Street Speculator

To the new administration: General Motors (Symbol: GM) needs to re-organize through the bankruptcy process.

The U.S. Senate will vote tomorrow on a “Bailout Package” for the automotive industry. The SPECs do not think a bailout will have any effect on the financial problems associated with car manufacturers. NOTE: Former Senator, now President-Elect Obama just resigned from his Senate senate, removing any potential future blame if the bailout program doesn’t work. SMART MOVE Mr. President…

GM has over $40 billion in debt. They report a DROP in car sales each month. Their labor contracts with the UAW (United Auto Workers) is laughable. It was reported that each union member receives health coverage better than that of the Office of the President. Plus, financing for car purchases and lease transactions have virtually vanished.

No. A bailout without drastic cost-cutting measures agreed upon prior to release of funds would only delay a future calamity. Union members need to elect people whom negotiate on their behalf while having a business sense. No business, No paychecks!!! The GM labor situation was predicted to be the cause of the future downfall of the company 3 to 4 years ago. Now, here we are. The credit crisis has just heightened the labor picture and the financial problems of the auto industry.

If GM and other auto companies fail, fine. The reverberations will be felt immediately, but at least they will have time to constructively change their business model while removing current management and renegotiating labor contracts.
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Everyone knows, especially those on Wall Street that newspapers and newspaper companies are becoming dinosaurs. Print readership is down drastically as more people go online and to the blogosphere to get their news.

The financials of many newspaper companies are also highly leveraged, including the private entities. News reports of layoffs come in on a weekly basis and the implementation of cost-cutting strategies which include reducing the size of the paper. Nothing seems to be working.

The New York Times Company (Symbol:NYT) is not immune from the current environment. Heralded as one of the most recognized newspaper companies globally, they are not without problems.

The stock currently trades at $7.26/share, off tremendously from their 52-week high of $21.14. The TIMES also has $1.4 billion in debt on its books and advertising revenue for the print edition is down and continues to fall. Yet the company continues to pay an annual dividend to its shareholders (The SPECs have no idea why).

Unlike other media and newspaper companies, the TIMES has an asset it can use to shore up its balance sheet and potentially clear its heavy debt load.

THE DIGITAL/ONLINE BUSINESSES

The TIMES digital businesses include the following assets: nyt.com (New York Times online division), boston.com (Boston Globe online division), about.com, UCompareHealthCare.com, Calorie-Count.com, and consumersearch.com. According to the TIMES 2007 annual report, these assets generated $330 million in revenues, which amount was up 20% from 2006. Digital represents 10% of total revenues of the company.  OUR RECOMMENDATION………….

1.) Take all of the assets in the digital division and spin-off into a new publicly traded company.

2.) Use the IPO money received to pay down debt, debt contributed from the print division.

3.) The print division should only spin-off about 40% of the company, and retain the other 60% (This way “print” can still receive any profits from the online division; similar to what Microsoft [Symbol:MSFT] did with Comcast [Symbol: CMCSA] 10 years ago).

4.) Cut the dividend

SPORTS ASSETS

5.) Keep sports assets bundled with print. Sports assets include a 17.5% interest in New England Sports Ventures (owners of the Boston Red Sox, Fenway Park, and adjacent real estate), 80% of the New England Sports Network (NESN, the regional cable sports network that televises the Red Sox games), and 50% of Roush Fenway Racing (a NASCAR team). For now, the Sports industry does not seem affected by this economy.

These hypotheticals are bold steps, especially since the IPO market is not moving.  And although the TIMES is rapidly developing its “Mobile Internet Platforms” presence for Digital, their is still the perception with a connection to “print”.

If you are a TIMES shareholder, contact Arthur Sulzberger, Jr. (Chairman), and Janet Robinson (CEO) during the next shareholders meeting. Ask them and the other board members to consider this proposal.

The U.S. may be on the verge of a huge economic collapse. Lending has virtually ceased, the Treasury Department continues to “print” money at will, and the latest job report showed that U.S. businesses are laying off employees at an alarming rate. What’s next?

One scenario as a policy change the new President and Congress can consider is a change in the way we tax the International revenue of companies. Companies now tend to not Repatriate (Repatriation is when a U.S. based company brings back into the U.S. commerce system any/all revenues made from sales/services produced outside of the U.S.) their international revenue to remove the potential of being taxed by the U.S. government. This is not a tax avoidance procedure. However, why would Yahoo! Japan bring its revenues into the U.S. to be double-taxed (One, by the Japanese government and then by the Uncle Sam). 

That would not be wise for the company nor to its shareholders to be “Double Taxed” on the same revenue source. Therefore, Yahoo (Symbol: YHOO) uses its Japanese subsidiary (Yahoo! Japan) to operate in and leave all of its revenue in Asia. As of May 31, 2008, Oracle (Symbol:ORCL) has $10.1 billion held by foreign subsidiaries, according to its latest public financial report. There was also a report stating that the giant pharmaceutical giant, Pfizer (Symbol:PFE) has about $10-$17 billion held in overseas subsidiaries.

The SPECs message to the new administration: Institute a new tax policy, where any U.S. based company can bring their international revenue back into the country and be free from taxes (Both at the State and Federal level).

What would this do? For one, IT MAY give these companies an incentive to invest more money in the U.S. in both Research and Development (R&D) and in hiring/training more U.S. workers. If more U.S. workers are hired, then that will ultimately create more revenue for the respective governmental bodies (Which is what Democrats like anyhow, BIG GOVERNMENT).

As more people are hired, they will spend more as well: Consumer goods, Real Estate, etc…. The credit markets may rebound faster from such increased spending.

This is just a hypothetical, but something will have to be done. As the new president-elect Obama stated, “All options are on the table” as well they should be.

If you agree with this policy, then write and call your local House and U.S. Senate Representative.

As we write this, it looks as if the U.S. will make presidential history. An African-American will for the 1st time become President. This is something everyone needs to celebrate.

However, the question remains, did Economics win this election? As you all know, poverty has no color. Right now the impression is that everyone in the U.S. is either knee deep in debt, loosing money, and/or is broke already (Whether Rich or Poor).

This election was always about economics, and hardly about National Security or anything else. There is a global economic crisis while the world looks to the U.S. for guidance and direction (Especially since the roots started in the U.S. with sub-prime lending investments).

Anyhow, congratulations to the entire United States population. Now, time to get out of this financial crisis.