beyondthemba

When a CEO says, "We are Doing Everything Right", I say, "Run for the Hills"

Recently on Mad Money, Mel Karmazin, the CEO of Sirius radio was discussing the merger / acquisition of XM radio. In this he was quoted as saying, "We are doing everything right". That type of arrogance should cause any and all investors to run for the hills. 

Arrogance leads to complacency and that leads to horrible customer service. Right now, both XM and Sirius are a disaster and they need to get their act together quickly. After having to take on huge debt to finish the merger (due to a precipitous drop in the stock price), Karmazin is now saying it will be after labor day before he provides any direction to the market. Do you think he may need to "adjust the books" and is spending August doing such a thing?

Further, he freely admits that deals will be coming which should cause any consumer to stop any purchase of Sirius and/or XM until we find out what the deals will be like. I personally tried to call XM to get a new XM activation (new OEM car installation) and they said they had "no guidance on what to do with long term Sirius customers). 

This, along with the Karmazin arrogance can only spell disaster for this company. My recommendation: Keep your powder dry and wait this one out. Don't buy the stock or buy the product until they figure out just what the heck they are doing. 

HR 3221 Housing and Economic Recovery Act of 2008

Well, the Federal Government swoops down again to give out dollars to those who need it and to those who don't. This bill needs to be read and digested in its entirety but a few things:

1. It increases the statutory limit on the Deficit by $800bl!!  This money seems to "poof" come from thin air and now our sons and daughters get to pay for our excesses.
   
2. The CBO estimates this adds $25bl net to the deficit next year alone.
   
3. It provides interesting "give aways" to people who have nothing to do with the mortgage mess. For example, if you have already paid off your mortgage and do not itemize they are going to give you a $1,000 tax credit for "property tax". So, what does this have to do with the ARM adjustments and foreclosures?

I cannot wait for the next few weeks when people pour over this bill and find the pork deep inside of it. If you want to see the CBO (Congressional Budget office) estimates you can go the Congressional Budget Office website and download the bill HR3221 report. You can also see the CBO letter concerning how much the bail out of Freddie May and Fanny Mac will cost you at the Congressional Budget Office Director's blog.

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Tags: CBO, FannyMay, Freddie Mac, HR 3221, housing

Economic Roundup For The Week of July 21

I like to read the Vanguard Economic Round up news every Saturday morning and this one was especially interesting. While all "current" indicators are down (i.e., unemployment is worse, housing down etc. etc.) one bit of good news did pop out. Durable goods orders were actually up (see table below; read link above).

I watch things like durable goods, capital investments, trucking volumes etc. to identify when we are starting to come out of the recession. My guess is we are far closer to the bottom than we may think. Companies have to be very careful right now as they cut capacity. If they cut too much, they may be far less able to take advantage of the uptick when it happens.

Another interesting factoid: They say we have a 10 month inventory of houses and I had thought it was a lot more.

With all the bad news coming our way on the newscasts, it is tough to identify the uptick but it is possible we are seeing signs of life.

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Tags: economy, business, finance, vanguard

Oil's biggest day yet drags down stocks

The impact of oil prices will be stunning and swift. I believe companies will finally (many already have) that either they have to get price in the marketplace or they will scale back operations.

As we see the issues develop in the airline industry where they are effectively shutting down capacity saying it is cheaper to park the planes than fly them, so will you see this with trucking. Soon, I predict, moving your products at any price will be next to impossible. Trucking companies will raise prices, take out capacity and refuse to drive "unpaid" out of route miles.

All this means an incredible strain on the economy overall. 

Oil's biggest day yet drags down stocks

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Tags: oil, inflation, economy, transportation

Inflation Spiking in latin America

A Truism to Live By...

Here is a truism I just read from the Winter edition of "In The Vanguard" (published by Vanguard funds):

"If China makes it, the price goes down. If China wants it, the price goes up"

Oh how true especially as it relates to commodities.

Microsoft Buying Yahoo Raises Bigger Questions for Investors

The fact that Microsoft has decided to take $42Bln (Roughly) and spend it on Yahoo is a BAD decision for shareholders. There are two main reasons I say this. First, almost always, this type of merger is decretive to corporate value not accretive. Over 80% end up in failure and rather than 1+1=3, 1+1 actually equals 1.5 at best. My prediction is that out of this merger at least $20bl will evaporate into thin air.

Second, and to me the the most troubling, is why does Microsoft think they can spend MY (the investor's) money buy buying Yahoo? This is the big problem with companies hoarding cash (by the way, the cash is MINE not MSFT management's). If I want to buy Yahoo, they can return all the excess cash to the shareholders and let the shareholders decide if they want to invest their money in Yahoo or not. In essence, what is happening here, is that you took some of your money, invested in a company called Microsoft. Their management took that money and said, "Thank you, we are going to use it to buy Yahoo". That is not a good thing. You were forced to buy a company you did not want to buy (presumably or you would not have bought MSFT to begin with).

The arrogance of corporate management and the lack of action by neutered boards is astounding. Meanwhile, it is the investor who suffers. My guess is that while the deal will cause value to evaporate, senior managers will make out pretty good.

And that, alas, is the problem.

Why The Fed is in A Pickle

The Fed is in a pickle and it will be interesting how they manage their way out of this. Inflation has increased and continues to increase fairly dramatically. I always look at the inflation rate as it applies to the i-bond rate and it looks like we are heading to 4+% inflation and maybe over 5%. Normally, this would lead to an increase in interest rates to stem the inflation.

However, with an economy that is sputtering and a huge deficit, raising interest rates is not something you want to do. When you see a situation like the housing market and the potential damage it could incur on the economy, you generally want to talk about decreasing interest rates, not increasing them.

Then there is the sinking dollar. What to do about that? In one way (a very sneaky way) this is good as it exports our problems overseas and allows us to repay our debt with significantly lower valued dollars than what we borrowed. But those who bought our bonds are smarter than that and are beginning to threaten things such as euro based oil purchases.

So, now the word "stagflation" has entered our vocabulary. We have not heard this since the Jimmy Carter administration. What to do oh poor Fed?

Economic Indicators for the Week

The Vanguard Group produces a really good "Week in Review" recap of the week's data. This week we find manufacturing activity is down (ISM to 52 from an expectation of 52.8), and employment pretty steady at 4.7%.

Surprisingly, the willingness of American's to charge just about anything continues as consumer credit was much higher than expected. All this resulted in a 10 year note yield increase of 7bp and the S&P 500 going up 2.0%.

All in all, a good week (certainly if you are in the market) but a slowdown is real and I think people are starting to build into expectations a rate decrease of 1/4 point at the next two FED meetings.

Link: Vanguard Week in Review

Outsource the CEO?

Link: Hot Topics | <strong>Offshore the CEO…</strong>.

This may take it too far but an interesting idea (even if it is toungue and cheek)