Fidelity Opens Contrafund, Sign to Buy Into Stocks Now?

Fidelity Investments, the largest mutual fund company, has announced it will reopen its Contrafund and Low-Priced Stock funds, to gain new investments to pick up on buying opportunities on significantly discounted stocks available right now and to also offset redemption. Contrafund, and the Low-Priced funds were closed in 2006 and 2003, respectively. Contrafund peaked with assets of $65 billion in 2005, and now to date its fair value has declined by 42.96% as a direct result of the financial crisis, Fidelity’s Low-Priced Stock fund is also down significantly, nearly 46% to date. Both funds are diversified in international short and long term equities. The funds will re-open Dec 16, 2008.

The Contrafund is currently invested in good strong growth companies including Google, Apple, Procter and Gamble, Warren Buffet’s Berkshire Hathaway, HP, and more great companies run by great management. As of the end of November 08, the Contrafund had a beta of 0.98, just below the standard market systematic risk, and a standard deviation of 16.21. Now, this could be a great time to invest in this fund as most people don’t have enough money to go out and purchase the individual stocks. Many of these stocks such as Google, which is trading below exercise prices for employee stock options (closed at $276 today), are deeply discounted right now. The question is will these rebound to pre-credit crisis peak levels? I think they very well could substantially increase for a modest profit in about 3 years from now, but likely not to pre-credit crisis levels. Read the full story


Jerry Yang Steps Down as Yahoo CEO

Yahoo is announcing that the co-founder and CEO, Jerry Yang, has stepped down as company CEO to his previous postion and a Chief Yahoo Board Member. Jerry has been heavily critisized for not accepting the Microsoft takeover offer of about $33 per share as the Yahoo stock is currently hovering at about $10 per share and its not expected that the stock will reach $30 again any time soon. Jerry said “from founding this company to guiding its growth into a trusted global brand that is indispensible to millions of people, I have always sought to do what is best for our franchise,” he went on to say “when the Board asked me to become CEO and lead the transformation of the Company, I did so because it was important to re-envision the business for a different era to drive more effective growth.” A replacement has yet to be announced.


Fed to Help The Big 3 Automakers, Likely Bailout GM

US House Speaker Nancy Pelosi has announced today that the big three Detroit automakers will be getting part of the $700 billion government bail out. Pelosi did not confirm how much money the companies will get but they are asking a combined $25 billion in loans. The amount of money that will be given to GM should be sufficient to bailout GM, which desperately needs a cash infusion or it will run out of money entirely by early March 2009. Pelosi said that the big three would need to develop better, more fuel efficient vehicles and restructure “to ensure their long-term economic viability” as a condition part of the deal.

United Auto Workers President Gettelfinger told reporters that automakers are struggling because of problems beyond their control, including the credit crisis. He also said that union labor costs are not the main problem and they only account for up to 10% of any vehicles cost made by the big three (GM, Chrysler, Ford). I personally believe the union is cutting into their bottom and line and making them less competitive because the other foreign automakers don’t pay nearly as much in total labor cost per vehicle.

I said it before that GM will be bailed and that we should bail GM out because if it fails, a catastrpohic chain reaction will hit the economy hard that could eliminate 1 million jobs alone. The Center for Automotive Research has also warned that the collapse of the Big Three could eliminate up to 3 million jobs and more than $150 billion in tax revenue for the US Fed over the next three years. However, all 3 wouldn’t fail, but even GM alone would hit everyone hard, especially the people of Detriot, which could result in more foreclosures. Scary stuff.


GM is a Mess but We Still Need to Bail GM out

Since 2007, GM has lost 90% of its total value and it dropped by 25% alone just yesterday (Nov 10 08) and it is now trading at its lowest price ever and edging closer to $0. As part of GM’s aggregate cost savings plan to try stay in business, it has terminated 3,600 jobs effective immediately and has halted R&D expenditure completely. In addition, it has also stopped contributions to pension funds. Implicit costs at GM are now also skyrocketing. GM is inefficiently utilizing resources to maintain the company, including by paying fees to attorneys and lobbyists, instead of using resources towards the effort of further developing the company.  GM is continuing to burn cash, it can’t get credit as a direct result of the credit crisis, and I would expect it to run out of cash completely by March 09 assuming it doesn’t get bailed out.

GM needs to cut costs and move vehicles, but the question now is: why would you consider buying a GM vehicle? No rational buyer should buy a GM car right now. The company is too volatile and it is no longer an innovator because it has discontinued R&D expenditure therefore quality will further diminish. Also, how will a company that goes under service your vehicle?

However, the problem is GM is too big to fail. It can’t fail. People argue that if companies make bad investment decisions, they should be held accountable (and I agree), but people don’t realize GM is just too big to fail. If it does, everyone will suffer. If GM now goes under completely, the consequences will be profound as it employees close to 266,000 people and about 1,000,000 people would be directly affected with their jobs. And lets not forget the ripple effects where suppliers and other stakeholders would also lose business and also layoff yet more people. Where will all these people find work, what about pension beneficiaries? The costs are just too great for GM to fail.

The government needs to bail GM out, and I think it’s going to happen. The Obama camp hinted it would give GM money during the campaign, though there is no other indication as of yet. If GM acquired Chrysler about a week ago, at least, it would have gave GM more time (about a year) to reorganize as Chrysler has $11 billion in cash. Some would argue that would just be avoiding the inevitable because GM still wouldn’t produce quality vehicles and cut costs. However, a GM/Chrysler merger just isn’t likely anymore and the truth is that GM needs $11 billion in new working capital now otherwise it will run out of cash completely by March 09 and it will go under where we would all be adversely affected. If GM gets this money, I hope it learns its lesson and restructures management, cuts costs, and produces quality vehicles, than maybe, it can get out of this mess.

So, what do you think? If GM was bailed out, could it survive? Will it change? Is it too late, or do they simply not desrve to be bailed out? Do you think its just too big to fail?


Considerations for Global e-Marketers

So, you have your online business that’s getting global hits, but, within these markets there are many differences you should be aware of that can help ensure you provide the most value to all your visitors that will help maximize your sales.

In this post, I examine various issues that you should consider when you develop marketing campaigns and applications for your online business.

One of the biggest pitfalls to having a truly successful online business is the failure to realize that dissimilar markets require different needs. This is especially true for people in North America. We’ve become accustom to making instant payments online with PayPal and Google Checkout, and to constantly being connected with very few service interruptions. But the truth is many profitable markets in the rest of the world aren’t as nearly as advanced as North America.

One primary issue to consider is that different markets have different infrastructure. Connection speeds will therefore vary and it could be fairly costly for a user to use the internet. For that reason, you should remember to build your web applications as simply as possible to minimize load times. For example, subscription costs in Japan are about $25 per month, compared to about $50 for comparable service in Switzerland. Read the full story


Exactly How the Financial Crisis Started

Many people don’t understand the fundamental reasons why the US financial system is failing and the reasons behind the day to day volatility. In this post, I try to explain to you how this mess happened.

It all started about a decade ago when banks started redlining urban centers which immediately disqualified people from obtaining mortgages in the hypothetical red areas. The problem began when banks thought the solution to redlining was with sub-prime mortgages. Banks deceitfully offered significantly discounted interest rates that would eventually skyrocket after an initial 2 year term. In some cases, the principal was higher after the two year period! The problem was that loans were being granted to people with very poor credit ratings, including to people with Loan to Value (LTV) ratios of more than 88%, compared to the maximum current cut off of 75% which is arguably also pushing it. Another problem was that people were able to provide their own income which was never verified. If you’re wondering why people would take the loans, we can generalize with these main reasons: the banks deceitfully didn’t disclose the teaser rate wouldn’t last, the loan seemed so affordable it was basically free money, and people wanted to own their homes and didn’t have another alternative to get a mortgage.

So, what did the banks do with all of these loans? They grouped the loans into Mortgage Backed Securities (MBS) which were bought by various investment banks who converted the MBS into new financial instruments called Collateralized Debt Obligations (CDO). The banks originally developed MBS because they are only required to hold 1.6% of capital for mortgage backed securities, compared to 4% to hold a mortgage. The CDO instruments were then setup in the Cayman Islands to avoid taxes where they were then artificially rated by credit agencies who received most of their income from structured finance products. The real problems were for firms that invested in CDO securities based on the artificial ratings. Essentially, as people began to default on their mortgages because of the new high rates after the initial 2 year term and falling home values, the CDOs failed along with the firms heavily invested in these securities. Read the full story


Telus to Cut Costs, Reduces Expectations

Telus, the 2nd largest mobile telecom in Canada, has posted a Q3 profit of $285.3 million ($0.89 per shar), down from $409.3 million ($1.23 per share) year over year. The company earned $2.45 billion in revenue, down from $2.31 billion YoY. The lower profits were essentially expected. Telus now plans to materially cut costs even more than it originally planned. Telus recently has made varoius large investments, including in Koodoo, a subsidary discount telecom, has invested in network upgrades with Bell (who shared the costs – both use CDMA networks), and also spent $882 million in a government airwave spectrum auction. Telus has also lowered its expected fiscal 08 total revenue.

Telus currently offers the most smartphone selection in Canada, and is the only carrier to offer unlimited internet on mobile phones (however, there are still some restrictions in the TOS). Bell and Telus are believed to make the switch to the more desirable GSM mobile network standard from the current CDMA systems. This will help the companies offer more selection, and it will also bring some competition to the GSM Canadian mobile market space where Rogers (also owns Fido) currently has a complete monopoly over. The transition will likely take about 3 years to complete.


Warren Buffett’s Berkshire Hathaway Earnings Drop 77% in Q3

Warren Buffett’s company, Berkshire Hathaway, has announced a staggering 77% drop in Q3 earnings to $1.06 billion, as a result to a $1.05 billion investment loss, and declining insurance profits because of the financial crisis. The value of the company declined so much because Berkshire Hathaway’s derivative positions including options and futures, which are tied to the overall markets, declined the most. I think it will get worse before it gets better, and Warran Buffett also thinks the financial crisis will get better, too. That is why Warren Buffett says his company will not sell their derivative positions and he believes they will eventually become profitable, which will take years from now. The results do not take into account the $5 billion investment in Goldman Sachs and a $3 billion stake in General Electric. Aggregately, Berkshire’s net-worth is now at $120.15 billion, down from $120.73 billion YoY.


Yang says Yahoo For Sale, Will Microsoft/AOL Buy?

Jerry Yang spoke in front of more than 1,000 people at the Web 2.0 Summit in San Fransisco where he provided his commentary about the last year and also expressed he and the Yahoo board of directors never at any point had any regrets concerning the failed acquisition with Microsoft. Yang also says that he went back to Steve Ballmer (CEO of Microsoft) to re-interest MS though to no avail. Yang has confirmed Yahoo is not in any direct acquisition talks with Microsoft and he notably refused to comment about a possible acquisition with AOL. We can expect Microsoft’s interest to re-open assuming serious talks develop with AOL. Most importantly, Yang went on to say “to this day, I’d say the best thing for Microsoft to do is buy Yahoo,” and he added: “We’re willing to sell the company.” Very interesting. Yang has been very heavily criticized (probably rightfully so) for not accepting the Microsoft acquisition bid for about $33 per share, considering Yahoo stock is now trading at about $12 and it isn’t expect to recover to $33 anytime soon. In more recent news, Yang also expressed disappointment towards Google who recently dropped the Yahoo ad partnership after antitrust concerns from the US Justice Department and strong critisism from various corporate opponents including Microsoft. Complete information from the Web 2.0 Summit can be found here.


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