• Progressive Comes Tumbl-ing Down
    Posted by on August 16th, 2012 at 11:22 am

    In case you still had some faith remaining, post-2008, that big financial institutions have your best interests at heart, or that insurance companies are motivated first and foremost by a desire to serve their policyholders, or that they will even honor their contractual obligations, Matt Fisher is here to set you straight.

    Matt is a New York-based comedian and blogger. He had the great misfortune, two years ago, to lose his younger sister Katie in a car accident. And now he’s been subjected to a legal ordeal that would make even Franz Kafka’s head swim.

    To all appearances, the case involving Katie’s death was pretty much open-and-shut. She was driving on a Baltimore street and had stopped at a red light. When the light turned green, she proceeded to cross the intersection. Another car ran the light and slammed into her. The driver’s insurance company, Nationwide, tacitly admitted fault and agreed to settle right away. For most people, this is the very definition of a no-brainer.

    For most people. But then most people aren’t lawyers for huge insurance firms.

    The difficulty arises from the fact that the other driver was underinsured, and that Katie had taken out a policy with Progressive ($PGR) that protected her against the possibility of an accident with an underinsured motorist. When Matt’s family tried to get the insurance giant to make up the difference in the value of his sister’s policy—i.e. to make good on the contract for which Katie had been spending her hard-earned money, i.e. to obey the law—Progressive said no way.

    Now this in itself is perhaps not surprising, especially for many Americans who have had the misfortune to find themselves obligated to squeeze money out of the stone that is the heart of a large insurance company. What is surprising, or rather horrifying, is the series of barriers that Matt’s family then found between themselves and justice.

    First off, they found that Maryland law prohibits clients from suing an insurance firm for non-payment on a policy. This probably comes as no shock in a post-AIG world. Second, they found that if they wanted some semblance of fairness, they’d have to bring a civil suit against the other driver (which they really didn’t want to do) as a way of gaining legal leverage and so hopefully getting Progressive to pay up. Third, they found that Progressive was willing to stoop to anything, anything, to avoid doing the right thing.

    What does “anything” mean? Well, ordinarily, insurance companies pay their lawyers to crucify those who are on the opposing team, which is to say, those who have caused accidents that the companies’ clients are not responsible for. But this wasn’t what Progressive did. Instead, they actually took sides against their own client and offered legal counsel to their opponent, namely the underinsured driver. As Matt puts it:

    At the trial, the guy who killed my sister was defended by Progressive’s legal team.

    At the beginning of the trial on Monday, August 6th, an attorney identified himself as Jeffrey R. Moffat and stated that he worked for Progressive Advanced Insurance Company. He then sat next to the defendant. During the trial, both in and out of the courtroom, he conferred with the defendant. He gave an opening statement to the jury, in which he proposed the idea that the defendant should not be found negligent in the case. He cross-examined the plaintiff’s witnesses. On direct examination, he questioned all of the defense’s witnesses. He made objections on behalf of the defendant, and he was a party to the argument of all of the objections heard in the case. After all of the witnesses had been called, he stood before the jury and gave a closing argument, in which he argued that my sister was responsible for the accident that killed her, and that the jury should not decide that the defendant was negligent.

    I am comfortable characterizing this as a legal defense.

    Aside from the baroque legal issues this “defense” raises—if Katie was in fact responsible for the accident, then wouldn’t the underinsured motorist have the right to sue Progressive for his damages?—it really adds another twist of the knife for Matt’s family. But even then, Progressive wasn’t done with the Fishers.

    The jury, in a moment of sanity, found for Matt’s family, awarding them some $760,000. As yet, the Fishers haven’t seen a penny. But when Matt decided to make public the whole ordeal on his blog—which then proceeded to be picked up far and wide by the chatterati, Twitted and Tumbl-ed ad infinitum—Progressive made the mistake of trying to do damage control. With predictable results. After thousands of people went on the company’s Facebook page, threatening to cancel their policies, Progressive’s PR people issued via Twitter what has to be the single lamest apology ever penned:

    This is a tragic case, and our sympathies go out to Mr. Fisher and his family for the pain they’ve had to endure. We fully investigated this claim and relevant background, and feel we properly handled the claim within our contractual obligations.

    Yep, that’s right, “within our contractual obligations.” And to make matters worse, in the face of growing public outrage, Progressive simply continued to Tweet the same robotic post. It’s been all downhill from there. Gawker has picked up the story, excoriating the insurance firm for its handling of the whole affair. Meanwhile, for the tens of thousands of other online readers who have chimed in, Progressive’s ass-covering has come to epitomize the soullessness and dehumanization, the lack of even the most rudimentary human decency, that seem to characterize so much of modern corporate behavior.

    How will this affect the company’s bottom line? That remains to be seen, but some fallout is probably inevitable. Progressive is a solid company, but it’s going through a rocky period right now, and this can only make it rockier. Last quarter, rising health expenses led to higher claims costs, which in turn led to falling profits. Net income and operating profits have also fallen short. To top it all off, there’s even talk of the company’s retiring Flo, the bizarrely bubbly counter girl in its highly successful ad campaign, whose grin has suddenly come to seem a liability, even disturbing. The upshot? A glaring sign above the stock’s ticker: DO NOT BUY.

    Progressive seems not to have learned one of the key lessons of the social-media age. There is no privacy anymore. Every move a company makes can, and given the public’s endless need for stimulation, inevitably will, be broadcast on the huge Jumbotron that is the internet. Corporate decision-makers would be well-advised to behave as though their every move were being played before a capacity crowd at the Rose Bowl. The distance between in-house and viral is exactly two mouse clicks, the time it takes to send an angry blog post into the cybersphere. Caveat venditor: let the seller beware.

  • Morning News: August 16, 2012
    Posted by on August 16th, 2012 at 9:00 am

    Euro-Area Inflation Held Steady in July After Economy Contracted

    Merkel Cites Canada as Debt-Deficit Model in Europe’s Crisis

    China Stocks Fall to Two-Week Low After Foreign Investment Drops

    Nikkei Hits 6-Week High As Soft Yen Puts Focus on Exporters

    Gold Runs Out in Lisbon as Price Drop Compounds Money Misery

    Risk Builds as Junk Bonds Boom

    Treasury Yields Rise to Three-Month High Before Housing Report

    HSBC, Credit Suisse Sacrifice Employees to U.S., Lawyers Say

    Facebook Freeing 60% More Shares Seen Weighing on Its Stock

    Sears’s Loss Narrows, but Sales Keep Declining

    Deere Third-Quarter Net Up 11% But Cuts Profit, Sales Outlooks

    Cisco Still Pessimistic on Europe, Hikes Dividend

    China Mobile First-Half Core Profit Slips, Shares Down 5 Percent

    Roger Nusbaum: Stocks Will Not Make You Rich

    Joshua Brown: Groupoem

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  • Industrial Production Jumps 0.6% in July
    Posted by on August 15th, 2012 at 2:01 pm

    The government released the industrial production report for July and the news was mixed. The good news is that industrial production rose 0.6% in July which beat economists’ forecasts by 0.1%. The downside is that industrial production for June was revised down to an increase of 0.1%.

    The pickup in industrial production, the most in three months, may ease concerns that the industry that’s powered the expansion is faltering. At the same time, recessions in parts of Europe and the prospect of fiscal tightening in the U.S. are hurdles for American factories.

    “There are still strong trends in the auto industry and a number of other sectors which will keep industrial production from dipping into the negative this year,” Guy LeBas, fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report.

    I’m still a QE3 doubter and I think is more evidence that it’s not on its way. The crucial piece of the puzzle is jobs and that’s still not doing well.

    I like to follow the industrial production report because it has a very strong correlation with recessions and expansions. Check out the chart below.

  • Industrial Production Jumps 0.6% in July
    Posted by on August 15th, 2012 at 2:01 pm

    The government released the industrial production report for July and the news was mixed. The good news is that industrial production rose 0.6% in July which beat economists’ forecasts by 0.1%. The downside is that industrial production for June was revised down to an increase of 0.1%.

    The pickup in industrial production, the most in three months, may ease concerns that the industry that’s powered the expansion is faltering. At the same time, recessions in parts of Europe and the prospect of fiscal tightening in the U.S. are hurdles for American factories.

    “There are still strong trends in the auto industry and a number of other sectors which will keep industrial production from dipping into the negative this year,” Guy LeBas, fixed- income strategist at Janney Montgomery Scott LLC in Philadelphia, said before the report.

    I’m still a QE3 doubter and I think is more evidence that it’s not on its way. The crucial piece of the puzzle is jobs and that’s still not doing well.

    I like to follow the industrial production report because it has a very strong correlation with recessions and expansions. Check out the chart below.

  • Morning News: August 15, 2012
    Posted by on August 15th, 2012 at 7:39 am

    EU Banking Plans Asks ECB to Share Power, Documents Show

    No Longer Stagnating, Euro Zone Contracts

    China’s Wen Says Economy Still Under Pressure

    Retail Sales in U.S. Jumped More Than Forecast

    British Bank in $340 Million Settlement for Laundering

    Standard Chartered Faces Fed Probes After N.Y. Deal

    Lloyds Sells $1.6 Billion Private-Equity Assets to Coller

    Paulson Steps Up Gold Bet to 44% of Firm’s Equity Assets

    Carlyle Group to Buy Getty Images For $3.3 Billion

    Home Depot Net Rises 12% Despite Sales Pressure

    270 Million Facebook Shares About To Be Set Free

    Staples 2Q Profit Falls, Sales Slow In N. America

    Wells Fargo Settles Mortgage-Crisis Case for $6.5 Million

    Jeff Carter: Mayor Bloomberg, Money and Politics

    Gary Shilling: We Are Either In Or Entering A Recession

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  • A Housing Boom?
    Posted by on August 14th, 2012 at 10:51 am

    Is there a housing boom afoot? Well, the simple answer is no. But there has been some modestly good news, and combined with some very cheap prices in housing-related stocks, that’s added up to a nice rally in the sector.

    Check out this chart:

    Lennar ($LEN, red line) has added some impressive gains. Our Bed Bath & Beyond ($BBBY, orange line) has also been a strong performer. I also included Lowe’s ($LOW, black line) in order to contrast it with Home Depot ($HD, blue line). Just because two companies appear similar doesn’t mean the stocks will perform the same way.

  • A Housing Boom?
    Posted by on August 14th, 2012 at 10:51 am

    Is there a housing boom afoot? Well, the simple answer is no. But there has been some modestly good news, and combined with some very cheap prices in housing-related stocks, that’s added up to a nice rally in the sector.

    Check out this chart:

    Lennar ($LEN, red line) has added some impressive gains. Our Bed Bath & Beyond ($BBBY, orange line) has also been a strong performer. I also included Lowe’s ($LOW, black line) in order to contrast it with Home Depot ($HD, blue line). Just because two companies appear similar doesn’t mean the stocks will perform the same way.

  • A Housing Boom?
    Posted by on August 14th, 2012 at 10:51 am

    Is there a housing boom afoot? Well, the simple answer is no. But there has been some modestly good news, and combined with some very cheap prices in housing-related stocks, that’s added up to a nice rally in the sector.

    Check out this chart:

    Lennar ($LEN, red line) has added some impressive gains. Our Bed Bath & Beyond ($BBBY, orange line) has also been a strong performer. I also included Lowe’s ($LOW, black line) in order to contrast it with Home Depot ($HD, blue line). Just because two companies appear similar doesn’t mean the stocks will perform the same way.

  • The S&P 500 Breaks 1,410
    Posted by on August 14th, 2012 at 10:29 am

    The stock market is up a little bit today thanks to some good economic news. The Commerce Department said that retail sales for July rose by 0.8%. That topped Wall Street’s estimate which was at 0.3%. The down note in the report is that retail sales for June were revised down to a drop of 0.7%. Bloomberg noted that there was strength across the board—all 13 categories of retail sales increased last month.

    Once clue that the high-end of the market is doing well is that Saks ($SAKS) reiterated its sales forecast for the rest of this year. That’s a notable sign of confidence given the company’s rather weak Q2 earnings report.

    The Labor Department reported that wholesale inflation rose by 0.3% last month. What’s interesting is that energy costs dropped by 0.4%. That’s the fourth monthly drop in a row. Remember that the lower prices at the pump often (but not always) translate to more cash in the pockets of consumers. Tomorrow we’ll get the report on consumer inflation.

    The economic report this morning showed that business inventories increased by 0.1% in June. I don’t think there’s a major takeaway from this report (June is rather dated now) but it’s interesting that companies are keeping a tight lease on production. No one wants to churn out a bunch of stuff only to have it sit on a shelf in a warehouse. That costs money so companies are still a bit weary of shifting production into high gear.

    The S&P 500 broke 1,410 this morning. If that holds up, it will be our highest close since early April. The closing high was 1,419.04. If (when) we take that out, it will be the highest close in more than four years.

    The Buy List is doing fairly well this morning. I see that JPMorgan Chase ($JPM) got as high as $37.64 today. That’s very close to a post-Whale high. I must sound like a broken record about Ford ($F) but I think the stock is very cheap. On August 2, share of Ford got as low as $8.82. That’s truly amazing. Ford is finally showing some strength as it’s up over $9.50 today.

    I’m also holding out hope for Harris ($HRS). The stock has rallied for nine days in a row but it’s down slightly today.

  • Morning News: August 14, 2012
    Posted by on August 14th, 2012 at 7:51 am

    Euro-Area Economy Contracted In Second Quarter On Spain

    Hedge Funds Have $74 Billion As Europe Fire Sale Delayed

    Currency Flows Reversing China To Colombia As Trade Slows

    German Small Businesses Reflect Country’s Strength

    Carlyle, China PE Firms Bid $3.5 billion for Focus Media

    Greece Completes Largest Debt Sale in Two Years

    French Economy Tests Hollande

    Obama Announces Meat Purchase To Help Farmers Through Drought

    Home Depot Profit Tops Estimates As Customer Spend More

    Knight $440 Million Loss Sealed By New Rules On Canceling Trades

    Groupon Tumbles After Sales of Daily Deals Miss Estimates

    Ford Says Fiesta Vital To Lineup Despite Sales Slump

    Deloitte CEO Defends Firm’s Standard Chartered Work

    Pragmatic Capitalism: Q2 Earnings Surprises Masked Weaker Revenues

    Howard Lindzon: How to Invest for Losses and Misery…and ‘Active’ vs. ‘Passive’

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