Randomly Noted

In retail today, value certainly rules. That message was made yet again in the initial public offerings today of two companies who are all about value – Dollar General and rue21. Both closed higher than their offering prices but it was the smaller rue21 that did better – a 27.9% gain. The picture to the left tells you what rue21 is all about – inexpensive clothing for teens. Or in the company’s own words: for teens ages 11 to 17 who aspire to be 21. It’s been a stunning success story, especially recently. Despite the recession, same store sales have not only held up well but have been on a tear recently. For the 13-weeks ended October 31, 2009, same store sales were up 13.5%. We haven’t seen a number like that it retail for what feels like ages.

The company has experienced some bumps along the way to its recent success. It was founded in 1976 and was bought by Apax Partners in 1998. The company needed to refocus, so, it filed for bankruptcy in 2002 and emerged as a much smaller retailer. It’s a good old fashioned IPO in that the new shareholders paid $19 a share and Apex and others, post bankruptcy, paid essentially 1 cent for each share the now own.

The big question for a retailer like this is – can they stay up with the trends that their target audience wants? Others were hot for ahwile (Wet Seal, Abercrombie) and they later ran into rough times. The folks at rue21 seem to get it now. Will they tomorrow?

Remember my recent blog about the problematic Landry’s Restaurants buyout? DJN has just reported that activist hedge fund manager Bill Ackman has amassed a 9.6% stake in the firm and opposes CEO Tilman Fertitta’s planned $238 million buyout at $14.75 a share. The fireworks should be interesting, given Ackman’s history (eg Target.) Landry’s shares closed Friday at $16.18 – a sign investors broadly think the restaurant operator will land in another suitor’s arms at a higher price. As I pointed out the other day, a company would have difficulty thriving under the leadership of a fellow who has spent the past two years trying to take it private. Companies, even those which own the likes of the Rainforest Cafe and the Golden Nugget casino, need TLC.

As the debate on regulatory reform of the financial services industry heats up in Washington, the head of one of the world’s largest banks took to the op-ed pages of the Washington Post today to push his vision of reform. J.P. Morgan CEO Jamie Dimon may surprise some by arguing that the “too big to fail” doctrine should be tossed out the window. After all, such an approach protects his bank and the industry in general. His concern isn’t about protecting those troubled banks but instead in Washington efforts that could lead to a cap on how big banks should be allowed to get. Big is better is done with proper risk management and regulatory oversight.

Dimon argues that when a big bank gets into trouble, it should be allowed to unwind much in the way FDIC assisted bailouts are engineered today – with shareholders and subordinated creditors taking it on the chin.

There is much good logic to his argument. The problem, of course, is that the argument is all predicated on strong risk management and controls and a proper level of regulation. And that’s exactly what was missing at the beginning – and end – of the credit crisis.

The financial services industry might be going through a severe recession, but it’s apparently a more desirable place to work than Major League Baseball. The head athletic trainer of the Cincinnati Reds, Mark Mann, has resigned from his position to become a financial adviser for Morgan Stanley Smith Barney.

He’ll be working on the accounts of current and former major league ballplayers, a chance he called a “unique opportunity.” Maybe so, but he’s also leaving a franchise that is struggling, at the gate, on the field and financially.

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To the debate about whether central banks have to be more cognizant about the dangerous impact of inflating asset price bubbles and act precipitously to prick them, add this twist: not all bubbles are alike.

That’s the interesting treatise of a Nov. 10 op-ed piece in The Financial Times by Frederic Mishkin, former Federal Reserve governor and current Columbia University professor.

Mishkin posits that the stock price bubble associated with the tech boom of the late 1990s and the gains that preceded the stock crash in 1987 were benign bubbles in that they didn’t also involve a credit boom. There was no “feedback loop between bank lending and rising equity values.”

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