25 February 2007
Is the XM/Sirius Merger Going to Happen?
This has been the best news, by far, for both companies. With falling stock prices, there is no room for 2 providers, in order to sustain the cash flows and returns that shareholders want. With the expense of programming contracts (Oprah, Howard Stern, etc.), satellite launches, the industry needs something. So, a possible merger is good news. But, will it happen? That all depends on the FCC and their interpretation on the service provided by XM and Sirius. A while back, Dish Network and Direct TV wanted to merge, but that was struck down, due to anti-trust concerns. This is a similar situation, however, it will all depend on the FCC’s interpretation how digital media is perceived. The stock has reacted accordingly with the “good news”, however, I don’t know if the FCC will let it happen. My gut feel is that this will play out for awhile, and the FCC won’t allow it. Even if the FCC changed its rules and allowed it, there would be anti-trust concerns, which I don’t think either provider could satisfy. Time will tell.
24 February 2007
What can happen with Chrysler?
With all the gossip and speculation about the fate of Chrysler, I thought I would wrap up the various options available and give some insight as to what might make sense;
1) GM buying Chrysler – Under better times, this might not be such a bad idea, however, with GM bleeding cash, and still running their plants and dealer network inefficiently, the value of Chrysler would degrade to the point that the brand won’t be worth much when all is said and done. All you have to do is look what GM has done with the Buick brand, and eventually Chrysler will follow the same fate. I can’t see this deal happening. Odds – 10 to 1
2) Chinese buying Chrysler – With the deals being done overseas with the Big 3, this isn’t such a big stretch as one might think. With Buick being one of the top brands in China, Chrysler is a comparable line that would give Buick a run for the money, and immediately give Chrysler a presence in a developing market. However, given the Chinese reputation on manufacturing, the perception of quality will suffer, and will more than likely give Chrysler a big stumbling block in getting back to profitability, at least in the lucrative North American market. Chrysler might have to sacrifice more at home, in order to come back to life, under Chinese ownership. Odds – 3 to 1
3) Private Equity buying Chrysler – There are a few schools of thought on this one. PE firms have a knack for picking value, and can move in to make operations more efficient. However, the stumbling block with PE firms getting in on the action will be the reaction from the unions. Unions will find it hard pressed to concede on their contracts when they know that a PE firm is interested, with PE firms having deep pockets. Depending on the current contract, and vetoing power of the union on any sale, this might prove a more difficult task. It sounds like this would be the best option for Chrysler, but the union will be a big hurdle in letting this kind of deal go through. Odds – 12 to 1
4) Magna International buying Chrysler – Speculation around Magna buying Chrysler is dependent on how the industry perceives Magna’s current role. Magna is currently contracted to build cars for competitors, and its low cost structure is not conducive to the current union at Chrysler. Also, Magna has not been in the habit of making large gambles in the auto industry, or take on debt loads of this magnitude. Although speculation is that Bernhard would head up a Magna-purchased Chrysler, he would have a tough time with the union, in order to cut the costs required to get Chrysler back in the black. Odds – 7 to 1
5) Renault-Nissan buying Chrysler – Nissan has run into a rough spot the last 6 months, and isn’t in a position to take on Chrysler within its organization to make it work. Although a North American presence for Nissan would be a benefit, integrating Chrysler would be too great a risk at this time. Ghosn has worked miracles before, but this wouldn’t be one that he could pull off. Fix the problems within, before you go out on a buying spree. The logistics of integrating Chrysler with Nissan wouldn’t produce the needed synergies within a respectable time frame to make it financially feasible on Nissan’s balance sheet. Odds – 10 to 1
6) Management buyout of Chrysler – With Chrysler’s balance sheet and debt, this is one of the long shots of the bunch. It won’t happen. Even if management could get the financing, it’s a high risk investment that even the most renegade funds wouldn’t want to underwrite. Union concessions on healthcare liabilities and other costs would be required. Again, financing backed by equity funds would prove hard to get concessions with their deep pockets. Odds – 30 to 1
7) Hyundai buying Chrysler – What better way to improve an existing weak presence in North America than to vault a few spaces with the purchase of a competitor? Hyundai has the structure that mirrors Toyota, and has gotten a raw deal with their cars in the past. However, Hyundai has made progress in quality and styling, along the same lines as Chrysler (check out the Sonata or the Elantra). With Hyundai poised to gain greater acceptance in the marketplace, it may be cheaper for them to pick up Chrysler, and avoid some of the headaches and costs associated with building capacity in North America. Its current cost structure would give it a good bargaining position against the union later this year, and stand the best chance of gaining concessions from the union. Odds – 2 to 1
8) Status Quo – DaimlerChrysler has to do something to stop the bleeding. Could things be turned around within the company? I doubt it. Although Zetsche has maintained that he is a “Chrysler guy at heart”, continuing to lose money is not in the grand plan. Something has to be done, and although there is speculation that Daimler would get almost nothing for Chrysler, due to liabilities, a spin-off would be in the best interests for the other divisions. Odds – 20 to 1
9) Field – Any other options available to Chrysler will depend on the union’s interest in conceding on their contract, and what else Chrysler can do to stimulate waning interest in their cars. I can’t see the union making the first step to turn the division around; so much will depend on what the union will want. Given previous contracts and past negotiations, the union would have to step up to the plate and lead the concessions. This is a long shot at best. Odds – 50 to 1
My money would be on the Chinese or Hyundai.
1) GM buying Chrysler – Under better times, this might not be such a bad idea, however, with GM bleeding cash, and still running their plants and dealer network inefficiently, the value of Chrysler would degrade to the point that the brand won’t be worth much when all is said and done. All you have to do is look what GM has done with the Buick brand, and eventually Chrysler will follow the same fate. I can’t see this deal happening. Odds – 10 to 1
2) Chinese buying Chrysler – With the deals being done overseas with the Big 3, this isn’t such a big stretch as one might think. With Buick being one of the top brands in China, Chrysler is a comparable line that would give Buick a run for the money, and immediately give Chrysler a presence in a developing market. However, given the Chinese reputation on manufacturing, the perception of quality will suffer, and will more than likely give Chrysler a big stumbling block in getting back to profitability, at least in the lucrative North American market. Chrysler might have to sacrifice more at home, in order to come back to life, under Chinese ownership. Odds – 3 to 1
3) Private Equity buying Chrysler – There are a few schools of thought on this one. PE firms have a knack for picking value, and can move in to make operations more efficient. However, the stumbling block with PE firms getting in on the action will be the reaction from the unions. Unions will find it hard pressed to concede on their contracts when they know that a PE firm is interested, with PE firms having deep pockets. Depending on the current contract, and vetoing power of the union on any sale, this might prove a more difficult task. It sounds like this would be the best option for Chrysler, but the union will be a big hurdle in letting this kind of deal go through. Odds – 12 to 1
4) Magna International buying Chrysler – Speculation around Magna buying Chrysler is dependent on how the industry perceives Magna’s current role. Magna is currently contracted to build cars for competitors, and its low cost structure is not conducive to the current union at Chrysler. Also, Magna has not been in the habit of making large gambles in the auto industry, or take on debt loads of this magnitude. Although speculation is that Bernhard would head up a Magna-purchased Chrysler, he would have a tough time with the union, in order to cut the costs required to get Chrysler back in the black. Odds – 7 to 1
5) Renault-Nissan buying Chrysler – Nissan has run into a rough spot the last 6 months, and isn’t in a position to take on Chrysler within its organization to make it work. Although a North American presence for Nissan would be a benefit, integrating Chrysler would be too great a risk at this time. Ghosn has worked miracles before, but this wouldn’t be one that he could pull off. Fix the problems within, before you go out on a buying spree. The logistics of integrating Chrysler with Nissan wouldn’t produce the needed synergies within a respectable time frame to make it financially feasible on Nissan’s balance sheet. Odds – 10 to 1
6) Management buyout of Chrysler – With Chrysler’s balance sheet and debt, this is one of the long shots of the bunch. It won’t happen. Even if management could get the financing, it’s a high risk investment that even the most renegade funds wouldn’t want to underwrite. Union concessions on healthcare liabilities and other costs would be required. Again, financing backed by equity funds would prove hard to get concessions with their deep pockets. Odds – 30 to 1
7) Hyundai buying Chrysler – What better way to improve an existing weak presence in North America than to vault a few spaces with the purchase of a competitor? Hyundai has the structure that mirrors Toyota, and has gotten a raw deal with their cars in the past. However, Hyundai has made progress in quality and styling, along the same lines as Chrysler (check out the Sonata or the Elantra). With Hyundai poised to gain greater acceptance in the marketplace, it may be cheaper for them to pick up Chrysler, and avoid some of the headaches and costs associated with building capacity in North America. Its current cost structure would give it a good bargaining position against the union later this year, and stand the best chance of gaining concessions from the union. Odds – 2 to 1
8) Status Quo – DaimlerChrysler has to do something to stop the bleeding. Could things be turned around within the company? I doubt it. Although Zetsche has maintained that he is a “Chrysler guy at heart”, continuing to lose money is not in the grand plan. Something has to be done, and although there is speculation that Daimler would get almost nothing for Chrysler, due to liabilities, a spin-off would be in the best interests for the other divisions. Odds – 20 to 1
9) Field – Any other options available to Chrysler will depend on the union’s interest in conceding on their contract, and what else Chrysler can do to stimulate waning interest in their cars. I can’t see the union making the first step to turn the division around; so much will depend on what the union will want. Given previous contracts and past negotiations, the union would have to step up to the plate and lead the concessions. This is a long shot at best. Odds – 50 to 1
My money would be on the Chinese or Hyundai.
13 February 2007
Yahoo Finance Tool
As you can see, Yahoo Finance has a great little feature (see sidebar) where you can add your stocks and news items related to the stocks. Excellent little add-in for blogs! Yahoo might be worth looking at in the future if Panama works out...
New Link Added
Doing some reading, I came across an interesting site, sharesleuth.com. Interesting reading and the background information they obtained about Xethanol, and the scam there.
Link has been added to "Links".
Link has been added to "Links".
10 February 2007
More on ETFs
Received an email, from CNNMoney on ETFs...
ETFs for the long run
A reader tries to make sense of how to use ETFs and tax-managed funds.
By Walter Updegrave, Money Magazine senior editor
NEW YORK (Money) -- Question: I'm considering investing in tax-managed funds and exchange traded funds (ETFs). But do I have to monitor these investments constantly or can I hold them for the long-term?
Also, how can I buy them? - Ko Wang, Fort Worth, Texas
Answer: Not only can you hold tax-managed funds and ETFs for the long-term, you should. That's the way you maximize their tax advantages. To appreciate why this is the case, however, you've first got to understand how these funds work.
Here's the skinny...
Most mutual fund managers trade the fund's stocks frequently in their search for gains. But whenever the fund "realizes" a profit, fund shareholders get a tax hit. So even if you haven't sold shares of your fund, you can end up owing taxes because of the trading your manager does. (Unless, of course, you hold the fund in a tax-advantaged account like a 401(k) or IRA.)
Managers of tax-managed funds employ a variety of tactics to avoid taxable distributions. They might trade less frequently. Or they might purposely sell lagging stocks for a loss to offset gains.
There are two advantages: One, you can postpone the tax bite for a long time by not selling your fund shares, which in effect boosts your long-term after-tax return. Two, by holding your fund shares more than a year before selling, you're taxed at the long-term capital gains tax rate of 15 percent versus the short-term rate of 35 percent.
ETFs are a different animal altogether, but they're similar to tax-managed funds in one key respect - they too tend to throw off fewer taxable distributions. In the case of ETFs, their tax-efficiency results from two features.
First, they're index funds (although some ETFs, admittedly, stretch the definition), which means they buy and hold the securities of a benchmark like the Standard & Poor's 500 or Russell 2000.
ETFs also have a unique way of creating and redeeming shares when investors are entering or exiting the fund, and that also boosts their tax-efficiency a bit.
The upshot of all this is that tax-managed funds and ETFs allow you to create your own little tax shelter of sorts. You invest your money, let it sit and most of the gains accumulate without the drag of taxes. The longer you postpone selling the bigger the tax benefit. So if you buy and sell these funds frequently, you're giving up much of their tax advantage.
I should add that just because you're holding tax-managed funds and ETFs for the long-term doesn't mean that you don't have to monitor them. You should keep an eye on them, but you certainly don't have to do it constantly. I'd say checking their returns vs. that of similar funds once a quarter is plenty enough monitoring. Actually, monitoring isn't much of an issue for the ETFs in that they're following an index. As long as they don't stray drastically from it, there's not a whole lot for you to worry about.
Tax-managed funds, however, are actively managed (although some use an indexing approach), so you want to check in to make sure the manager hasn't done anything to screw up the fund's performance. Again, though, checking their returns about once a quarter to make sure they're performing decently versus similar funds is attention enough.
As for buying these funds, you can easily come up with a list of tax-managed candidates by going to Morningstar's Web site and typing tax managed (with no quotes around the two words) into the Quotes box at the top of the page. Some of the funds that pop up are "load" funds - that is, you buy them through a broker or financial planner and pay a fee.
Others are "no load," which means you buy them directly from the fund company. If you're okay picking the funds on your own, stick to the no loads. Whichever route you go, try to stick to ones that have solid performance and low fees, as do the T. Rowe Price and Vanguard tax-managed funds.
For ETFs you might buy, I suggest you go to the ETF section of the Money 70, Money Magazine's elite list of recommended funds. Note that we tend to focus on ETFs that let you buy virtually the entire market or broad pieces of it (large-cap, midcap or small-cap stocks, for example). We've also thrown in a few ETFs that can help you diversify more broadly (commodities, natural resources, real estate, emerging markets).
What you won't find on the Money 70 are ETFs that focus on narrow slices of the market (agriculture, beverages) or ETFs that are gimmicky (Nanotechnology? Come on.). Or ones that strike me as bordering on speculation, like the new breed that use a variety of techniques that can magnify your gains (or losses). For more on what I consider reasonable ways to use ETFs, click here.
Remember, though, that since ETFs trade on an exchange, you must buy and sell through a broker and pay brokerage commissions. Unless you're investing large amounts of money (say, less than $10,000 or more) and holding the ETF a long time, those commissions can wipe out one of the other big advantages of ETFs, their low annual management fees. If you're investing smaller amounts, you can get the most important advantages of ETFs (indexing and low fees) by buying a good index fund (which, conveniently enough, you can find in the index fund section of the Money 70.
So by all means check out tax-managed funds, ETFs and, for that matter, regular old index funds. And while you don't have to monitor them constantly, you definitely want to keep tabs on them to see how they're doing. Most important, though, hold them for the long-term. Because that's how you'll get the biggest bang for your buck out of such funds.
ETFs for the long run
A reader tries to make sense of how to use ETFs and tax-managed funds.
By Walter Updegrave, Money Magazine senior editor
NEW YORK (Money) -- Question: I'm considering investing in tax-managed funds and exchange traded funds (ETFs). But do I have to monitor these investments constantly or can I hold them for the long-term?
Also, how can I buy them? - Ko Wang, Fort Worth, Texas
Answer: Not only can you hold tax-managed funds and ETFs for the long-term, you should. That's the way you maximize their tax advantages. To appreciate why this is the case, however, you've first got to understand how these funds work.
Here's the skinny...
Most mutual fund managers trade the fund's stocks frequently in their search for gains. But whenever the fund "realizes" a profit, fund shareholders get a tax hit. So even if you haven't sold shares of your fund, you can end up owing taxes because of the trading your manager does. (Unless, of course, you hold the fund in a tax-advantaged account like a 401(k) or IRA.)
Managers of tax-managed funds employ a variety of tactics to avoid taxable distributions. They might trade less frequently. Or they might purposely sell lagging stocks for a loss to offset gains.
There are two advantages: One, you can postpone the tax bite for a long time by not selling your fund shares, which in effect boosts your long-term after-tax return. Two, by holding your fund shares more than a year before selling, you're taxed at the long-term capital gains tax rate of 15 percent versus the short-term rate of 35 percent.
ETFs are a different animal altogether, but they're similar to tax-managed funds in one key respect - they too tend to throw off fewer taxable distributions. In the case of ETFs, their tax-efficiency results from two features.
First, they're index funds (although some ETFs, admittedly, stretch the definition), which means they buy and hold the securities of a benchmark like the Standard & Poor's 500 or Russell 2000.
ETFs also have a unique way of creating and redeeming shares when investors are entering or exiting the fund, and that also boosts their tax-efficiency a bit.
The upshot of all this is that tax-managed funds and ETFs allow you to create your own little tax shelter of sorts. You invest your money, let it sit and most of the gains accumulate without the drag of taxes. The longer you postpone selling the bigger the tax benefit. So if you buy and sell these funds frequently, you're giving up much of their tax advantage.
I should add that just because you're holding tax-managed funds and ETFs for the long-term doesn't mean that you don't have to monitor them. You should keep an eye on them, but you certainly don't have to do it constantly. I'd say checking their returns vs. that of similar funds once a quarter is plenty enough monitoring. Actually, monitoring isn't much of an issue for the ETFs in that they're following an index. As long as they don't stray drastically from it, there's not a whole lot for you to worry about.
Tax-managed funds, however, are actively managed (although some use an indexing approach), so you want to check in to make sure the manager hasn't done anything to screw up the fund's performance. Again, though, checking their returns about once a quarter to make sure they're performing decently versus similar funds is attention enough.
As for buying these funds, you can easily come up with a list of tax-managed candidates by going to Morningstar's Web site and typing tax managed (with no quotes around the two words) into the Quotes box at the top of the page. Some of the funds that pop up are "load" funds - that is, you buy them through a broker or financial planner and pay a fee.
Others are "no load," which means you buy them directly from the fund company. If you're okay picking the funds on your own, stick to the no loads. Whichever route you go, try to stick to ones that have solid performance and low fees, as do the T. Rowe Price and Vanguard tax-managed funds.
For ETFs you might buy, I suggest you go to the ETF section of the Money 70, Money Magazine's elite list of recommended funds. Note that we tend to focus on ETFs that let you buy virtually the entire market or broad pieces of it (large-cap, midcap or small-cap stocks, for example). We've also thrown in a few ETFs that can help you diversify more broadly (commodities, natural resources, real estate, emerging markets).
What you won't find on the Money 70 are ETFs that focus on narrow slices of the market (agriculture, beverages) or ETFs that are gimmicky (Nanotechnology? Come on.). Or ones that strike me as bordering on speculation, like the new breed that use a variety of techniques that can magnify your gains (or losses). For more on what I consider reasonable ways to use ETFs, click here.
Remember, though, that since ETFs trade on an exchange, you must buy and sell through a broker and pay brokerage commissions. Unless you're investing large amounts of money (say, less than $10,000 or more) and holding the ETF a long time, those commissions can wipe out one of the other big advantages of ETFs, their low annual management fees. If you're investing smaller amounts, you can get the most important advantages of ETFs (indexing and low fees) by buying a good index fund (which, conveniently enough, you can find in the index fund section of the Money 70.
So by all means check out tax-managed funds, ETFs and, for that matter, regular old index funds. And while you don't have to monitor them constantly, you definitely want to keep tabs on them to see how they're doing. Most important, though, hold them for the long-term. Because that's how you'll get the biggest bang for your buck out of such funds.
08 February 2007
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