US 2009 Q1 GDP Numbers

The GDP numbers released yesterday looked bad and marked the third consecutive decline in GDP. The economy shrank at 6.1% and the only glimmer of hope was — consumer spending.

When we entered this year, a lot of people expected recovery to begin in the second half of the year, but now it seems that the recovery is going to start only at the beginning of next year. This is what the IMF said some time ago, when they said that the global economy would shrink this year and then growth will only begin in 2010.

The only good news is that although the economy has done as badly, as it did in the last quarter — the declines came from diminishing inventories and investments, which adjust themselves to lower demand.

Here is a chart that compares how the two consecutive quarters fared.

The first three bars on this graph are consumer spending which fell rapidly during the last quarter and recovered in this quarter. Then the next two bars show business and housing investments, both of which were worse than last quarter.

Business investments fell because of the decline in consumer spending in earlier quarters and that makes the 6.1% – number a little less worse, than it appears. Since, consumer spending has shown sign of stabilization — business investment will also follow suit in the near future and stabilize quickly.

The fact that trade fell consistently is a really bad sign because countries use exports to claw their way out of a recession, but, if the whole world is struggling, then who can you export to?

I can’t wait for 2010 to arrive.

Citi and BoFA Fail Stress Tests: Time for Bonuses?

WSJ reported yesterday that regulators have told Bank of America and Citigroup that they would need to raise more capital based on the stress test results.

Obviously, this means that their current capital is not enough and they have failed the stress tests. What this also means is that the great first quarter results shown by Citi didn’t mean much and the noises made by Mr. Ken Lewis about asking for 20 billion instead of just 10 billion was not a “tactical mistake”.

Ordinarily, this would have meant huge bonuses for Citi and BofA executives, but, at least in the case of BofA — some people down at CalPERS don’t seem to agree. CalPERS is the biggest US Public Pension fund and holds about $176 billion dollars in assets. They own 22.7 million Bank of America shares and are going to vote against the re-election of Mr. Lewis and all other directors.

From their press release:

CalPERS contends that Lewis and other directors failed to disclose information to shareowners in connection with Bank of America’s merger with Merrill Lynch.  The pension fund also believes that the undisclosed payment of billions of dollars in bonuses to Merrill Lynch executives – before completion of the merger – warrants a vote against all directors.

“The entire board failed in its duties to shareowners and should be removed,” said CalPERS Board President Rob Feckner.  He noted the poor condition of the company, the failure by directors to disclose the extent of Merrill Lynch’s losses prior to consummation of the merger, the payment of billions of dollars to Merrill executives in bonuses for failure, and the failure of the board to act in the best interests of shareowners in overseeing management.

Citi is currently negotiating with the government to allow bonuses for its energy trading unit. You all know what a great quarter it just had.

This little piece from NYT sums it well:

One of the maneuvers, widely used since the financial crisis erupted last spring, involves the way Citigroup accounted for a decline in the value of its own debt, a move known as a credit value adjustment. The strategy added $2.7 billion to the company’s bottom line during the quarter, a figure that dwarfed Citigroup’s reported net income. Here is how it worked:

Citigroup’s debt has lost value in the bond market because of concerns about the company’s financial health. But under accounting rules, Citigroup was allowed to book a one-time gain approximately equivalent to that decline because, in theory, it could buy back its debt cheaply in the open market. Citigroup did not actually do that, however.

This is akin to negotiating with your credit card company; bringing your debt down from $5,000 to $2,500 — and then partying with the $2,500 dollar profits.

What party? — you ask.

Didn’t you hear about Wall Street compensation in the first quarter going back to 2007 pre – crash levels. I heard it when a Nobel Prize winning economist was griping about it.

So what’s going on here? Why are paychecks heading for the stratosphere again? Claims that firms have to pay these salaries to retain their best people aren’t plausible: with employment in the financial sector plunging, where are those people going to go?

No, the real reason financial firms are paying big again is simply because they can. They’re making money again (although not as much as they claim), and why not? After all, they can borrow cheaply, thanks to all those federal guarantees, and lend at much higher rates. So it’s eat, drink and be merry, for tomorrow you may be regulated.

Or maybe not. There’s a palpable sense in the financial press that the storm has passed: stocks are up, the economy’s nose-dive may be leveling off, and the Obama administration will probably let the bankers off with nothing more than a few stern speeches. Rightly or wrongly, the bankers seem to believe that a return to business as usual is just around the corner.

So, the banks are making paper profits and paying cash bonuses and yet their troubles don’t seem to end. What could they possibly do?

The answer is very simple — increase the Tangible Common Equity of banks and everything will be fine. Banks are not sufficiently funded, so if you fund them through this liquidity crisis — they will be just fine.

From Reuters:

Citi’s tangible common equity ratio was 1.66 percent at the end of the first quarter. Converting preferred shares into common, coupled with the $2.7 billion sale of a stake in Smith Barney brokerage unit into a joint venture with Morgan Stanley, should raise its tangible common equity ratio to 4.97 percent, Fox Pitt Kelton analysts wrote in a report two weeks ago.

So, even though they will not get any real cash, at least their books will look good. James Kwak made an insightful observation about TCE and preferred — common conversions a couple of months ago:

Because of the newly perceived need for TCE, the bailout plan under discussion is to convert some of the preferred stock into common stock. Citi wouldn’t actually get any new cash from the government, but it would be relieved some of the dividend payments (currently close to $3 billion per year), and of the obligation to buy back the shares in five years. (For the impact on Citi’s capital ratios, see FT Alphaville.) This is a real benefit to the bank’s bottom line, and hence to the common shareholders. At the same time, though, Citi would issue new common shares to the government, diluting the existing common shareholders (meaning that they now own a smaller percentage of the bank than before). In theory, the amount by which the shareholders in aggregate are better off should balance the amount of dilution to the existing shareholders.

So, even though banks have been doing pretty good when it comes to book profits and are doing equally well managing cash outflows; the situation doesn’t seem to improve.

Is it time to pause and rethink this whole thing?

Management Discussion and Analysis

Company annual reports are long and boring documents that contains numbers, pictures and tables that can put you to sleep — right at the start of your day.

However, there is one section in an annual report that is concise (less than 10 minutes reading time) and you almost always end up knowing a little more about the company than you started out with. This section is the — Management Discussion and Analysis.

This section contains a brief description of the year gone by and some of the key factors that influenced the business of the company in that year. You should read it with a healthy dose of skepticism, as the management is talking about its own business and are usually optimistic. It is a quick read and often reveals interesting bits of information about a business that trigger important questions.

Where Can You Find The Management Discussion and Analysis?

Let’s take the example of New York Times to see where we can find its management discussion and if we find anything interesting in it.

  1. Go to
  2. Look for a link called — Investors. This should be a small link hidden somewhere at the top or the bottom. In this case, there is no such link, but, if you scroll down to the bottom of the page –  you will find that there is a link called — The New York Times Company. This seems to be the parent company, click on this link.
  3. On this page, you will see the — Investors — link right at the top. Click it.
  4. On the right side of the page that opens up — you will see a link called — Financials. Click it.
  5. You will see the link for Annual Reports & Forms 10 – K. Click on 2008 Annual Report & 10-k
  6. This will open up the PDF, look for the section of Management Discussion and Analysis in the Index or Table of Contents and go directly to it.

This is the section that you are interested in.

The first thing that I noticed in this section was the company structure and which parts were contributing to the revenue of the $2.9 billion dollar revenue. I also didn’t know that was part of the same company as NYT.



Source: 2008 NYTCO Annual Report

As you read on — you will find other bits of interesting information about the company — its business environment, challenges it faces, measures it plans to take etc.

Almost all companies have their annual reports located in the same way as NYT and the Management Discussion is present in all of them.

Reading this in ten minutes won’t make you an expert stock picker or a star fund manager, but, it is an excellent start for people who have never picked up an annual report and want to learn more about the companies they plan to invest in or are already invested in.

Prepaid Cards: Pros and Cons

Prepaid Cards have been around for a long time now, and a lot of people use prepaid cards despite their costs and charges. Prepaid cards have their pros and cons and are targeted at people who find it difficult to open a bank account and need a card to shop online or just avoid carrying cash.

When you buy a prepaid card — you have to load it with your money and then you can use it like you would use a debit card. Most prepaid cards will charge you a fee when you are loading it initially and then other fee like — annual fee, reloading fee etc. Each card differs in their fee and charges so you can compare a few prepaid credit cards and see which one is best for you.

Here is a take on the top pros and cons of prepaid cards.

Benefits of Prepaid Cards

1. Safety: Prepaid cards are a good option for people who are not able to open a bank account and don’t want to carry cash with them all the time.

2. Shop Online: It is impossible to shop online without having a debit or credit card. If you need to shop online and don’t have a debit card, then you can use a prepaid card to do this.

3. Use for Car Rentals, Air tickets and Gas Stations: A lot of people use prepaid cards for getting car rentals, at gas stations or booking airline tickets. There are some places which don’t accept cash and prepaid cards come in handy at such places. However, there are some disadvantages to this, which we will discuss later.

Disadvantages of Prepaid Cards

1. High Fee: If you are using a prepaid card — you will be charged every step of the way. There will be a fee when you load it, then another when you re-load it; it is quite likely that you will be charged if you ever call them up and then there is the annual fee. The high fees of prepaid cards make them the last option for anyone.

2. Does Not Help Build Credit: A lot of people get a prepaid card because they are not able to get credit cards and want to build their credit histories. Prepaid cards don’t help in this at all. They are not means of credit and don’t report to the credit bureaus, so they don’t help you build a credit history in any way.

3. Not all Rentals and Hotels Accept Prepaid Cards: This is a really important point because a lot of people get a prepaid card to rent a car and then find out that it is not accepted at their rental. If you plan to get a prepaid card for renting a car or booking a hotel, then first check with them if they accept any prepaid cards or not. Often, you will find that it’s not easy to rent a car with prepaid cards.

4. Hold Money For Over a Week: The other thing that takes people by surprise is that some gas stations or hotels will put a hold on your prepaid card that lasts over a week. So, if you fill gas worth $20 worth with your prepaid card, some gas stations may even put a hold of $75 on your prepaid card, and you won’t be able to use this money till the hold lasts.

These were some important pros and cons of prepaid cards that you should keep in mind while deciding whether one is right for you or not.

This site has regular features about credit cards, personal finance and other money related articles, if you would like to get that content by email, please click here. 

OneMint – Economy and Your Finances – April 26, 2009

Welcome to the April 26, 2009 edition of OneMint – Economy and Your Finances. As usual, there are some great entries here, so read on and enjoy your Sunday!

John Russell presents 14 Auto Insurance Savings Secrets – Part-1 of 14 posted at The Low Cost Auto Insurance Guru, saying, “If you knew how this industry actually works, it would save you thousands of dollars each year on auto insurance. Want to know the secrets behind the premiums you pay? Exactly what is the ” presents Balance Chasing – is it Happening to You? posted at Credit Card Assist.

apply4-credit presents Secured Credit Cards – Hard to Get but Still Useful posted at

Leave Debt Behind presents Top 5 Ways to Get out of Debt posted at Leave Debt Behind.

Ben presents Best Deals Sites Online: FatWallet posted at Money Smart Life.

Billeater presents Electric Choice- Compare Electric Providers, Switch and Save posted at Billeater.

Matthew Paulson presents How to Choose a Good Financial Advisor posted at American Consumer News.

Debt Freedom Fighter presents Simple and Easy Methods to Reduce Your Debt Significantly posted at Discover Debt Freedom!.

Savings Toolbox presents Property and Casualty Insurance – What You Should Know posted at Savings Toolbox.

debt kid presents What Would You Do with a $5000 Interest-Free Loan? posted at DebtKid.

Handy Saputra presents Bankruptcy Repair Strategy That Will Improve Your Credit Score posted at Home Loan and Mortgage Info,

Deposit Accounts presents Keep More of Your Money: Tips for Better Banking posted at Deposit Accounts.

nickel presents How to Protect Yourself from Identity Theft and E-mail Scams posted at

Jason Fieldhouse presents Great sites to use if you want to save some money (UK) posted at frieeend!.

Sarah Scrafford presents 100 Lectures That Will Teach You to Be Rich posted at Clear View Education Blog.

Tisha Tolar presents Press Release: Empowering Mom Blog Gearing up To Celebrate Mom in the Month of May – Monday Giveaways! posted at Empowering Mom.

Billeater presents Beyond the Basics- Dig Deeper and Save Money posted at Billeater.

Ben presents Credit reports and Credit Scores – Choosing the Best one for You posted at Money Smart Life.

Matthew Paulson presents Can Penny Pinching Go too Far? posted at American Consumer News.


Mr Credit Card presents Business And Personal Debt posted at Ask Mr Credit Card.

Silicon Valley Blogger presents YNAB (You Need A Budget) Personal Budget Software Is 10% Off posted at The Digerati Life

PicktheBrain presents Is a College Education Worth a Lifetime of Debt? posted at School Loans.

Summer Munyon presents First Time Homebuyers Qualify For An $8,000 Gift posted at Tallahassee Real Estate Blog, saying, “The First Time Homebuyer Tax Credit. People want to know what it is, where is the information on the program, who qualifies (meaning even if you have owned a home previously you might qualify), and what resources exist for people to find out more.”


Dorian Wales presents The Japanese Banking Crisis of the 1990’s: Are We Facing a Similar Stagnation? posted at The Personal Financier, saying, “What can we learn from the 1990’s Japanese banking crisis and the long slump in the Japanese stock market? Are we facing a similar scenario?”

The Investor presents Why have bank shares risen so far, so fast? posted at, saying, “What do these results really tell us about bank earnings, and about the sustainability of the recent stock market rally?”

Wren Caulfield presents A Macro Perspective: One way war keeps poor people poor posted at True Adventures in Money Hacking, saying, “Informed opinion piece about the monetary costs of war on individual citizens.”


Investing School presents OptionsXpress Review posted at Investing School, saying, “OptionsXpress is great for options trading. Good commissions, free tools and more.”

Darwin presents How to Invest in Cuba – Does Obama’s Cuba Deal Spell Gains? posted at Darwin’s Finance, saying, “With Obama’s recent olive branch to Cuba, a CUBA focused Fund rallied 40% overnight. Will the trend continue?”

Dan at Everydayfinance presents 24 Dividend Increases in a Row from a Company You’ve Never Heard of posted at Everyday Finance, saying, “This article highlights an obscure company that has a 24-quarter strong dividend increase streak.”

Personal Finance

Patrick @ Cash Money Life presents How Much Life Insurance Do You Need? posted at Cash Money Life, saying, “This is a question everyone should ask themselves – particularly if they have a family that relies upon their income.”

Patrick @ Military Money presents Free Tax Deadline Extensions for Military Members posted at Military Finance Network, saying, “Tips on how military members can file for a free tax deadline extension.”

PFCreditCards presents The Credit Card Debate posted at PF Credit Cards, saying, “Love it or hate it, credit cards are apart of our society.”

Alison Storm presents Cell Phone Savings: How to Get Coupons on Your Mobile posted at, saying, “If sitting down with a pair of scissors and the Sunday paper seems like an antiquated way to save money, then cell phone coupons may be a better way to go.”

KCLau presents Bad Experience of Car Insurance Claim posted at KCLau’s Money Tips, saying, “a story of bad experience with vehicle insurance claim”

Credit Shout presents How to Choose a Cash Back Credit Card posted at CreditShout.

Paul Piotrowski presents The Importance of Saving Money posted at Inspired Money Maker.

Ray presents 2009 Federal Income Tax Brackets posted at Money Blue Book.

MoneyNing presents What Drives You to Be Frugal posted at Money Ning, saying, “The reason why I’m frugal is not strictly about necessity. What is the real reason for you?”

That concludes this edition. Submit your blog article to the next edition of OneMint – Economy and Your Finances using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

Bullet Proof Jackets For Elections

A few weeks ago I wrote about the upcoming Indian elections and how they offer an opportunity for an economic stimulus. Candidates spend on SUVs, television ads, rallies and such to promote themselves, and in turn, boost the economy.

I didn’t realize that candidates spent money on bullet proof jackets to protect themselves, when they went on to give speeches and hold rallies!

I don’t remember the last time an Indian politician was shot down at a rally, so they might be over doing it, but as long as they can create a boom — no one will complain.

It seems that they didn’t use the bullet proof vests in earlier elections because the vests were not stylish enough, but, now — these vests are stylish enough for politicians, as people can’t make out whether they are really wearing one or not.

Take a look at this Reuters clip.

All this while we were worried about trivial stuff like the global recession and pirates, while they have figured out what people really need — better dressed politicians!

Criminal Records of Politicians

If you are not satisfied with how well dressed your government representatives are — here is a website that has got some really important information that will interest you.

One of my friends forwarded me:, which is a website that is gathering information about the criminal records of politicians and making it available for the general public.

You can go to, select your state, then your constituency and a list of candidates along with their police records gets displayed. You can then compare these results and see the criminal record of the candidates.

It is disheartening to see that so many candidates have a criminal record, but, at the same time, there are plenty others who don’t. So you could see the glass three fourths empty or a quarter full.

Tata Motors FD: Questions


Tata Motors Fixed Deposit Plan has aroused a lot of investor interest and people have been quite interested in getting more information about this FD plan.

One of the things that I had missed about the Tata Motors FD plan when I wrote about it earlier was the increased rate of interest you get, if you are a shareholder.

Additional 0.25% for Shareholders, Employees and Senior Citizens

You get an additional 0.25% if you fall under the following three categories:

  1. You are the company’s shareholder
  2. You are an employee of the company or its subsidiary
  3. You are a senior citizen. (Over 60 years old)

You just get an additional 0.25%, even if you fall under more than one category. So, if you are a 61 year old employee who happens to be a shareholder of Tata Motors — you still only get an additional 0.25%.

Since, you can’t age overnight and it’s not that easy to become a Tata Motors employee — you could buy a few Tata Motors shares; become a shareholder and increase the rate of interest by 0.25%.

What If I Break the FD?

If you invest in the Tata FD and have to break the FD or withdraw your money prematurely — the investment form says that the withdrawals will be allowed on the sole discretion of the company.

The form goes on to say that there will be a reduction in the interest rate to the extent permissible by the Companies (Acceptance of Deposits) Rules, 1975. And finally, that Tata Motors will deduct the brokerage they paid at the time of issuing the debt.

Here is what the form says:

Premature withdrawal will be permissible at the sole discretion of the Company. All such prematured refunds shall be subject to such terms, including reduction in the rate of interest as prescribed in the Companies (Acceptance of Deposits) Rules, 1975, as applicable. Further any Brokerage paid by the Company at the time of acceptance/renewal, will also be deducted on any premature repayment .

I looked up the Companies (Acceptance of Deposits) Rules, 1975, and it says that if someone breaks a fixed deposit after six months (at least) — the company issuing the fixed deposit can reduce the rate of interest by up to 1%.

So, there are three things you should remember, in case you break the fixed deposit plan before its maturity:

  1. Tata Motors holds the sole discretion to allow you to withdraw your funds.
  2. They will deduct the brokerage they had to pay for setting up the fixed deposit.
  3. They may reduce the rate of interest by up to 1%, if you have at least completed six months with the fixed deposit plan.

These were two questions that I found interesting about this scheme and was interested to find out what the form said about them. You can read the basic details about the plan in a post that I wrote earlier and can be found here.

This site has regular features about IPOs, FDs and other investment ideas, if you would like to get that content by email, please click here. 

Gold ETF: iShares Comex Gold Trust (IAU)

iShares Comex Gold Trust (IAU) is a Gold ETF, which holds physical gold as its underlying asset and moves in tandem with gold prices. The sponsor of IAU is Barclays Bank and it trades on the NYSE ARCA. As the sponsor — Barclays has appointed The Bank of New York as the trustee and it is responsible for the day to day administration of the trust.

The Bank of New York has further appointed The Bank of Nova Scotia as the custodian and it is responsible for the safekeeping of the gold owned by the trust.


IAU Backed By Physical Gold

IAU holds stock of physical gold which is held by the custodian near New York, Montreal, Toronto and London. There are different types of commodity funds — some that create future contracts to reflect the price movement in the underlying asset, others hold stocks of mining companies and some actually hold the underlying physical asset. IAU falls under this category.

IAU: Expense Ratio

IAU has an expense ratio of 0.4% and compares favorably to other gold funds and their expense ratios.

IAU is a Passive Investment Vehicle

IAU is passive in nature and it doesn’t engage in gold trading. To that extent — this investment should be strictly viewed as a proxy for buying gold. If you are looking for a gold mutual fund that actively engages in trading the commodity and earn profits — over and above gains in gold prices — then this is not the right investment vehicle for you.

Factors Affecting Gold Prices

Gold and the Dollar

Gold has rallied in the recent past with the anticipation that the Fed’s printing press will cause inflationary pressures and lead to a crash in the value of the dollar, and people have been buying gold to protect themselves from the dollar crash, as historically, there has been an inverse relationship between the value of the dollar and gold prices.


Gold: Demand and Supply

In 1998: 2,574 tonnes of gold were mined globally. This figure has slightly declined to 2,476 tonnes in 2007. So, in the last ten years or so — gold mining has been stagnant and even witnessed a marginal decline.

At the same time the total fabrication (major demand component) declined from 3,737 tonnes in 1998 to 3,072 tonnes in 2007.  So, even though supply fell, demand fell at a faster rate.

This is an interesting trend, but since gold is a precious metal — the simple equation of demand and supply for fabrication is more of an indicator, than a decisive factor determining the direction gold prices. Other factors like dollar declines, stock market downturns etc. play a significant role in determining the price of gold.

On to IAU itself, it is a good vehicle for someone considering passive investment in gold but who doesn’t wish to hold physical quantity for whatever reason.

Disclaimer: I don’t own IAU at the time of writing

The Roof And The Floor

The Investoralist had this excellent post on the narrowing of gap between the rich and poor and how the inequality gap was shrinking.

Here is an excerpt:

“In the US, the statistics are no less glaring. Numbers show that in 1979, the top 0.1% Americans earned 20 times the income of the bottom 90%. This number climbed to 77 times in 2006. The tide is now turning. During the last three downturns, the share of income held by the richest 1% of Americans obligingly declined. Economists are now predicting that in the next year or two, the share of income by the richest American will fall from an estimated 23% or 24% in 2007, to 18% to 19%.”

The gap is narrowing, but, for the wrong reason. The poor are not getting richer — the rich are getting poorer.

This reminds of a conversation that I had more than 10 years ago, when India’s globalization process was still relatively new and there was debate on whether it was good or bad.

The rise of outsourcing and other such industries meant that there was a rising middle class in India that was concentrated in big cities and towns. The rural areas did not gain as much from globalization as the urban areas and as a result the gap between the urban rich and the rural poor was widening.

The wealth did trickle down to the lowest segments of the society and the number of people below the poverty line as a percentage to the total population declined over the years. The poor were also getting richer albeit; at a slower pace.

At that time, someone had said to me that there is some angst among the poor that the rich are getting richer, even though the poor are getting richer too.

It was like a room in which the rich were perched at the roof-top and the poor were on the floor with a distance of 10 feet in between. Both, the floor and the roof were moving upwards, but, the roof was moving at a much more rapid pace than the floor.

The rich were getting richer at a faster pace than the poor were getting richer. So if the roof moved up by ten feet — the floor only moved up by two or three feet.

As a result, while the poor were now enjoying a higher standard of living, when they looked up at the rich — they saw a lifestyle that was far better than before. They also saw that to attain their dreams of being rich — they will have to get much more wealthier than they thought was needed a decade ago. This created some sort of despair in people who were really better off than they were ever before in their lives. Anyone, who has a neighbor can understand this feeling and also that the focus should be on pushing the floor higher; not, pulling the roof lower.

Ten years later, I fully understand what she meant.

Store Brands: Money Saving Idea


Store Brands are a type of Private Label, and as the name suggests — they are brands owned and named after a store. For example — Walgreens has a wide range of store brands, which includes body washes, shaving accessories and other such things that have the Walgreens name on it.

Store Brands are cheaper than competing National Brands and offer competitive quality at a reasonable price. For example, a Walgreen Body Wash costs about $2.99, which competes with the Old Spice brand that costs  $4.99.

Store Brands have been growing in popularity for a long time now and most major retailers have a range of products under their brands.

In fact, Walgreens stated that its private label sales shot up by 15% in Q4 2008, which goes to show the growing popularity of store brands. Of course, in the case of Walgreens — their store brands are decked up in between the National brands and look quite similar to them. The first time I bought a Walgreens store brand — I didn’t even realize what it was. But, later, I didn’t notice any difference in quality, so I didn’t mind using it.

One of the reasons that store brands are cheaper is that retailers usually don’t advertise their products that much and save that cost.

Retailers love store brands because it gives them a lot of control over inventory. A store owner in Goa once explained to me, that they don’t have a lot of flexibility in terms of pricing the products of national brands. National brands lay down certain price limits (high and low) and retailers have to stick to that. National brands do this so that consumers get a fairly uniform price for their products, regardless of the store they buy from.

So, if there is some inventory that is not getting sold — the retailers don’t always have an option of getting rid of their inventory at fire — sale prices. The national brands don’t allow them to sell below a certain price and in many cases they are stuck with lavender shirts with white stripes.

If  you stock up your own brand, then this limitation doesn’t exist. So, when you recognize that there is no market for lavender shirts with white stripes — you can sell it off for an 80% discount and at least get rid of your inventory.

This helps ease cash flow and enable them to manage their working capital better.

From the customer’s perspective — if you are not fiercely loyal to a particular shampoo or body wash — you should give the store brand a try and see if it helps ease a little burden on your wallet.