• Coffee and Doughnuts: sweet deal or a sugar rush?

    photo from indyrebaterealestate.com

    Dunkin' Donuts--by no means one of the technology stocks that are generally associated with IPOs--priced its initial public offering (IPO) at $19. Shares were available Wednesday, July 27, 2011.  By the end of the trading day, the stock price of Dunkin' Brands (DNKN) had risen over 46% to close at $27.45.  Ironically, this was during a week when the business environment, influenced by the "debt ceiling crisis"  caused most stock prices to fall.  As reported in the New York Times article "An IPO Built on the Basics: Sugar and Coffee," interest in this IPO was generated partly because the brand names associated with Dunkin' Brands--including Baskin Robbins--are well known.  Also, a wide range of investors experience and understand Dunkin' Brands products--sugar and coffee--much better than they understand the new media businesses like Pandora and LinkedIn, which also have generated IPO excitement this year. 

    Alas, by the end of the following day's trading, the stock price had fallen 5 cents per share, as reported in USA TODAY's article, "Dunkin Donuts Slips After Scorching Debut." Although there may be viable marketing opportunities for expansion of Dunkin' Donuts outlets in the western United States, the fall in price immediately brought to mind the downfall of another once-hot doughnut chain, Krispy Kreme.

    Follow up:
    1.  When the stock market is falling, what other types of investments become more attractive to investors?
    2.  Look up the companies with 2011 IPOs, including the ones mentioned above.  You might also want to include other fairly recent offerings such as Facebook and Google. Track the stock prices from the initial trading date until the current date.  Do you see any trends?

  • The business environment and the debt ceiling crisis

    photo from the Los Angeles Times (link below)

    The business environment is sensitive to inputs from global, economic, social, technological and competitive environments. The debt ceiling crisis that preceded the August 2, 2011 deadline created uncertainty in the global and economic arenas.  During early July, 2011, business leaders, for the most part, stayed out of the conversation, trusting that the political process would find a resolution.  But as the deadline approached, business leaders weighed in with one opinion in common: Solve this crisis!  Businesses cannot thrive without stability. 

    In the LA Times article, "Debt-ceiling threat has Wall Street scrambling," several business leaders voice strong opinions:

    • "No one … could possibly say that there is no chance of a catastrophic outcome," JPMorgan Chase & Co. CEO Jamie Dimon told analysts last week.
    • Citigroup analysts say the odds are 50-50 that the U.S. will be demoted to an AA rating for the first time ever.
    • One of the leading names on Wall Street, money manager BlackRock Inc., recruited leaders of other investment firms and large pension funds to send a joint letter to President Obama and congressional leaders asking them "to act with unity of purpose and spirit of commitment — and to act now."

    The government of the United States is a huge business itself, and the businesses and citizens who live and work here rely on its financial stability. 

    Follow up:
    When you read this post, the resolution to the debt ceiling crisis may have been achieved, and a solution may be at least partially implemented. Nevertheless, resolution of this particular issue will not resolve all of the financial problems that face the United States over the next decade.  The trickle-down effect of the economic policies will continue to affect business and individuals. Think about these questions:
    1.  Have you borrowed money for your education, to buy a car, or for a business venture?  What were the constraints on the amount you could borrow? What plans were put in place to pay the money back? 
    2.  Investments in government bonds, which fund the borrowing that is being limited here, are sometimes viewed as "conservative" investments.  This means that they do not have the possibilities of big gains, as some stock investments, and they also do not have the same risks.  Do you think this debt crisis will effect the willingness of other countries and US investors to loan money to the U.S. government by buying U.S. bonds? Will investors expect higher interest rates of return?  Why or why not?
    3.  How do you think the debt ceiling issue will impact your life over the next few years or long-term?