy of Cumberland Advisors) has an interesting research note (pdf link) on ethanol. Simons shows that continued, or worse, even higher, subsidies on ethanol should produce higher food prices.

Ethanol is basically an alcohol-based fuel. Alcohol is produced by yeast. Feed the yeast and they produce alcohol and CO₂. In the U.S., we feed the yeast with corn sugar.

Brazil is often cited as a model for ethanol use.  Brazil is the world's largest sugar producer.  The ethanol in Brazil is produced using cane sugar.

The ethanol market in the U.S. is heavily distorted by government policy.  Sugar-based ethanol imports are subject to a tariff of 54 cents per gallon.  In addition, U.S. produced ethanol receives a 51 cents per gallon subsidy.

     Chart courtesy of: Bianco Research LLC

The largest beneficiary of all these subsidies is Archer Daniels Midland (ADM). 

Despite the emphasis being put on alternative fuels, ethanol is still not competitive.  Note in the chart above that ethanol prices (thin red line) have tracked gasoline prices (thick blue line).  Since ethanol is not competitive, it's price rises as gasoline prices rise.   And ethanol has a built-in 51¢ per gallon advantage because it is exempt from federal fuel tax.    So, unfortunately, we can likely expect the government to continue throwing good money after bad.  Our money.

'''The Bush Administration tried to repeal the tariff on sugar-based ethanol.  On May 9, 2006, five corn state Senate Democrats effectively blocked lifting the tariff.  The Senators were Harkin ( Iowa ) Dorgan ( North Dakota ) Durbin ( Illinois ) Johnson ( South Dakota ) and Obama ( Illinois ).  Cries for energy independence and environmental protection were used to cover the real culprit which is a politically misguided raid on the pocketbooks of our country. 

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1. Howard L. Simons. An Impending Ethanol Cost Squeeze.
Bianco Research LLC Market Facts. November 14, 2006. Vol. 11 No. 45.
http://www.cumber.com/special/Bianco111406.pdf (pdf link)

© 2006 Michael Cale

James Kim Survival Tips

There was sad news that the body of James Kim was found yesterday.  Kim was snowbound and stranded with his wife and two daughters.  His wife and daughters were rescued safely.

Kim's wife and daughters were rescued on a hunch by a private pilot.

It is very difficult to evaluate the decisions of someone in a stressful situation, and we'll never know for sure the thought process that Kim went through, but we can learn from his experience.

I have not been in a situation as dire as this one.  I am no survival expert, but as a graduate of a prominent military survival school, I can offer some tips so that perhaps you can avoid this outcome.

First, let's look at what went right.  The family managed to survive for nine days with little food.  They had the wherewithal to take steps such as burning the car tires for warmth (and a signal) and to take advantage of what local food was available.

Now let's recognize that hindsight is 20/20 and that it is all to easy to second-guess decisions after-the-fact.  Yet let's also take advantage of this learning opportunity and hopefully prevent this scenario from being repeated.

It's easy to point to the lack of preparation, but we're all guilty of that.  For those that live in extreme climes, such as the rural upper Midwest, packing a survival kit for your car is more common, less so in the urban centers of the West and Pacific  Northwest.  Chalk up preparation as tip number one for your action.

See suggestions for a vehicle survival kit here.   There are several comments with good suggestions.  I suggest adding a down sleeping bag and a candle to the other recommended items.

Based on news reports, it seems that Kim left the vehicle with the intent not to return.  If that turns out to be true, I would say that is a second major lesson.  In such a harsh environment, shelter is your first survival concern (followed by water and food).   The possibility of surviving overnight in little more than street clothes is minimal.  The fact that Kim was able to travel about 10 miles in that terrain after 9 days stranded in the car is impressive. 

Leaving shelter in those conditions is literally gambling with your life.  The choices are grim.  Either stay and run the risk of becoming too weak to travel (while watching your children starve) or decide to travel and risk being unable to find adequate shelter.  This would be a very difficult decision. 

A final lesson is that you have do all you can to make your own rescue happen.  You have to help those who are trying to help you.   In Kim's situation, it would have been prudent to venture from the car each day and to build/maintain a durable visual signal by using contrast via snow signals, vegetation, etc. (which they may have done).  Burning tires make a good signal, but only briefly.

See a map of the path that Kim took.

There are many details that we do not know about this saga.  We will learn more as time passes.  Take advantage of the opportunity to do some preparation while it is on your mind.  If you wait, the opportunity will pass.

We should recognize and honor Kim's efforts as valiant.  This was a family that took a road trip - as many of us do - during the holidays.  Fortunately, these trips are mostly routine.  This particular trip became a nightmare for this family.

Take steps so that your routine travel remains routine.

© 2006 Michael Cale

Maine Bureacrats Say No Santa's Butt

The Maine Bureau of Liquor Enforcement is refusing to allow the sale of an imported holiday beer because the  label has an image of Santa Clause.

Let's take a step back.  Government review of beer labels.  In general, is this a valid intrusion?  Probably so.  They can ensure that labels contain the correct disclosure for ingredients, that a bottle with a 12-oz. label actually contains something close to 12-oz. of product.  But the artwork on the label should be largely insignificant unless it infringes on the rights of another party (say by mimicking a popular brand, etc.).

The excuse given for banning the label is that it could appeal to children.  Apparently, the sale of adult products in Maine is so poorly controlled that children can readily purchase alcohol.  Only by making sure the packaging is unappealing to younger eyes can the sale of alcohol to minors be controlled. 

This is the typical excuse of government overreach.  It's for the children.  Everyone wants to protect the children, right?  Whether it's banning soda in schools, mandating that children receive an annual Body Mass Index measurement, or getting rid of vending machines, the excuse is all too often to protect the children and the result is always more government intrusion and less freedom.

So far, Maine is the only state to ban the label, although New York nearly did.  The Maine Civil Liberties Union Foundation has filed a lawsuit on behalf of Daniel Shelton, of the Shelton Brothers, the distributor. 

Read about it here.

© 2006 Michael Cale