Week of April 23rd, 2009
Although we had a test this week, an article about the government being a majority shareholder of GM, and most likely banking institutions in an effort to nationalize them...concerns me greatly. As a democratic society, we have the right to life, liberty and the pursuit of happiness. For some people, this happiness is found only in running, owning, or managing a business. Granted, the government did loan GM and the banking institutions quite some money, it does not mean that they have the right to request that debt be exchanged for equity shares, and ultimately make them the majority shareholders in control of the board. This is only the beginning, and as time progesses under our current leadership (who I think has far too much power politically and socially for his own good) I think we will see more and more governmental influence and destruction of our inalienable rights.
One thing that I think GM and our entire country needs to consider is if giving up our rights is worth staying in business. I drive a Pontiac, and I'm sad to see the brand go. But it will not be the end of the world. There are other cars out there. In fact, too many cars out there. There is an economic justification for the demise of GM. They did not do good business...they did not manage their assets and growth in an effective manner. Yes, it will be devastating for society for GM to shut their doors. The unemployment rate will surely surge. However, it is not helping society today or in the future to continue to support a failing business. I don't see other businesses getting this kind of help! Seriously, what makes the government think that they can manage GM better? They can hardley manage their own business and budgets! Does this mean that they will essentially buy out the other American automakers, stop allowing imported cars to safeguard their business, issue each person their civilian car like a social security number!? Let's slow down a minute Mr. President and really think about what you're doing and how it will affect life today, and tomorrow.
I am in complete fear of the future. For our country and the world.
http://online.wsj.com/article/SB124083476254259049.html
Monday, April 27, 2009
Week 12 - Supply and Conquer!
Week of April 16th, 2009
We started our discussion on operations management this week. An importatnt topic to grasp is that of Supply Chain management. Sometimes, your vendor supply can have power over you because they are the only one to supply your need. Or the buyer can have control over the suppliers, like WalMart. Or if you go in the opposite direction, to distribution, your distributors can control your creative flow. For example, in the Wall Street Journal this week, Pepsi has announced that it is going to try to purchase their bottlers so that they can "test drive" new products more easily and actually market them from that distrubtion. Pepsi is not concerned about weighing down their balancing sheet with bottling assets, their growth rate will remain strong and healthy. The best part of the deal, is that Pepsi could eliminate a lot of administrative people aka "reduncancies" and save money...but also increase the unemployment rate. Thanks Pepsi!
http://blogs.wsj.com/deals/2009/04/20/why-pepsi-wants-to-buy-its-bottlers/
More dismal news in the auto industry, Chinese Auto Suppliers are expecting their bubbles to burst in the next year and a half. China is not as talented and supplying as the US, they require almost double the working capital to manage efficiently. The slow down in auto sales means a slow down in auto parts suppliers etc, and thus decreased working capital. My biggest question is how many cars do auto makers think we need? Theworld population is stabling out and the average person only owns seen cars in their lifetime. I think it's about time that we stopped over producing a lot of goods, especially outdated transportation that uses a lot of resources. I imagine that this will be society's make it or break it run. Today is the opportunity for someone to make it big by inventing a new form of personal transportation as widespread as the automobile, but safer for the environment and cheaper for the pocket books.
http://blogs.wsj.com/autoshow/2009/04/16/chinese-auto-suppliers-squeezed-by-global-car-slump/
We started our discussion on operations management this week. An importatnt topic to grasp is that of Supply Chain management. Sometimes, your vendor supply can have power over you because they are the only one to supply your need. Or the buyer can have control over the suppliers, like WalMart. Or if you go in the opposite direction, to distribution, your distributors can control your creative flow. For example, in the Wall Street Journal this week, Pepsi has announced that it is going to try to purchase their bottlers so that they can "test drive" new products more easily and actually market them from that distrubtion. Pepsi is not concerned about weighing down their balancing sheet with bottling assets, their growth rate will remain strong and healthy. The best part of the deal, is that Pepsi could eliminate a lot of administrative people aka "reduncancies" and save money...but also increase the unemployment rate. Thanks Pepsi!
http://blogs.wsj.com/deals/2009/04/20/why-pepsi-wants-to-buy-its-bottlers/
More dismal news in the auto industry, Chinese Auto Suppliers are expecting their bubbles to burst in the next year and a half. China is not as talented and supplying as the US, they require almost double the working capital to manage efficiently. The slow down in auto sales means a slow down in auto parts suppliers etc, and thus decreased working capital. My biggest question is how many cars do auto makers think we need? Theworld population is stabling out and the average person only owns seen cars in their lifetime. I think it's about time that we stopped over producing a lot of goods, especially outdated transportation that uses a lot of resources. I imagine that this will be society's make it or break it run. Today is the opportunity for someone to make it big by inventing a new form of personal transportation as widespread as the automobile, but safer for the environment and cheaper for the pocket books.
http://blogs.wsj.com/autoshow/2009/04/16/chinese-auto-suppliers-squeezed-by-global-car-slump/
Tuesday, April 14, 2009
Week 11 - When to retire?
Week of April 9, 2009
Wall Street Journal did a survey of people's retirement expectations, and only 13% think they have enough to live comfortably during retirment. We can apply what we've learned in the finance chapter to planning for retirement. We could use present value to determine how much we will need on the day of retirement to live comfortable for an average life span, and we can use present value to determine how much we need to save each year until then to make that much for retirement. Also, we could use the various capital investment decision making tools to determine which investements will get us the best return for retirement. Things like NPV, and IRR can apply to various mutual funds and other investment ventures.
The only problem, according to the WSJ, is that people are not adjusting the amount they put into their retirement funds to compensate for the money lost recently in the stock market. Instead, their plan is to just retire later. The average age is up 3 years to 65. Although this concept works according to the laws of math, it is not necessarily the best solution. Another depressing solution is that more and more people plan to work some during retirement.
http://online.wsj.com/article/SB123967208769515763.html
Wall Street Journal also has a very interesting video about taking your investment broker to arbitration....
http://online.wsj.com/video/lost-money-take-your-broker-to-arbitration/3BD21C1E-00E1-4B65-99D9-27E4D6582E47.html
That may be another option for retirees to recover some of their lost funds.
However, some people are having trouble making the same contributions to retirement, so in the future we could see the average retirement age go up even more, and a higher percentage of people still working in retirement. Looks like Wal Mart will have no shortage of greeters :)
But advisors recommend thinking of your retirement contribution like you do your rent. It is something you have to do to survive...so cut out the cable, internet and cell phone first. Skipping contributions causing you to miss out on employer matches as well as the interest your money could have earned during that time.
http://blogs.wsj.com/wallet/2009/04/14/extreme-finance-cutting-out-401k-contributions/?mod=rss_WSJBlog?mod=personalFinance
Wall Street Journal did a survey of people's retirement expectations, and only 13% think they have enough to live comfortably during retirment. We can apply what we've learned in the finance chapter to planning for retirement. We could use present value to determine how much we will need on the day of retirement to live comfortable for an average life span, and we can use present value to determine how much we need to save each year until then to make that much for retirement. Also, we could use the various capital investment decision making tools to determine which investements will get us the best return for retirement. Things like NPV, and IRR can apply to various mutual funds and other investment ventures.
The only problem, according to the WSJ, is that people are not adjusting the amount they put into their retirement funds to compensate for the money lost recently in the stock market. Instead, their plan is to just retire later. The average age is up 3 years to 65. Although this concept works according to the laws of math, it is not necessarily the best solution. Another depressing solution is that more and more people plan to work some during retirement.
http://online.wsj.com/article/SB123967208769515763.html
Wall Street Journal also has a very interesting video about taking your investment broker to arbitration....
http://online.wsj.com/video/lost-money-take-your-broker-to-arbitration/3BD21C1E-00E1-4B65-99D9-27E4D6582E47.html
That may be another option for retirees to recover some of their lost funds.
However, some people are having trouble making the same contributions to retirement, so in the future we could see the average retirement age go up even more, and a higher percentage of people still working in retirement. Looks like Wal Mart will have no shortage of greeters :)
But advisors recommend thinking of your retirement contribution like you do your rent. It is something you have to do to survive...so cut out the cable, internet and cell phone first. Skipping contributions causing you to miss out on employer matches as well as the interest your money could have earned during that time.
http://blogs.wsj.com/wallet/2009/04/14/extreme-finance-cutting-out-401k-contributions/?mod=rss_WSJBlog?mod=personalFinance
Tuesday, April 7, 2009
Week 10 - Today, Tomorrow, and Yesterday
Week of April 2nd, 2009
The effects of inflation in nominal vs. real rates
Inflation is becoming a concern for the future of investments. Corporate Investment Grade bonds are a fairly good investment, until you consider inflation. If the bond is stated at 5.5% and inflation is 6%, who would want that investment. Obviously, the price of the bond will fall until the price matches the market. For example, anyone forced to sell their bond at these deep discounts will lose money in nominal terms, while those holding out to maturity will lose money in real terms.
As the government prints more money, our current low inflation rate will be seen no more. They are making a lot of bets on that inflation rate remaining low. Also, if one of the investment grade companies can't pay some bills, the price of their bonds will fall even more. If bankruptcy is in the future, they have a higher chance of getting paid than equity owners, but they will still incur some losses.
http://online.wsj.com/article/SB123879540430687915.html
Warranties on "captial projects"
In our current economic state, families are focusing on smaller if any purchases. They aren't buying a new car, their getting the one they have fixed. They aren't buying new appliances, they're getting the old ones fixed. Hopefully, you took a gamble and bought the extended warranty. An article titled "Is added warranty worth the cost?" takes a look at the gamble of purchasing a warranty.
If you bought the warranty, and something went wrong you were satisfied. If you bought it and time passed without a hitch, you threw your money out the window. The director at consumer reports says that there is not much difference between the cost of the warranty and minor repairs. There is also a slim chance that there will be a problem during the warranty time frame. But 60% of Americans spend that extra money on the warranty for big-ticket items. But there is a shift toward becoming "keepers" vs. "tossers." More and more people are buying for quality rather than price.
http://online.wsj.com/article/SB122981203258724227.html
The effects of inflation in nominal vs. real rates
Inflation is becoming a concern for the future of investments. Corporate Investment Grade bonds are a fairly good investment, until you consider inflation. If the bond is stated at 5.5% and inflation is 6%, who would want that investment. Obviously, the price of the bond will fall until the price matches the market. For example, anyone forced to sell their bond at these deep discounts will lose money in nominal terms, while those holding out to maturity will lose money in real terms.
As the government prints more money, our current low inflation rate will be seen no more. They are making a lot of bets on that inflation rate remaining low. Also, if one of the investment grade companies can't pay some bills, the price of their bonds will fall even more. If bankruptcy is in the future, they have a higher chance of getting paid than equity owners, but they will still incur some losses.
http://online.wsj.com/article/SB123879540430687915.html
Warranties on "captial projects"
In our current economic state, families are focusing on smaller if any purchases. They aren't buying a new car, their getting the one they have fixed. They aren't buying new appliances, they're getting the old ones fixed. Hopefully, you took a gamble and bought the extended warranty. An article titled "Is added warranty worth the cost?" takes a look at the gamble of purchasing a warranty.
If you bought the warranty, and something went wrong you were satisfied. If you bought it and time passed without a hitch, you threw your money out the window. The director at consumer reports says that there is not much difference between the cost of the warranty and minor repairs. There is also a slim chance that there will be a problem during the warranty time frame. But 60% of Americans spend that extra money on the warranty for big-ticket items. But there is a shift toward becoming "keepers" vs. "tossers." More and more people are buying for quality rather than price.
http://online.wsj.com/article/SB122981203258724227.html
Thursday, April 2, 2009
Week 9 - Mature Yields
Week of March 26th, 2009
Treasurys affecting the stock market...
The Fed is buying back treasurys causing fluctuations in the value of various length notes. And they are planning to buy many more, specifically inflation indexed bonds mature in the next 7 years. It has a positive effect on the market, and the longer dated treasurys performed the best. This probably means that purchasers of American debt to not expect our economic conditions to improve any time soon. Wall Street Journal provides an interesting article that contains an interactive chart to see the effects of the buy backs on various level treasurys. But the effects on the stock market are showing some sectors are gaining strength back.
http://online.wsj.com/article/SB123859169588078053.html
The FDIC is increasing fees charged to banks for their insurance. It's only a matter of time until these fees are passed onto investors. But the banks are still going to pay the fees for backing their debt because it is more appealing in the market than unsecured debt. The fee is going up an addition 0.25 percentage points of their existing fees. It is difficult to speculate the impact of the increased fees. However, a change in rate can greatly affect the bottom line over time. So, it may be safe to say that their will be dramatic changes in long term debt backed by the FDIC. Although, the FDIC would like to encourage financial institutions to become more independent in issuing their own debt. I think the question becomes, what investor would be willing to do that after living through our current situation?
http://online.wsj.com/article/SB123863158276180829.html
Treasurys affecting the stock market...
The Fed is buying back treasurys causing fluctuations in the value of various length notes. And they are planning to buy many more, specifically inflation indexed bonds mature in the next 7 years. It has a positive effect on the market, and the longer dated treasurys performed the best. This probably means that purchasers of American debt to not expect our economic conditions to improve any time soon. Wall Street Journal provides an interesting article that contains an interactive chart to see the effects of the buy backs on various level treasurys. But the effects on the stock market are showing some sectors are gaining strength back.
http://online.wsj.com/article/SB123859169588078053.html
The FDIC is increasing fees charged to banks for their insurance. It's only a matter of time until these fees are passed onto investors. But the banks are still going to pay the fees for backing their debt because it is more appealing in the market than unsecured debt. The fee is going up an addition 0.25 percentage points of their existing fees. It is difficult to speculate the impact of the increased fees. However, a change in rate can greatly affect the bottom line over time. So, it may be safe to say that their will be dramatic changes in long term debt backed by the FDIC. Although, the FDIC would like to encourage financial institutions to become more independent in issuing their own debt. I think the question becomes, what investor would be willing to do that after living through our current situation?
http://online.wsj.com/article/SB123863158276180829.html
Tuesday, March 24, 2009
Week 8 - The Value of Time
Week of March 12, 2009
Although we didn't have class this week...we are talking about the time value of money and how that affects the present value of investments including stocks and bonds.
One common assumption is that stock prices adjust for what investors expect in the future for certain companies. And it can be calculated by taking the present value of all future dividend payments. In fact, you can even factor in a certain percentage of growth and assume that these dividend payments will continue into perpetuity. But what happens when the prices do not adjust appropriately? Net Flix is one such company. Investors had high hopes that Net Flix's product offering would appeal to consumers during a recession. It's much cheaper than going out to the movies, and more convenient than going to the local rental store. They also had high hopes for the streaming movies and the appeal it would hold for more technically savvy individuals. And finally, with the impending bankruptcy of Blockbuster, their biggest competitor, what could Net Flix possibly have to lose? Well, investors may have moved too soon to build this perfect storm environment into Net Flix's stock price. They have some new emerging competition to watch out for through Amazon.com, Disney and Hollywood Videos. The bubble is expected to burst at any time.
http://online.wsj.com/article/SB123776433980008861.html
From a bond perspective, GM is trying to restructure to stay afloat. But their bondholders are not confident in the proposal. They would like to swap the bonds for stock to leverage with more equity. However, their current state does not have bondholders wanting to own a share of the company. If they change for equity shares and then GM goes bankrupt, those shares are worthless. Again, GM wants some help from the government and are seeking a $16 billion loan call for the two-thirds swap. They have until March 31 to present the government with their restructure plan, and they need an additional $22 billion to keep things going. From what we discussed in class, it would take a lot of stock and promise of high returns for the GM Bondholders to accept that level of risk. I wouldn't do it...but who's going to buy the bond from me either way. It may be time for GM investors to get out while they still can.
http://online.wsj.com/article/SB123776653433809307.html
Although we didn't have class this week...we are talking about the time value of money and how that affects the present value of investments including stocks and bonds.
One common assumption is that stock prices adjust for what investors expect in the future for certain companies. And it can be calculated by taking the present value of all future dividend payments. In fact, you can even factor in a certain percentage of growth and assume that these dividend payments will continue into perpetuity. But what happens when the prices do not adjust appropriately? Net Flix is one such company. Investors had high hopes that Net Flix's product offering would appeal to consumers during a recession. It's much cheaper than going out to the movies, and more convenient than going to the local rental store. They also had high hopes for the streaming movies and the appeal it would hold for more technically savvy individuals. And finally, with the impending bankruptcy of Blockbuster, their biggest competitor, what could Net Flix possibly have to lose? Well, investors may have moved too soon to build this perfect storm environment into Net Flix's stock price. They have some new emerging competition to watch out for through Amazon.com, Disney and Hollywood Videos. The bubble is expected to burst at any time.
http://online.wsj.com/article/SB123776433980008861.html
From a bond perspective, GM is trying to restructure to stay afloat. But their bondholders are not confident in the proposal. They would like to swap the bonds for stock to leverage with more equity. However, their current state does not have bondholders wanting to own a share of the company. If they change for equity shares and then GM goes bankrupt, those shares are worthless. Again, GM wants some help from the government and are seeking a $16 billion loan call for the two-thirds swap. They have until March 31 to present the government with their restructure plan, and they need an additional $22 billion to keep things going. From what we discussed in class, it would take a lot of stock and promise of high returns for the GM Bondholders to accept that level of risk. I wouldn't do it...but who's going to buy the bond from me either way. It may be time for GM investors to get out while they still can.
http://online.wsj.com/article/SB123776653433809307.html
Week 7 - Funds are fun!
Week of March 5th, 2009
It's Pension Funds vs. Hedge Funds in Utah
When the economy was going good, fund managers took it upon themselves to charge high fees for the service. Utah Retirement System's Larry Powell is trying to have them spread these fees out over several years. It used to be the case that the fund named the fees, and the people paid it. Now they are realizing that they are going to have to negotiate. One interesting thing to consider is that these fee changes will only apply to the new funds. How will that affect how people like Larry Powell determine which funds are the better investment. He expects that the top performers will still have the advantage of dictating fees, but the new ones will definitely have to build customer relationships through negotiation.
This applies to our class discussion, because changing when and how fees are paid changes the value of a fund. $10,000 today is worth a lot more than $10,000 spread evenly over three years. It would be interesting to see if they factor in the time value of money into those fees. Which, essentially would not create any real savings for investors, but would make it easier to manages their cash flows. In my current situation, paying the fees off over time would be much more appealing, because I don't have the cash. However, if I did have the cash now, would I want to still pay fees right away when I could invest that extra cash and maybe make some returns greater than what I'd be paying. It's an interesting thought to consider.
http://online.wsj.com/article/SB123629796624746265.html
It's Pension Funds vs. Hedge Funds in Utah
When the economy was going good, fund managers took it upon themselves to charge high fees for the service. Utah Retirement System's Larry Powell is trying to have them spread these fees out over several years. It used to be the case that the fund named the fees, and the people paid it. Now they are realizing that they are going to have to negotiate. One interesting thing to consider is that these fee changes will only apply to the new funds. How will that affect how people like Larry Powell determine which funds are the better investment. He expects that the top performers will still have the advantage of dictating fees, but the new ones will definitely have to build customer relationships through negotiation.
This applies to our class discussion, because changing when and how fees are paid changes the value of a fund. $10,000 today is worth a lot more than $10,000 spread evenly over three years. It would be interesting to see if they factor in the time value of money into those fees. Which, essentially would not create any real savings for investors, but would make it easier to manages their cash flows. In my current situation, paying the fees off over time would be much more appealing, because I don't have the cash. However, if I did have the cash now, would I want to still pay fees right away when I could invest that extra cash and maybe make some returns greater than what I'd be paying. It's an interesting thought to consider.
http://online.wsj.com/article/SB123629796624746265.html
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