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Stock
While Google has been doing well when it comes to Internet advertising, Microsoft has been having so many problems that they now feel the urgent need to do something. This may lead Microsoft to pay $50 billion to acquire Yahoo in order to challenge Google. With this news Yahoo’s stock prices went up to $2.80 per share on Friday.
When you look at these 2 companies’ history, you will see that this merger definitely makes a lot of sense. However, no company wants to comment on it right now. If you look at what has been happening though you will understand it better. In the past 4 years alone Microsoft has spent billions of dollars to create MSN Search and Microsoft Digital Advertising Solutions and yet their stock prices continue to decline while Google’s stock prices continue to climb. Besides their income, there is another big difference between MSN and Google. This is the fact that most of Google’s income is from “sponsored links,” while both Yahoo and MSN are strong on graphical, animated and video ads.
Google has just recently acquired Double-Click in order to move into using display ads. Even with this move by Google, if MSN and Yahoo joined forces they would be able to provide a great #2 Search Engine. In fact, this is something that they will need to do if they are serious about online advertising. Nevertheless, there are still some obstacles including the integration of both company’s employees. A buyout will still more than likely happen in the near future.
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Stock
Poor timing, too low price points? No, it appears that Yahoo might be avoiding a Microsoft buyout solely for sentimental reasons. Now that Jerry Yang is the CEO, it appears he’s wanting to hold onto the company he worked so hard to start back in his own college years at Stanford.
Yang owns about 4% of the company that is currently worth $1.5 Billion, his stakes are huge and he’s still drawing the infamous $1 salary that is common with many tech giants. His wealth has been derived in its entirety from the growth and capital gains he’s received as a huge shareholder in Yahoo. As CEO and a founder, it seems that his own unwillingness to sell might lay in a dislike for Microsoft and sentimental views of Microsoft rather than what shareholders want.
At this point its hard to understand why Yahoo wouldn’t sell for the $29/share price tag. The company has been falling off the search engine cliff for the last several years, its rapidly losing marketshare while Google continually dominates any business that Yahoo claims. Now that it’s a three way race, Google in first, Yahoo riding second and Microsoft’s MSN a distant third, consolidation is the best thing that could happen to Yahoo.
I’m beginning to believe that all this resentment towards a Microsoft deal is almost more anti-establishment than it is a strategic business move. After Microsoft made many failed bid attempts, Yahoo aligned more of their search engine with Google. Almost screaming “Na-na-na boo boo” to the corporation that is determined to buy it out, even it they have to resort to throwing out the Yahoo board.
While Yahoo’s stock does sell at a discount, its share price has moved along with Google’s but only due to the $29 bid by Microsoft. Absent that bid price, Yahoo may still be selling in the low $20s per share. If Yahoo doesn’t take this bid soon, its missing out on a perfect opportunity to sell out while the money is there.
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Investing
The $700 bailout package will pass through the House and make its way to the Senate and eventually to the president where the final decision will be made, though the consensus says this time the bailout package will stick.
The bailout package works in three phases where more money will have to be requested as needed rather than a $700 Billion bulk payment made to clear the balance sheets. Under this system, the idea goes, the government will spend less on quick purchases of debt and only take what is needed to make the transaction. A $700 billion bulk payment would allow the federal government to spend heavily on certain debts and spread the allowance too thin among fewer banks. With smaller portions, the government will likely have a variety of banks lining up for a “bailout,” in this scenario smaller payments will be made to affect the most banks and consumers rather than a bailout of just a few larger corporations.
The automotive bailout has also come together. I wrote about a possible bailout in a post back in August though I believed at the time that the bailout would come much later after election season and a new president is chosen.But with the bailout of the largest financial institutions in the world, the automotive companies want their fair share and will be getting $25 Billion to back their debt and make it possible for some of the largest employers in the US to stay in business.
With the blank check now approved, investors have reason to look forward to a much less volatile market environment. While this security is well received by the investing class, taxpayers and dollar denominated investors will feel the pinch until the full amount of borrowed money is paid back.
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Investing
Surely we can all remember the Reagan bailout of Chrysler in the 1980s and the talk is that the democratic presidency might feel some pressure to start working with US Automakers. Democratic challengers are a favorite with unions, especially with industries that are considered “American.” There is no business out there in a need of some financial help than the US automakers, while it would probably not be a sound financial decision for a country so heavily in debt there is going to be some pressure from politicians and union directors alike.
Remember Kmart and their quick exit and re-entry into the retail business. They ridded themselves of debt and shareholder equity then quickly came back as a business ready to bustle. They’ve done great since filing for chapter 11, their stock went from mere pennies then even moved to be healthy enough to buyout Sears.
Unless automakers pull a switch up like this to their employees and creditors the chance of recovery is extremely slim. The only thing holding back GM and maybe even Ford from bankruptcy is pride, but the problem is that consumers aren’t willing to subsidize pride with an economy going down the tubes and gas as high as $4 per gallon all around the country.
If GM is willing to cut the ties with pension programs and union workers, they might be able to pull a Kmart recovery. But without screwing some of their employees and creditors, it simply won’t happen. They’ve got billions in assets in US factories but little to back up their currently high debt.
A bailout could happen which would be the ultimate wildcard in the stock market. If the US government comes to bail out the automakers by paying off their debts, it might just be possible to turn a profit. Their biggest expenditures are naturally pension programs and interest on accumulated debt.
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Mutual Fund
You should know that mutual funds that distribute large dividends will provide you with better odds of maximizing your financial growth and maintaining a comfortable life style for yourself, regardless of whether the financial markets go up or down. This is because mutual funds that provide distribution will enable you to increase the total number of shares you own because you will be able to reinvest them.
By purchasing shares at a lower price you will be able to achieve dollar-cost-averaging. This is because the net asset value of the mutual fund that you purchase is reduced by the amount of distribution. However, your total return will be bigger at the end of the year due to the fact that you own more shares. Of course, this does not mean that your future results are guaranteed. This income is based upon the interest that a fund earns upon its investment. As such, you can easily see why this money is not guaranteed to you. It is because a fund would have to sell for a higher price than you paid in order for it to be a gain, otherwise it is a loss.
As you can see, you really do need to take sure that you take the time to do your homework before you make an investment in anything.
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Investing
With an Obama victory, there are many things to look for in the stock market going forward. First is the fact that democratic presidents have been historically better for the stock market than their republican counterparts. But beyond the issue of political party there are a few industries and ideas to help you become better invested for the next presidency.
First, many political experts and Washington insiders are looking for a second stimulus package for Americans. Led mostly by democrats, a new stimulus package could be quickly passed with Obama as president. Both the House and Senate have a democratic majority. The democrats were unable to take a two thirds part of the Senate, but that would only come to be advantageous to strike down an unlikely veto or to amend the constitution. A second stimulus package would give an instant boost to the stock market but create greater inflation problems. At any rate, expect another stimulus right around inauguration day.
Second, healthcare is going to boom. One of the largest parts to Obama’s campaign was the promise of government benefits to all Americans in the form of affordable insurance and other structures to make healthcare available to the masses. In every part of the healthcare industry from prescription drugs, to corporate hospitals, this sector is going to get a huge boost. When the government does something rarely does it budget, and in this case that should work out in favor of investors.
Next is alternative energy stocks which have been stagnating as of late. Temporarily low oil prices are likely to keep alternative energy stocks off the hottest stocks list but if Obama’s plans go forward we could see huge capital investments from the government into private alternative energy firms. This sector should be watched carefully.
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Investing
Warren Buffett, the king of buying stocks in depressed markets has stepped up with $5 Billion to invest in Goldman Sachs. Buffett’s last big purchase of part of a financial institution came during similar economic turmoil when he purchased a hefty stake in American Express. Along with his $5 Billion purchase of preferred stock, the deal also gives Berkshire Hathaway the ability to buy an additional $5 Billion of common stock.
Warren Buffett’s investment was favored on Wall Street as the most famed and profitable investor in the world put cash into what others view as a quickly failing market. If anything the vow of confidence in the future of the market gave investors reason to avoid the negativity surrounding the market and look forward to a market turnaround.
Buffett was quick to throw a little politics into his message stating that his investment was of confidence that Congress would work with the Federal Reserve and the team of Paulson and Bernanke to give the $700 bailout package to failing banks. Buffett was approving of the bailout, something that is heard frequently on Wall Street but ordinary investors are wondering why their $2800 each should be given to the banks and not to the people themselves. The argument of trickle down and trickle up economics is coming full circle. Bailing out the people of the United States seems to be much smarter than bailing out the investment banks. Giving individuals money means that they’ll spend it on necessities and be likely to make payments on their mortgages, trickling money upward to the banks and institutions.
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Investing
Dollar Tree is one name that will certainly sail smoothly through economic turbulence. Dollar stores are great because their merchandise is cheap and consumers are more likely to shop at $1 stores to save money. Unfortunately to maintain cheap prices many dollar stores import goods from China and other manufacturing centers of the world. The recent dollar exchange rate is far more favorable than the rates just a few months ago with the USD coming off its lows against the Euro and the Chinese economy slowing to the point where the yuan gains have been curbed.
Another point of interest is the falling price of crude oil which means even lower wholesaling prices for Dollar Tree and the discount industry altogether. Importing products will be far cheaper due to both a strengthening US dollar and a rapid drop in the price of oil. Though Dollar Tree suffered from an EPS figure 20% lower than last year in the past quarter, next quarter should prove promising.
Dollar stores don’t have much breathing room to begin with. Maintaining a $1 price tag throughout the store means buying in huge bulk orders and moving merchandise quickly. A poor dollar exchange rate hurts dollar stores more than anything as a 20% change in currency values can easily negate profitability expectations. This time around we’re looking for a huge recovery from Dollar Tree after a disappointing quarter. The economics of the industry are certainly on their side as well, people are bargain hunting.
This stock is bound to retest its highs of $44 and $48 per share. If this stock ever splits I think it could get out of its decade long trading range and start moving upward again.
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Mutual Fund
Unfortunately due to the laws regarding capital gains, it is likely that many people will be paying capital gains on holdings that have lost money this year. Mutual funds are taxed on each individual position rather than the fund as a whole, so even if you lost money with a fund you can still be taxed. This hurts when you’ve watched funds drop in the last two months of 2007 and the first 3 of 2008.
There is a way to get around these taxes and it doesn’t take any fuzzy math either. Tax-efficient mutual funds have sprung up in recent years that are built around the concept of letting winners run indefinitely and cutting losses whenever they can. Due to the way these funds operate, they don’t look nearly as attractive as traditional mutual funds, which post much better ROIs. In actuality these tax-efficient funds usually do the same if not better than traditional mutual funds after taxes are considered.
Tax-efficient mutual funds do not do any trickery or place dangerous trades. They operate just like any other fund but consider how fund will be affected if the sale goes through. Tax-efficient mutual funds also lower their transaction costs and trading fees by placing less trades. For this reason alone, absent the tax benefit, tax-efficient mutual funds appear to be a great way to protect your assets and maximize returns.
The pretax earnings of a mutual fund is what gets reported as the return, thus the public doesn’t know how great these tax-efficient accounts really are. For times like this, it’s a good idea to be tax-efficient to avoid paying hefty tax bills on losing positions.
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