Cassette Tapes - Goodbye Old Friend

Electronics











(http://img.zdnet.com/techDirectory/_CASADPT.JPG)

March 1977 - Andreas Pavel filed patent for device in Milan; came to be known as the "Walkman"; July 1, 1979 - Sony introduced Sony Walkman; 1980 - began royalty negotiations with Andreas Pavel.

October 1, 1982 - CBS/Sony introduced compact discs (CD) optical disc media in Japan with 112 different CD titles, CD player (Sony's CDP-101); 120-mm (4.7-in.) diameter plastic disk, used tiny pits read by laser to reproduce sound or other information; two major CD plants: PolyGram's Hanover, West Germany plant, Sony's plant in Japan; advantages over phonograph record, recording tape: smaller size, greater dynamic range, extremely low distortion; sold over 20,000 CD players; June 1983 - CBS shipped first CD "prepacks; 1983 - sales totaled about 30,000 players, 800,000 discs;

1994 - reported sales of portable tape players peaked at 18 million, dropped to 480,000 in 2007 (source: Consumer Electronics Association); 2012 sales estimated at 86,000

1997 - 173 million music tapes sold; October 23, 2001 - Apple introduced iPod portable music player; 2006 - cassettes accounted for 7% of sales in $923 million audio-book market (source: Audio Publishers Association); Apple's domestic market share in flash-memory players = 68% (source: NPD Group); iPod sales reached 100 million (took Sony Walkman 14 years to sell that amount); 2007 - 400,00 music tapes sold, 1/10th of 1% of all physical, digital music sales (source: Recording Industry Association of America); 4% of 2007 model year cars sold in United States had factory-installed cassette players vs. 23% in 2005 model year (source: Ward's Automotive Yearbook);

June 2008 - Hachette released last audio book on cassette; June 19, 2008 - Apple reported more than 5 billion songs purchased, downloaded from iTunes Store; July 2008 - no Billboard magazine Top 10 album released on cassette.

Ford - Change in Product Mix

Automotive

July 25, 2008 - reported 2Q loss of $8.7 billion = worst quarterly loss in its 105-year history ($5.3-billion charge to write down value of plants that build pickups, S.U.V.s; $2.1 billion write-down by Ford Credit, auto loan division, to cover shrinking value of lease portfolio; $1 billion loss from auto operations); 2008 sales of large pickups down 25%, sales of S.U.V.s own 32% (source: Ward’s Automotive Reports); Ford's product mix (1990-2008): 1) 1995-2007: SUVs, pick-up trucks, vans dominated sales (about 15% above industry average); 2008 - 1) shift production to cars, crossover vehicles (8/14 plants in North America build trucks, S.U.V.s, full-sized vans; expected to convert three assembly plants from truck-based products to cars); 2) realign factories to manufacture more fuel-efficient 4-cylinder, V-6 engines; 3) produce six of next European car models for United States market. (source: New York Times);

Financial Sector Performance

Banking

July 19, 2008 - 52-week change in S & P 500 Financial stocks since autumn 1990: 1) absolute performance of S & P index of financial stocks in S & P 500 (excluding dividends); 2) how many percentage points financial index outperformed or underperformed full S & P 500; July 15. 2008 - worst 52 weeks ever (in absolute, relative terms) since S & P began calculating financial index (1989), down 53% (absolute) at low (previous record down 44% in fall 1990; subsequent 52 weeks, financials rose 58%); down 31% (relative) more than overall S & P 500 (two equivalent underperformances in 1990, March 2000; previously signaled buy opportunity).

Hudson's Bay -> Lord & Taylor

Retail - Department Stores


July 16, 2008 - North America's oldest retailer (338 years) to be acquired by America's oldest department store (1826).

May 2, 1670 - England's King Charles II granted the "Governor and Company of Adventurers of England Trading into Hudson's Bay" a charter; trading monopoly in Hudson Bay drainage basin; March 2006 - acquired by The InterTech Group Inc. (North Charleston, SC) for $1.1billion; taken private; 2008 - Anita Zucker (widow) became first woman chief executive, or governor, in company’s 338-year history; July 2008 - acquired by NRDC Equity Partners (owners of Lord & Taylor).




1826 - Samuel Lord opened first store on 47-49 Catherine Street in lower Manhattan (left in 1853); 1838 - George Washington Taylor (Lord's wife's cousin) joined firm as partner; 1859 - moved to Broadway and Grand Street; 1986 - acquired by May Company; August 30, 2005 - acquired by Federated Department Stores; June 22, 2006 - acquired by NRDC Equity Partners, LLC.

Alfred Sloan - We Need You

Automotive

July 15, 2008 - General Motors

1) stock traded to 54-year low ($8.81 per share);

2) suspended dividend - first time since 1922 (Pierre S. Du Pont CEO, chairman)

3) market capitalization - fell to just $4.23 billion (vs. about $162.6 billion for Toyota)

4) planned to raise $15 billion to help cover losses, turn around North American operations - suspended $1 dividend/share annual dividend (improve liquidity by $800 million through 2009, cut health care benefits for white-collar salaried retirees over 65 years old, cut cash bonuses for executives, reduce truck production capacity by 300,000 units, speed up closures of truck, sport utility vehicle factories.













GM's share price: 1948-2008 (source: Bloomberg)

Hot Fanny, Semi-Freddie

Banking

Fannie Mae, Freddie Mac -

1) Fannie Mae - founded in 1938 as Federal National Mortgage Association; Freddie Mac - founded in 1970 as Federal Home Loan Mortgage Corporation,
2) same charters, Congressional mandates and regulatory structure (stockholder – owned corporations chartered by Congress to increase
the supply of funds that mortgage lenders can make available to homebuyers, multifamily investors through mortgage purchase, credit guarantee, portfolio investment activities.), different business strategies
3) combined debts of $1.5 trillion,
4) own or guarantee $5 trillion in mortgages, about half of nation's $12 trillion mortgage market = stability, liquidity to mortgage market (guarantee each mortgage against default by the homeowner); if stop buying loans, banks may stop making new loans, freeze United States housing market; if harder for them to borrow money, mortgage interest rates,
5) contracts with other institutions worth $2 trillion more to hedge the risks behind those mortgages,
6) $11 billion in losses in the last nine months,
7) Freddie Mac stock closed at $7.75, down more than 45% for the week ended 7/11/08. Fannie Mae closed at $10.25, down 30% for the week,
8) $2.25 billion line of credit at U. S. Treasure (for past 40 years) - now considered quite small compared with the overall obligations,
9) Friday (7/11/08) - Office of Thrift Supervision (OTS) closed IndyMac Bank F.S.B. (Pasadena, CA - one of the nation’s largest independent mortgage lenders, major issuer of subprime loans), Federal Deposit Insurance Corporation (FDIC) named Conservator; largest bank failure since the 1990-1991 recession (502 banks failed in three years).












(Sources: Fannie Mae; Office of Federal Housing Enterprise Oversight; Bloomberg)

- Fannie Mae's exposure to the housing market has soared;
- outstanding guaranteed mortgages tripled from 1998 to 2007 (top left);
- delinquency rate on Fannie Mae mortgages is rising (top right);
- increases the chance that the company will have to make good on its guarantees.
- stock price of Fannie Mae, Freddie Mac down more than 75% in one year (below)















July 13, 2008 - "Bush administration hastily arranged the dramatic Sunday evening rescue of Fannie Mae, Freddie Mac after Wall Street executives and foreign central bankers told Washington that any further erosion of confidence could have a cascading effect around the world, officials said on Monday....any more turmoil threatened to reduce the value of trillions of dollars of the companies’ debt and other obligations, which are held by thousands of domestic and foreign banks, pension funds, mutual funds and other investors... could have lasting effects on economies here and abroad already struggling from slumping housing markets, spiking energy prices and sharp declines in consumer confidence." (New York Times)

Rescue Plan:

1) Federal Reserve agreed to let the companies have access to its discount lending window,

2) Congress to give officials power to inject billions of dollars into beleaguered companies through investments and loans as part of a major package of housing legislation.

Gas Prices Rise, Gas Stations Fall

Oil

2007 - number of gas stations down 2%

3,000 stations closed in last 12 months - 200 in New York state, 130 lost in North Dakota (source: NPN Magazine)

2008 - number of stations down to 161,368 (source: NPN Magazine)

Exxon plans to sell its 2,200 U.S. stations

Rising Costs: big cash flow required, established credit lines, higher fees to credit card companies (calculated as % of sales),

Squeezed profit margins on gasoline sales - margin between purchase/sale of gas down $.06, from 21 cents to 15 cents (source: Oil Price Information Service, Wright Express)

Stock Market - Worst June in 78 Years

Wall Street - Trading

June 30, 2008 - End of 2nd Q 2008

Standard & Poor’s 500-stock index down 8.6% in June 2008, down 12.8% for the first half of 2008 = worst performance in June since 1930 (down 16.5%). Index introduced March 1, 1957 (with daily) estimates (predecessor stock market indicator - Standard Statistics Company Average of Stock Prices developed in 1926 = 100).

Dow Jones industrial average off 14.4% for the first half of 2008.











10 Worst Junes in Stock Market History (1926 - Present)
(source: http://allfinancialmatters.com/wp-content/uploads/2008/06/sp-tenworstjunes.gif)

Best and Worst Months for the S&P 500 Index (1926 - 2007)

(source: http://allfinancialmatters.com/2008/01/09/the-best-and-worst-months-for-the-sp-500-index-1926-2007/)