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Bill Zielinski
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Bill Zielinski is the author of Mortgaged Future (http://mortgagedfuture.com/). The blog focuses on assessing our over leveraged world. Insights are offered on how to cope and prosper in a world of excess credit and leverage. Bill holds an MBA in finance and is a CPA, currently working in the... More
My company:
Northeast Mortgage Corp
My blog:
mortgagedfuture.com
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  • Jones Soda - Back From The Dead

    About a decade ago, Jones Soda (OTCQB:JSDA) was briefly an incredible success story about a regionally popular brand which had used grassroots marketing to achieve rapid growth on a national scale. Unfortunately, the soda story fizzled when they tried to expand into national chains like Target (NYSE:TGT) and Walmart (NYSE:WMT) using aluminum cans rather than their iconic glass bottles. In addition, Jones Soda began their expansion efforts precisely at a time when the popularity of carbonated beverages began to decline.

    A combination of missteps and bad timing brought the company to the brink of bankruptcy, driving its once promising stock from a peak of more than $28 to less than $1. The price fell further to about 25 cents after the shares were delisted from the NASDAQ exchange. Since early March Jones Soda has been moving steadily higher and recently had a higher volume spike that propelled the stock price above both the 6 month price range and the 50 and 200 day moving average.

    (click to enlarge)

    courtesy: yahoo finance

    (click to enlarge)

    Things may finally be looking brighter for Jones Soda with new CEO Jennifer Cue at the helm. Since her appointment on June 30, 2012, she has implemented a back to basics turnaround strategy which has allowed the company to stabilize before pursuing a path of responsible and hopefully profitable growth.

    The strategy involved rapidly trimming expenses and slightly retrenching to the company's core markets and independent distributors. In the latest quarter, operating expenses were cut to $1.1 million compared to $2.7 million last year. Some of the cuts did have an impact on revenue which fell to $3.1 million from $3.4 million in the prior year. Despite the drop in revenue, gross profit was up slightly, showing the positive impact of the realignment of costs.

    The loss from operations for the most recent quarter was $448,000, a vast improvement from the loss of $2.0 million last year. Most significantly, the company was cash flow positive for the quarter with $247,000 generated from operations. In the previous three quarters, Jones Soda had negative cash flow from operations of $6.5 million, and they were at risk of running out of capital. Now the company believes they have sufficient working capital to carry out their operating plan for 2013. In addition to $4.1 million of working capital, Jones Soda has a $2 million credit facility.

    Corporate insiders have confirmed their conviction of a brighter future for Jones Soda through a series of stock purchases. CEO Jennifer Cue bought 50,000 shares at $0.30 from December 7 to 10, 2012. Carrie Traner, VP of Finance bought 10,000 shares at $0.29 to $0.34 on March 14 - 15, 2013 and Director Mills A Brown bought (indirectly) 81,350 shares at $0.2975 to $.033 on March 15, 2013.

    Now that the company has brought expenses under control, they are investing in distribution and product lines that will drive long term profitable growth. After laying off nearly half of their staff in the second half of 2012, they recently hired four new employees for their sales staff. The sales staff is now paid on a variable compensation structure, which should help to keep costs aligned with revenue.

    The company has just introduced Jones Natural, which will soon launch in California. The new beverage has 30 calories and will come in four different flavors. It will be offered in 50 Albertson's grocery stores in the natural foods section. The new beverage will also be offered in 25 Whole Foods Market (NASDAQ:WFM) stores in Northern California. Significantly, this is the first time that a Jones Soda product has been carried by Whole Foods.

    The groundwork has now been laid for a possible return to growth and profitability for a company once left for dead. The current market cap of merely $13 million hardly reflects the progress that has been made in the last two quarters. While the stock remains extremely speculative, it is certainly one worth watching in the coming months.

    Disclosure: Long JSDA

    Disclosure: I am long OTCQB:JSDA.

    Mar 22 3:23 PM | Link | Comment!
  • Are The "Rich" Really Defaulting On Their Mortgages?

    Million Dollar Home Owners Falling Off The Cliff
    “I think you’ll find the only difference between the rich and other people is that the rich have more money” - Mary Colum
    If the difference between the rich and “other people” is money, why are the rich walking away from their mortgages just as fast as anyone else?   This question is examined in a recent New York Times article which cites a serious delinquency rate of 1 in 7 for homeowners with a mortgage over $1 million compared to a delinquency rate of 1 in 12 for smaller mortgages.  The Times’ conclusion is that the biggest defaulters on mortgages are ruthless rich folks with no scruples.
    Without citing specific statistical analysis, the Times article seems to draw the conclusion that anyone with a million dollar mortgage would have substantial financial resources that could be tapped to keep the mortgage current.   This may well be the case for some, but drawing from my own experience in the mortgage industry, many homeowners with the million dollar mortgages are financially thin and over leveraged.   For a variety of reasons ranging from ego, poor financial planing or irrational exuberance, many purchasers walk into million dollar homes with empty pockets.
    Many of the million dollar homes now in default were purchased when eager buyers believed that home values could only go up and that buying as much home as possible simply meant larger profits down the road.  A ten percent gain on a million dollar home results in a handsome $100,000 gain - ten times the profit from purchasing a $100,000 home.
    A few short years ago, at the height of the housing bubble, income was deemed irrelevant when banks granted mortgage approvals.   The proverbial strawberry picker or fast food cashier with average credit could use exotic mortgage programs to buy at any price level chosen, without the bother of a down payment or income verification.    Ever increasing home values then allowed cash extraction from a refinance or second mortgage, once again without the hassles of verifying income.  It should come as no surprise that wannabe millionaires taking the biggest risks now have the highest default rates.
    According to the Federal Reserve, “half of the defaults are driven purely by negative equity” when the mortgage debt exceeds 150% of a property’s value.  Since high priced homes have seen large declines in value, it should come as no surprise that many strategic defaults will occur at the high end of the market by homeowners with million dollar mortgages.  The open question is - does having a million dollar mortgage imply a wealthy homeowner?
    If a statistical study was done on the net worth of defaulting homeowners who have million dollar mortgages, it would probably reveal that many of these alleged “rich” homeowners have an embarrassingly low or negative net worth.  Consider the findings from one of the most influential studies on the mind set and lifestyles of the wealthy from The Millionaire Next Door: The Surprising Secrets of America’s Wealthy, by Thomas J. Stanley and William D. Danko.
    Characteristics of the millionaire next door:
    • Avoids buying status objects or leading a status lifestyle
    • 97% are homeowners with an average home value of $320,000, occupying the same home for over 20 years
    • The average millionaire lives well below his means and spends below his income level
    The rich did not get rich by being poor stewards of capital or chasing housing bubbles.  The bulk of those defaulting on million dollar mortgages (strategically or otherwise) are simply poor people, living in big houses they could never afford in the first place.
     


    Jul 15 3:53 AM | Link | Comment!
  • Why A Loan At 2,437% Interest Makes Sense

    And Why A Loan At 2,437% Interest Makes Sense

    For every loser, there is a winner.  Since the demise of the subprime lending industry, loan sharks have been reaping profits by lending to the same foolish crowd that used to be the target of subprime lenders.

    In this country, the new subprime lenders are called payday lenders, who operate legally.  In Britain, the new subprime lenders simply call themselves, well, loan sharks and operate without the courtesy of government sanction.  The Wall Street Journal had an interesting article on loan sharking in the UK that should have been titled - “Why The Foolish Can’t Be Protected From Themselves”.

    In a recent report, the U.K. think tank New Local Government Network said it expects the number of people with debts to loan sharks to jump to more than 200,000 in Britain this year, from an estimated 165,000 in 2006. A confluence of indebtedness, poverty and the diminished availability of regulated subprime credit are creating the conditions in which many are borrowing “from nefarious sources,” the report says.

    But perhaps no country in the world was more addicted to debt than the U.K. By the end of 2008, the average British household had a debt-to-income ratio of 180% compared with 140% for the average U.S. family, according to the Organization for Economic Cooperation and Development.

    That is coming back to haunt the U.K. The number of individual insolvencies rose by almost 30% year-to-year to 33,073 in England and Wales in the second quarter of 2009, the highest level since records began in 1960.

    New Lending Lessons For British Borrowers

    Apparently, over leveraged U.K. borrowers took every nickel they could from lenders foolish enough to lend to them, oblivious to rate or terms.  The actions of these borrowers could almost be viewed as rational since the money they borrowed and spent that they couldn’t pay back is now being absolved in bankruptcy courts with little repercussions from now defunct lenders.   U.K. borrowers who now have to deal with unlicensed loan sharks are shocked to learn that the loan sharks actually expect to be paid back - or else.

    Some consumers are going to loan sharks to fund purchases for items including new televisions, overseas vacations or expensive clothing.

    In mid-2007, Donna Ockerby, a 45-year-old auxiliary nurse in Manchester in northern England, turned to a local loan shark after her hours were cut at work. She borrowed £700 from Johnny “Boy” Kiely to help pay for a wedding dress.

    Mr. Kiely, who charged interest rates of up to 2,437%, was jailed earlier this summer for five years for offenses including blackmail and illegal money lending. Ms. Ockerby now lives in a one-bedroom apartment on government benefits. She was moved out of her childhood home by police to protect her. Ms. Ockerby, who says she is on antidepressants, says the decisions to borrow from a loan shark ruined her life.

    I’m sorry Ms. Ockerby but you are a financial idiot who deserved to pay the market rate of 2,437% interest.  Did you ever hear of “if you can’t afford it don’t buy it”?  What was the problem with buying or renting a used wedding dress for a fraction of the cost?  Johnny “Boy” Kiely risked his capital, is now in jail and out his £700.  Johnny “Boy” did not ruin your life - you did.


    Sep 03 6:41 PM | Link | Comment!
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