Small Business Finance Site

BUSINESS: House Advantage: The Sure Thing

An animated explanation of how banks use securities lending to make a profit, while their customers cover the losses.

Produced by Zach Wise, Danielle Belopotosky

Tags: Advantage, Business, House, Thing

Bits Blog: Yearning for a Nokia Windows Phone 7

photos via NokiaThe Nokia Lumia 900 running Windows Phone 7.

The new Nokia Lumia 900 sure is pretty.

Yes, that’s right, I just publicly lusted after a non-Apple smartphone. A phone that runs Microsoft’s Windows Phone 7 operating system, no less.

Before you call the smartphone police on me, I’m not alone. Microsoft said Thursday that the phone won a number of awards this week.

My colleague Nick Wingfield also reported earlier this week from the International Consumer Electronics Show in Las Vegas that “the initial buzz about the device among gadget watchers has been positive.” (In Sunday’s New York Times, he chronicled how Microsoft came up with the idea for the phone and its design.) Farhad Manjoo, a technology writer for Slate, also received applause on Twitter when he posted this message: “The Lumia 900 is the first phone since the iPhone that I want without even touching it.”

So will people flock to this new sexy Nokia phone? Some will, but it might be a bit longer before the Apple and Google fanboys jump ship.

Personally, as much as I would like to switch to the Nokia Lumia 900, there is one thing that is holding me back: apps. The apps that I use the most on my iPhone, including Instagram, Path, Instapaper and NPR, don’t exist for Windows Phone 7.

That said, as much as it pains my ego to write this, I might not be the target audience for Microsoft and Nokia.

“The blue ocean that Nokia and Microsoft are going after are actually consumers who don’t yet have smartphones,” Sarah Rotman Epps, an analyst with Forrester, said in a telephone interview from Las Vegas. “These are people who haven’t opted into Android or iPhone yet.”

Ms. Epps should know; she recently converted to a Windows Phone 7 smartphone from a RIM BlackBerry Curve.

Why Windows? “On a personal level, I didn’t really identify with iOS or Android phone platforms,” she said. “Plus, I wasn’t predisposed to be an Apple-fan or Google-fan in terms of my personal phone choice.”

So rather than try to convert people who love their iPhones or Android phones, Windows can go after a big segment of the smartphone market — BlackBerry users and those who have not yet switched to a smartphone from other mobile devices.

As for the apps? A number of start-ups I’ve spoken with in the past have said they plan to build apps for Windows Phone 7 as more consumers adopt the platform. Continuing to offer affordable sleek phones from Nokia will help increase the number of users quicker than people might expect.

As for me, until those apps exist, I’ll just sit lusting after the Nokia Lumia 900, wondering what it’s like to live in a Windows Phone world.

Tags: Nokia, Phone, Windows, Yearning

U.S. Trade Deficit and Consumer Sentiment Rise

A separate survey released on Friday showed that consumer sentiment hit an eight-month high in early January as Americans grew more optimistic about job prospects.

The Thomson Reuters/University of Michigan preliminary January reading on its overall index of consumer sentiment rose to 74 from 69.9 in December for the fifth month of gains and the highest level since May 2011.

The report topped expectations of 71.5 and contrasted with December’s weaker-than-expected retail sales reported on Thursday.

“This shows even though the retail sales number this week was disappointing, there could be a little more underlying strength,” said Kathy Lien, director of research at GFT Forex in Jersey City. “I’d be wary of looking at this as a shift in long-term confidence, but I’d look at this as good news today.”

Commerce Department data showed that the trade gap was $47.8 billion in November, exceeding analysts’ forecast of a $45 billion deficit.

“The trade balance deteriorated pretty significantly, and it could shave a few tenths of a percent off our expectation for fourth quarter,” said Russell Price, senior economist at Ameriprise Financial.

JPMorgan Chase said gross domestic product growth for the fourth quarter was now tracking closer to 3 percent than the company’s forecast of 3.5 percent.

A wider deficit shows that more goods and services bought by American businesses and consumers were produced outside the country, subtracting from gross domestic product.

“The external outlook does not bode well for U.S. exports, as a deceleration in global growth will coincide with a stronger U.S. dollar due to lingering financial concerns regarding Europe’s sovereign debt turbulences,” wrote Martin Schwerdtfeger, a senior economist at the TD Bank Group, in a note.

A dip in import prices showed that inflation pressures were still muted, giving the Federal Reserve wiggle room as it holds benchmark interest rates at ultralow levels.

Import prices were down 0.1 percent in December after a 0.8 percent gain in November as oil prices fell, in line with economists’ expectations.

Economic growth in the final quarter of 2011 is likely to have accelerated from the third quarter’s 1.8 percent rate, with many economists expecting an annualized rise of around 3 percent.

Consumer spending, once a crucial pillar of the economy, remains lackluster and sensitive to shocks.

Although some Federal Reserve officials have said further steps may be needed to stimulate the economy, no action is expected at the next Fed policy meeting at the end of the month.

Thirty-four percent of consumers polled in the confidence survey said they had heard of recent job gains, a record high in the survey’s history and well above the 21 percent recorded in December.

“The data suggest a stronger consumer spending outlook, rising to about a 2.1 percent gain in 2012,” Richard Curtin, the survey director, said in a statement.

But consumers still lacked confidence in government economic policies, with the majority rating them unfavorably for the sixth consecutive month.

Americans also remained dour on their personal finances, with just 24 percent expecting their finances to improve in January, compared with 25 percent last month.

The survey’s barometer of current economic conditions rose to the highest level since February at 82.6, from 79.6, while its gauge of consumer expectations rose to 68.4 from 63.6.

Tags: Consumer, Deficit, Sentiment, Trade

Common Sense: U.S. Ownership and Regulation of G.M., Like Oil and Water

This, essentially, is what the United States has done to General Motors and its signature new vehicle, the Chevy Volt.

If it wasn’t already obvious, at least one reason the government shouldn’t own controlling stakes in major companies is that ownership and regulation are inherently incompatible. This week, the Republican presidential candidate Mitt Romney defended his tenure as head of the private equity firm Bain Capital by comparing Bain’s role in troubled companies to the government’s rescue of G.M.

Rest assured that if Bain Capital owned G.M., it would not be subjecting the Volt to severe safety tests and trumpeting the negative results.

More than a year after G.M.’s return to public ownership, the government still owns just less than 30 percent of the company, or about 500 million shares. Of course, the government must hold G.M. to the same strict safety standards it applies to all auto manufacturers. The National Highway Traffic Safety Administration, or N.H.T.S.A., said in late November that it would assess the risk of fire in Volts after two incidents of fires following crash tests.

But some Republican congressmen questioned whether the Obama administration had concealed the results. And conspiracy theorists and others have taken to the Internet to argue that the agency has been too soft on G.M. and has a motive to soft-pedal or even distort the results because of the government’s ownership stake.

Safety Research and Strategies, a Massachusetts consulting firm, claimed the government’s Volt crash report was little more than a “sales pitch” for the plug-in hybrid vehicle.

Others have suggested that the agency was too tough, even if subliminally, in an effort to forestall any perception of a conflict, and that the danger of a Volt catching fire was remote.

Car and Driver magazine noted that the Volt’s batteries caught fire three weeks and one week after the crash tests, and said that “if you ask us, even just one day is plenty of time to safely exit a vehicle that’s in peril of burning.” The magazine noted that no Volts had caught fire in the real world and that only three safety complaints showed up in the government’s database for all of 2010 and 2011, none involving fire hazards. “No vehicle is completely and infallibly safe,” the magazine said. The risk of fire following a crash in an electric car also appears to be vastly less than in a conventional gas-powered vehicle.

Tim Massad, assistant Treasury secretary for financial stability, told me this week that Treasury, which oversees the government’s investment, “is not G.M. or Chrysler’s regulator and has no involvement with N.H.T.S.A.” I haven’t seen any evidence that the agency acted in anything but a professional and independent manner with respect to the Volt, but the controversy illustrates why even appearances of a conflict need to be avoided.

How much has the Volt controversy cost G.M.? One measure of the new G.M. is its aggressive, albeit expensive, response. The old G.M. might have dug in and fought the government. It could have appealed and stalled for years while losing the public relations war. This time, G.M. immediately offered a loaner vehicle to any existing Volt owner concerned about the vehicle’s safety. Since then, G.M. has announced that it will make structural enhancements and install a sensor to warn of any battery fluid leak.

Of course, what choice did G.M. have, given that its regulator is also its biggest owner?

Consumers seem to be reacting positively. N.H.T.S.A. has now awarded the Volt five stars, the top ranking, in its crash test results (a ranking that is also suspect to conspiracy theorists). G.M. said December was the best sales month ever for the Volt, but it’s still selling in small numbers, and it’s impossible to know how many potential customers were discouraged by the bad publicity. And the damage to G.M.’s image is also hard to quantify, but surely considerable. The Volt was expected to deliver a halo effect to all of G.M.’s brands and bolster its overall reputation, much as the Prius did for Toyota until the company ran into its own safety and quality issues. That effort has suffered at least a temporary setback. (A G.M. spokeswoman declined to comment.)

And it’s not just safety issues where the government’s interests conflict. Along with other bailout recipients who remain under government oversight, G.M. is subject to executive pay restrictions. No private equity owner would agree to such limitations on its ability to attract and keep management talent. The pay constraints apply to the top five executive offices and extend deep into the ranks to include the 20 most highly compensated employees.

At this week’s North American International Auto Show in Detroit, Ford was showing off Lincoln’s new design director, Max Wolff, who took to the stage to unveil the boldly redesigned Lincoln MKZ. Ford poached Mr. Wolff from G.M.’s Cadillac division in 2010, and design directors are some of the most highly paid people in the industry. The G.M. spokeswoman wouldn’t comment on whether G.M. could match or top Ford’s offer, but said that the company continued to attract top talent because of its “iconic” status and because people wanted to be part of “an incredible comeback story.” Still, G.M.’s chief executive, Dan Akerson, has said he’d like to see pay restrictions eased.

(G.M. got approval to pay Mr. Akerson $9 million for 2011, which was in the lower quarter of chief executive pay at the nation’s largest companies, the automaker said.)

Tags: Common, Ownership, Regulation, Sense, Water