Street Speculator

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.

Tough times call for extreme measures. Today the SPECs bring forward a proposal to those suffering financially during these trying economic times. Remember, we are not salesman so there is no financial interest in providing this information.

This is an attempt to assist you in regaining the financial stature once had but now a thing of the past. It is never too late.

1st, GET RID OF THE FOLLOWING:

CABLE TV– Cable TV does nothing but keep people ignorant and overweight. Its sole purpose is to “entertain” the mind and not educate it. Plus, you would probably save between $30 -$90/month if removed. Take that money and put it where it can at least draw interest. If you happen to own these industry companies, sell them. TOO MUCH DEBT and the U.S. Cable industry as a whole is very capital intensive with virtually no international exposure:  Comcast (Symbol: CMCSA) $32 billion in debt; Time Warner Cable (Symbol: TWX) $16 billion in debt; Verizon (Symbol: VZ) $43 billion in debt.

CELL PHONE SERVICE– Yes. Since the day you 1st purchased this gadget and its underlying service, it has become an addictive device. Most people would not know how to survive without their cell phone. But, we all live near access to some type of communication in the event of an emergency. This will be difficult to most to rid themselves of. If you elect not to take our advice and keep your CELL PHONE, then subsequently get rid of your landline service and use the CELL as the main source of communication. Also, “sell” CELL PHONE service stocks as many of these companies are also loaded WITH DEBT: Deutsche Telekom (Symbol: DT) AKA “T-Mobile”, has $58 billion in debt; AT&T (Symbol: T) has $76 billion in debt (Unbelievable).

There may be other so-called house hold luxuries you know is a monthly financial drain. There are many items you can definitely do without, but the mental facility persuades otherwise. Remember, stick with the fundamentals.

As for the Stock Market investing, get back in after this Friday 10.31.08. That way you will have given the market a chance to ingest the FEDS injecting money into the Insurance industry.

Good Luck and Stay Focused.

The SPECs initially thought the reverse stock split the company is considering would enhance its stature on Wall Street. We did have the company on our previous “Reverse Split” list. Sirius XM (Symbol: SIRI) currently trades at $0.31/share, which removes the stock from being purchased by mutual funds (Mutual Funds are usually prohibited from buying stocks trading under $5.00/share). Sirius however does not generate enough revenue to service its debt obligations and pay for programming costs.

The merger between the two satellite companies has not produced the “cost savings” everyone thought would occur. 2009 will not be a good year for XM Sirius. According to their latest 10 Q, they have a substantial amount of debt due in next year. Look at these numbers:

$250 million credit facility– Matures in May ‘09

$100 million term loan– Matures in May ‘09

$400 million in Convertible Senior Notes– due in December ‘09

$300 million of 2.5% Convertible Notes– Matures in February ‘09

The SPECs would be more optimistic is this wasn’t such a bad credit environment. However, with the virtual stoppage in lending, Sirius XM will probably not be able to refinance any of the above mentioned debt at favorable terms, if they can refinance at all.

This is a direct quote from the Sirius XM 10-Q form: “An inability to access additional sources of liquidity to fund our cash needs in ‘09 or thereafter or to refinance or otherwise fund the repayment of our maturing debt instruments could adversely affect our growth, our financial condition, our results of operations, and our ability to make payments on our debt, and could force us to seek the protection of the bankruptcy laws, which could materially adversely impact our ability to operate our business and to make payments under our debt instruments.”

We did not mention Sirius XM’s other obligations:

Rights fees to MLB for $60 million annually through the year 2012, 5yr. $500 million to Howard Stern (Although some of that money was paid in company stock),

and $18 million annually to Oprah Winfrey (Oprah Winfrey and Friends show) for the next three years.

Sirius XM’s main source of revenue comes from subscription fees, including the prepaid subscriptions paid by auto manufacturers (Those free 6-months of satellite radio you get when purchasing a new car is actually paid by the auto manufacturer). However, with the slowdown in auto finance and purchasing, this source of revenue will diminish substantially. Also, as people cut discretionary spending, satellite radio services may not be one of the “necessary items” purchased from retail stores.

Sirius XM does not have many options if any. A reverse stock split would only look good on paper. This option is not a definite, but just an option. But, the SPECs believe Sirius XM will file bankruptcy to get favorable terms on its outstanding debt obligations (They will not be able to do so in this current environment).

If you want to profit off of Sirius XM, buy the corporate bonds and not the stock. At least bondholders have some input into the future strategy of the company post-bankruptcy, which also may include an attempt to reduce some of the programming fees paid to MLB, Howard, and Oprah.

YAHOO (Symbol:YHOO) has been the Wall Street whipping boy for the past year. Sure Google (Symbol:GOOG) has taken their luster in internet search and popularity (The word “Yahoo” is not yet a verb). But, in the mid to late 90’s Yahoo was the new “cool”.

When the Internet started to gain global popularity, even to the point where it became a “necessity”, I would use Yahoo exclusively to conduct web searches. Now I use Google. That is not a knock against Yahoo but rather a compliment to Google. However when looking for financial news, Yahoo! Finance is my EXCLUSIVE provider.

The SPECs create this report on Yahoo to bring investors back to reality. Sure they are being pursued by Big Brother Microsoft (Symbol:MSFT). Wall Street analysts thinks this merger would be good for Microsoft as Yahoo does not seem to show any significant growth potential in the future. In other words, they are calling Yahoo! a DINOSAUR.

Ignore this and BUY YAHOO!!! The closing price today was $12.10/share. This price is a great opportunity was small investors (Those with $500 + in liquid cash). They recently reported 3rd quarter earnings of $54.3 million. This is down from 3rd quarter ‘07 of $151 million. But, Yahoo! has U.S. $3.2 billion in cash, NO DEBT!! and they are somewhat feeling the economic crisis with everyone else.

We highlight the “U.S.” because of Yahoo’s use of an accounting procedure (Other 500 co.’s use the same procedure) when calculating its international revenue, REPATRIATION. Repatriation is the process of converting foreign currency into the currency of one’s own country (Investopedia). In layman’s terms, what Yahoo! does is 1st set-up foreign country subsidiaries. These entities control revenue generated by Yahoo! outside of the United States. This international revenue is free of U.S. taxation as long as it never enters the U.S.  Ex: All revenue generated from Yahoo! Japan and Yahoo! Canada are more than likely held in the banks located outside of the United States. Yahoo! (the one you and I know and hear about daily) however remains the parent company.

So, as long as Yahoo! does not bring this earned revenue into the U.S., they pay no corporate taxes on this money. This money can be used to invest in its other international subsidiaries, issue dividends, and invest in other securities.

Yahoo’s 2007 annual report states that it had over $1billion held by its foreign subsidiaries. Yahoo’s international revenue constitute about 40% of its total. That amount is likely to increase as emerging market countries continuously develop internet infrastructure which will bring more of its citizens online and further enhance revenue for Yahoo! and other internet companies.

Ignore the analysts and put this stock on your “buy” list. They will never need a government bailout nor an economic stimulus. Yahoo! has one of the most sound financial books of all publicly traded companies. They escaped the so-called “Internet Bubble” and operate a few of the top 5 internet destinations (Yahoo! Finance, and Yahoo! Sports).

Look at this feature of their initial entry into Interactive Entertainment:

Online Videos by Veoh.com