Arrow declared bankruptcy several days before Christmas. No warning, no winding down and no information. Their “quality experience for drivers” included cancelling their fuel cards and leaving them stranded on the road days before Christmas. A recorded message on the company phones kindly offered to buy the drivers a bus ticket home if they turned their rigs in at designated sites.

Some drivers don’t have a permanent residence — they live in their trucks. So much for the kind offer. Some have a residence but travel with their spouses and pets. Fortunately, the news spread fast and others offered the Arrow drivers/spouses/pets help and rides home. There is also a Facebook page “Support Stranded Arrow Truckers”.

What about Arrow’s customers?  The website says they are “prepared to devote our undivided attention to every one of your loads.” One wonders what happened to the loads as drivers scrambled for fuel and a way home.

There were warning signs. Unpaid bills. Some payroll checks weren’t cut and others bounced in recent months.

YRC, a less than a truck-load hauler based in Overland, KS, narrowly averted bankruptcy with a debt to equity swap recently. They are also under negotiations with their creditors. The Teamsters Union, representing the drivers, were instrumental in putting the deals together. On Dec 31, they set a record when their stock traded at $0.80, the lowest price in NYSE history. They operate trucks under the Yellow, Roadway and New Penn brands.

The lawyers are circling. Arrow’s actions violated the federal Worker Adjustment and Retraining Notification Act. The WARN act requires companies to give staff two month’s notice before closing down.

Last year, one of my clients declared bankruptcy. They told me I needed to do some work for them in order to get paid. Like an idiot, I believed them. I never got a dime. “It’s not personal”, they said. Actually, bankruptcy is VERY personal.

People spend considerable time and effort in Christmas giving. Professor Waldfogel found that givers place about 20% more value on a gift than recipients. He says we spend $145 billion for Christmas gifts. Great news! Gifts lose $29 billion in value when passing from giver to receiver. Reminds me of driving a new car off the lot!

Suppose you spend $50 on something you want and you get (usually) $50 in satisfaction. Next, suppose you spend $50 on a gift during a buying frenzy and that the recipient values the gift at $40. The value of the transaction is $90. A thoughtful and loving gift to someone you know well will likely have a value of  $50 value because it is exactly what they wanted. Then the total value is $100.

OK, you say, I’ll give a gift card. However, people usually spend 90% of the gift card. That makes the retailers happy. They need that now.

Buy on credit and make the banks happy. They will earn interest and (possibly) late fees over the next several months.

Suppose you give the recipient a luxury, something they value but wouldn’t do themselves. He recommends a gift to a charity. It makes the giver and the recipient look like heroes and makes the charity very happy. They REALLY need the help.

Limiting gift giving to those you know well makes the merchants unhappy because it will cut down on spending. Retailers  earn most of their yearly profits during the Christmas season.

I warned you, it’s the dismal science!

For example, the construction industry, which grew by 2.1%, covers 43% of their workers with employer-sponsored health insurance. The utilities industry, which shrank by 2.8%, covers 84% of workers with similar insurance.  

The analysts surveyed 38 industries. They estimated that a 10% increase in excess health-care cost growth would result in about 120,2800 fewer jobs, $28 billion in lost revenues and about $14 billion in lost value-added. These numbers can be mitigated as workers can move from industries having higher rates of health-care coverage to industries without health insurance.

Canada has universal health insurance. Analysts compared industry growth in the US and Canadian over the same time period. They found no relationship between the growth of US industries and the Canadian counterparts. The lack of a relationship suggests that excess growth in health care costs does have an adverse affect on employment and that the affects are higher in industries with higher rates of employer-sponsored health care insurance.  

I looked at US health statistics from 1984 to 2005 and there is no surprise.

• The baseline for obesity statistics is 1960-62. That year 13.4% of the population was obese. In 1988-94 the percentage was 23.2 and in 2005-2006 it was 35.1.
• 25.5% of the population had hypertension in 1988-1944. In 2003-2006 it was 31.3%. The numbers for elevated blood pressure dropped no doubt due to drugs.
• Life expectancy is 77.7 years. Age-related death rates in 2006 decreased for 10 of the 15 leading causes.

Now 67% of the population is overweight or obese. I like to look at older movies – the performers are thinner. I continue to notice that parents to look healthier than their children. The weight gain is obvious as is the labored breathing and lack of flexibility.

Growth used to be about productivity–now it is in our waistlines.  We are spending money instead of taking personal responsibility for our health. Personal discipline has an impact our quality of life and our competitiveness in the world.

The Great Crash of 1929 is very timely. Just substitute ‘real estate’ for ’stock market’ frenzy and change the dates. It sounds like today’s news. The last chapters are an eye opener. The spotlight shines on embezzlers and reputations.

The front page of the Connecticut Post had a story about a pillar of the community – and a con man. Some said he did a lot of good. Others are looking for their life savings. His gig was biofuels. Trees are a renewable resource and can replace petroleum as a fuel! There was this particularly fast-growing tree in Asia. . . . Sure there was! Anyone want to buy a bridge?

I visualize the fuel tank of a Hummer. It holds enough biofuel (from corn) to feed a person for a year. Seems like a lot of trees! Uh-oh, there’s the common sense test — corn grows faster than trees.

I tell my clients to pay attention and to think about whether or not things make sense. How long would it take a Hummer to burn the biofuel from one tree? Do your income and expenses make sense? Does anyone of the financial staff refuse to take a vacation?

A sharp eye, a keen mind and a questioning attitude are your first line of defense.

Your customer says, ‘Send me a bill.’ You do and it goes into the accounts receivable for your business. The receivable is like a loan, that is they have the use of your merchandise or services before they pay for them. The receivable is an asset until they pay you for it. If it’s due in 30 days, it represents cash you expect to see next month. The receivable is considered good (or collectable) for the first 30 days. Collection likelihood goes down over time and most consider the receivable uncollectable after 90 days.

Your customer falls off the edge of the earth. You and your accountant huddle. Sooner or later the loan is not collectable. Writing off the receivable means converting it from a sale to a bad debt; that is, from an asset to an expense. Then the asset is gone forever; however, there’s a silver lining — the expense reduces your taxes for the year. Now for the cosmic question: When do you claim the expense? The answer is that it is up to you and your accountant.

Times are tough so let’s get creative! Bank profits are down because many banks are claiming loan losses before they have a history of delinquent payments. This maneuver is called building up reserves. It means that they are anticipating the loss now so it won’t affect their profits if the loss occurs later. Our esteemed President (and the Group of Twenty) has asked regulators to let the bankers be more ‘forward’ in taking ‘expected losses’. So banks are helping out, some claiming reserve-related expenses in the $100 million range. Nice guys.

This kind maneuver reduces their income taxes. GE’s corporate taxes have dropped from 31% to 5% due to problems at GE capital. Should they actually continue to collect the payments, they will declare the loans as income and bring up their profits.

Loses now, profits later through the magic of politics and accounting.

BlackBerry Bold 900 is an ‘exclusive’ model for AT&T. The ’sales associate’ said it cost $299.95. The price is a bit murky—they quote the price as if you already had the AT&T store rebate (which comes 2-3 months later). Best Buy sells it (with an AT&T contract) for $629.99 with no rebate. You can also get it for $60/month with no contract, etc. I tried the Blackberry website for another price and they sent me to the AT&T website. So much for that.

 All business owners struggle with pricing. Supposedly it’s part art, part science. Mostly, it’s trial and error. Usually, however, prices move between the limits of a band. This is a REALLY wide band!

 The iPhone started at $399 with a $20/month contract with AT&T. Sales shot up when they dropped the price of the phone to $199 and added $30/month for Internet access even though the first contract was $40 cheaper for the phone and 2-year contract.

The battleground for sales volume appears to be at the low end of the market (that’s the free phones with just calling and texting). Gartner reports cell phone sales declined 8.6% during 2009 Q1. Smart phones, representing 13.5% of the market, grew 12.7%. There’s lots of buzz is about the Apps and they require an Internet connection. I was amazed that the simple game of Tetris uses an Internet connection on the Blackberry.

 My phone bill says they charge by the minute for calls and for each text message. Internet usage is a flat fee and it is probably the most expensive service to provide. Cell phone minutes are dropping and texting is increasing.

It’s hard to say what it costs the phone companies to make the call. I’ve seen numbers of around 5¢ a call. First, there are all those plans and agreements. More important, it would be hard to figure out how much it costs AT&T for a specific call when I am stuck in traffic. Texting protocols are robust, simple and cheap. Demand is high so their margins on texting are very good.

What a fine opportunity for creative marketing!

Our government releases happy reports that there are ‘net new jobs’. Well, that’s exciting because we all know some folks who are looking for a job. It’s funny though, they are still looking for jobs. What is going on?

Recently, I red an article in a Florida community paper and it all made sense. I had a good solid education in undergraduate mathematics so I proceed from the basics. OK, a new job – that means another person has a job. Right? Not so fast!

Under federal rules, employment is not measured by actual bodies hired; rather they take the number of hours for a worker each quarter and divide that by the total hours over that period that would equate to full-time employment.

Now let’s have some fun. Suppose my company has 400 employees (the word really is ‘suppose’!) Suppose further that we had a big order and that everyone had to work an extra hour each week for the last quarter. Now, hang in there and prepare for fuzzy math (that part was in graduate school!). Each person worked one hour extra each week giving 4800 more effort-hours in that quarter (400 people times 1 hour times 12 weeks). Suppose that each employee works 40 hours/week and there are 12 weeks in a quarter: so, each employee works 480 hours/quarter.

Looks like the stimulus is working! OMG, 10 new jobs (OK folks, I know this is strange — we divided the new 4800 hours by effort hours/quarter. 4800/480 = 10 new jobs!!!) I’m going to write my congressmen and thank them! Unfortunately, the people who were looking for a job are still looking. Go figure.

The hypothesis asserts that prices on traded assets already reflect all known information and that prices will change to reflect new information. Therefore, the only way to outperform the market consistently is through luck. The hypothesis also leads to the conclusion that markets generate the best outcome for both parties over time. Recently I read Bernstein’s classic Against the Gods, the Remarkable Story of Risk. Great stories about people, gambling and adventures in making money.

Math is math and people are people.  Would you choose an 80% chance of winning $4000 and a 20% of winning nothing vs. a 100% chance of winning $3000? Most people select $3000, the latter, although the first choice has a greater outcome ($3200 = 80% of $4000). Not efficient.

 Two questions: How much would you pay to eliminate a 1 in 1000 chance of an immediate death? How much would you have to be paid to accept a 1 in 1000 chance of an immediate death? Answers vary widely although it is the same question worded differently. Decisions aren’t always consistent.

 Why do corporations pay out dividends to stockholders and then take out loans to expand when they could just use the payout to finance the expansion? Looks like interest on the loan is an unnecessary expense. Not efficient.

 2008 was a surprise to most financiers and economists. Models produce economic indices, predictions and other tools of decision and policy. The real world isn’t tidy and precise.

 Math is math and people are people. 

CiT, a major small business lender, is flirting with bankruptcy. They serve middle-market businesses. Mid-market sits between the sole-proprietorships and the large corporations. Mid-market definitions vary with between 10 (to 20)  and 100 (to 500)  employees and annual revenues between $10 million and $60 million in revenues. Intuit says there are 615,000 businesses in this market .

Who are CiT’s customers? They provide loans to franchises such like Dunkin Donuts. Franchise owners use loans at startup, remodeling and so forth.

 CiT is also a factoring resource. Factoring, a loan on accounts receivable. is very common in the apparel industry. A business sells garments to its customers for delivery in the future. This agreement is a receivable. A company in Asia makes the garments and sends them to America. The factoring bank pays for the garments, customers pay the factoring bank, they collect a fee and the business gets the remainder.

 CiT is suffering from general weakness in the retail sector. CiT says they are still approving credit, collecting invoices and remitting funds to businesses. Factoring banks need cash flow and volume is down about 20%. Some of their cash comes from loans and CiT is having trouble making their loan payments. Enter bankruptcy.

 Eventually, people have to buy the clothes. Folks must be looking for clothes in their closets instead of the mall. Maybe they will even take the tags off the ones they haven’t worn.