Ed’s Daily Notes for July 18th   5 comments

Bloomberg: Disney Phases Out Executive Car Perks in Iger Profit Push

One of the reasons I like Disney CEO Bob Iger:

Walt Disney Co. (DIS) is eliminating perks including executive car allowances as the world’s biggest entertainment company looks to further boost profitability.

…Disney has been reducing costs by firing hundreds of workers, closing offices and outsourcing duties like video-game development as it looks to widen profit margins and extend a more than doubling of the stock price in the past five years.

…Chairman and Chief Executive Officer Robert Iger has focused on efficiency since becoming CEO in 2005, said Robin Diedrich, an analyst with Edward Jones in St. Louis who recommends the stock.

Operating margin, a measure of profitability, widened to 21 percent of sales in the most recent fiscal year from 13 percent in fiscal 2005, according to data compiled by Bloomberg. Net income has more than doubled to $5.68 billion, outpacing the 35 percent gain in sales.

“He’s wielding a scalpel, not a meat cleaver,” Diedrich said in an interview.

In recent years, a monthly car allowance amounted to $900 for one mid-level former Disney executive who didn’t want to discuss the amount publicly. In addition to phasing out that perk, some Disney units have eliminated a half-day Friday policy during the summer, according to another person.

Too many CEO’s take the lazy route, delegating a budget cut number to subordinates, rather than taking a “scalpel” approach to saving money.

Any list of top 5 CEO’s in the world has to include Bob Iger on it.

On a related note, Disney reports earnings on August 6th. Also, I would rate it a long-term buy if you can get it below $65.

Business Week: Merkel’s Stealth Plan to Keep Euro Crisis From Exploding Again

What politicians will do to get re-elected:

Angela Merkel has a dilemma. Europe’s debt crisis is heating up again. But Germany will hold elections on Sept. 22, and Merkel’s popularity rests on voters’ belief that her leadership has helped bring the crisis under control.

The danger signals from troubled euro zone economies have been hard to miss recently, from soaring bond yields in Portugal to a widening hole in Greek government finances. Italy’s public debt load has reached a record high, and a corruption scandal threatens to engulf the party of Spanish Prime Minister Mariano Rajoy…

Yet polls show that German voters are “calm” and increasingly likely to hand Merkel a third term as chancellor, says Andreas Beckmann, a political analyst at the consulting firm of Bohnen Kallmorgen & Partner in Berlin. Merkel, he says, has quietly deployed Germany’s financial and political clout to keep the situation under control, while “shielding the broader German public from a realization of what’s going on.”

Here’s a guide to some of the strategies Merkel is using to keep the crisis from blowing up again, at a most inopportune time.

Extending credit: Merkel has used German state-owned investment bank KFW to dispense hundreds of millions of euros of low-interest financing to small and midsize businesses in Spain, Portugal, and Greece. Additional aid for Greece may come from the European Investment Bank, whose new president, Werner Hoyer, is German.

Loosening the screws: Once a stickler for austerity, Merkel has quietly stepped back as the European Union has given France, Italy, and Spain more time to hit deficit-reduction targets. She also has agreed to loosen the terms of some bailouts to troubled economics.

Biting her tongue: Merkel has raised no objections as the European Central Bank has funneled liquidity to Italian banks hard hit by the country’s burgeoning public debt. That amounts to “indirectly financing the Italian sovereign through Italian banks” without an accompanying demand for economic reforms, Beckmann says. It’s the sort of backdoor bailout Merkel never would have accepted in the past, he says.

The big question for investors: Will Merkel continue these policies if she gets re-elected? Only Merkel can answer that question. The worst case is she discontinues them (and I mean “worst” from an investment perspective, not from my own political views), in which case we could see Europe’s economy begin to rapidly deteriorate after her re-election.

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Posted July 18, 2013 by edmcgon in Economy, Market Analysis, News, Politics

5 responses to “Ed’s Daily Notes for July 18th

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  1. Detroit for bankruptcy
    http://www.businessinsider.com/detroit-likely-to-file-for-bankruptcy-2013-7
    Wouldn’t this be a black swan to the market? What if other cities follow?

    • plas,
      No. Detroit is kind of the American version of Greece, without everyone trying to bail it out. Cities file for bankruptcy all the time (Harrisburg, PA filed for bankruptcy in 2011). Also, Detroit just isn’t that important any more. It may be home to the “big 3” automakers, but most of their manufacturing is done in other places. Finally, Detroit has been an economic mess for decades.

    • I believe very few people were surprised when Detroit announced its bankruptcy. Black Swan event — no. Another warning – yes. One of about three key issues which forced Detroit into bankruptcy was city government retirement benefits. The number of Cities (including our own Tucson, AZ), Counties, and States with insufficiently funded retirement benefits which I believe will become a tsunami in the next ten to 25 years and is more than enough to sink municipal bonds, force us into a Recession which makes the last one appear to be a walk in the park, and disrupt countless people’s retirement plans.

      • That’s what happens when you have a democrat controlled municipality in an incestuous relationship with militant unions in control for the last 43 years. I was born in Detroit and have lived within or near Detroit my entire life. I can tell you it has devolved into a dying sh*thole of a city and they should have declared bk long ago.

  2. City officials racked up the debt. Detroit is carrying a crushing $15 billion in debt. It needs to pay $246 million a year on that debt — a whopping 20% of its general fund budget.

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