Stories by Daniel Gross

  • Dan Gross: Lessons From Motown

    A world-beating made-in-the-U.S.A. industry, long insulated from foreign competition, dominates global markets and cheerily doles out stratospheric wages and benefits. As it begins to lose market share, executives write off international competition as a low-quality nuisance. When the foreign ripple becomes a wave, corporate chieftains look to the government for help and blame regulations and plaintiffs' lawyers for their woes, rather than confront their own untenable cost structure.Detroit and the auto industry, circa 1985? Yes. But it also sounds an awful lot like New York and Wall Street, circa 2007.Wall Street's loss of global market share in initial public offerings has reached a crisis level. In 2005, 24 of the globe's 25 largest IPOs took place overseas. So did nine of the 10 largest of the class of 2006, including the record $20.6 billion IPO of Industrial & Commercial Bank of China, which was staged in Hong Kong. Last month, DLF, the Indian real-estate company, held a ...
  • Gross: The Best of Flights, The Worst of Flights

    Flying today is a Dickensian affair. Flight diaries read like production notes for "Oliver": endless lines, screaming children, basic necessities confiscated, uncomfortable physical inspections, cramped conditions and food of dubious quality.For frequent fliers, it is clearly the worst of times. In the first quarter of 2007, only 71.4 percent of flights arrived on time, and 19,260 passengers were involuntarily bumped—up 13 percent from the year before. In July, 16,988 flights were canceled, up 54 percent from July 2006, according to FlightStats.com.And yet for airline companies, these are the best of times. The industry was laid low by 9/11 and the 2001 recession, as giants like United, US Airways and Delta filed for Chapter 11. But the airlines' winter of despair has given way to a spring of hope. In a recent conference call, American Airlines CEO Gerard Arpey crowed about "the largest quarterly profit [$317 million] since we launched the turnaround plan more than four years ago."...
  • Gross: The GOP's Flawed Health-Care Reform

    For some reason, Rudy Giuliani thinks you and I can do a better job negotiating for health insurance than big corporations with deep pockets. Time for a reality check on health-care reform.
  • Gross: The Sinking Dollar Also Has an Upside

    Imagine waking up and finding the value of your assets has been halved. No, you're not an investor in one of those Bear Stearns hedge funds that went belly up. Welcome to London! In Britain, when Big Ben chimes 11 a.m. and 3 p.m., the locals take tea—and American tourists head for the ATMs. With the dollar slumping to a 26-year low against the pound, already-expensive London has become jolly unaffordable. A macchiato at Starbucks, just as unavoidable in England as it is in the United States, runs about $8.The once almighty dollar isn't doing a Titanic against just the pound sterling. Currency analyst Ashraf Laidi of CMC Markets in New York notes that the greenback is sitting at a record low against the euro and at a 30-year low against the Canadian dollar. Even the Brazilian real and Argentine peso, the Los Angeles Clippers of currencies, are thriving against the buck. When I asked Laidi where a resident of the world's most powerful nation might find the dollar retaining some...
  • The National Capital of Real Estate Folly

    Until recently, Orange County was the New Jersey to Los Angeles' New York City. Upscale, but generally ignored, and nowhere near as chic or happening as its urbane neighbor. Television helped change the image, with glitzy offerings like The O.C., Laguna Beach, and The Real Housewives of Orange County.These shows portray the beachside O.C. as the capital of plastic surgery and extreme consumption. But inland, just over the hills, the massive planned community of Irvine has become the nation's capital of real estate folly. And that's surprising, given that Irvine is itself a result of one of the great real estate investment plays of all time.The transformation of the Irvine Ranch from a sparsely populated agricultural tract into a densely populated upscale edge city is astonishing. The Irvine Ranch's owners have amassed huge fortunes through their financial acumen. (Donald Bren is No. 27 on the Forbes 400.) Incorporated in 1971, Irvine boasts a diversified economy and superb...
  • Gross: Foreign Companies Muscle in on U.S. Turf

    Filling up at a gas station in Pelham Manor, N.Y., the shocking thing isn't the $3.33-per-gallon price. No, it's the red LUKOIL sign atop the cinder-block building. The Russian energy behemoth, which bought Getty in 2000, has transformed hundreds of Northeast outlets into Lukoil stations (417 at current count).Americans generally display few qualms about buying foreign-made stuff. In May, imports outpaced exports by a whopping $60 billion. But we exercise more discretion with brand-name goods and services. Those that make it here tend to comport with American consumers' parochial sense of what countries are good at producing: electronics from Japan, Italian clothing, French wine. Indian luxury cars and Japanese wines are a much harder sell. Americans have also been slow to embrace imports in the immensely valuable realms of customer experiences, like retail concepts.But that's changing as globalization continues to produce ironies. Lukoil is one of several retail operations of...
  • Gross: Private Equity's Next Takeover Target?

    On the weekends, while private equity barons loll around their Hamptons estates, their lawyers, investment bankers, and junior partners hammer out deals. Every Monday brings the announcement of at least one transaction in which a private equity firm agrees to take a publicly held company off the market. This morning's example: Equipment rental company United Rentals agreed to be acquired by Cerberus for $4 billion.Traders and arbitrageurs speculate feverishly about which company will be the next target of a voracious private equity firm. (Last week, the buzz was all about Macy's, for example.) The speculation isn't random: Private equity buyers like Cerberus and the Blackstone Group seek companies with certain distinguishing characteristics. These include (but are by no means limited to) the following: a stock that has been beaten down recently, allowing the buyer to get the deal done on the cheap; an underlying business with healthy margins that generates lots of cash, which will...
  • Gross: Why There's an Ethanol Backlash

    Ethanol, the substitute for gasoline that in the United States is largely derived from corn, is hot. Statistics from the Renewable Fuels Association show that production doubled between 2002 and 2006, from 2.1 billion to 4.9 billion gallons, allowing the United States to surpass Brazil as the Saudi Arabia of ethanol. When the 86 plants under construction today are completed, American production capacity will top 13 billion gallons per year. In his most recent State of the Union address, President Bush called for the United States to produce 35 billion gallons of renewable fuels in 2017.Any rapidly growing, paradigm-shifting industry is bound to engender both enthusiasm and resistance in roughly equal amounts. And the prospect of using grains, which have generally been cheap in this country, as a replacement for fossil fuels, was bound to excite hope and ruffle feathers. After all, while farmers and ethanol-plant investors will profit, companies and industries that rely on cheap...
  • Gross: When Charity Isn't So Charitable

    Sometimes it takes a brilliant, carefully crafted novel, such as Anthony Trollope's The Way We Live Now or Tom Wolfe's The Bonfire of the Vanities, to capture a culture of money, ambition, and corporate avarice. And sometimes it takes just a few paragraphs, as with this 224-word article by Louise Kramer (fourth item down) in the Sunday New York Times business section, which describes a philanthropic trend at big New York law firms. Under the Chow for Charity program, now in its fifth year, summer associates at the giant law firm Simpson Thacher can elect not to enjoy a $60 per person lunch with a firm lawyer. Instead, if they choose to eat with the lawyer at a more down-scale joint and spend $15 or less each, the firm will donate the difference ($45 per person) to a nonprofit legal group like Legal Aid.How does this small piece neatly encapsulate several important trends?1. A Touch of Conscience. These days, any company that markets to or needs to hire well-educated proto-yuppies...
  • Barbarian No More

    The afternoon of Tuesday, July 3, was dead calm on Wall Street. The markets had closed early at 1 p.m., and traders and brokers had long since hustled off to the Hamptons. But at 5:19 p.m., KKR & Co. quietly set off its own fireworks: in a Securities and Exchange Commission filing, founding cousins Henry Kravis and George Roberts signaled their intention to let public investors buy into one of the nation's most lucrative businesses: their $53.4 billion private-equity firm.The filing, made 11 days after Blackstone Group became the first private-equity firm to float an IPO, signals a low-key return to the public limelight for Kravis, the 63-year-old Oklahoma-born multibillionaire who cofounded Kohlberg Kravis Roberts in 1976. Kravis was the enfant terrible of Wall Street during the 1980s, and his so-called leveraged buyouts of companies like Safeway and Duracell presaged today's private-equity craze. Kravis and his second wife, fashion designer Carolyn Roehm, dominated financial...
  • Sears Stock Takes a Hit on Profit News

    Sears Holdings, whose 3,800 Sears and Kmart stores make it the nation's fourth-largest broad-line retailer, surprised investors with an earnings announcement yesterday. For the first nine weeks of the current quarter, same-store sales fell 3.9 percent from last year, and quarterly profits could fall by up to 45 percent. CEO Aylwin Lewis noted that the company had been hurt by declining appliance sales (that darned housing market) and needed "to become more relevant to consumers." (That's retail-ese for our merchandise bites.) The stock plummeted about 10 percent on the news.The declining same-store sales for Kmart and Sears were nothing new, but the negative market reaction was. For the last several years, Sears Holdings, a mini-conglomerate cobbled together by hedge-fund whiz Eddie Lampert, has been a stock market darling. (Here's the stunning five-year chart.) Lampert acquired Kmart, which went bankrupt in January 2002, brought it out of bankruptcy, and used it as a platform to...
  • Moneybox: The Barneys Mystery

    Wall Street is going back to the future. This morning, news broke that a bidding war has erupted between a Japanese retailer and Dubai's state investment fund, Istithmar, over posh retailer Barneys. Last week Citigroup's London headquarters, a tower in the mega-complex Canary Wharf, sold for $2 billion.Those of us of a certain age—i.e., if you can remember listening to REM cassette tapes on a Walkman—may recall that Barneys and Canary Wharf were high-flying businesses of the 1980s that turned into major fiascos of the 1990s. History's snap judgment was that the families behind Barneys and Canary Wharf (the Pressmans and Reichmanns, respectively) had destroyed major franchises with their hubris and reckless management. When the firms filed for bankruptcy, the ideas behind their businesses—a nationwide superhigh-end clothing store in the case of Barneys, a new high-rise office center in east London in the case of Canary Wharf—were likewise deemed bankrupt.But the line separating...
  • Moneybox: The Barneys Mystery

    Wall Street is going back to the future. This morning, news broke that a bidding war has erupted between a Japanese retailer and Dubai's state investment fund, Istithmar, over posh retailer Barneys. Last week Citigroup's London headquarters, a tower in the mega-complex Canary Wharf, sold for $2 billion.Those of us of a certain age—i.e., if you can remember listening to REM cassette tapes on a Walkman—may recall that Barneys and Canary Wharf were high-flying businesses of the 1980s that turned into major fiascos of the 1990s. History's snap judgment was that the families behind Barneys and Canary Wharf (the Pressmans and Reichmanns, respectively) had destroyed major franchises with their hubris and reckless management. When the firms filed for bankruptcy, the ideas behind their businesses—a nationwide superhigh-end clothing store in the case of Barneys, a new high-rise office center in east London in the case of Canary Wharf—were likewise deemed bankrupt.But the line separating...
  • Dan Gross on Bear Stearns's Hedge Fund Bailout

    Bear Stearns has always been the pesky, streetwise, kid brother in the Wall Street family—smaller, younger (it was founded in 1923), and less polished. Bear lacks Goldman Sachs' tradition of public-minded financiers, the brand name of Merrill Lynch, the proud WASP lineage of Morgan Stanley, or the overwhelming size of Citigroup and Chase. Bear Stearns' market capitalization is a measly $21 billion, less than one-tenth that of Citigroup. CEO Jimmy Cayne isn't a Harvard MBA; he's a former scrap-iron salesman who didn't complete his studies at Purdue. Bear Stearns confirmed its outsider status in 1998 by refusing to participate in the Wall Street-orchestrated bailout of faltering hedge fund Long Term Capital Management.But now Bear Stearns has finally joined the club. Last month, facing a crisis at two large hedge funds run by its asset management unit, Bear Stearns agreed to bail out one of the funds (and its many creditors) by providing a $1.6 billion line of credit. The move,...

Pages