Friday, February 15, 2008

Wayne Huizenga - the absolute deal maker

I just finished the audio version of the book – “The Making of a Blockbuster: How Wayne Huizenga Built a Sports and Entertainment Empire from Trash, Grit, and Videotape”. It is the story of Wayne Huizenga – probably the only person in history to have built 3 Fortune 1000 companies from scratch – Waste Management, Blockbuster and AutoNation. He also owns the Miami Dolphins and is the past owner of the Florida Marlins baseball team and the Panthers hockey team.

The book takes us thru Wayne’s journey of building Waste Management from a one-man shop to a mega empire thru tons of acquisitions. It showcases Wayne as a master deal maker. Wayne held fast to two rules: Don't loose a deal because you're not paying attention to it and never talk about it until it is done and in writing". Wayne is the ultimate deal maker, and the book demonstrates how he reached the highest levels of business success through intense hard work, and single minded determination and drive.

It also takes the reader thru Wayne’s intense negotiations with Sumner Redstone of Viacom. His passion was the service business. Blockbuster employees nicknamed him “Toilet Man” since he always used to inspect the bathrooms as he visited stores – if the bathrooms were not clean, it meant lack of attention or care for the customer.

It is a wonderful book that showcases the grit, determination and passion of a deal maker and a true business leader. Wayne is now 70 years old.

Saturday, February 9, 2008

How does the Fed pump money into the economy?

We hear on CNBC and read in financial journals that the “Fed is pumping money into the economy”. What does this mean? Does it mean the Fed works overtime and prints lot of currency? No, it does not work that way.

The Federal Reserve (Fed) has 3 methods to influence its monetary policy
i) Raise/Lower short-term interest rates
ii) Raise/Lower the amount of reserves that banks are required to hold
iii) Open Market Transactions

Short-term Interest Rates
When the economy is softening (current state), a rate cut improves things – since it makes things cheaper. On the other hand, if the economy is too strong, an interest rate cut slows down the economy.

If the Fed asks banks to raise their reserves, it means banks need to hold on to more money which in turn reduces the money supply and thus tightens credit. When the Fed asks banks to lower their reserves, there is more money that the banks can lend.

Open Market Transactions
Open market transactions are measures by which the Fed controls the money supply by buying and selling government securities, or other financial instruments. Of the three, Open Market transactions have the most immediate effect on the economy. If the Fed wants to squeeze money from the system, it sells bonds from its account. This deducts the amount from the dealer (bank) thus draining money from the system. On the other hand, if the Fed wants to “pump money into the economy”, it will buy bonds and pay the bank that sold them. This money then flows thru the system and that is how the Fed increases money supply.

The Fed has been buying a ton of subprime mortgage bonds (since there were virtually no buyers for it) in light of the subprime crisis.

Wednesday, February 6, 2008

Confessions of a Wall Street Analyst

I just read the book “Confessions of a Wall Street Analyst” by Dan Reingold. Dan was the superstar telecom analyst on Wall Street in the 1990’s. He tracks the “unplanned” journey from MCI to becoming a star analyst on Wall Street. Dan takes us thru the fast-paced life of an analyst traveling across the globe and responding to investors/customers around the clock with no respite. It takes us inside the firms like – Morgan Stanley, Merrill Lynch, and Credit Suisse First Bank.

He describes the (shady) dealings of Global Crossing and WorldCom – the failed telecom companies. The book focuses on his intense rivalry and fight with arch nemesis – security analyst Jack Grubman. It outlines their competition to get on top of the list of the “Institutional Investor” – which is considered the bible for rating Wall Street analysts. Jack was eventually banned for life from the securities industry.

It is a good read – albeit you get to hear just Dan’s side of the story. Will Jack write a book outlining his side of the story? We will have to wait and see.