February 21, 2009
Layoffs, job cuts, and downsizing are all common terms in the employment industry as of late, and it seems as if no sector is immune during the recession that we are experiencing. General Motors announced recently 47,000 worldwide job cuts, the state of California is starting the offloading of 20,000 government employees, and even upcoming Hayward based solar startup OptiSolar (who procured a 550MW thin film PV agreement with PG&E) recently laid off half of its 600 man staff. In the meantime, places like Mesa, Arizona are dealing with not just unemployment that is pegged to hit upwards of 8.8% but also being labeled as the third highest rate of foreclosure filings in the country. The ongoing sour employment news combined with further uncertainty is a vicious combination.
To the rescue though is an attempt by the Obama administration to fix some problems in the US economy and the unveiling of the 787 billion dollar stimulus package. The total package includes 80 billion dollars geared toward the renewable energy industry. Not all of it will go toward creating renewable jobs but will be spread out through creating a better electricity grid and transmission network, weatherizing homes and government buildings, energy R&D, and programs to promote renewable energy to lessen our dependence on fossil fuels. The numbers are fuzzy of how many renewable jobs actually will be create, but White House economist numbers have said that as high as 3.5 million jobs would be created or saved by the end of 2010. From another perspective, economics professor Robert Polin at the University of Massachusetts said that 1.7 million jobs would be created through the green investments of the stimulus package.
What does all this mean? Nobody really knows with certainty but it should signal that times are changing for some American workers and how they transition themselves into a new era that will require retraining and different skillset that what was required in the last decade or two. Of course not everyone is going to get a green renewable job but for those millions of Americans looking for work or for Americans looking to take a gamble in transitioning into a growing field, this stimulus package does provide some of those tools. It would be advantageous for manufacturing workers to learn how to install photovoltaic rooftop installations, for housing and insurance workers to add value into local or state permitting of renewable energy, and for engineers to learn the trades of monocrystalline photovoltaics and biomass instead of focusing in CDMA and Java programming. Maybe this boost to the green industry will also translate to addition of retail jobs at the mall to sell solar chargers for phones/laptops and allow construction workers to build utility scale renewable power projects in the next 7 years while the 30% investment tax credit for renewable projects will be around. Do your due diligence on what local renewable companies are hiring, search through online job sites, brush up on the lingo of the sector, and good luck finding green jobs!!!
February 21, 2009
The closecall with Sirus XM (SIRI) should have everyone thinking. When a company goes bankrupt all is not lost. The bankruptcy of Midway (MWYGQ.PK) could make someone really rich because of some shady dealings. By one estimate a 30,000% return on $100,000. If you get paid first (secured debt, preferred stock) when a company goes bankrupt, you may still profit. If you’re a common shareholder, you will be last in line to get paid.
February 18, 2009
Today Sirius XM radio (SIRI) was saved from bankruptcy by a supposed White Knight investor in Liberty Media Corp. (LCAPB). Because of the current credit crisis, Sirius XM was unable to refinance some of their debt obligations that were coming due this year. While this current infusion of capital is a short-term solution, the story behind these events has a very interesting lesson.
On the face of it, if you had a crystal ball and bought shares of Sirius XM’s common stock last week, you’d have a 50+% gain on your hands and be a stock market genius. The large rise in price is due to the subsiding fears that the company would declare bankruptcy if they couldn’t meet their $172 million debt obligation due today. So, if the last-minute financing had failed to come through then the short sellers would’ve been right and Sirius XM’s shares would be near worthless when they went into Chapter 11 bankruptcy. That’s the high-risk of bottom fishing for companies in this market. Common stockholders are the last ones paid off in bankruptcy, so they’re assumed to be holding onto worthless paper in the end. But what can you do to lower your risk?
Well, if we get back to the example of Sirius XM, you could take the position that Echostar went into when the debt payments were coming due. By buying the actual corporate debt or preferred shares, you can hedge yourself against the risk of losing everything to bankruptcy. By buying up the corporate debt on the cheap, Echostar was able to log a modest profit even though the original debt issue matured at 2.5% because they were able to purchase it at far below the original cost. And while Echostar was buying up the debt to gain assets in a Chapter 11 bankruptcy proceeding as a preferred debt holder, an individual’s investment in the debt would also have not been entirely wiped out like common stockholders.
So what can be learned from this example? If you want to take a risk on a company that may have large debts coming to term, there are other options besides common stock. Find preferred stock and debt that has been beaten down due to the bankruptcy fears. If the company is able to meet its obligations, a quick and tidy profit will be made. And if not, at least you will not be able to retain some of your initial investment Preferred stock is also a good option to consider during more normal times since they retain their value far better than the rest of the market while paying higher dividends than common stock.
Disclosure: I have current ownership in Sirius XM.
February 15, 2009
2009 is the Year of the Ox according to the Chinese Astrology, but for the stock market participants, 2009 will be the Year of the Stock Trader. You are going to see some volatile days with very big news revolving around long term oil prices, viability of the United States stimulus package, increasing unemployment, California running out of money, and whether the housing market will ever bottom out.
My strategy this year will be taking positions in companies that are being oversold and doing it incrementally instead of “going all in” like they say in poker. If you normally invest in $3000 chunks, break that into $1500 chunks and reserve a bit of money in case that stock you love falls another 10% so you can cost average and spread around your funds to different sectors. 2008 showed us that no sector is immune to the slaughter in stock prices although some stocks only fell 40% compared to 80% from yearly highs.
With oil hitting $150/barrel and even though it’s sitting at barely 25% of that value, I am a big fan of energy and commodity stocks. Knowing how important natural gas, coal, solar, and petroleum will be through every developing nation, it’s a golden opportunity to take a position while these prices are so depressed. Banks and housing stocks will have many more tough times ahead of them and a lot of infrastructure stocks will follow the health of the economy. Most of the ten investments below are ones that I believe will have a better chance to go up than down in the next few months. If they do go down any further, just add more shares!
- Alcoa (AA)
- Procter & Gamble (PG)
- Wal Mart (WMT)
- Garmin (GRMN)
- Diamond Offshore Drilling (DO)
- Transocean (RIG)
- Devon Energy Corporation (DVN)
- Nabors Industries (NBR)
- General Electric (GE)
- Perdigao (PDA)
Most of these are large companies with none being small cap stocks. 6 of the 10 corporations have some kind of ties to the energy industry and all are well off their yearly highs. I threw in some Dow Industrial stocks too for some dividend plays that shouldn’t take too big of a hit if the market tanks any further. Take your 30% gains when they come and be a happy investor!!!
Disclosure: I have current ownership in Transocean.