The Endless Cycle of Dividend Featuring Fannie Mae and Freddie Mac

Anyone who followed the financial meltdown since 2007 must have heard of Fannie Mae and Freddie Mac. Did you know Fannie Mae's formal name is the Federal National Mortgage Association (FNMA) and Freddie Mac is The Federal Home Loan Mortgage Corporation (FHLMC)? As the titles suggest, they are both affiliated with the government as a government-sponsored enterprise.

This is why I was not surprised when Congress decided to bailout Fannie and Freddie. Of course, this act of kindness was performed with an exorbitant dividend clause. Whenever Fannie Mae and Freddie Mac start to recover, they are required to pay a 10% dividend on their preferred stocks. As of October 2010, The U.S. government received about $150 billion in preferred stocks to save the two firms. This means that the dividend payout to the U.S. government is $15 billion a year.

However, here is where the ludicrousness lies. As a result, Fannie Mae and Freddie Mac are caught in a vicious cycle on dividends:

"In the last two quarters, the firms (Fannie Mae and Freddie Mac) have paid $7.5 billion in total dividend payments, while receiving injections of $5.7 billion to help keep them in business. The dividends could force Fannie Mae and Freddie Mac to keep asking the Treasury Department for more money even after the companies get back into the black..."

Even though there has been protests over the bailout's current structure, the current Obama administration refuses to loosen up on its "cash cow" anytime soon, even if it's for the greater good. Go figure.

Coca-Cola: Happiness Truck

With the booming trend of food trucks, Coca-Cola is bringing a similar marketing campaign via wheels to Rio De Neiro, Brazil. Its "happiness truck" serves as a vending machine and offers curious Brazilian residents a newfound surprise everytime they hit the PUSH button. The project was brought to you by Definition 6 Agency, which also brought the "happiness machine."

Here's a video link to see the happiness on these lucky folks!

Update: Borders Looks To Restructure Firm

Since my last post about Borders declaring bankruptcy, Borders have taken some measures to restructure itself.

The Wall Street Journal reports:

"Borders Group Inc. is continuing talks to a secure a $500 million credit line and has hired bankruptcy and restructuring lawyers, said people familiar with the matter. Borders' restructuring lawyers met Thursday with publishers to pitch them on a plan to defer payments and is talking with GE Capital about providing a new revolving credit facility that would replace existing debt, this person said. Borders hopes the new financing can provide a bridge for the company over the next six to 12 months while it rearranges its business, this person said."

Groupon China Meets Obstacles

Groupon, a Chicago-based online website, wants to expand its business to one of China. Teaming up with its Chinese partner Tencent, they launched their site Gaopeng.com to its Chinese internet users. Based on the fact that China has over 420 million internet users, this seems to be an ideal joint venture with vast potential growth. Yet, Groupon appears to have trouble even before launching its site.

Here are three major issues that have been reported in recent news:

1. If you are one of the 111 million viewers who turned in to watch the Superbowl, then you have already seen the Groupon's controversial Superbowl ad about Tibet. Whether there was hidden political agenda involved or not, one blogger claims that "Groupon's Tibet Super Bowl ad offends everyone". (In Groupon's defense, as explained in its company blog, the commercial is a "a parody of a celebrity-narrated, PSA-style commercial that you think is about some noble cause, but then it’s revealed to actually be a passionate call to action to help yourself.")



2. Groupon China's marketing director Ren Xin resigned before the official site launch. This raised speculations about the prospects of Groupon's progress in China. It seems to directly dispute the bold statement that Groupon wants to assemble a Chinese team with its $950 million spending.

3. Lastly, when Groupon and Tencent finally launched its website, Gaopeng.com, it went offline in less than 24 hours. Sarah Lacey of TechCrunch states that Groupon and Tencent are facing gripes because the management team consists mostly of foreigners.

Not only is Groupon facing internal conflicts within the company, but also enters a competitive market where several Chinese websites (i.e. Tuan800.com, Lashou.com, Goutuan.net) have already gained major presence among local consumers.

If Groupon doesn't succeed in China, then it has wasted almost $1 billion on a sheer bubble. Is this a right move for Groupon? I hope we won't look back to this day and regret Groupon's rejection of Google's $6 billion bid.

KFC Cashes in on Love of Chinese Couples

KFC brings the Cupid's arrow to China for this Valentine's Day weekend! What food captures the millions of young couples in love? Egg tarts. For those unfamiliar with this pastry item, it originated in Portugal but has gained popularity in Hong Kong and Macau over recent decades. In fact, it has become a staple dish for the local dim sum cuisine. According to this Wall Street Journal article, KFC sells three times as many egg tarts on Valentine's Day than any other time throughout the year.

KFC is not the only one to have a love campaign to lure in more Chinese consumers. Starbucks Corp. and Haagen-Dazs each have their own Valentine's Day promotions. 

Doesn't it seem strange? A western holiday such as Valentine's Day is receiving so much recognition in a country that has very different culture from America? This growing trend is the end result of western companies using every sales ploy in the book to create more revenue to their balance sheet. They pry on Chinese consumers' desperate desire to experience the American lifestyle by introducing these Hallmark holidays.

Is this the beginning of western invasion in China? Will one day Valentine's Day become a Chinese holiday? KFC's vision is to "be integrated into Chinese consumers' lives." I'm scared that one day I will see children in China gulf down super-sized burgers and drink a extra large cup of Coca-cola for dinner.

Half the iPhone for Half the Price

According to a news article from the Wall Street Journal, Apple will soon release a line of less costly iPhones:

Apple Inc. is working on the first of a new line of iPhones and an overhaul of software services for the devices, people familiar with the matter said, moving to accelerate sales of its smartphones amid growing competition.

One of the people, who saw a prototype of the phone late last year, said the device is intended for sale alongside Apple's existing line. The new device would be about half the size of the iPhone 4, which is the current model.

Of course, with a smaller model, some features will be eliminated from the iPhone 4. Below are a picture of the current iPhone 4 model next to the rumored image of the new iPhone, unofficially dubbed "N97". Bloomberg also reported that Apple was working hard on the iPhone to combat the growing Android market.

I applaud Apple for always being one step ahead of the game.Of course, this should be no surprise to Apple consumers as they have already witness the progression from the iPod to the simplified iPod nano. (Did you know the profit margin for the nanos are much greater than the original ones? Apple knows how to cash it in.)

Excited? Rumor has it that this cheaper version will be unveiled during summertime, much like the releases of its predecessors.

Borders Bites the Dust

The Wall Street Journal reports that Borders is preparing to file for bankruptcy within the next week:

Borders has abandoned efforts to refinance its debts, and is preparing bankruptcy papers and seeking financing agreements that would keep it operating during the Chapter 11 restructuring process, the people said.

Once a corporate giant, Borders had over 40,000 employees and more than 1200 stores during its prime time in 2005. Unfortunately, that is not the case today. Based on the data graph below, there's a sharp decline in both employees and stores within the last five years.

(Source: WSJ)

This is a hard blow to the book industry. As Americans eagerly embrace technology, iPad, Nook, and Kindle are ubiquitous. E-readers are doing to Borders what Netflix and videos on demand did to Blockbuster. Unless Borders can find a way to successfully restructure itself, it is only a matter of time before e-books will antiquate physical books and even book stores.

I am very sadden by the news as visiting bookstores were a favorite part of my childhood. I love to peruse through book stacks to see what catch my attention. Maybe I'm just an old soul that prefers physical books, but there's a sense of nostalgia to lounge in a comfy chair and hold a real book while reading.

Is this the end of an era?

White iPhone 4 spotted at retail stores

For those that have anticipated for the release of Apple's white iPhone 4 since last June, the wait is finally over! Spotted at a Best Buy store in Houston, TX, the ivory cased iPhone 4 can be yours for the same sweet n' low price as the black model -- $599.99!!! The Source (the Canadian RadioShack) also posted their own price tag.

 Apple is certainly stepping up their game recently. First releasing Verizon iPhones and now this, maybe Steve Jobs's "medical leave" wasn't a bad decision after all.

 

[Source: Engadget]