Thursday, October 29, 2009

AMZN and its WC to FCF magic!

on Oct. 30, 2009 the Journal posts this about AMZN, which is what I've been saying all along. Home Dept went from $51 at the beg. of '02 to $20s by the end of '02, how much this was from this A/P -FCF strategy and how much from recession I don't know but, that's what happened to HD anyway:


In the third quarter, Amazon stretched out its bill payment to 72 days, up from 63 in the year-earlier period. As Brian Evans, an analyst for research firm Behind the Numbers, notes, this "theoretically means that Amazon has not paid suppliers for sales consummated in mid-June." Amazon's sales rose 28% in the quarter, but accounts payable nearly doubled, helping push free cash flow up 116%.
Averaged through the year, Amazon's accounts-payable days have risen from 49.25 days in 2003 to 59 last year before jumping this year to an average of 64.6. Free cash flow has risen to $1.36 billion in 2008 from $346 million in 2003.

Digits

Such efficient working-capital management is to be envied. But investors shouldn't get too used to it. Amazon can't keep extending payment terms with its vendors indefinitely. When it stops, one source of free cash-flow growth will disappear.
Charles Mulford, an accounting professor at the Georgia Institute of Technology, notes how sharply boosting accounts payable helped Robert Nardelli transform Home Depot's cash generation after he took charge at the end of 2000. The retailer went from reporting negative free cash flow to $2.57 billion in fiscal 2002. But gains from working-capital efficiency petered out. Such things won't flow Amazon's way forever.
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The Great Recession Dec. 2007 - Nov. 2009. RIP?


Business Cycle Expansions and Contractions

US Business Cycle Expansions and Contractions ¹

Contractions (recessions) start at the peak of a business cycle and end at the trough.
Please also see:
BUSINESS CYCLE
REFERENCE DATES
DURATION IN MONTHS
Peak
Trough
Contraction
Expansion
Cycle
Quarterly dates
are in parentheses
Peak
to
Trough
Previous trough
to
this peak
Trough from
Previous
Trough
Peak from
Previous
Peak

June 1857(II)
October 1860(III)
April 1865(I)
June 1869(II)
October 1873(III)

March 1882(I)
March 1887(II)
July 1890(III)
January 1893(I)
December 1895(IV)

June 1899(III)
September 1902(IV)
May 1907(II)
January 1910(I)
January 1913(I)

August 1918(III)
January 1920(I)
May 1923(II)
October 1926(III)
August 1929(III)

May 1937(II)
February 1945(I)
November 1948(IV)
July 1953(II)
August 1957(III)

April 1960(II)
December 1969(IV)
November 1973(IV)
January 1980(I)
July 1981(III)

July 1990(III)
March 2001(I)
December 2007 (IV)
December 1854 (IV)
December 1858 (IV)
June 1861 (III)
December 1867 (I)
December 1870 (IV)
March 1879 (I)

May 1885 (II)
April 1888 (I)
May 1891 (II)
June 1894 (II)
June 1897 (II)

December 1900 (IV)
August 1904 (III)
June 1908 (II)
January 1912 (IV)
December 1914 (IV)

March 1919 (I)
July 1921 (III)
July 1924 (III)
November 1927 (IV)
March 1933 (I)

June 1938 (II)
October 1945 (IV)
October 1949 (IV)
May 1954 (II)
April 1958 (II)

February 1961 (I)
November 1970 (IV)
March 1975 (I)
July 1980 (III)
November 1982 (IV)

March 1991(I)
November 2001 (IV)
--
18
8
32
18
65

38
13
10
17
18

18
23
13
24
23

7
18
14
13
43

13
8
11
10
8

10
11
16
6
16

8
8

--
30
22
46
18
34

36
22
27
20
18

24
21
33
19
12

44
10
22
27
21

50
80
37
45
39

24
106
36
58
12

92
120
73
--
48
30
78
36
99

74
35
37
37
36

42
44
46
43
35

51
28
36
40
64

63
88
48
55
47

34
117
52
64
28

100
128

--
--
40
54
50
52

101
60
40
30
35

42
39
56
32
36

67
17
40
41
34

93
93
45
56
49

32
116
47
74
18

108
128
81
Average, all cycles:
1854-2001 (32 cycles)
1854-1919 (16 cycles)
1919-1945 (6 cycles)
1945-2001 (10 cycles)

17
22
18
10

38
27
35
57

55
48
53
67

56*
  49**
53
67
* 31 cycles
** 15 cycles
Source: NBER
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Saturday, October 24, 2009

Why so much hatred towards our president?


Below is another discussion on the WSJ and it got me to thinking. There is a lot of hatred towards our president--a deep desire to see him and his policies fail, a desire to criticize and say no to anything that's done, and a desire to place past, present, and future economic and policy failures on Obama...personally. Why? No blame to spread around to other politicians?


More importantly why is there this intense dislike? More and more it seems like the right just wants Obama to be powerless and better yet out of office. I am extremely cautious about new regulations and policy changes consider the following:


Here are some gov't policies that I think allowed for a the credit bubble to develop:


#1 cutting interest rates to further fuel spending on debt (if anything, we need a good recession every 5 or 10 yrs to remind people to save and not extrapolate above avg. growth into perpetuity (see Minsky)).

#2 money managers outsourced/deferred credit analysis to agencies and then blame their bad investments b/c their free research wasn't good enough (to their credit many institutional guidelines require "investment grade" securities or better but they still could have done their homework).
#3 money managers/brokers loved efficient market hypothesis b/c it justified going 30 to 40% in equities and charging 1.25% for managing equity whereas fixed income pays .4% and cash pays 0%--the SEC mandates that companies cannot charge clients a fee for being in cash (conflict of interest?).
#4 Fannie and freddie GSE helped keep mortgage rates artificially low, further fueling the housing bubble
#5 the gov't mandates that companies keep AAA rated securities on their balance sheet for capital requirements and the only rating they accepted was from the big 3 agencies--a problem the gov't has admitted gave the big 3 CRA an unfair advantage and something that screwed up the efficient allocation of capital 
#6 margin and capital requirements exacerbate the downward spiral as asset price volatility increases/prices fall or disappear.
#7 the way the FDIC “sold” (more like gave away) WaMu, Bear Stearns probably triggered the worst of the crisis—bondholders were treated like equity holders i.e. they were mostly wiped out; if senior creditors were lucky they were only threatened by the White House into negotiating a lower payout (for the good of the country…) After the way they treated bondholders US banks had to wait four or five months before Citi/BoFA/GS finally were able to issue bonds again.
Notice how in every instance gov't policies play a role in shaping the spiral/the bubble. 






Ms. Noonan may be quite right that President Obama owns the problem now, and is responsible for the solution. News flash: I don't think Obama would disagree. But Noonan's quickly glossing over the breadth and depth of these problems, and totally ignoring the short-term mentality and almost total lack of patience on the part of the general electorate doesn't tell the whole story. Sooner or later, someone--and more than one someone--was going to write a tome about how "it's Obama's problem now." As Gomer Pyle might have said, "Sooprahse, sooprahse, sooprahse." Tell us something we don't know, Peggy.

What Ms. Noonan ignores is the all to real complexity of the issues Obama is faced with, and the attendant length of time it will take to dig our way out of this mess that, like it or not, he did inherit from the lackluster, dogmatic and "my way or the highway" Bush Administration. Agreeing, or not, with Obama's approach is a totally separate question, albeit a legitimate one, because there is no quick fix.

No doubt Americans are losing their patience, and Obama will pay a political price for being unable to fix all of these problems with the flick of a switch, since he created some expectations in this regard. There are too many people out of work, with no hope for a new job any time soon, too many people lacking health insurance, too many people who have seen their retirement nest eggs evaporate, and last, but certainly not least, far too many people who have lost family members or welcomed home a maimed one from one of our wars.

But that is a different issue from accusing President Obama of failing to own the mess he inherited. Noonan seems to think it's OK to oversimplify, with a quick label, a complex situation in order to make her press deadline, but I'd rather hear her observations and suggestions about why Americans have such a short attention span, and how much of a disservice this does to political leadership of both parties, that prefers to manage by symbolism than really come up with hard solutions to tough problems that aren't going away overnight, no matter who owns them. But to do that, she might miss her deadline. And have to really think.

Poor Peggy. She owns this one.




    • 1 day ago

    Are you suggesting that Obama spent almost 2 yrs in Congress w/ blinders on and had no clue what was happening? He had no 'Sooprahse, sooprahse, sooprahse', he knew exactly what he was getting into. And if he didn't, well, I rest my case.

    Problem is he is trying to 'fix' things with a 'flick of the switch' - because he and his staff know that the American public will not go along with it ('can't let a good crises go to waste' - what do you think Rahm meant by that?).

    The issue is not that American's have short attention spans it is we expect our leaders to, well, Lead.




      • 1 day ago

      "We" gave the miscreants Bush and Cheney eight full years to "lead," and they led us to disaster. The shrill right in this country have been on Obama's back since the day he took office, and haven't let us since. That we are almost a year into his presidency doesn't explain away the right wing's acquiescence to eight years of disastrous policies under Bush, the policies that did, in fact, get us into this mess. Don't confuse a lack of leadership with your apparent distaste for where President Obama is leading us. And oh, by the way, where are Republican officeholders trying to lead us. I haven't quite figured that one out yet, since all they are doing is saying "no." Now that's real leadership.






    • 1 day ago

    I think the voters certainly have a short attention span, else Obama would not have been elected. I also think they would allow more time for his policies to work if ANY of them showed promise. Even the most ignorant voter knows that governments are not immune to the laws of economics. There is a very real cost to borrowing for discretionary 'goodies' that stretch the budget, especially in a serious recession. Most especially, programs that create disincentives to employment.

    Please name one Obama economic prescription that is working as promised.




      • 1 day ago

      Obama was elected not because of a short attention span, but because of a very long eight years of impatience with Republican "leadership" that owned all three branches of government, yet destroyed so much of what this country stood for. That Bush was given eight years to "get it right" and abjectly failed to do so, shouldn't be so quickly overlooked, speaking of short attention spans.

      Nor is it fair of disenfranchised whiners from the right wing to hold Obama accountable for results that haven't had enough time, as of yet, to fully develop, when those same right wingers are still taking credit for economic policies that Reagan put in place decades ago that by those arguments, blossomed during the Clinton Administration. Why is it that when a Democratic president is in office, the results have to be fully developed in a matter of months, while when it is Reagan's nonsensical trickle down economics being revered, Clinton doesn't get credit for the strong economy that developed on his watch, lest Reagan be diminished in the process. No, fortunately for those of us who support President Obama, we can see clearly that the problem for Republicans is that they don't control the agenda, and that fewer and fewer Americans want them to. Get over it.






    • 1 day ago

    Joel,
    Nice attempt on defending President Obama. However, the President was elected Senator back in 2004. Don't try to blame this on the voters. The majority didn't demand a $787 billion stimulus; his party did. A sizebale minority of the voters told him to slow down and debate the package; his response to them was , "I won!". Within 2 weeks of his inaugeration he signed the single biggest spending package in the history of this nation with no debate, no input from anyone save his own party's insiders. Nope, the electorate didn't demand a stimulus, but they were scared into going along (Obama constantly said that if Congress doesn't pass the stimulus immediatly, a Depression would ensue).

    Also, most of the heavy lifting that stabelized our financial system was done prior to President Obama's inaugeration. Tim Geithner wasn't in Treasury until Feb. Bush and Paulson did much of the work before Jan 2009. The only thing that Obama did was sign on to TARP II, nationalize much of our insurance and auto industries, and sign the massive stimulus package. Geithner, was in office, accerlated Treasury's luquidity injection by ordering an additional $1.5 trillion of cash to be printed (which is being used to monitarize our debt).

    The solutions to most of these problems could be readily seen; but, as Rahm Emmanual so famously said, "We cannot let a crisis go to waste." The President and his people had other ideas, and with his group of policy czars, they are rewriting not only our financial system but much more. The voters see this and are not happy. The President is a lightweight, pseudo-intellectual, egoist of the first degree. He is a True Believer who is doing much damage to our nation, and to his own party.




      • 1 day ago

      Jerome,

      Nice attempt on your part, too, but it was the Bush Administration and in particular, Dr. Doom, then-Treasury Secretary Paulson, who rammed and rushed through the first stimulus package. Obama hadn't been inaugurated, and yet, Paulson was screaming like Chicken Little that the sky would fall down if we didn't have a bailout package approved in 24 hours. That wasn't Obama, that was your boy, Bush and his henchmen. If you want to excoriate Obama, then get your facts right.

      As for Obama's being elected a Senator in 2004, and it was the people of Illinois (only) who elected him to that position.

      Finally, President Obama is hardly a lightweight. You're confusing him with Bush.

      As for nationalizing the insurance and automobile industries, that wasn't Obama. De facto, that was the laissez faire wild, wild west unregulated mentality of the Bush administration, and incompetent private corporate management that nationalized the problems of those industries, to the point where the US was going to take it on the chin anyway, with or without intervention. We can differ about whether or which intervention by the federal government was right or wrong, but the problems were there, and the impact on our country and its economy was going to be brutal, one way or the other. And you can't blame Obama for eight years of subservience to a runaway "it's all good" mentality when it came to American business having its way. That was a "gift" of the Bush administration, and a gift that will keep on giving for far too long a time to come.

      So let me ask you, since you seem so prone to lauching questions at others: Would you have let GM and Chrysler disappear? Would you have let AIG go down the drain? Would you have let Bank of America, Citibank, Goldman Sachs, among other banks, fail? What, exactly, would you have done, Jerome?






    • 1 day ago

    Joel, you still have not name one Obama economic program that is working according to their own predictions. Even his own WH(save the buffoon, Biden) is admitting that the value of the $1Trillion Stimulus is largely over! And, Pelosi is suggesting another one is needed. How many times must you people be presented with reality before you admit it is not working?




      • 1 day ago

      I have not said one thing in support of Pelosi. Don't go there.

      As for Obama's plans, my point is that people who are carping about his initiatives are far too impatient--and hypocritical--if they think that the results will be instantaneous. It's a little like expecting a crater to be filled in after years of digging, merely because someone finally pulled the trenchers away, and said "there's a big huge hole there and we need to fill it in." Holes like the ones Bush et al left do not get filled in overnight. Obama's proposals need time to work.

      Again, at the risk of repetition, how else can Republicans claim that the economic rosiness of the Clinton Administration was due to policies that Reagan put in place years before. You can't have it both ways. Obama's policies need time to take full effect, and they will work. How much, remains to be seen. But don't forget that when he was elected, something like 70% of Americans said they wanted the country to head in a new direction. I guess you were one of the 30% that didn't. Which insurance company do you work for, Alan?






    • 23 hours ago
    • Michael Gretchen replied:

    This is what you get when you elect someone with no leadership experience to a leadership position - paralysis by analysis.

    Joel: Quit dwelling in your distorted version of the past.It contributes nothing to the discussion.




      • 23 hours ago

      Gretchen,

      Quit acting like a Bush censor, telling other people what they can and can't say. You're way out of line, and this isn't a dictatorship. Ever heard of a free press, or don't you subscribe to that either? And my view of history is hardly distorted, even if Bush's spin on events that happened during his presidency was.


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