Business Trends: Whole Foods, McDonalds and New Banking Fears

Published by clickbroker.blogspot.com.

Whole Foods Attacks Its Base
Apparently Whole Foods (WFMI) CEO John Mackey has not learned the real political lesson from Karl Rove. Instead, Mackey chose to regurgitate Rove’s false rhetoric on healthcare reform in a long winded editorial in The Wall Street Journal “The Whole Foods Alternative to ObamaCare”. I won’t repeat the details here.

Mackey’s Darwinist vigor to destroy and swallow his competition has led to Whole Foods unquestionable success. Entrepreneurs become successful either by feeling invincible or being paranoid. Legend is that Intel (INTC) is the success of the paranoid. When Intel started becoming too fat and happy David (AMD) took a nice size slice out of Goliath. The last few years returned Intel to its roots.

Recently I wrote “WFMI Moves from Whole-Paycheck to Partial Paycheck”, convinced that Mackey was developing a healthy sense of paranoia by steering the company back to its core values. I confess that I spoke too fast. Mackey’s healthcare editorial tells me that he still retains an unhealthy sense of invincibility.

Mackey’s Darwinist theory of healthcare is surely to antagonize his highly educated, one might even say elitist target audience. How could a customer willing to spend extra so that the farm workers get fair wages not want health insurance for all? Yet Mackey is calling for the uninsured and uninsurable to kneel at the mercy of philanthropists or just do without healthcare and die as martyrs. After all, he says healthcare is no more a right than food or shelter.

It’s interesting that when I watch the most unruly and disrespectful participants in this month’s political town hall meetings I see only the most obese and unhealthy. Granting those any health insurance at all runs counter to both Mackey’s Darwinist and personal responsibility doctrines.

Trouble is Mackey doesn’t really understand how Rove got George Bush, Jr. elected president twice. Rove would espouse any policies that galvanized the base, his personal morals were irrelevant. Unfortunately, Mackey’s core values are as superficial as Rove’s. And I believe Whole Foods customers will revolt.

The real question is did Whole Foods board of directors approve an outburst by the CEO that was clearly against the shareholders interests?

Charles Schwab meets McDonalds
The Wall Street Journal’s “McDonald's Profit Declines” reports some dissention in the land of McCafés (MCD). Sensing fear from Charles Schwab’s animated commercials warning about discussing a complex trade with an inexperienced broker, “some franchisees … voiced concern over how well equipped the stores are to handle complicated coffee orders.” Fortunately, my trades are never so complex that I would need Schwab’s services and I actually stopped drinking coffee.

Banks at Liquidation Value
Bloomberg’s “Next Bubble to Burst Is Banks’ Big Loan Values: Jonathan Weil” reports that Regions Financial’s (RF) loans were worth $22.8B less than book value and shareholder equity was just $18.7B. This was a footnote disclosure in the 10Q according to Bloomberg. Bank of America’s (BAC) discrepancy was $64.4B and Wells Fargo (WFC) $34.3B.

The fair-value gaps are based on the accounting distinction between loans held for investment and loans held for sale. Loans held for investment can optionally be fair valued, but traditionally are valued at historic cost (less impairments and reserves).

Bloomberg is also reporting “Toxic Loans Topping 5% May Push 150 Banks to Point of No Return”. While the government told us that the nation’s top 19 financial institutions are “guaranteed” not to fail, Bloomberg has screened a list of 150 publicly traded banks with non-performers over 5% and almost 300 at 3% or more. Bank failures when non-performers reach 5% are not imminent if reserves are adequate, but trouble is implied.

How scary are these stories? First liquidating value of loans should not be a key metric as long as the banks can reasonably be viewed as going concerns. Almost no businesses, whether financial or industrial, has a positive liquidating value without goodwill. However, I do give value to the investment risk in banks topping 5% non-performing loans or being inadequately reserved. Bloomberg alerted me to this regulatory benchmark.

Disclosures: Author is long BAC, INTC, RF and WFC.

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