Smart grid not clever enough to avoid recession
BY MarketWatch
— 6:55 PM ET 05/29/2009
NEW YORK (MarketWatch) -- While the U.S. government and electricity producers get ready to spend hundreds of billions to upgrade the nation's power lines and electricity infrastructure, the so-called smart grid may not be clever enough to escape economic uncertainty.
After Congress OK'd $30 billion for the electric grid, advanced battery manufacturing and energy efficiency projects, much of the money included in the $787 billion economic stimulus bill signed into law on Feb. 18 remains unused.
As utility companies prepare for the peak summer season of 2009, new efforts to update the power grid remain in limbo in the face of a new regulatory landscape and other changes affecting long-term plans for the electric generation and transmission business.
Wall Street hasn't been exactly cheering either, with power companies lagging the broader stock market by a big margin. But the smaller, more nimble companies tapping new technology to wring higher performance out of an aging power grid have fared far better.
"It's all very convoluted on how it'll all work," said Justin McCann, analyst with S&P Equity Research. So far, the government has pledged loan guarantees and tax credits for projects, but concrete progress remains vague.
Before diving into the new federal subsidy programs, experts point out that the industry is still waiting for rules on loan guarantees from the Department of Energy. Utility firms welcome new federal tax credits, but are trying to clarify how they would affect existing tax breaks for depreciation and other expenses.
And in a sign that public policy can't always compensate for a slower economy, at least one turbine plant in the sector remains mostly idle -- not immune from competition from abroad and a recession at home.
While the slow economy may take the sting out of spikes in demand in June, July, August and September, the nation's power system remains vulnerable to large-scale blackouts from monster hurricanes and other natural disasters.
Fresh regulations also loom in the power industry and elsewhere, as Congress and the Obama administration plan for a cap-and-trade system to reduce carbon dioxide emissions.
Instead of huge ramp-ups in spending, McCann said, utility giants such as Exelon (EXC), FPL Group (FPL) and Southern Co. (SO) have been working on big infrastructure projects already in progress and deferring others until credit markets improve.
With the business in flux for the power grid, Exelon (EXC) CEO John Rowe said in a speech this week that "there is no grand structure for the electricity business that is completely accepted" nowadays.
"What's a smart grid, does anyone know? And of course the answer is, everybody has their own definition of the smart grid," he said.
Some think it's new power lines to carry wind power from the Dakotas to the Midwest, or from West Texas to Houston, or smart meters to improve efficiency, he said. The goal would be to transform the current patchwork of aging cable and technology into a "self healing system" that increases reliability, he said.
"It can be all of the above, but whichever you choose, it's expensive," Rowe said at the Sanford C. Bernstein & Co. Strategic Decisions Conference.
While talk of new transmission lines remains front and center in the debate, communities aren't exactly lining up to volunteer for new 200-foot transmission towers in their collective back yard, either.
Earlier this months, Edison International (EIX) scrapped plans for a 50-mile power line right-of-way in Arizona, after objections from state officials. The owner of Southern California Edison hopes to move ahead with plans to connect Palm Springs, Calif. with generation facilities on the books near Blythe, Calif.
American Electric Power (AEP), the transmission line specialist in the U.S., continues to grapple with regulatory OKs for new conduits, even as Washington officials ponder proposals to increase the power of the Federal Energy Regulatory Commission to site power towers.
Market beats up power companies
The smart-grid effort, as well the coming carbon dioxide legislation, cap off a tough year so far in the stock market for the 35 issues in the S&P utilities sector index.
The sector has been facing higher operating expenses, cash payments for pension plans, and tight capital markets, plus many investors maintain that improvements in the economy are more likely to benefit other sectors more.
Exelon (EXC) currently leads the class as the bulkiest power company in the S&P 500 with a market cap of more than $31 billion. FPL Group (FPL) holds the No. 2 position at $23 billion, followed by Southern Co. (SO) with $22 billion. Dominion Resources Inc. (D) comes next at about $19 billion, and Duke Energy (DUK) wraps up the top five at $18 billion.
Recent months have seen a shake-up among the top names in the business, with Constellation Energy selling a big chunk of its nuclear business to Electricite de France and Exelon (EXC) moving to buy NRG Energy (NRG) through a hostile offer to common shareholders.
Collectively, the largest publicly traded utility components of the S&P 500 are down 9.4% so far in 2009, compared with a gain of 0.8% for the S&P 500, as of Wednesday's close.
In year-to-date performance the S&P utilities sector index ranks last out of the 10 sub-sectors of the S&P, noted Howard Silverblatt of S&P.
While the big cap names struggle, some smaller-cap companies with ties to the smart grid and clean technology sector have rebounded this year.
Smart grid technology firm Comverge (COMV) have risen to above $9 a share from $5 a share earlier this year. EnerNoc (ENOC) has risen from below $10 to more than $22 now.
American Superconductor Corp. (AMSC) is also up handily for the year, along with Enersys (ENS) . Echelon Corp. (ELON) has remained about flat this year. Itron (ITRI) is lower for the year and Esco Technologies (ESE) about flat.
General Cable Corp. (BGC) and Composite Technology are also seen as beneficiaries of grid spending.
Peak summer conditions still expected
While utility companies have already reported lower usage because of the recession, it's likely that demand for power will still increase during the usual summer surge.
In New York, for example, the operator of the state's power grid, NYISO, expects peak power usage to climb 3% from the year-ago period to 33,452 megawatts.
"Heat waves, causing increased power use by air conditioning and cooling systems, could produce peak loads this summer to rival those of recent years," said Stephen G. Whitley of the New York Independent System Operator.
Power grids remain vulnerable to a host of hazards posed by nature, from squirrels to rainstorms and even heavy tree growth.
Meanwhile, the industry is sifting through a host of new government incentives starting to kick in under the American Recovery and Investment Act.
The law earmarked $4.5 billion in matching grants for smart grid projects that help utilities and their customers to track and manage the flow of energy more effectively, curb peak demand, reduce blackouts, and integrate renewable energy and storage, including electric and plug-in hybrid vehicle batteries.
Another $32 billion has been set aside for grid improvements, including 3,000 miles of new and upgraded transmission lines.
Southern California Edison has laid out plans to spend $1.2 billion for smart meters, while Pacific Gas & Electric plans to spend $1.7 billion through 2011 on new meters.
The cost to put a smart meter in every home in the United States has been estimated at $6 billion," SBI noted in a recent study. "However, unless smart meter costs fall substantially below $100 per meter, overall costs will likely exceed $15 billion if all 150-plus million electric meters in the United States are replaced with smart meters."
While some programs move ahead, some in the industry has yet to fully tap into the new incentive packages.
"More than 100 days have passed since the Recovery Act became law in mid-February, but U.S. power companies are still frustrated by the lack of clarity and the lack of guidelines needed to disperse some of those funds," Platts analyst Peter Maloney said in a study this week. "There is only about $18 billion in direct spending allocations designated for power sector capital projects, but there is much more than that in the form of loan guarantees and tax incentives," Maloney said. "Unfortunately both the loan guarantee program and the tax incentives for power sector projects come with ties to past programs that complicate their successful implementation."
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Free Financial Help ( PC Magazine's Recommended Websites)
Free Financial Help for Tough Times
PC Magazine reviews free websites for budgeting, monitoring your accounts, and keeping track of bills
PC Magazine reviews free websites for budgeting, monitoring your accounts, and keeping track of bills
FDIC Warns on Foreclosure Scams, Extends Extra Protection
Buyer Beware: Tips from the FDIC on How to Protect Against Foreclosure Frauds, Easy Money Schemes and Other Costly Deals
Other topics in the latest FDIC Consumer News include the extension of $250,000 deposit insurance, more about mortgage modification programs, and shopping for a CD
Many people concerned about their mortgage, their job or their finances may be especially vulnerable to scams and other costly “fixes” for their problems. The Federal Deposit Insurance Corporation today issued a variety of tips to help consumers be on guard financially in the current economy, in areas ranging from foreclosure rescue and loan modification scams to deceptive offers of FDIC-insured certificates of deposit (CDs). The advice was published in the Spring 2009 issue of FDIC Consumer News, the agency’s quarterly newsletter for consumers, which can be read or printed online at
www.fdic.gov/consumers/consumer/news/cnspr09.
Other timely articles describe the extension of the temporary federal deposit insurance limit of $250,000 per depositor through December 31, 2013, more details about the Obama Administration’s program for lowering monthly mortgage payments through refinancing opportunities and loan modifications; various tips on shopping for a CD; and an FDIC legal opinion clarifying the deposit insurance coverage of a pre-paid card if the bank holding the money for the card fails.
Other topics in the latest FDIC Consumer News include the extension of $250,000 deposit insurance, more about mortgage modification programs, and shopping for a CD
Many people concerned about their mortgage, their job or their finances may be especially vulnerable to scams and other costly “fixes” for their problems. The Federal Deposit Insurance Corporation today issued a variety of tips to help consumers be on guard financially in the current economy, in areas ranging from foreclosure rescue and loan modification scams to deceptive offers of FDIC-insured certificates of deposit (CDs). The advice was published in the Spring 2009 issue of FDIC Consumer News, the agency’s quarterly newsletter for consumers, which can be read or printed online at
www.fdic.gov/consumers/consumer/news/cnspr09.
Other timely articles describe the extension of the temporary federal deposit insurance limit of $250,000 per depositor through December 31, 2013, more details about the Obama Administration’s program for lowering monthly mortgage payments through refinancing opportunities and loan modifications; various tips on shopping for a CD; and an FDIC legal opinion clarifying the deposit insurance coverage of a pre-paid card if the bank holding the money for the card fails.
GM Reaches a Deal with Largest Bondholders (NY Times)
May 28, 2009, 9:42 am
click link for the SEC filing
G.M. Reaches a Deal With Bondholder Committee
General Motors said in a regulatory filing on Thursday that it has proposed a new deal to a committee representing many of its largest bondholders, offering up to a 25 percent stake in exchange for not opposing G.M.’s reorganization plan.
The filing also fills out many of the details of that plan, crafted under the eye of the Treasury Department.
Under the terms of the deal, G.M.’s bondholders would receive a 10 percent stake in the newly reorganized carmaker. They will also receive warrants to buy an additional 15 percent of a new G.M. if the company rises to a certain level of value.
click link for the SEC filing
G.M. Reaches a Deal With Bondholder Committee
General Motors said in a regulatory filing on Thursday that it has proposed a new deal to a committee representing many of its largest bondholders, offering up to a 25 percent stake in exchange for not opposing G.M.’s reorganization plan.
The filing also fills out many of the details of that plan, crafted under the eye of the Treasury Department.
Under the terms of the deal, G.M.’s bondholders would receive a 10 percent stake in the newly reorganized carmaker. They will also receive warrants to buy an additional 15 percent of a new G.M. if the company rises to a certain level of value.
GM bondholders unite (Bloomberg)
Chrysler Dissidents’ Lawyer Seeks GM Bondholders for New Fight
By Tiffany Kary and Christopher Scinta
May 27 (Bloomberg) -- The lawyer who represented Chrysler LLC’s dissident lenders is organizing some General Motors Corp. bondholders and plans to argue in any GM bankruptcy that the loser this time will be will be Main Street, not Wall Street.
GM, the largest U.S. automaker, faces a probable bankruptcy filing by June 1 following the refusal of bondholders to accept a 10 percent equity stake in a new company, part of a U.S.- backed plan to give the American and Canadian governments equity ownership of as much as 69 percent and a 17.5 percent trust for unions. GM bondholders hold $27 billion in claims.
“The difference with GM is that, whereas the ‘bad guys’ in Chrysler were hedge funds, who Obama called ‘speculators,’ here they’re Main Street -- individual retirees who bought bonds when they were like gold bullion,” said Thomas Lauria, a lawyer with White & Case LLP who represents Chrysler lenders fighting that company’s U.S. backed reorganization. Lauria said he is seeking to represent GM bondholders in any bankruptcy of that company.
In the Chrysler case, the dissident debt holders disbanded 10 days after the company collapsed, citing political pressure that began when U.S. President Barack Obama criticized the group. Evan Flaschen, chairman of the restructuring department at law firm Bracewell & Giuliani LLP, said uncooperative GM bondholders may be less politically vulnerable.
Retirees Versus Retirees
“The story that hasn’t been told is, this isn’t GM’s union retirees versus the bondholders. It’s retirees versus other retirees,” said Flaschen, who isn’t involved in the GM matter. While Chrysler’s dissidents lost steam because they were forced to identify themselves and faced public stigma, including alleged death threats, GM’s opponents may be harder to criticize, Flaschen said.
GM Chief Executive Officer Fritz Henderson has said the U.S. Treasury allowed the automaker very little flexibility in its negotiations with bondholders. Julie Gibson, a spokeswoman for GM, declined to comment.
“We’re stuck, we need the white knight,” said Gary Thomas, a retired auto mechanic and GM bondholder, in an interview. “I’m not asking for special treatment, I’m just asking for parity. I just feel like whatever the UAW gets, the bondholders should get.”
Roger Kerson, a spokesman for the United Automobile Workers Union, didn’t return a call seeking comment. Jenni Engebretsen, a spokeswoman for the Treasury, didn’t respond to an e-mail seeking comment.
Individual Creditors
Thomas said he has joined a group of individual creditors called GM Bondholders Unite that wants Lauria to represent them. The group is trying to gather investors and hire legal representation to get “fair and equitable treatment” in a bankruptcy, according to its Web site.
Former GM employee Jim Graves, 58, said he represents his 80 year-old mother, Vivian Floyd. Graves, of Celebration, Florida, said he plans to fight the government’s offer to return pennies on the dollar for her $100,000 investment in GM bonds.
“What it boils down to is about half a cent on the dollar at today’s price of GM stock,” he said. “It’s stunningly unfair.”
Graves calculated that his mother’s bonds may be worth 9 cents on the dollar if stock in the new GM reaches half of the company’s decade-long high of about $63 a share. Graves, part of a group calling itself The Main Street Bondholders Coalition, said he didn’t have legal counsel.
Lauria said he seeks to represent some individual GM retirees if Detroit-based GM seeks court protection. As with Chrysler, the attorney said the Obama administration is subverting the U.S. bankruptcy code.
Last Month
In the case of Auburn Hills, Michigan-based Chrysler, filed last month in U.S. Bankruptcy Court in Manhattan, Lauria argued on behalf of a group of hedge funds calling themselves “Non- TARP” lenders. He sought to distinguish his clients from recipients of taxpayer money from the Troubled Asset Relief Program who backed the U.S. plan.
The lawyer claimed that the U.S.-backed reorganization plan for Chrysler subverted the law by paying some unsecured creditors more than secured creditors, who by law, he said, should have priority.
“Obama painted the Chrysler non-TARP lenders as evil, but when you look at whose investing in these funds, it’s pension plans and mutual funds,” said attorney Michael Foreman of Dorsey & Whitney LLP. “Who’s investing in mutual funds and pensions? It’s people on Main Street.”
Lauria didn’t disclose which GM bondholders he represents. He said he would seek to have his fees paid out of the GM bankruptcy estate.
Nevin Reilly, a spokesman representing the ad hoc group of bondholders that has been negotiating with GM, declined to disclose the identities of the holders his group represents.
Junior Creditors
Workers aren’t always treated as junior creditors. The U.S. bankruptcy code specifically provides for employees to get preference over bondholders, said Richard Hahn, co-chairman of the bankruptcy practice at Debevoise & Plimpton LLP, a New York law firm, who isn’t involved in the GM negotiations.
Section 1114 of the code requires a debtor “timely pay” all retiree benefits unless the bankruptcy court orders otherwise, or the authorized representative of the recipients of those benefits agrees to other treatment, Hahn said.
In a GM bankruptcy case, Lauria said he would argue that, because unions and bondholders are both unsecured creditors, their claims should get equal treatment.
He said GM’s initial offer to bondholders would have given union-workers 12 times their recovery. Under the new U.S.- plan, bondholders will still get less than the unions, he said.
“The new paradigm seems to be that the contractual rights of creditors can be overwritten to protect politically favored entities like labor unions,” Lauria said.
‘Unfair’ Plan
Flaschen predicted that, while the U.S.-backed reorganization plan for GM may be “unfair” under the bankruptcy code, it’s bound to succeed.
“To put it crassly, you need the employees going forward, you don’t need the bondholders,” Flaschen said.
Flashchen said bondholders may argue against the U.S.- funded debtor-in-possession loan that calls for a “good GM” and a “bad GM,” claiming it violates federal bankruptcy law by being a secret plan of reorganization.
GM’s $3 billion of 8.375 percent bonds maturing in 2033 have fallen to 7.13 cents on the dollar from 21 cents at the beginning of the year and 70 cents 12 months ago, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 115 percent.
GM and the U.S. are likely to say that bondholders will get more under its plan than in a liquidation, Flaschen said.
“If you were the judge, you would be told by the government, that if GM liquidates--if you don’t do this--another 2 million people will be out of jobs,” Flaschen said. “Do you want to be the judge who decides that?”
The Chrysler bankruptcy case is In re Chrysler LLC, 09- 50002, U.S. Bankruptcy Court for the Southern District of New York (Manhattan)
To contact the reporters on this story: Tiffany Kary in U.S. Bankruptcy Court in New York at tkary@bloomberg.net and; Christopher Scinta in U.S. Bankruptcy Court in New York at cscinta@bloomberg.net.
Last Updated: May 27, 2009 17:44 EDT
Closed End Funds - Municipal Bonds (the Street,com)
Top-Rated Closed-End Funds Buy Bonds
Kevin Baker
05/26/09 - 12:12 PM EDT
The closed-end funds that won the best grades from TheStreet.com Ratings at the end of April invested in fixed income, especially municipal bonds.
We issued grades for 634 closed-end funds that had at least one year of trading history as of April 30. Of them, 311 funds earned "buy"-level ratings of B-minus or better.
The Van Kampen Bond Fund (VBF Quote), one of 23 funds we rated A-plus, has returned 14% in the year through April 30. This fund outperformed its peers by holding the investment-grade debt of Wells Fargo (WFC Quote), General Electric (GE Quote), Goldman Sachs (GS Quote) and AT&T (T Quote).
The MFS Intermediate Income Trust (MIN Quote), which gained 11%, buys debt issued by the governments of the U.S., Japan, the U.K., France, Italy and Germany. It also holds the corporate borrowings of Citigroup (C Quote) and ConocoPhillips (COP Quote).
The MFS Government Markets Income Trust(MGF Quote), another A-plus fund, gained 10.8% on a portfolio comprised mostly of Fannie Mae(FNM Quote) and Freddie Mac(FRE Quote) mortgage pools. Corporate debt from Time Warner Cable (TWC Quote), Kraft Foods (KFT Quote) and other companies made up 6% of assets, revving up returns.
Best-Rated Closed-End Funds
Fund (Ticker) Rating Reward Grade Risk Grade Objective Total Return 1 Year
Van Kampen Bond (VBF) A+ A+ B- General Bd - Investment Grade 14.04%
MFS Intermediate Income Trust (MIN) A+ A+ B Global Income 11.26%
MFS Government Markets Income Trust (MGF) A+ A+ B- Global Income 10.75%
Nuveen NY Muni Value (NNY) A+ A+ B Municipal Single State 4.87%
Western Asset Managed Municipals (MMU) A+ A+ B- Municipal - National 4.32%
Nuveen NY Select Tax-Free Inc Port (NXN) A+ A+ B Municipal Single State 3.21%
Morgan Stanley Insured Muni Bond (IMC) A+ A B Municipal - National 2.91%
Neuberger Berman CA Inter Muni Fund (NBW) A+ A B Municipal Single State 2.28%
Nuveen Select Tax-Free Inc 3 (NXR) A+ A+ B Municipal - National 2.05%
Nuveen Select T-F Inc Portf (NXP) A+ A B Municipal - National 1.54%
Source: Bloomberg & TheStreet.com Ratings
Kevin Baker
05/26/09 - 12:12 PM EDT
The closed-end funds that won the best grades from TheStreet.com Ratings at the end of April invested in fixed income, especially municipal bonds.
We issued grades for 634 closed-end funds that had at least one year of trading history as of April 30. Of them, 311 funds earned "buy"-level ratings of B-minus or better.
The Van Kampen Bond Fund (VBF Quote), one of 23 funds we rated A-plus, has returned 14% in the year through April 30. This fund outperformed its peers by holding the investment-grade debt of Wells Fargo (WFC Quote), General Electric (GE Quote), Goldman Sachs (GS Quote) and AT&T (T Quote).
The MFS Intermediate Income Trust (MIN Quote), which gained 11%, buys debt issued by the governments of the U.S., Japan, the U.K., France, Italy and Germany. It also holds the corporate borrowings of Citigroup (C Quote) and ConocoPhillips (COP Quote).
The MFS Government Markets Income Trust(MGF Quote), another A-plus fund, gained 10.8% on a portfolio comprised mostly of Fannie Mae(FNM Quote) and Freddie Mac(FRE Quote) mortgage pools. Corporate debt from Time Warner Cable (TWC Quote), Kraft Foods (KFT Quote) and other companies made up 6% of assets, revving up returns.
Best-Rated Closed-End Funds
Fund (Ticker) Rating Reward Grade Risk Grade Objective Total Return 1 Year
Van Kampen Bond (VBF) A+ A+ B- General Bd - Investment Grade 14.04%
MFS Intermediate Income Trust (MIN) A+ A+ B Global Income 11.26%
MFS Government Markets Income Trust (MGF) A+ A+ B- Global Income 10.75%
Nuveen NY Muni Value (NNY) A+ A+ B Municipal Single State 4.87%
Western Asset Managed Municipals (MMU) A+ A+ B- Municipal - National 4.32%
Nuveen NY Select Tax-Free Inc Port (NXN) A+ A+ B Municipal Single State 3.21%
Morgan Stanley Insured Muni Bond (IMC) A+ A B Municipal - National 2.91%
Neuberger Berman CA Inter Muni Fund (NBW) A+ A B Municipal Single State 2.28%
Nuveen Select Tax-Free Inc 3 (NXR) A+ A+ B Municipal - National 2.05%
Nuveen Select T-F Inc Portf (NXP) A+ A B Municipal - National 1.54%
Source: Bloomberg & TheStreet.com Ratings
Economic Stimulus Plan Jobs - Where to Look (Kiplingers)
Land a Government Job Now
Most of the new jobs being created by the President's economic-stimulus package are outside the Washington, D.C., area. Here's how to benefit, no matter where you live.
By Marty Nemko, Contributing Columnist, Kiplinger.com
May 21, 2009
President Obama's budget projects hundreds of thousands of new job openings in government and for government contractors during his first term. How do you find and land one well suited to you? Here's a guide.
Where are the jobs?
Especially when aiming for a government job, I reject the standard career-counselor advice to use your network to gain access to people with the power to hire you. My clients increasingly find that it's more time-effective to search the best job Web sites regularly by keyword and zip code for on-target job openings and then craft a top-notch application for each.
So where are the jobs?
*
About 85% of federal jobs are not in D.C. They're typically in major cities, both around the country and overseas.
*
To access the federal-job postings, start with www.usajobs.gov, which, as of this writing, lists 47,059 openings. That site has recently added a link for positions created by the stimulus package. Many of those positions will be filled through accelerated hiring procedures. To access that directly, go to http://jobsearch.usajobs.gov/a9recoveryjobs.asp.
*
Visit the individual Web sites of your favorite federal agencies. You can access the major ones from http://dcjobsource.com/fed.html. An agency may have special positions and recruitment programs listed only on its site. That means you'll be competing with fewer job seekers. Also, some federal agencies -- for example, the FBI, Federal Reserve, Government Accountability Office and CIA -- don't have to advertise their jobs on www.usajobs.gov.
*
An even more under-the-radar source of federal jobs is www.fedbizopps.gov. It lists positions, including many overseas (Iraq or Afghanistan, anyone?), that are filled via personal service contracts. Those jobs are less secure than government jobs but usually pay more.
*
Federal agencies, especially the EPA, State Department, FBI, FDIC and Treasury Department, often fill unadvertised openings at job fairs. Some are listed at www.govcentral.com/careers/articles/1871 and at www.fedjobs.com/chat/jobfairs.html.
*
Some private temporary agencies staff federal temp positions. Some of those agencies are listed on www.state.gov/m/dghr/flo/c21666.htm.
*
If you're a student, a good route to a permanent government job is a federal internship. The site www.makingthedifference.org lists 200 federal internship programs. Also see www.studentjobs.gov.
*
There's a directory of federal jobs set aside for veterans and people with disabilities: apps.opm.gov/sppc_directory.
*
For state, county and city jobs, visit your local government's Web site. To find yours, enter, for example, "government jobs" and "Chicago" in a search engine.
*
Lots of stimulus dollars are going to federal contractors -- independent firms that the government hires to do its bidding. Want to become one? The government's portal for potential contractors is www.fedbizopps.gov. Also see www.recovery.gov, which reports where stimulus dollars are going. Want to work for a government contractor? The 100 largest are listed at www.usaspending.gov. Smaller contractors list openings on their own site. The good news is that many or most such openings are aggregated, along with literally millions of other job openings, at www.indeed.com and www.simplyhired.com. Another approach: Regularly check the business section of your local newspaper or a dedicated business periodical, such as Crain's or Business Times, for announcements or articles about companies that have just received government contracts.
Which jobs should you apply for?
1.
Because there are so many applicants for most government jobs, you probably won't stand a chance unless you at least minimally meet most or all the requirements listed in the job announcement. Save your energy for the good fits. There are so many government openings, for everything from chef to chief, you'll likely find plenty.
2.
Federal jobs will be most abundant in areas the Obama administration has listed as priorities: renewable energy, the environment, infrastructure, health care and education. Lily Whiteman, author of How to Land a Top-Paying Federal Job, says jobs are particularly plentiful for contracts and grants managers, procurement officers, financial managers/auditors, IT specialists, intelligence experts, and people with knowledge of the culture and language of Middle East countries.
3.
Don't worry if your first government job isn't perfect -- your priority should probably be just to get into the government. That means applying for jobs you're fully or even overqualified for. Once you're a government employee, you'll find it easier to transfer to something you'll like better.
Landing the job
Finding on-target job openings is the easy part. The challenge is to become the winning candidate -- especially now, with all the publicity around ObamaJobs and the private sector offering so few full-time, long-term positions with benefits.
Applying for a government job is usually cumbersome. That's good news for you. So many people get frustrated with the application process that they do a shoddy job. If you craft a solid application for all the jobs you can, you'll likely prevail. And remember, the pot at the end of the rainbow is quite golden: moderate work hours, unmatched job security, great benefits, and ample vacation and holidays. Thank you, taxpayers.
My job-seeking clients are finding these to be the most potent approaches to beating out the competition:
*
Research your target agency. Whiteman suggests you review its Web site and, particularly, its recent press releases. Then reflect your knowledge of the agency in your application.
*
Call the hiring manager to get application tips. Yes, there's a chance you'll be viewed as pushy, but there's a greater chance you'll get inside information or even develop enough of a relationship to gain an edge against the competition.
*
Use a two-column cover letter. Hiring managers are overwhelmed with applications, so yours should quickly and clearly demonstrate that you're a great fit for the position: On the left side, list the job's major qualifications; on the right, say how you meet each requirement.
*
Tell PAR stories. In interviews and in job-application essays (in federal job applications they're usually called KSAs, which stands for knowledge, skills and abilities), tell one or more anecdotes that demonstrate you have one or more key attributes listed in the job announcement. Each anecdote should usually follow the PAR formula: a problem you faced, how you approached it, and its positive resolution.
*
Create a portfolio. Consider creating a Web site consisting of your work products and resume. Of course, include its URL on your job applications.
*
Make sure your message is clear. Whiteman says that before submitting an application, it must pass the "30-second-test." Ask a person you trust to identify your best attributes from your application in 30 seconds. If he or she can't, it's unlikely a hiring manager will be able to do so.
Marty Nemko (bio) is a career coach and author of Cool Careers for Dummies.
Most of the new jobs being created by the President's economic-stimulus package are outside the Washington, D.C., area. Here's how to benefit, no matter where you live.
By Marty Nemko, Contributing Columnist, Kiplinger.com
May 21, 2009
President Obama's budget projects hundreds of thousands of new job openings in government and for government contractors during his first term. How do you find and land one well suited to you? Here's a guide.
Where are the jobs?
Especially when aiming for a government job, I reject the standard career-counselor advice to use your network to gain access to people with the power to hire you. My clients increasingly find that it's more time-effective to search the best job Web sites regularly by keyword and zip code for on-target job openings and then craft a top-notch application for each.
So where are the jobs?
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About 85% of federal jobs are not in D.C. They're typically in major cities, both around the country and overseas.
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To access the federal-job postings, start with www.usajobs.gov, which, as of this writing, lists 47,059 openings. That site has recently added a link for positions created by the stimulus package. Many of those positions will be filled through accelerated hiring procedures. To access that directly, go to http://jobsearch.usajobs.gov/a9recoveryjobs.asp.
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Visit the individual Web sites of your favorite federal agencies. You can access the major ones from http://dcjobsource.com/fed.html. An agency may have special positions and recruitment programs listed only on its site. That means you'll be competing with fewer job seekers. Also, some federal agencies -- for example, the FBI, Federal Reserve, Government Accountability Office and CIA -- don't have to advertise their jobs on www.usajobs.gov.
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An even more under-the-radar source of federal jobs is www.fedbizopps.gov. It lists positions, including many overseas (Iraq or Afghanistan, anyone?), that are filled via personal service contracts. Those jobs are less secure than government jobs but usually pay more.
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Federal agencies, especially the EPA, State Department, FBI, FDIC and Treasury Department, often fill unadvertised openings at job fairs. Some are listed at www.govcentral.com/careers/articles/1871 and at www.fedjobs.com/chat/jobfairs.html.
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Some private temporary agencies staff federal temp positions. Some of those agencies are listed on www.state.gov/m/dghr/flo/c21666.htm.
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If you're a student, a good route to a permanent government job is a federal internship. The site www.makingthedifference.org lists 200 federal internship programs. Also see www.studentjobs.gov.
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There's a directory of federal jobs set aside for veterans and people with disabilities: apps.opm.gov/sppc_directory.
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For state, county and city jobs, visit your local government's Web site. To find yours, enter, for example, "government jobs" and "Chicago" in a search engine.
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Lots of stimulus dollars are going to federal contractors -- independent firms that the government hires to do its bidding. Want to become one? The government's portal for potential contractors is www.fedbizopps.gov. Also see www.recovery.gov, which reports where stimulus dollars are going. Want to work for a government contractor? The 100 largest are listed at www.usaspending.gov. Smaller contractors list openings on their own site. The good news is that many or most such openings are aggregated, along with literally millions of other job openings, at www.indeed.com and www.simplyhired.com. Another approach: Regularly check the business section of your local newspaper or a dedicated business periodical, such as Crain's or Business Times, for announcements or articles about companies that have just received government contracts.
Which jobs should you apply for?
1.
Because there are so many applicants for most government jobs, you probably won't stand a chance unless you at least minimally meet most or all the requirements listed in the job announcement. Save your energy for the good fits. There are so many government openings, for everything from chef to chief, you'll likely find plenty.
2.
Federal jobs will be most abundant in areas the Obama administration has listed as priorities: renewable energy, the environment, infrastructure, health care and education. Lily Whiteman, author of How to Land a Top-Paying Federal Job, says jobs are particularly plentiful for contracts and grants managers, procurement officers, financial managers/auditors, IT specialists, intelligence experts, and people with knowledge of the culture and language of Middle East countries.
3.
Don't worry if your first government job isn't perfect -- your priority should probably be just to get into the government. That means applying for jobs you're fully or even overqualified for. Once you're a government employee, you'll find it easier to transfer to something you'll like better.
Landing the job
Finding on-target job openings is the easy part. The challenge is to become the winning candidate -- especially now, with all the publicity around ObamaJobs and the private sector offering so few full-time, long-term positions with benefits.
Applying for a government job is usually cumbersome. That's good news for you. So many people get frustrated with the application process that they do a shoddy job. If you craft a solid application for all the jobs you can, you'll likely prevail. And remember, the pot at the end of the rainbow is quite golden: moderate work hours, unmatched job security, great benefits, and ample vacation and holidays. Thank you, taxpayers.
My job-seeking clients are finding these to be the most potent approaches to beating out the competition:
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Research your target agency. Whiteman suggests you review its Web site and, particularly, its recent press releases. Then reflect your knowledge of the agency in your application.
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Call the hiring manager to get application tips. Yes, there's a chance you'll be viewed as pushy, but there's a greater chance you'll get inside information or even develop enough of a relationship to gain an edge against the competition.
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Use a two-column cover letter. Hiring managers are overwhelmed with applications, so yours should quickly and clearly demonstrate that you're a great fit for the position: On the left side, list the job's major qualifications; on the right, say how you meet each requirement.
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Tell PAR stories. In interviews and in job-application essays (in federal job applications they're usually called KSAs, which stands for knowledge, skills and abilities), tell one or more anecdotes that demonstrate you have one or more key attributes listed in the job announcement. Each anecdote should usually follow the PAR formula: a problem you faced, how you approached it, and its positive resolution.
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Create a portfolio. Consider creating a Web site consisting of your work products and resume. Of course, include its URL on your job applications.
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Make sure your message is clear. Whiteman says that before submitting an application, it must pass the "30-second-test." Ask a person you trust to identify your best attributes from your application in 30 seconds. If he or she can't, it's unlikely a hiring manager will be able to do so.
Marty Nemko (bio) is a career coach and author of Cool Careers for Dummies.
GM Bondholders Hanging Tight - NY Times Dealbook
May 22, 2009, 8:03 am
G.M. and Creditors Face White-Knuckle Weekend
The long weekend will be anything but a holiday for General Motors, the giant automaker struggling to stay out of bankruptcy protection.
The company reached a deal Thursday with its union on concessions, but it is now racing the clock to persuade its bondholders to eliminate $27 billion in debt and avoid a bankruptcy filing.
G.M. has until Tuesday to persuade thousands of bondholders to agree to swap their debt for equity, which would fulfill its last significant requirement for restructuring ordered by President Obama. There appears to be little chance that the required 90 percent of bondholders will agree to its terms, making the prospect of bankruptcy increasingly likely for G.M., The New York Times’s Bill Vlasic reported.
Analysts said that the United Automobile Workers’ deal with G.M., which followed similar concessions to Chrysler, will increase pressure on bondholders to accept the company’s offer.
“I think there’s a shot it will succeed, but a very small one,” David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., told The Times.
A coalition of small bondholders protested the terms of G.M.’s offer in Washington on Thursday. Larger, institutional bondholders have also opposed the deal, which calls for them to receive 225 shares of G.M. stock in exchange for each $1,000 worth of debt.
A G.M. spokesman, Greg Martin, told The Times the company had made no decision on whether to extend the exchange offer beyond the Tuesday deadline.
“We have made it clear that our viability requires us to take these actions to restructure our operations and reduce the liabilities and debt on our balance sheet,” Mr. Martin said.
G.M., which is subsisting on $15.4 billion in government loans, has until June 1 to meet the broad criteria for restructuring spelled out by a special presidential auto task force.
Under a plan announced last month, the Treasury Department would control at least 50 percent of the stock in a restructured G.M. A health care trust for union retirees would have about 39 percent, with bondholders getting 10 percent and current shareholders the remaining 1 percent.
Advisers to a committee of G.M.’s biggest bondholders, representing about 20 percent of the $27 billion in bond debt, have repeatedly criticized the plan as unfair and designed to fail. They have also accused the government of seeking to use them as scapegoats for a potential bankruptcy filing. Under their own proposal, G.M. bondholders would own 58 percent of the reorganized carmaker. These advisers have said that they are willing to negotiate with the company and the government but have made no headway thus far.
As for the U.A.W., details of its agreement with G.M. are being withheld pending a ratification vote by 61,000 union workers in the United States, which is expected to take place next week. But the deal does include financing the retiree trust. People close to the talks said the union agreed to allow G.M. to finance half of its future retiree health care costs — estimated at $20 billion — with company stock.
The Obama administration hailed the agreement as an important step in G.M.’s comeback plan.
The U.A.W.’s president, Ron Gettelfinger, had been critical of G.M.’s plans to cut an additional 21,000 union jobs, as well as increase its imports of vehicles made in China, South Korea and Mexico.
Whether those job cuts are addressed in the agreement is still unclear. But by agreeing to amend its contract, the union can rightfully say it has completed the task laid out for it by the Treasury Department.
Since G.M. first appealed for government assistance last fall, the U.A.W. has made several modifications to its 2007 contract, including eliminating a program that guarantees paychecks to laid-off workers. By completing its agreement on health care, the union has heeded Mr. Obama’s call for shared sacrifice among all G.M. stakeholders to fix the troubled company.
“The union has worked very well to create the right optics and to be in sync with the message the White House has put out there,” John Casesa, a principal in the automotive consulting firm Casesa Shapiro Group, told The Times.
The U.A.W.’s deal with G.M. follows a similar health care agreement it reached with Chrysler, which is also surviving on government loans.
Despite the agreement, Chrysler was forced to file for bankruptcy protection on April 30 after it failed to persuade a group of banks and hedge funds to unanimously agree to take cash payments to retire $6.9 billion in debt.
Now G.M. will make one last push to persuade its bondholders to take equity for their debt.
G.M.’s president, Fritz Henderson, has said repeatedly that bankruptcy is a “probable” outcome because of the difficulty in persuading 90 percent of the bondholders to agree to its restructuring terms.
In the event of a bankruptcy filing, the bondholders may be offered less attractive terms in exchange for their debt.
“The financial community and the union trust have been in competition for this stock,” Mr. Cole of the Center for Automotive Research told The Times. “But with the union deal settled, the pressure is only going to increase on the bondholders.”
G.M. and Creditors Face White-Knuckle Weekend
The long weekend will be anything but a holiday for General Motors, the giant automaker struggling to stay out of bankruptcy protection.
The company reached a deal Thursday with its union on concessions, but it is now racing the clock to persuade its bondholders to eliminate $27 billion in debt and avoid a bankruptcy filing.
G.M. has until Tuesday to persuade thousands of bondholders to agree to swap their debt for equity, which would fulfill its last significant requirement for restructuring ordered by President Obama. There appears to be little chance that the required 90 percent of bondholders will agree to its terms, making the prospect of bankruptcy increasingly likely for G.M., The New York Times’s Bill Vlasic reported.
Analysts said that the United Automobile Workers’ deal with G.M., which followed similar concessions to Chrysler, will increase pressure on bondholders to accept the company’s offer.
“I think there’s a shot it will succeed, but a very small one,” David Cole, chairman of the Center for Automotive Research in Ann Arbor, Mich., told The Times.
A coalition of small bondholders protested the terms of G.M.’s offer in Washington on Thursday. Larger, institutional bondholders have also opposed the deal, which calls for them to receive 225 shares of G.M. stock in exchange for each $1,000 worth of debt.
A G.M. spokesman, Greg Martin, told The Times the company had made no decision on whether to extend the exchange offer beyond the Tuesday deadline.
“We have made it clear that our viability requires us to take these actions to restructure our operations and reduce the liabilities and debt on our balance sheet,” Mr. Martin said.
G.M., which is subsisting on $15.4 billion in government loans, has until June 1 to meet the broad criteria for restructuring spelled out by a special presidential auto task force.
Under a plan announced last month, the Treasury Department would control at least 50 percent of the stock in a restructured G.M. A health care trust for union retirees would have about 39 percent, with bondholders getting 10 percent and current shareholders the remaining 1 percent.
Advisers to a committee of G.M.’s biggest bondholders, representing about 20 percent of the $27 billion in bond debt, have repeatedly criticized the plan as unfair and designed to fail. They have also accused the government of seeking to use them as scapegoats for a potential bankruptcy filing. Under their own proposal, G.M. bondholders would own 58 percent of the reorganized carmaker. These advisers have said that they are willing to negotiate with the company and the government but have made no headway thus far.
As for the U.A.W., details of its agreement with G.M. are being withheld pending a ratification vote by 61,000 union workers in the United States, which is expected to take place next week. But the deal does include financing the retiree trust. People close to the talks said the union agreed to allow G.M. to finance half of its future retiree health care costs — estimated at $20 billion — with company stock.
The Obama administration hailed the agreement as an important step in G.M.’s comeback plan.
The U.A.W.’s president, Ron Gettelfinger, had been critical of G.M.’s plans to cut an additional 21,000 union jobs, as well as increase its imports of vehicles made in China, South Korea and Mexico.
Whether those job cuts are addressed in the agreement is still unclear. But by agreeing to amend its contract, the union can rightfully say it has completed the task laid out for it by the Treasury Department.
Since G.M. first appealed for government assistance last fall, the U.A.W. has made several modifications to its 2007 contract, including eliminating a program that guarantees paychecks to laid-off workers. By completing its agreement on health care, the union has heeded Mr. Obama’s call for shared sacrifice among all G.M. stakeholders to fix the troubled company.
“The union has worked very well to create the right optics and to be in sync with the message the White House has put out there,” John Casesa, a principal in the automotive consulting firm Casesa Shapiro Group, told The Times.
The U.A.W.’s deal with G.M. follows a similar health care agreement it reached with Chrysler, which is also surviving on government loans.
Despite the agreement, Chrysler was forced to file for bankruptcy protection on April 30 after it failed to persuade a group of banks and hedge funds to unanimously agree to take cash payments to retire $6.9 billion in debt.
Now G.M. will make one last push to persuade its bondholders to take equity for their debt.
G.M.’s president, Fritz Henderson, has said repeatedly that bankruptcy is a “probable” outcome because of the difficulty in persuading 90 percent of the bondholders to agree to its restructuring terms.
In the event of a bankruptcy filing, the bondholders may be offered less attractive terms in exchange for their debt.
“The financial community and the union trust have been in competition for this stock,” Mr. Cole of the Center for Automotive Research told The Times. “But with the union deal settled, the pressure is only going to increase on the bondholders.”
Slow & Steady Starting to Look Good - Municipal Bonds (from NY Times)
May 21, 2009
More Investors, Chastened by Stock Losses, Settle for Municipal Bonds
By PAUL SULLIVAN
THE historic lure of most municipal bonds has been their tax-free returns. But the recession and the rash of corporate troubles have widened their appeal to investors wary of the stock market who want to settle for a steady if unspectacular return.
Municipal bonds are still the terrain of high earners, who like their safety and higher tax-adjusted return than Treasury bonds. But increasingly average retail investors have been buying them to fill out their bond allocations. “Our average account has increased their asset allocation in fixed income to 52 percent and most of that is in munis,” said Robert Everett, director of fixed income at the Boston Private Bank and Trust Company. He said that was an increase of 15 percentage points from last year.
Even though the major stock markets have risen in the last month, uncertainty about the rally abounds. Suddenly, the return on a municipal bond of 6 to 7 percent, including the tax exemption, seems great.
The other draw has been safety. Historically, the default rate on investment-grade munis is less than a quarter of a percent, compared with almost 2 percent for corporate bonds. And the difference in yield between United States Treasuries and munis has recently been as much as 2.5 percent.
Given the pressure on city and state coffers, the default rate is likely to rise closer to 1 percent. But that is far lower than the yields on munis suggests, said George Strickland, a managing director at Thornburg Investment Management of Santa Fe, N.M. “The market thinks 20 percent of investment grade issuers will default in the next 10 years,” he said. “The major muni issuers are doing well.”
Being selective with munis is key. The first risk investors need to understand is the difference between general obligation and revenue bonds. General obligation bonds are sold to finance the daily operations of a municipality. Legally, that entity is obligated to do whatever it needs — from cutting services to raising taxes — to make its bond payments.
A revenue bond is sold to finance particular projects like hospitals, utilities and stadiums. The receipts from such projects are used to make the bond payments, and many investors have started to wonder how these will hold up.
“Stay away from revenue bonds, backed by projects like a parking lot at a university,” warned Gregg S. Fisher, chief investment officer of Gerstein Fisher, an investment advisory firm in New York. “If cars stop showing up, then you could have trouble getting your money.”
Hospital bonds also need to be evaluated carefully. “Community hospitals with A and BBB ratings are feeling the pinch because people without insurance go to them and can’t pay,” said Ronald J. Sanchez, director of fixed income strategies at Fiduciary Trust, a unit of Franklin Templeton Investments. “You need to avoid certain segments with greater risk.”
This points to another issue: liquidity. Roughly $360 billion of new bonds are sold annually. New York and California are the benchmark issuers and their bonds are traded often. But there are scores of municipalities that sell bonds that buyers may have to hold for their duration because of illiquid markets.
Munis are traded in an over-the-counter fashion, which means finding a price quote, let alone a buyer, can be difficult at times. Although small investors make up a good part of this market, the Securities and Exchange Commission has no role in its regulation.
But for those aware of the risk, there are investing opportunities. During the first quarter, few municipalities sold bonds because they were waiting to see what the stimulus plan would bring them. Now, cities and states are making up for lost time.
Several portfolio managers advise that shorter-dated munis are safer. “The longer the duration the more volatility,” said Mr. Strickland, who likes the two- to three-year range.
Diversification is also being pushed for munis. Historically investors have concentrated on bonds from their state to get the full tax deduction. But owning bonds from other states could give them a greater return, as in the case of California, where a fiscal crisis has pushed up yields.
The recession has brought about new securities, known as Build America Bonds, to help ailing municipalities raise money. They allow municipalities to sell taxable bonds for capital projects while receiving a rebate from the federal government for a portion of their borrowing costs. The program is meant to attract institutional investors who typically do not buy munis. But they could also suit a retail investor who wants to put them in a taxable retirement account.
More Investors, Chastened by Stock Losses, Settle for Municipal Bonds
By PAUL SULLIVAN
THE historic lure of most municipal bonds has been their tax-free returns. But the recession and the rash of corporate troubles have widened their appeal to investors wary of the stock market who want to settle for a steady if unspectacular return.
Municipal bonds are still the terrain of high earners, who like their safety and higher tax-adjusted return than Treasury bonds. But increasingly average retail investors have been buying them to fill out their bond allocations. “Our average account has increased their asset allocation in fixed income to 52 percent and most of that is in munis,” said Robert Everett, director of fixed income at the Boston Private Bank and Trust Company. He said that was an increase of 15 percentage points from last year.
Even though the major stock markets have risen in the last month, uncertainty about the rally abounds. Suddenly, the return on a municipal bond of 6 to 7 percent, including the tax exemption, seems great.
The other draw has been safety. Historically, the default rate on investment-grade munis is less than a quarter of a percent, compared with almost 2 percent for corporate bonds. And the difference in yield between United States Treasuries and munis has recently been as much as 2.5 percent.
Given the pressure on city and state coffers, the default rate is likely to rise closer to 1 percent. But that is far lower than the yields on munis suggests, said George Strickland, a managing director at Thornburg Investment Management of Santa Fe, N.M. “The market thinks 20 percent of investment grade issuers will default in the next 10 years,” he said. “The major muni issuers are doing well.”
Being selective with munis is key. The first risk investors need to understand is the difference between general obligation and revenue bonds. General obligation bonds are sold to finance the daily operations of a municipality. Legally, that entity is obligated to do whatever it needs — from cutting services to raising taxes — to make its bond payments.
A revenue bond is sold to finance particular projects like hospitals, utilities and stadiums. The receipts from such projects are used to make the bond payments, and many investors have started to wonder how these will hold up.
“Stay away from revenue bonds, backed by projects like a parking lot at a university,” warned Gregg S. Fisher, chief investment officer of Gerstein Fisher, an investment advisory firm in New York. “If cars stop showing up, then you could have trouble getting your money.”
Hospital bonds also need to be evaluated carefully. “Community hospitals with A and BBB ratings are feeling the pinch because people without insurance go to them and can’t pay,” said Ronald J. Sanchez, director of fixed income strategies at Fiduciary Trust, a unit of Franklin Templeton Investments. “You need to avoid certain segments with greater risk.”
This points to another issue: liquidity. Roughly $360 billion of new bonds are sold annually. New York and California are the benchmark issuers and their bonds are traded often. But there are scores of municipalities that sell bonds that buyers may have to hold for their duration because of illiquid markets.
Munis are traded in an over-the-counter fashion, which means finding a price quote, let alone a buyer, can be difficult at times. Although small investors make up a good part of this market, the Securities and Exchange Commission has no role in its regulation.
But for those aware of the risk, there are investing opportunities. During the first quarter, few municipalities sold bonds because they were waiting to see what the stimulus plan would bring them. Now, cities and states are making up for lost time.
Several portfolio managers advise that shorter-dated munis are safer. “The longer the duration the more volatility,” said Mr. Strickland, who likes the two- to three-year range.
Diversification is also being pushed for munis. Historically investors have concentrated on bonds from their state to get the full tax deduction. But owning bonds from other states could give them a greater return, as in the case of California, where a fiscal crisis has pushed up yields.
The recession has brought about new securities, known as Build America Bonds, to help ailing municipalities raise money. They allow municipalities to sell taxable bonds for capital projects while receiving a rebate from the federal government for a portion of their borrowing costs. The program is meant to attract institutional investors who typically do not buy munis. But they could also suit a retail investor who wants to put them in a taxable retirement account.
Main Street GM Bondholders (from theStreet.com)
Automakers What if GM Bondholders Got Cars?
Ted Reed
05/20/09 - 12:20 PM EDT
Updated from 8:53 a.m. EDT
Unsecured bondholders of General Motors(GM Quote) are looking at the prospect of pennies on the dollar for their investments.
Perhaps cars for debt is a better option than equity for debt, even if it is an unlikely one.
"A lot of my little mom-and-pop investors might be better off picking up a shiny new automobile from a dealer being closed down by GM," says Jim Martin, president of the 60 Plus Association, a seniors advocacy group that created a spinoff group, "Main Street" bondholders, to represent GM bondholders in response to members' concerns.
"Let's face it, going into bankruptcy, they may lose everything, and probably will," Martin says. "A lot of people are telling me the bonds won't be worth the paper they are printed on. A new car beats nothing."
GM spokeswoman Julie Gibson says the company's offer is the only one on the table. "There's only one offer that we are legally authorized to make, and that's the one we made," she says.
Gibson notes that the Obama administration's auto task force is "the final authority" on what the automaker can offer shareholders. "I honestly have no idea whether there's room for negotiation or not," she says.
Right now, that offer is to swap about $27 billion in bonds for 10% of the shares in a new GM. Bondholders are being asked to swap at the rate of 225 shares for every $1,000 of principal. The exact value of the proposed exchange is unclear, but typically in bankruptcy, unsecured bondholders get pennies on the dollar.
Share of GM were trading up 20 cents to $1.47 shortly after 12 p.m. Monday.
Some big bondholders, holding about 20% of the $27 billion, are represented by a group that calls itself the Ad Hoc Committee of General Motors Bondholders and have retained an attorney.
By contrast, individual bondholders, who number in the thousands, are not represented. However, their support for the restructuring plan is necessary because the U.S. Treasury has determined that about 90% of the bondholders need to accept the offer in order for GM to avoid bankruptcy.
In that regard, while it is conceivable that Martin's suggestion that new cars be offered could potentially ease the path to a deal, the obstacles -- including the large number of bondholders and the short amount of time -- are plentiful; the Treasury has shown no inclination to make changes, and the widespread consensus view is that GM will be forced to file for Chapter 11 bankruptcy.
Even Jim Graves, a Celebration, Fla., software developer who is a member of the Main Street Bondholders, has doubts about accepting a car in lieu of financial assets. Graves owns about $100,000 worth of GM bonds, which he acquired starting in April 2008; his mother, a retired GM employee, also has $100,000 worth.
Graves says his mother suggested his purchase of the bonds, and he liked the relatively high yield. Now, he says, "No one has explained to me the rationale where the government will forgive ($15.4 billion) and take 50% of the stock, while the bondholders will forgive $27 billion and take 10%."
He had hoped the government would pay cash to the bondholders, mitigating the need to dilute the stock. Now his hope is that bondholders will get more than 10% of the company and that the shares will start to rise after the new stock is issued.
As for getting a new car instead, Graves has little interest and noted that his mother bought a Saturn in January.
Meanwhile, Martin says that about 300 bondholders have contacted him. Main Street Bondholders has held events in Warren, Mich.; Tampa, and Philadelphia, and plans one in Washington on Thursday.
"We've got a tiger by the tail," Martin says. "The little guy is being squeezed and he does not have a seat at the negotiating table.
"We're not talking about speculators here," he says. "A lot of these people put money for retirement into these bonds, and they didn't see this coming (because) GM is an icon. They should have some say-so."
Ted Reed
05/20/09 - 12:20 PM EDT
Updated from 8:53 a.m. EDT
Unsecured bondholders of General Motors(GM Quote) are looking at the prospect of pennies on the dollar for their investments.
Perhaps cars for debt is a better option than equity for debt, even if it is an unlikely one.
"A lot of my little mom-and-pop investors might be better off picking up a shiny new automobile from a dealer being closed down by GM," says Jim Martin, president of the 60 Plus Association, a seniors advocacy group that created a spinoff group, "Main Street" bondholders, to represent GM bondholders in response to members' concerns.
"Let's face it, going into bankruptcy, they may lose everything, and probably will," Martin says. "A lot of people are telling me the bonds won't be worth the paper they are printed on. A new car beats nothing."
GM spokeswoman Julie Gibson says the company's offer is the only one on the table. "There's only one offer that we are legally authorized to make, and that's the one we made," she says.
Gibson notes that the Obama administration's auto task force is "the final authority" on what the automaker can offer shareholders. "I honestly have no idea whether there's room for negotiation or not," she says.
Right now, that offer is to swap about $27 billion in bonds for 10% of the shares in a new GM. Bondholders are being asked to swap at the rate of 225 shares for every $1,000 of principal. The exact value of the proposed exchange is unclear, but typically in bankruptcy, unsecured bondholders get pennies on the dollar.
Share of GM were trading up 20 cents to $1.47 shortly after 12 p.m. Monday.
Some big bondholders, holding about 20% of the $27 billion, are represented by a group that calls itself the Ad Hoc Committee of General Motors Bondholders and have retained an attorney.
By contrast, individual bondholders, who number in the thousands, are not represented. However, their support for the restructuring plan is necessary because the U.S. Treasury has determined that about 90% of the bondholders need to accept the offer in order for GM to avoid bankruptcy.
In that regard, while it is conceivable that Martin's suggestion that new cars be offered could potentially ease the path to a deal, the obstacles -- including the large number of bondholders and the short amount of time -- are plentiful; the Treasury has shown no inclination to make changes, and the widespread consensus view is that GM will be forced to file for Chapter 11 bankruptcy.
Even Jim Graves, a Celebration, Fla., software developer who is a member of the Main Street Bondholders, has doubts about accepting a car in lieu of financial assets. Graves owns about $100,000 worth of GM bonds, which he acquired starting in April 2008; his mother, a retired GM employee, also has $100,000 worth.
Graves says his mother suggested his purchase of the bonds, and he liked the relatively high yield. Now, he says, "No one has explained to me the rationale where the government will forgive ($15.4 billion) and take 50% of the stock, while the bondholders will forgive $27 billion and take 10%."
He had hoped the government would pay cash to the bondholders, mitigating the need to dilute the stock. Now his hope is that bondholders will get more than 10% of the company and that the shares will start to rise after the new stock is issued.
As for getting a new car instead, Graves has little interest and noted that his mother bought a Saturn in January.
Meanwhile, Martin says that about 300 bondholders have contacted him. Main Street Bondholders has held events in Warren, Mich.; Tampa, and Philadelphia, and plans one in Washington on Thursday.
"We've got a tiger by the tail," Martin says. "The little guy is being squeezed and he does not have a seat at the negotiating table.
"We're not talking about speculators here," he says. "A lot of these people put money for retirement into these bonds, and they didn't see this coming (because) GM is an icon. They should have some say-so."
Financial Times: GM Bondholders to Obama: We Are Main Street
Private GM bondholders face large losses
By Nicole Bullock
Published: May 18 2009 19:34 | Last updated: May 18 2009 19:34
“Creditors have better memories than debtors,” says Chris Crowe, an electrician and home inspector from Denver, who stands to lose his son’s college fund on what has turned out to be a poor investment in the bonds of General Motors.
Quoting Benjamin Franklin, Mr Crowe made an impassioned plea for a better deal for GM’s bondholders during a rally of individual investors in Philadelphia last week. The group, which calls itself the “Main Street” bondholders, has also gathered in Tampa, Florida and Warren, Michigan. This week they head to Washington, DC, to lobby their congressional representatives. A press conference is planned for Thursday.
Small bondholders and large money managers alike oppose a government-backed plan that calls for them to swap their $27bn in bonds for a 10 per cent equity stake in GM. Without their support, GM is likely to follow its smaller rival Chrysler to bankruptcy court by the end of the month.
Individual investors hold about 20 per cent of the $27bn in unsecured debt in question. Beyond GM, individuals form a significant part of the overall US corporate bond universe – although their presence in this market is not as big as it is in the municipal bond market, where individuals are the bedrock buyers, or the stock market.
Data from the Federal Reserve show US households hold $1,600bn in corporate bonds, 25 per cent of the $6,300bn market. Typically, they are holders of blue-chip companies, rather than obscure small caps.
One of the main reasons for this is that retail investors and particularly retirees in need of income have been attracted by the higher yields that corporate bonds pay, against the background of a long decline in US interest rates.
Robert Williams, director of income planning at the retail brokerage Charles Schwab, said: “People look at their bond portfolio and they want to chase yield.
“There is no way around the fact that higher yields come with higher risk.”
Bondholders at the GM meeting in Philadelphia did not understand that risk as they scooped up GM bonds yielding 7 to 8 per cent. Several said they thought their money was relatively safe because they owned bonds instead of GM stock, even as the company’s business prospects deteriorated. Equity holders have a weaker position than bondholders in the event of a corporate default. GM also sold $4.7bn “retail notes” that were designed for individuals.
The GM bond dispute is playing out against a rally in corporate bonds, in spite of expectations of the worst spate of defaults in US history and larger losses than ever on the debt of companies in distress.
Since early March, US investment-grade corporate bonds have returned 6.7 per cent and high-yield bonds 23 per cent after losing 6.8 per cent and 26 per cent, respectively, in 2008, according to a Merrill Lynch index. MGM Mirage, the casino operator that warned of default just a few months ago, sold $1.5bn junk bonds last week.
Retail investors have recently poured cash into high-yield mutual funds at a record rate. They are drawn by high interest rates compared with the alternatives and a confidence that the losses will not be as severe as they might have thought a few months ago. If they are right, the rewards for this extra risk will be high.
The average yield on investment-grade bonds is 6.81 per cent and for junk bonds it is almost 15 per cent. The 10-year US Treasury yields 3.15 per cent.
However, the GM experience shows losses can be large when a corporate bond investment sours, a fact that will have been noted by many other individual holders of GM bonds.
With time running out on a June 1 deadline imposed by the government for GM to sort out sacrifices among its creditors, a bankruptcy filing looks likely. GM bonds fell to fresh lows last week with long-term debt quoted at less than 5 cents on the dollar.
GM’s bondholders argue that they are being asked for disproportionate concessions compared mainly with the United Automakers Union. Bond analysts largely agree. Unions will receive 39 per cent of GM and $10bn in cash over time for a $20bn claim that is related to a healthcare benefit fund and, like GM bonds, is unsecured.
The GM situation follows a bankruptcy at Chrysler where a group of its secured lenders, which did not include individuals, dismissed a debt-cutting deal as unfair.
The GM bondholders are calling on Barack Obama, US president, to intervene on their behalf for better terms in GM’s restructuring and for a voice in the negotiations. Only about 35 supporters attended the Philadelphia meeting and about 30 showed up for the rally the same day in Tampa. But the Main Street bondholders have one advantage over the large money managers who dominate the market and GM’s investors base.
“These retail bondholders might have a political lever to pull,” said a securities litigator at a big New York firm.
At last week’s rally, Mark Modica took the podium and said: “I have more than one reason to hope that GM stays out of bankruptcy.” Mr Modica not only holds GM bonds; he is also a manager at a GM dealership.
The group and the events are being sponsored by the 60 Plus Association, a non-profit conservative advocacy group for senior citizens.
Meanwhile, William Nast, a semi-retired lawyer from Harrisburg, Pennsylvania, is looking at a loss of almost $9,000 that he will not soon forget. “Maybe the next time I look for a car, I will look at a Ford,” he says. But he makes it clear he will probably steer well clear of Ford bonds.
Copyright The Financial Times Limited 2009
By Nicole Bullock
Published: May 18 2009 19:34 | Last updated: May 18 2009 19:34
“Creditors have better memories than debtors,” says Chris Crowe, an electrician and home inspector from Denver, who stands to lose his son’s college fund on what has turned out to be a poor investment in the bonds of General Motors.
Quoting Benjamin Franklin, Mr Crowe made an impassioned plea for a better deal for GM’s bondholders during a rally of individual investors in Philadelphia last week. The group, which calls itself the “Main Street” bondholders, has also gathered in Tampa, Florida and Warren, Michigan. This week they head to Washington, DC, to lobby their congressional representatives. A press conference is planned for Thursday.
Small bondholders and large money managers alike oppose a government-backed plan that calls for them to swap their $27bn in bonds for a 10 per cent equity stake in GM. Without their support, GM is likely to follow its smaller rival Chrysler to bankruptcy court by the end of the month.
Individual investors hold about 20 per cent of the $27bn in unsecured debt in question. Beyond GM, individuals form a significant part of the overall US corporate bond universe – although their presence in this market is not as big as it is in the municipal bond market, where individuals are the bedrock buyers, or the stock market.
Data from the Federal Reserve show US households hold $1,600bn in corporate bonds, 25 per cent of the $6,300bn market. Typically, they are holders of blue-chip companies, rather than obscure small caps.
One of the main reasons for this is that retail investors and particularly retirees in need of income have been attracted by the higher yields that corporate bonds pay, against the background of a long decline in US interest rates.
Robert Williams, director of income planning at the retail brokerage Charles Schwab, said: “People look at their bond portfolio and they want to chase yield.
“There is no way around the fact that higher yields come with higher risk.”
Bondholders at the GM meeting in Philadelphia did not understand that risk as they scooped up GM bonds yielding 7 to 8 per cent. Several said they thought their money was relatively safe because they owned bonds instead of GM stock, even as the company’s business prospects deteriorated. Equity holders have a weaker position than bondholders in the event of a corporate default. GM also sold $4.7bn “retail notes” that were designed for individuals.
The GM bond dispute is playing out against a rally in corporate bonds, in spite of expectations of the worst spate of defaults in US history and larger losses than ever on the debt of companies in distress.
Since early March, US investment-grade corporate bonds have returned 6.7 per cent and high-yield bonds 23 per cent after losing 6.8 per cent and 26 per cent, respectively, in 2008, according to a Merrill Lynch index. MGM Mirage, the casino operator that warned of default just a few months ago, sold $1.5bn junk bonds last week.
Retail investors have recently poured cash into high-yield mutual funds at a record rate. They are drawn by high interest rates compared with the alternatives and a confidence that the losses will not be as severe as they might have thought a few months ago. If they are right, the rewards for this extra risk will be high.
The average yield on investment-grade bonds is 6.81 per cent and for junk bonds it is almost 15 per cent. The 10-year US Treasury yields 3.15 per cent.
However, the GM experience shows losses can be large when a corporate bond investment sours, a fact that will have been noted by many other individual holders of GM bonds.
With time running out on a June 1 deadline imposed by the government for GM to sort out sacrifices among its creditors, a bankruptcy filing looks likely. GM bonds fell to fresh lows last week with long-term debt quoted at less than 5 cents on the dollar.
GM’s bondholders argue that they are being asked for disproportionate concessions compared mainly with the United Automakers Union. Bond analysts largely agree. Unions will receive 39 per cent of GM and $10bn in cash over time for a $20bn claim that is related to a healthcare benefit fund and, like GM bonds, is unsecured.
The GM situation follows a bankruptcy at Chrysler where a group of its secured lenders, which did not include individuals, dismissed a debt-cutting deal as unfair.
The GM bondholders are calling on Barack Obama, US president, to intervene on their behalf for better terms in GM’s restructuring and for a voice in the negotiations. Only about 35 supporters attended the Philadelphia meeting and about 30 showed up for the rally the same day in Tampa. But the Main Street bondholders have one advantage over the large money managers who dominate the market and GM’s investors base.
“These retail bondholders might have a political lever to pull,” said a securities litigator at a big New York firm.
At last week’s rally, Mark Modica took the podium and said: “I have more than one reason to hope that GM stays out of bankruptcy.” Mr Modica not only holds GM bonds; he is also a manager at a GM dealership.
The group and the events are being sponsored by the 60 Plus Association, a non-profit conservative advocacy group for senior citizens.
Meanwhile, William Nast, a semi-retired lawyer from Harrisburg, Pennsylvania, is looking at a loss of almost $9,000 that he will not soon forget. “Maybe the next time I look for a car, I will look at a Ford,” he says. But he makes it clear he will probably steer well clear of Ford bonds.
Copyright The Financial Times Limited 2009
Bank of America, Merrill Preferreds Downgrade (Dow Jones Newswire)
DOW JONES NEWSWIRES
MAY 18, 2009, 9:47 A.M. ET Fitch Cuts Some BofA Rtgs On Capital Needs, Asset Quality
Fitch Ratings downgraded some of Bank of America Corp. (BAC) ratings and those of several units on asset-quality and capital-needs concerns, but the ratings agency affirmed its main ratings on the bank.
As a result of the government's bank stress tests, Bank of America must raise another $33.9 billion in common stock by early November, which Fitch called "a daunting task in any environment." The amount is by far the largest required of any of the 19 banks tested.
The ratings agency cut its preferred-stock ratings on Bank of America and units Merrill Lynch & Co. and BankAmerica Corp. three notches to B, saying the risk of dividend deferral or omission has increased. It also cut the company's trust preferred securities ratings one notch to BB-.
But Fitch reaffirmed the company's long- and short-term issuer default ratings at A+, linked to government support.
Bank of America's shares were recently up 8.4% at $11.57 as Goldman Sachs put the stock on its conviction buy list. The firm's previous investment rating on the shares was neutral. Despite jumping more than threefold in the last two months, the shares are still off by more than two-thirds in the last year.
Fitch said the downgrades reflected the uncertainty surrounding near-term credit costs and market conditions, which have led to heightened risk in meeting the capital requirement. The company's management has outlined a plan to raise the mandated amount of capital and sold part of its stake in China Construction Bank (601939.SH) as part of the plan.
But Fitch said in order to achieve the $33.9 billion goal, the company will need market access, the ability to sell off other units at a sufficient price and the ability to keep earnings above stress-test projections. Fitch said keeping the earnings up may be the hardest part.
The ratings agency added that besides the capital requirements, Bank of America still faces a challenging operating environment, including the potential for higher losses in some sectors - especially home equity loans and credit cards. It also faces the integration of several mergers, including that of Merrill, which may cause more write-downs.
-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089; kerry.grace@dowjones.com
MAY 18, 2009, 9:47 A.M. ET Fitch Cuts Some BofA Rtgs On Capital Needs, Asset Quality
Fitch Ratings downgraded some of Bank of America Corp. (BAC) ratings and those of several units on asset-quality and capital-needs concerns, but the ratings agency affirmed its main ratings on the bank.
As a result of the government's bank stress tests, Bank of America must raise another $33.9 billion in common stock by early November, which Fitch called "a daunting task in any environment." The amount is by far the largest required of any of the 19 banks tested.
The ratings agency cut its preferred-stock ratings on Bank of America and units Merrill Lynch & Co. and BankAmerica Corp. three notches to B, saying the risk of dividend deferral or omission has increased. It also cut the company's trust preferred securities ratings one notch to BB-.
But Fitch reaffirmed the company's long- and short-term issuer default ratings at A+, linked to government support.
Bank of America's shares were recently up 8.4% at $11.57 as Goldman Sachs put the stock on its conviction buy list. The firm's previous investment rating on the shares was neutral. Despite jumping more than threefold in the last two months, the shares are still off by more than two-thirds in the last year.
Fitch said the downgrades reflected the uncertainty surrounding near-term credit costs and market conditions, which have led to heightened risk in meeting the capital requirement. The company's management has outlined a plan to raise the mandated amount of capital and sold part of its stake in China Construction Bank (601939.SH) as part of the plan.
But Fitch said in order to achieve the $33.9 billion goal, the company will need market access, the ability to sell off other units at a sufficient price and the ability to keep earnings above stress-test projections. Fitch said keeping the earnings up may be the hardest part.
The ratings agency added that besides the capital requirements, Bank of America still faces a challenging operating environment, including the potential for higher losses in some sectors - especially home equity loans and credit cards. It also faces the integration of several mergers, including that of Merrill, which may cause more write-downs.
-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089; kerry.grace@dowjones.com
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The Bailout Banks - How are They Doing (Barrons)
Home > News & Commentary > This Week's Magazine > Features
MONDAY, MAY 11, 2009
FEATURE
After All That Stress, a Hugh Sigh of Relief
By ANDREW BARY
Now that the leading financial companies have passed their stress tests, investors are eager to buy bank stocks again. But which ones?
WALL STREET CHEERED THE GOVERNMENT'S EAGERLY awaited release last week of stress tests on 19 leading financial companies. Bank stocks gained 36%, extending a furious rally that has produced a 135% gain in the widely followed KBW Bank Index from its March lows.
Investors viewed the stress tests as showing that the major public financial companies can handle potential loan losses even in a draconian economic scenario with a manageable amount of new equity capital -- or no new capital at all. The big fear had been that banks would have to resort to capital raising that would massively dilute existing common shareholders.
Now institutional investors are eager to buy financial stocks. Morgan Stanley and Wells Fargo took advantage of growing institutional demand for new stock issues immediately after the stress-test results were released Thursday.
"A lot of money managers were underweighted in bank stocks relative to their benchmarks, and they've been panicked buyers because of what they see as an inflection point," says John McDonald, banking analyst at Sanford Bernstein.
There were broad gains through the sector. Fifth Third soared 120% to $8.49; PNC Financial rose 40% to $53.08; Bank of America gained 63% to $14.17, and Wells Fargo gained 44% to $28.18, helped by a plug from Warren Buffett, whose Berkshire Hathaway is Wells' largest holder.
Credit-card specialists American Express and Capital One were strong; AmEx shares rose 17% in the five sessions to $28.40, and Capital One gained 81% to $31.34. Because the stress tests took a rosier-than-anticipated view of potential credit-card losses, AmEx and Capital One weren't deemed to be capital-deficient. Many on Wall Street had expected that Capital One would be forced to boost capital.
Analysts saw room for further gains in the sector, but investors need to recognize that profits for this year are likely to be weak, and that 2010 earnings may continue to be depressed by elevated losses on commercial-real-estate mortgages and on home-equity and credit-card loans.
Investors are starting to look at what analysts call "normalized" earnings, or what banks can earn in a more benign economic and credit environment, which may not come until 2011. Banks are generally trading for four to nine times those normalized earnings.
Those potential profits, however, are subject to a host of variables, including the economy, interest rates, bank capital requirements and asset returns. McDonald favors some of the stronger banks, including JPMorgan Chase and PNC. JPMorgan, which rose 20% to $38.94 last week, now is valued at around seven times normalized earnings of more than $5 a share.
UNTIL RECENTLY, INVESTORS FEARFUL about earnings power tended to value banks on tangible book value, a conservative measure of shareholder equity. "Two weeks ago, the only thing people cared about was price to tangible book," says Barclays Capital analyst Jason Goldberg. "Now it's price to normalized earnings. Two weeks from now, who knows what it will be?"
Goldberg favors Bank of America, whose shares were up sharply despite needing to raise an industry-leading $33.9 billion. The stock trades for less than five times Goldberg's estimate of normalized earnings of $3.47 a share. Wall Street believes BofA can raise required capital without much dilution. The bank said it plans to sell 1.25 billion of common shares and convert some of its preferred stock to common -- and to sell some non-core assets, including the Columbia investment-management business.
Bank of America's $33 billion of preferred stock offers a high-yielding play on the bank's revival. The Series J 7.25% preferred trades around $15 (60% of face value of $25) for a yield of 12%. A former Merrill Lynch preferred issue, now called Series 5, trades for just $9, a fraction of its face value of $25. It has a yield of 11%. The BofA preferred dividends now look more secure, and the common yields next to nothing.
One of best plays for fans of beleaguered Citigroup is its $15 billion of preferred stock, which is due to be converted into common shares in an exchange offer to get under way soon. Citi's Series P preferred traded Friday around $22.50, enabling investors to buy Citi common at around $3 a share, considerably below Citi's close of $4.02. Each preferred share is likely to get 7.3 common shares. The opportunity exists because arbitrageurs can't close the currently wide spread between the preferred and common, with Citi shares virtually impossible to short.
Citi's trust preferred, which is senior to the regular preferred, also could be appealing. Some probably will be converted to common to meet the need for $5.5 billion of additional capital called for in the government stress tests. Citi's Series W trust preferred trades around 15, for a yield of 10%.
Citi's common is a dicier bet because the company's plan to convert more than $50 billion of preferred stock to common to boost key capital ratios could balloon its share count to 23 billion from the current five billion, permanently capping its earnings power. Moreover, the government likely will emerge as a major shareholder, leading to further potential meddling in Citi's business. With Citi's business mix shifting, it's tough to peg normalized earnings power, which could be anywhere from 50 cents to $1 a share.
--------------------------------------------------------------------------------
MONDAY, MAY 11, 2009
FEATURE
After All That Stress, a Hugh Sigh of Relief
By ANDREW BARY
Now that the leading financial companies have passed their stress tests, investors are eager to buy bank stocks again. But which ones?
WALL STREET CHEERED THE GOVERNMENT'S EAGERLY awaited release last week of stress tests on 19 leading financial companies. Bank stocks gained 36%, extending a furious rally that has produced a 135% gain in the widely followed KBW Bank Index from its March lows.
Investors viewed the stress tests as showing that the major public financial companies can handle potential loan losses even in a draconian economic scenario with a manageable amount of new equity capital -- or no new capital at all. The big fear had been that banks would have to resort to capital raising that would massively dilute existing common shareholders.
Now institutional investors are eager to buy financial stocks. Morgan Stanley and Wells Fargo took advantage of growing institutional demand for new stock issues immediately after the stress-test results were released Thursday.
"A lot of money managers were underweighted in bank stocks relative to their benchmarks, and they've been panicked buyers because of what they see as an inflection point," says John McDonald, banking analyst at Sanford Bernstein.
There were broad gains through the sector. Fifth Third soared 120% to $8.49; PNC Financial rose 40% to $53.08; Bank of America gained 63% to $14.17, and Wells Fargo gained 44% to $28.18, helped by a plug from Warren Buffett, whose Berkshire Hathaway is Wells' largest holder.
Credit-card specialists American Express and Capital One were strong; AmEx shares rose 17% in the five sessions to $28.40, and Capital One gained 81% to $31.34. Because the stress tests took a rosier-than-anticipated view of potential credit-card losses, AmEx and Capital One weren't deemed to be capital-deficient. Many on Wall Street had expected that Capital One would be forced to boost capital.
Analysts saw room for further gains in the sector, but investors need to recognize that profits for this year are likely to be weak, and that 2010 earnings may continue to be depressed by elevated losses on commercial-real-estate mortgages and on home-equity and credit-card loans.
Investors are starting to look at what analysts call "normalized" earnings, or what banks can earn in a more benign economic and credit environment, which may not come until 2011. Banks are generally trading for four to nine times those normalized earnings.
Those potential profits, however, are subject to a host of variables, including the economy, interest rates, bank capital requirements and asset returns. McDonald favors some of the stronger banks, including JPMorgan Chase and PNC. JPMorgan, which rose 20% to $38.94 last week, now is valued at around seven times normalized earnings of more than $5 a share.
UNTIL RECENTLY, INVESTORS FEARFUL about earnings power tended to value banks on tangible book value, a conservative measure of shareholder equity. "Two weeks ago, the only thing people cared about was price to tangible book," says Barclays Capital analyst Jason Goldberg. "Now it's price to normalized earnings. Two weeks from now, who knows what it will be?"
Goldberg favors Bank of America, whose shares were up sharply despite needing to raise an industry-leading $33.9 billion. The stock trades for less than five times Goldberg's estimate of normalized earnings of $3.47 a share. Wall Street believes BofA can raise required capital without much dilution. The bank said it plans to sell 1.25 billion of common shares and convert some of its preferred stock to common -- and to sell some non-core assets, including the Columbia investment-management business.
Bank of America's $33 billion of preferred stock offers a high-yielding play on the bank's revival. The Series J 7.25% preferred trades around $15 (60% of face value of $25) for a yield of 12%. A former Merrill Lynch preferred issue, now called Series 5, trades for just $9, a fraction of its face value of $25. It has a yield of 11%. The BofA preferred dividends now look more secure, and the common yields next to nothing.
One of best plays for fans of beleaguered Citigroup is its $15 billion of preferred stock, which is due to be converted into common shares in an exchange offer to get under way soon. Citi's Series P preferred traded Friday around $22.50, enabling investors to buy Citi common at around $3 a share, considerably below Citi's close of $4.02. Each preferred share is likely to get 7.3 common shares. The opportunity exists because arbitrageurs can't close the currently wide spread between the preferred and common, with Citi shares virtually impossible to short.
Citi's trust preferred, which is senior to the regular preferred, also could be appealing. Some probably will be converted to common to meet the need for $5.5 billion of additional capital called for in the government stress tests. Citi's Series W trust preferred trades around 15, for a yield of 10%.
Citi's common is a dicier bet because the company's plan to convert more than $50 billion of preferred stock to common to boost key capital ratios could balloon its share count to 23 billion from the current five billion, permanently capping its earnings power. Moreover, the government likely will emerge as a major shareholder, leading to further potential meddling in Citi's business. With Citi's business mix shifting, it's tough to peg normalized earnings power, which could be anywhere from 50 cents to $1 a share.
--------------------------------------------------------------------------------
Renewable Energy, Clean Technology: Water, Solar, Hydrothermal , Wind, Biofuel Companies (Businessweek)
Renewable Energy
May 06
By Aaron Pressman
Clean energy may be the wave of the future, but shares of alternative energy suppliers have taken investors on a wild ride. After getting hit hard by the credit crunch last year, the sector has rallied recently as stimulus plans from the Obama Administration and other governments promise substantial sums for renewable energy projects. The Market Vectors Global Alternative Energy ETF, which tracks 30 companies around the world, lost 61% last year but has risen 22% over the past three months.
Much of the money will likely go to the industry’s biggest and best-known companies, like Denmark’s wind farm developer Vestas Wind Systems or solar-panel maker First Solar of Tempe, Ariz. There will also be opportunities for smaller players. But “this can be a hairy sector for investing in early-stage companies,” says Edward Guinness, co-manager of the Guinness Atkinson Alternative Energy Fund.
While solar and wind projects are now commonplace, geothermal power is less developed. Geothermal systems typically use heat found deep underground to make steam and generate electricity. WaterFurnace Renewable Energy in Fort Wayne, Ind., builds heat pump systems that don’t require deep drilling for homes and businesses. The technology takes advantage of modest but consistent temperatures of about 55 degrees found a few feet underground. Air pumped underground is heated or cooled, which reduces the load on traditional heating and cooling systems and cuts energy bills by about two-thirds. Over time, that offsets installation costs. Revenue is growing 50% a year, and installations haven’t been hurt by the credit crunch, says Jack Robinson, lead manager of the Winslow Green Growth Fund. Guinness’ fund owns Energy Development Corp., a Philippine utility that oversees a dozen geothermal plants and consults on projects for others.
Stocks in the biofuels area have been crushed, not just by difficulty obtaining financing but by overbuilding and rising prices for key ingredients. It isn’t clear which players will survive. Still, the sector could one day generate big profits so it pays to stay up to date, says Guinness. He thinks Maple Energy, a Peruvian oil and gas producer, could become a leading ethanol supplier. Even so, Guinness sold the stock last year after a runup. “When they get their plant up and running, they’ll be the world’s lowest-cost ethanol producer,” he predicts. But he’s waiting to see how the project progresses.
President Barack Obama’s plan to reduce air pollution with a system of tradable pollution rights, known as “cap and trade,” could lead to the development of trading exchanges rivaling those for stocks, bonds, and derivatives. U.K.-based Climate Exchange, a publicly traded company, is the leading player in European pollution-rights trading, but Guinness says it’s too pricey at more than five times expected 2009 revenue (it has yet to show a profit). Unless a national cap-and-trade system becomes a reality in the U.S., the stock is too speculative, he says.
Another player, World Energy Solutions of Worcester, Mass., trails Climate Exchange in revenue. But new Environmental Protection Agency chief Lisa Jackson is familiar with the type of system World Energy has developed, which could bode well for the technology, says Winslow’s Robinson. “They’re a small player but are just becoming profitable and growing at a 50% rate,” Robinson says. Investing in it now, he adds, is like being a venture capitalist
May 06
By Aaron Pressman
Clean energy may be the wave of the future, but shares of alternative energy suppliers have taken investors on a wild ride. After getting hit hard by the credit crunch last year, the sector has rallied recently as stimulus plans from the Obama Administration and other governments promise substantial sums for renewable energy projects. The Market Vectors Global Alternative Energy ETF, which tracks 30 companies around the world, lost 61% last year but has risen 22% over the past three months.
Much of the money will likely go to the industry’s biggest and best-known companies, like Denmark’s wind farm developer Vestas Wind Systems or solar-panel maker First Solar of Tempe, Ariz. There will also be opportunities for smaller players. But “this can be a hairy sector for investing in early-stage companies,” says Edward Guinness, co-manager of the Guinness Atkinson Alternative Energy Fund.
While solar and wind projects are now commonplace, geothermal power is less developed. Geothermal systems typically use heat found deep underground to make steam and generate electricity. WaterFurnace Renewable Energy in Fort Wayne, Ind., builds heat pump systems that don’t require deep drilling for homes and businesses. The technology takes advantage of modest but consistent temperatures of about 55 degrees found a few feet underground. Air pumped underground is heated or cooled, which reduces the load on traditional heating and cooling systems and cuts energy bills by about two-thirds. Over time, that offsets installation costs. Revenue is growing 50% a year, and installations haven’t been hurt by the credit crunch, says Jack Robinson, lead manager of the Winslow Green Growth Fund. Guinness’ fund owns Energy Development Corp., a Philippine utility that oversees a dozen geothermal plants and consults on projects for others.
Stocks in the biofuels area have been crushed, not just by difficulty obtaining financing but by overbuilding and rising prices for key ingredients. It isn’t clear which players will survive. Still, the sector could one day generate big profits so it pays to stay up to date, says Guinness. He thinks Maple Energy, a Peruvian oil and gas producer, could become a leading ethanol supplier. Even so, Guinness sold the stock last year after a runup. “When they get their plant up and running, they’ll be the world’s lowest-cost ethanol producer,” he predicts. But he’s waiting to see how the project progresses.
President Barack Obama’s plan to reduce air pollution with a system of tradable pollution rights, known as “cap and trade,” could lead to the development of trading exchanges rivaling those for stocks, bonds, and derivatives. U.K.-based Climate Exchange, a publicly traded company, is the leading player in European pollution-rights trading, but Guinness says it’s too pricey at more than five times expected 2009 revenue (it has yet to show a profit). Unless a national cap-and-trade system becomes a reality in the U.S., the stock is too speculative, he says.
Another player, World Energy Solutions of Worcester, Mass., trails Climate Exchange in revenue. But new Environmental Protection Agency chief Lisa Jackson is familiar with the type of system World Energy has developed, which could bode well for the technology, says Winslow’s Robinson. “They’re a small player but are just becoming profitable and growing at a 50% rate,” Robinson says. Investing in it now, he adds, is like being a venture capitalist
Highest Yield (from Kiplinger Magazine)
Where to Find Top Yields
From safe municipal bonds to risky closed-end bond funds, just about everything is on sale.
By Jeffrey R. Kosnett
From Kiplinger's Personal Finance magazine, June 2009
It's been an excruciating year for income hogs, their favorite investments obliterated by the recession and the credit crunch. Since September, high-yielding standbys such as real estate investment trusts, master limited partnerships, business-development companies, and oil-and-gas royalty trusts have lost 50% or more. Junk bonds and emerging-markets debt have improved of late, but they've still sustained double-digit losses.
From calamity, however, springs opportunity. Many income securities are now tantalizingly cheap. Moreover, issuers of high-yielding stocks and bonds are sure to benefit from reflation -- the stimulation of global economies through massive government spending and rock-bottom interest rates. Reflation, which implies higher inflation, will hurt low-yielding Treasury bonds, but it should boost the profits of energy producers, real estate operators and highly leveraged companies that need to raise prices to prosper.
The bear market in most income investments has resulted in lower cash payouts, too. With virtually all segments of the real estate sector suffering, dozens of REITs have cut their distributions, and many are paying dividends mainly in stock. Energy trusts have trimmed their disbursements because of low prices for oil, natural gas and other products. Led by financials, hundreds of companies have cut or suspended dividends on their common stock this year.
Credit-market chaos wreaked havoc with the recommendations in our previous "yieldfest" (see Earn 8% or More, July 2008). Our best picks, emerging-markets bond funds such as Fidelity New Markets Income and Pimco Emerging Markets Bond, dropped about 10% over the past year through April 9. Pipeline stocks, such as Kinder Morgan Energy, also held up reasonably well. But we had our share of disasters. For example, First Industrial Realty Trust cratered by nearly 90%, while Genco Shipping & Trading dived 73%.
As the economy begins to improve, the rest of this year and 2010 will be much more rewarding for income seekers. From the safest to the riskiest, we offer our best bets for big cash returns over the coming year (of course, you should keep money that you'll need soon in supersafe instruments, such as money-market funds and bank accounts).
Municipal bonds
The recession is putting pressure on state and local coffers, so why feel good about the prospects for municipal debt? Munis, which rarely default, are yielding far more than comparable Treasury securities. This state of affairs is an anomaly because interest from munis is generally free of federal income taxes. And because munis offer such generous yields, they should hold up far better than Treasuries when the economy and inflation pick up. Still, to be on the safe side, we recommend avoiding tax-free bonds with maturities greater than ten years. At ten years, you can still find 4% to 4.5%, tax-free. That's the equivalent of 6% or so from a taxable bond. Ten-year Treasuries, by contrast, yielded 2.9% in mid April.
Like most other sectors of the bond market, munis suffered last year, but confidence in them has improved. Despite California's budget disaster, the state sold $6.5 billion of general-obligation bonds in March, the third-largest muni issue ever. These A-rated bonds have already gained value. In mid April, a California GO maturing in 2019 with a coupon of 5.5% sold at $1,050 for each $1,000 of face value to yield 4.7% to maturity. For a Californian in the top income-tax bracket, that's like getting 8% from a taxable bond. And for the highest earners living elsewhere, it's the equivalent of 7.2% from a taxable bond.
Some discount brokers, such as Fidelity and Charles Schwab, offer scores of good-quality tax-exempt bonds supported by taxes or the revenues from water bills, highway tolls and the like. In mid April, a representative ten-year, double-A-rated, noncallable water-system bond, such as an Orlando utilities commission issue, yielded 4.8% to maturity. If you prefer a fund, Baird Intermediate Muni (symbol BMBSX) was the top medium-maturity muni fund in both 2007 and 2008. Other standouts include Fidelity Intermediate Municipal Income (FLTMX), a member of the Kiplinger 25, and Schwab Tax-Free (SWNTX).
Ironclad mortgages
Toxic mortgages are the match that lit the financial firestorm, but you can't blame government-guaranteed loans from the Veterans Administration or the Federal Housing Administration. The VA foreclosure rate is 1.7%, compared with 13.7% for adjustable-rate subprime loans.
The best way to own these loans is through a Ginnie Mae fund. Backed by the full faith and credit of the federal government, the Government National Mortgage Association guarantees packages of FHA and VA debt bundled together by private lending institutions. From the perspective of timely repayment of principal and interest, Ginnie Maes are just as safe as Treasuries but deliver significantly more yield. And although mortgage rates have fallen, many GNMA funds still own lots of older, higher-paying loans. For example, almost 40% of the loans in Vanguard GNMA (VFIIX) carry yields of more than 6%.
Vanguard's fund and other low-cost Ginnie Mae funds, such as Payden GNMA (PYGNX) and Fidelity Ginnie Mae (FGMNX), still yield about 5%. GNMA yields should decline by half a percentage point by the end of 2009 because lower mortgage rates encourage more borrowers to refinance. But these securities will generate higher cash flows after mortgage rates, like other long-term rates, start to turn up later this year.
Bank-loan funds
These funds hold slices of adjustable-rate loans and lines of credit that banks extend to companies with junk credit ratings of single-B or double-B. Adviser Mark Gleason, of Wescap Management Group, in Burbank, Cal., aptly calls a bank-loan fund "a hybrid between a junk-bond fund and a money-market fund." The bank funds currently yield 4.5% to 6%, which is far short of junk's double-digit yields. But their loans are safer because their terms are short, their interest rates float with changes in short-term rates, and they are ahead of bonds on the repayment pecking order should the borrower default. However, like stocks and junk bonds, bank loans gain value prior to or in the early stages of an economic recovery. Year-to-date through April 9, bank-loan funds returned an average of 11.1%, tops among bond-fund categories.
By contrast, in the three-month period that ended last November, the average bank-loan fund lost 29% as the credit crunch and selling by hedge funds slashed the value of bank debt. But defaults didn't get out of hand, so funds such as Fidelity Floating-Rate High Income (FFRHX) and the closed-end PIMCO Floating Rate Strategy (PFN) kept up decent monthly distributions even as their share prices dropped. These payouts are sliding because short-term interest rates are near zero, but bank-loan funds still offer better yields than short-term-bond funds. Gleason sees annual total returns of 9% to 11% through 2012.
Triple-B corporate bonds
This is the sweet spot in taxable bonds. In 2008, the gap between yields of a basket of triple-B-rated bonds and Treasuries exploded from two percentage points to six and a half. In mid April, the gap was almost five points, which is attractive when you consider that bonds rated triple-B are still considered investment-grade. Moreover, the category harbors a bunch of recession-hit companies that traditionally have carried single-A ratings. Today's triple-B roster includes Altria, Burlington Northern, Johnson Controls, Kraft Foods, Black & Decker, Sunoco and XTO Energy. All will thrive in better times.
For safety's sake, choose bonds from across several industries. Noncallable bonds are nice, but as rates rise, you won't see many redeemed early anyway. In mid April, an Altria bond maturing in 2018 and carrying a 9.7% interest coupon was priced to yield 8% to maturity. Bank and insurance bonds offer high yields because financial issuers are riskier than industrials, despite government efforts to keep them afloat without nationalizing them.
Pipelines
Energy prices will rise as industry expands and people drive more. So you can buy energy-income investments at sale prices and hold on for what should be higher future dividends. If you think oil prices will zoom or if you just want to hedge against inflation, buy BP Prudhoe Bay (BPT), a royalty trust that passes through cash from the sale of crude oil. BPT crashed last summer and has cut dividends two times since, but it's back to $68 from a low of $50, and it yields 6%.
If you don't want to gamble on energy prices, pipelines and storage facilities are the ticket. Their dividends depend on the amount, not the price, of the products that move through these systems. Energy Transfer Partners (ETP), Kinder Morgan Energy Partners (KMP) and Magellan Midstream Partners (MMP) all have long histories of delivering dividends reliably, and they currently yield from 8.8% to 9.2%. Because these firms are set up as master limited partnerships, they'll send you a Form K-1 at tax time, rather than a Form 1099, and that could mean extra work filling out your returns.
Preferred stocks
It wasn't just common stocks that went on a tear after bottoming on March 9. Preferred stocks, which act a lot more like bonds than stocks, also rallied strongly. From March 9 through April 9, iShares U.S. Preferred Stock Index (PFF), an exchange-traded fund, rocketed 66%, although it remains 45% below its 12-month high. Tom Taylor, of Thoma Capital Management, in Towson, Md., notes that a preferred stock from Bank of America (BAC.H) yields 14% to maturity in 2013 and cannot be called or exchanged. The stock surged from $5 to $15 between February 19 and April 9. But its face value is $25, so it can still go higher.
Preferreds, despite the reassuring name, are not risk-free. Issuers can cut or suspend preferred dividends, as a handful of REITs have done during the financial crisis. And if a company files for bankruptcy, bondholders take precedence over preferred investors. You can spread your risk with a fund that focuses on preferreds. John Hancock Preferred Income (HPI), a closed-end fund, owns far fewer financials than does the iShares ETF. At its April 9 close of $12, the fund traded at a 4% premium to its net asset value and yielded 15%. It would be better if the fund traded at a discount to NAV, but the modest premium is acceptable.
Junk corporate bonds
Let's face it: Recessions are not good for junk bonds and their issuers. Junk-rated companies are young, troubled, highly leveraged, or some combination of the three. So it's not surprising that they suffer when sales sink and questions about their ability to service their debt mount.
But the current recession has been less discriminating than most. Previous junk-bond routs involved "bad companies with bad balance sheets," says Mark Durbiano, a manager at Federated Investors who has seen the good, the bad and the ugly during a 25-year career investing in high-yield bonds. This time, he says, investors pummeled bonds of essentially good companies, such as First Data and SunGard, whose high debt loads earn them junk ratings. The average junk bond recently yielded 18%, a near-record 15 percentage points more than Treasury bonds.
But now, with signs that the economy is thawing and bargain hunters nibbling, things are starting to look up. The average junk-bond fund, which lost 26% last year, returned 6% in 2009 through April 9. The indexes -- but not the whole sector -- will take a temporary hit if General Motors, a huge junk-bond issuer, defaults. But the three primary junk ETFs -- SPDR Barclays Capital (JNK), iShares iBoxx $ High Yield (HYG) and PowerShares High Yield (PHB) -- hold few or no GM bonds (but plenty of health and technology issues). Each yields 10% or higher.
Wild closed-ends
We've saved our lottery tickets for last. Scott Leonard, of Trovena, an advisory firm in Redondo Beach, Cal., seeks out income-oriented closed-end funds in struggling but improving sectors that are leveraged, selling at big discounts to NAV. Dozens qualify. Consider, for example, Cohen & Steers REIT and Utility Income (RTU). At its April 9 close of $5.28, the fund sold at a whopping 25% discount to NAV and yielded a similarly massive 26%. Or look at BlackRock California Municipal Income Trust II (BCL). At a price of $10.18, it traded at a 19% discount to NAV and yielded 6% tax-free. Don't put more than 5% of your income assets into these kinds of funds because when they're bad, they're really, really bad.
--------------------------------------------------------------------------------
This page printed from: http://www.kiplinger.com/magazine/archives/2009/06/where-to-find-yields3.html?kipad_id=6
All contents © 2009 The Kiplinger Washington Editors
From safe municipal bonds to risky closed-end bond funds, just about everything is on sale.
By Jeffrey R. Kosnett
From Kiplinger's Personal Finance magazine, June 2009
It's been an excruciating year for income hogs, their favorite investments obliterated by the recession and the credit crunch. Since September, high-yielding standbys such as real estate investment trusts, master limited partnerships, business-development companies, and oil-and-gas royalty trusts have lost 50% or more. Junk bonds and emerging-markets debt have improved of late, but they've still sustained double-digit losses.
From calamity, however, springs opportunity. Many income securities are now tantalizingly cheap. Moreover, issuers of high-yielding stocks and bonds are sure to benefit from reflation -- the stimulation of global economies through massive government spending and rock-bottom interest rates. Reflation, which implies higher inflation, will hurt low-yielding Treasury bonds, but it should boost the profits of energy producers, real estate operators and highly leveraged companies that need to raise prices to prosper.
The bear market in most income investments has resulted in lower cash payouts, too. With virtually all segments of the real estate sector suffering, dozens of REITs have cut their distributions, and many are paying dividends mainly in stock. Energy trusts have trimmed their disbursements because of low prices for oil, natural gas and other products. Led by financials, hundreds of companies have cut or suspended dividends on their common stock this year.
Credit-market chaos wreaked havoc with the recommendations in our previous "yieldfest" (see Earn 8% or More, July 2008). Our best picks, emerging-markets bond funds such as Fidelity New Markets Income and Pimco Emerging Markets Bond, dropped about 10% over the past year through April 9. Pipeline stocks, such as Kinder Morgan Energy, also held up reasonably well. But we had our share of disasters. For example, First Industrial Realty Trust cratered by nearly 90%, while Genco Shipping & Trading dived 73%.
As the economy begins to improve, the rest of this year and 2010 will be much more rewarding for income seekers. From the safest to the riskiest, we offer our best bets for big cash returns over the coming year (of course, you should keep money that you'll need soon in supersafe instruments, such as money-market funds and bank accounts).
Municipal bonds
The recession is putting pressure on state and local coffers, so why feel good about the prospects for municipal debt? Munis, which rarely default, are yielding far more than comparable Treasury securities. This state of affairs is an anomaly because interest from munis is generally free of federal income taxes. And because munis offer such generous yields, they should hold up far better than Treasuries when the economy and inflation pick up. Still, to be on the safe side, we recommend avoiding tax-free bonds with maturities greater than ten years. At ten years, you can still find 4% to 4.5%, tax-free. That's the equivalent of 6% or so from a taxable bond. Ten-year Treasuries, by contrast, yielded 2.9% in mid April.
Like most other sectors of the bond market, munis suffered last year, but confidence in them has improved. Despite California's budget disaster, the state sold $6.5 billion of general-obligation bonds in March, the third-largest muni issue ever. These A-rated bonds have already gained value. In mid April, a California GO maturing in 2019 with a coupon of 5.5% sold at $1,050 for each $1,000 of face value to yield 4.7% to maturity. For a Californian in the top income-tax bracket, that's like getting 8% from a taxable bond. And for the highest earners living elsewhere, it's the equivalent of 7.2% from a taxable bond.
Some discount brokers, such as Fidelity and Charles Schwab, offer scores of good-quality tax-exempt bonds supported by taxes or the revenues from water bills, highway tolls and the like. In mid April, a representative ten-year, double-A-rated, noncallable water-system bond, such as an Orlando utilities commission issue, yielded 4.8% to maturity. If you prefer a fund, Baird Intermediate Muni (symbol BMBSX) was the top medium-maturity muni fund in both 2007 and 2008. Other standouts include Fidelity Intermediate Municipal Income (FLTMX), a member of the Kiplinger 25, and Schwab Tax-Free (SWNTX).
Ironclad mortgages
Toxic mortgages are the match that lit the financial firestorm, but you can't blame government-guaranteed loans from the Veterans Administration or the Federal Housing Administration. The VA foreclosure rate is 1.7%, compared with 13.7% for adjustable-rate subprime loans.
The best way to own these loans is through a Ginnie Mae fund. Backed by the full faith and credit of the federal government, the Government National Mortgage Association guarantees packages of FHA and VA debt bundled together by private lending institutions. From the perspective of timely repayment of principal and interest, Ginnie Maes are just as safe as Treasuries but deliver significantly more yield. And although mortgage rates have fallen, many GNMA funds still own lots of older, higher-paying loans. For example, almost 40% of the loans in Vanguard GNMA (VFIIX) carry yields of more than 6%.
Vanguard's fund and other low-cost Ginnie Mae funds, such as Payden GNMA (PYGNX) and Fidelity Ginnie Mae (FGMNX), still yield about 5%. GNMA yields should decline by half a percentage point by the end of 2009 because lower mortgage rates encourage more borrowers to refinance. But these securities will generate higher cash flows after mortgage rates, like other long-term rates, start to turn up later this year.
Bank-loan funds
These funds hold slices of adjustable-rate loans and lines of credit that banks extend to companies with junk credit ratings of single-B or double-B. Adviser Mark Gleason, of Wescap Management Group, in Burbank, Cal., aptly calls a bank-loan fund "a hybrid between a junk-bond fund and a money-market fund." The bank funds currently yield 4.5% to 6%, which is far short of junk's double-digit yields. But their loans are safer because their terms are short, their interest rates float with changes in short-term rates, and they are ahead of bonds on the repayment pecking order should the borrower default. However, like stocks and junk bonds, bank loans gain value prior to or in the early stages of an economic recovery. Year-to-date through April 9, bank-loan funds returned an average of 11.1%, tops among bond-fund categories.
By contrast, in the three-month period that ended last November, the average bank-loan fund lost 29% as the credit crunch and selling by hedge funds slashed the value of bank debt. But defaults didn't get out of hand, so funds such as Fidelity Floating-Rate High Income (FFRHX) and the closed-end PIMCO Floating Rate Strategy (PFN) kept up decent monthly distributions even as their share prices dropped. These payouts are sliding because short-term interest rates are near zero, but bank-loan funds still offer better yields than short-term-bond funds. Gleason sees annual total returns of 9% to 11% through 2012.
Triple-B corporate bonds
This is the sweet spot in taxable bonds. In 2008, the gap between yields of a basket of triple-B-rated bonds and Treasuries exploded from two percentage points to six and a half. In mid April, the gap was almost five points, which is attractive when you consider that bonds rated triple-B are still considered investment-grade. Moreover, the category harbors a bunch of recession-hit companies that traditionally have carried single-A ratings. Today's triple-B roster includes Altria, Burlington Northern, Johnson Controls, Kraft Foods, Black & Decker, Sunoco and XTO Energy. All will thrive in better times.
For safety's sake, choose bonds from across several industries. Noncallable bonds are nice, but as rates rise, you won't see many redeemed early anyway. In mid April, an Altria bond maturing in 2018 and carrying a 9.7% interest coupon was priced to yield 8% to maturity. Bank and insurance bonds offer high yields because financial issuers are riskier than industrials, despite government efforts to keep them afloat without nationalizing them.
Pipelines
Energy prices will rise as industry expands and people drive more. So you can buy energy-income investments at sale prices and hold on for what should be higher future dividends. If you think oil prices will zoom or if you just want to hedge against inflation, buy BP Prudhoe Bay (BPT), a royalty trust that passes through cash from the sale of crude oil. BPT crashed last summer and has cut dividends two times since, but it's back to $68 from a low of $50, and it yields 6%.
If you don't want to gamble on energy prices, pipelines and storage facilities are the ticket. Their dividends depend on the amount, not the price, of the products that move through these systems. Energy Transfer Partners (ETP), Kinder Morgan Energy Partners (KMP) and Magellan Midstream Partners (MMP) all have long histories of delivering dividends reliably, and they currently yield from 8.8% to 9.2%. Because these firms are set up as master limited partnerships, they'll send you a Form K-1 at tax time, rather than a Form 1099, and that could mean extra work filling out your returns.
Preferred stocks
It wasn't just common stocks that went on a tear after bottoming on March 9. Preferred stocks, which act a lot more like bonds than stocks, also rallied strongly. From March 9 through April 9, iShares U.S. Preferred Stock Index (PFF), an exchange-traded fund, rocketed 66%, although it remains 45% below its 12-month high. Tom Taylor, of Thoma Capital Management, in Towson, Md., notes that a preferred stock from Bank of America (BAC.H) yields 14% to maturity in 2013 and cannot be called or exchanged. The stock surged from $5 to $15 between February 19 and April 9. But its face value is $25, so it can still go higher.
Preferreds, despite the reassuring name, are not risk-free. Issuers can cut or suspend preferred dividends, as a handful of REITs have done during the financial crisis. And if a company files for bankruptcy, bondholders take precedence over preferred investors. You can spread your risk with a fund that focuses on preferreds. John Hancock Preferred Income (HPI), a closed-end fund, owns far fewer financials than does the iShares ETF. At its April 9 close of $12, the fund traded at a 4% premium to its net asset value and yielded 15%. It would be better if the fund traded at a discount to NAV, but the modest premium is acceptable.
Junk corporate bonds
Let's face it: Recessions are not good for junk bonds and their issuers. Junk-rated companies are young, troubled, highly leveraged, or some combination of the three. So it's not surprising that they suffer when sales sink and questions about their ability to service their debt mount.
But the current recession has been less discriminating than most. Previous junk-bond routs involved "bad companies with bad balance sheets," says Mark Durbiano, a manager at Federated Investors who has seen the good, the bad and the ugly during a 25-year career investing in high-yield bonds. This time, he says, investors pummeled bonds of essentially good companies, such as First Data and SunGard, whose high debt loads earn them junk ratings. The average junk bond recently yielded 18%, a near-record 15 percentage points more than Treasury bonds.
But now, with signs that the economy is thawing and bargain hunters nibbling, things are starting to look up. The average junk-bond fund, which lost 26% last year, returned 6% in 2009 through April 9. The indexes -- but not the whole sector -- will take a temporary hit if General Motors, a huge junk-bond issuer, defaults. But the three primary junk ETFs -- SPDR Barclays Capital (JNK), iShares iBoxx $ High Yield (HYG) and PowerShares High Yield (PHB) -- hold few or no GM bonds (but plenty of health and technology issues). Each yields 10% or higher.
Wild closed-ends
We've saved our lottery tickets for last. Scott Leonard, of Trovena, an advisory firm in Redondo Beach, Cal., seeks out income-oriented closed-end funds in struggling but improving sectors that are leveraged, selling at big discounts to NAV. Dozens qualify. Consider, for example, Cohen & Steers REIT and Utility Income (RTU). At its April 9 close of $5.28, the fund sold at a whopping 25% discount to NAV and yielded a similarly massive 26%. Or look at BlackRock California Municipal Income Trust II (BCL). At a price of $10.18, it traded at a 19% discount to NAV and yielded 6% tax-free. Don't put more than 5% of your income assets into these kinds of funds because when they're bad, they're really, really bad.
--------------------------------------------------------------------------------
This page printed from: http://www.kiplinger.com/magazine/archives/2009/06/where-to-find-yields3.html?kipad_id=6
All contents © 2009 The Kiplinger Washington Editors
GM Restructuring Plan: More on Monday (Marketwatch)
GM CEO to host another restructuring update Monday
By Shawn Langlois
Last update: 4:17 p.m. EDT May 8, 2009
SAN FRANCISCO (MarketWatch) -- General Motors Corp. 4:00pm 05/08/2009
GM 1.61, -0.01, -0.6%) said Friday that CEO Fritz Henderson will hold a conference call Monday to update the media on the automaker's progress in its restructuring efforts ahead of a June 1 deadline. The call will mark the second such update since Henderson took over the top job from Rick Wagoner in March. The U.S. government gave GM until the end of the month to reach concessions with bondholders and the United Auto Workers union to avoid a bankruptcy filing.
By Shawn Langlois
Last update: 4:17 p.m. EDT May 8, 2009
SAN FRANCISCO (MarketWatch) -- General Motors Corp. 4:00pm 05/08/2009
GM 1.61, -0.01, -0.6%) said Friday that CEO Fritz Henderson will hold a conference call Monday to update the media on the automaker's progress in its restructuring efforts ahead of a June 1 deadline. The call will mark the second such update since Henderson took over the top job from Rick Wagoner in March. The U.S. government gave GM until the end of the month to reach concessions with bondholders and the United Auto Workers union to avoid a bankruptcy filing.
Beware of Hot Tips , Penny Stocks (N Y Times)
May 8, 2009
Market Place
The Internet’s Role in Gaming the Markets
By FLOYD NORRIS
HERE’S an investment opportunity you might be able to pass up.
The company has no operations, and no prospects of any. Its previous operations all failed, and the reports the company files with the Securities and Exchange Commission show that its only source of cash is issuing stock.
But a few weeks ago, this stock shot upward on huge volume, providing what may have been huge profits for the people who were being allowed to buy stock from the company at a deep discount to market price. Perhaps not so coincidentally, some Internet message boards buzzed with activity at the same time, promoting the stock as one that was sure to keep rising.
The name of the company is MotivNation, but that is of little importance. There are many companies like it.
A look at MotivNation’s trading activity this year provides a window on a netherworld of the American stock market. It also illustrates the paradox of the intersection of the penny stock market — a traditional area of stock promotion and “pump and dump” schemes — and the Internet.
On the one hand, the Internet has made it far easier for any investor who wants to do so to quickly find S.E.C. filings by any company. Twenty years ago, getting a copy of a corporate filing was either slow (ask the company to send you one) or expensive (buy a filing from a company that could get it from the S.E.C.). Now anyone with Internet access can download corporate reports within seconds after they are filed.
But the Internet has also made stock manipulation much easier. In the old days, a person — perhaps a broker for a penny stock firm — would have to contact an investor and talk him or her into buying the stock. That was expensive. Now, mass e-mail messages can be sent out — it appears that happened with MotivNation — and anonymous posters on bulletin boards can promote the stock at very low cost. One enthusiast signed his posts, “Cantgetmyname.”
Anyone who bothers to read the annual report filed by MotivNation can learn just how little fundamental value the company has, and how the company prints shares by the millions while it has no other business.
To be sure, the filing of that annual report was delayed past the due date, and by the time it arrived the stock promotion appeared to have settled down. In the weeks before the filing, the price of 100 shares of the stock leaped to a high of 37 cents, from 2 cents, and hundreds of millions of shares were traded. Now it is back to about 12 cents, still an amazing price given the company’s lack of a business.
Where did those shares come from? Many millions were newly printed by the company, sold to hedge funds at deep discounts to market value and almost immediately sold on to speculators. Others appear to have been sold by speculators who did not own any shares, and did not borrow any, but were placing bets that the stock price would decline. They were engaging in what is called naked short-selling, which is illegal if it is intended to manipulate the stock.
How many shares were created by each method? From the annual report, we know that MotivNation issued 28 million shares in the first quarter, but there is no way to know how many were issued after the end of the quarter, while volume was still high. As of the end of the quarter, the company had 134 million shares outstanding, up from 30 million last June, just before the company’s only operating subsidiary went into bankruptcy and ceased operations.
Under S.E.C. rules, stock markets each day release the name of any company where there have been failures to deliver at least one-half of 1 percent of the outstanding shares — a figure that for this company would be fewer than 700,000 shares. MotivNation went on the OTC Bulletin Board list a few days before the stock peaked in late March, and has stayed there since. From publicly available information, there is no way to know how many failures to deliver there have been.
A call to the phone number for MotivNation, in Irvine, Calif., was picked up by an answering machine that did not indicate whose number it was. The call was not returned.
Yoel Goldfeder, a lawyer for Corey Ribotsky, whose hedge funds were the buyers and distributors of the stock issued by the company, said his client had not promoted the stock he was buying and selling to the public. “We definitely would not have been involved in marketing anything, especially, as in this case, if there was nothing much to market,” he said.
Mr. Ribotsky’s funds have made similar investments in numerous other companies, and claim to be among the most profitable hedge funds in recent years. In this case, they have the right to buy MotivNation stock at any time they want — paying half of the lowest price the stock has traded for in any three of the most recent 20 days. There is a limit as to how many shares the funds can own, but that limit is irrelevant since they can purchase more shares as soon as they sell the ones already bought.
Who’s the villain here? Is it Mr. Ribotsky’s funds? They appear to have followed the rules. Is it the company? It has made the required disclosures, albeit sometimes on a tardy basis. Is it people who promoted the stock? Perhaps, but it is not easy to know exactly who they are. Is it the naked shorts? They have violated S.E.C. rules, but at the same time they have probably saved investors money by keeping the stock from rising to heights even more absurd than the ones it reached.
If the villain is not easy to spot, the victims are. They are the people who will end up owning worthless stock. Don’t be surprised if some of them conclude that they were victimized not by the people who promoted a company with nothing to recommend it, but by the naked short-sellers who figured out what was happening and, in effect, siphoned off some profits that would have gone to the promoters.
Market Place
The Internet’s Role in Gaming the Markets
By FLOYD NORRIS
HERE’S an investment opportunity you might be able to pass up.
The company has no operations, and no prospects of any. Its previous operations all failed, and the reports the company files with the Securities and Exchange Commission show that its only source of cash is issuing stock.
But a few weeks ago, this stock shot upward on huge volume, providing what may have been huge profits for the people who were being allowed to buy stock from the company at a deep discount to market price. Perhaps not so coincidentally, some Internet message boards buzzed with activity at the same time, promoting the stock as one that was sure to keep rising.
The name of the company is MotivNation, but that is of little importance. There are many companies like it.
A look at MotivNation’s trading activity this year provides a window on a netherworld of the American stock market. It also illustrates the paradox of the intersection of the penny stock market — a traditional area of stock promotion and “pump and dump” schemes — and the Internet.
On the one hand, the Internet has made it far easier for any investor who wants to do so to quickly find S.E.C. filings by any company. Twenty years ago, getting a copy of a corporate filing was either slow (ask the company to send you one) or expensive (buy a filing from a company that could get it from the S.E.C.). Now anyone with Internet access can download corporate reports within seconds after they are filed.
But the Internet has also made stock manipulation much easier. In the old days, a person — perhaps a broker for a penny stock firm — would have to contact an investor and talk him or her into buying the stock. That was expensive. Now, mass e-mail messages can be sent out — it appears that happened with MotivNation — and anonymous posters on bulletin boards can promote the stock at very low cost. One enthusiast signed his posts, “Cantgetmyname.”
Anyone who bothers to read the annual report filed by MotivNation can learn just how little fundamental value the company has, and how the company prints shares by the millions while it has no other business.
To be sure, the filing of that annual report was delayed past the due date, and by the time it arrived the stock promotion appeared to have settled down. In the weeks before the filing, the price of 100 shares of the stock leaped to a high of 37 cents, from 2 cents, and hundreds of millions of shares were traded. Now it is back to about 12 cents, still an amazing price given the company’s lack of a business.
Where did those shares come from? Many millions were newly printed by the company, sold to hedge funds at deep discounts to market value and almost immediately sold on to speculators. Others appear to have been sold by speculators who did not own any shares, and did not borrow any, but were placing bets that the stock price would decline. They were engaging in what is called naked short-selling, which is illegal if it is intended to manipulate the stock.
How many shares were created by each method? From the annual report, we know that MotivNation issued 28 million shares in the first quarter, but there is no way to know how many were issued after the end of the quarter, while volume was still high. As of the end of the quarter, the company had 134 million shares outstanding, up from 30 million last June, just before the company’s only operating subsidiary went into bankruptcy and ceased operations.
Under S.E.C. rules, stock markets each day release the name of any company where there have been failures to deliver at least one-half of 1 percent of the outstanding shares — a figure that for this company would be fewer than 700,000 shares. MotivNation went on the OTC Bulletin Board list a few days before the stock peaked in late March, and has stayed there since. From publicly available information, there is no way to know how many failures to deliver there have been.
A call to the phone number for MotivNation, in Irvine, Calif., was picked up by an answering machine that did not indicate whose number it was. The call was not returned.
Yoel Goldfeder, a lawyer for Corey Ribotsky, whose hedge funds were the buyers and distributors of the stock issued by the company, said his client had not promoted the stock he was buying and selling to the public. “We definitely would not have been involved in marketing anything, especially, as in this case, if there was nothing much to market,” he said.
Mr. Ribotsky’s funds have made similar investments in numerous other companies, and claim to be among the most profitable hedge funds in recent years. In this case, they have the right to buy MotivNation stock at any time they want — paying half of the lowest price the stock has traded for in any three of the most recent 20 days. There is a limit as to how many shares the funds can own, but that limit is irrelevant since they can purchase more shares as soon as they sell the ones already bought.
Who’s the villain here? Is it Mr. Ribotsky’s funds? They appear to have followed the rules. Is it the company? It has made the required disclosures, albeit sometimes on a tardy basis. Is it people who promoted the stock? Perhaps, but it is not easy to know exactly who they are. Is it the naked shorts? They have violated S.E.C. rules, but at the same time they have probably saved investors money by keeping the stock from rising to heights even more absurd than the ones it reached.
If the villain is not easy to spot, the victims are. They are the people who will end up owning worthless stock. Don’t be surprised if some of them conclude that they were victimized not by the people who promoted a company with nothing to recommend it, but by the naked short-sellers who figured out what was happening and, in effect, siphoned off some profits that would have gone to the promoters.
GM financials point toward Bankruptcy (Bloomberg News)
GM Loss Widens to $5.98 Billion as Bankruptcy Looms (Update1)
By Jeff Green and Katie Merx
May 7 (Bloomberg) -- General Motors Corp. said its first- quarter net loss widened to $5.98 billion as sales plunged by almost half, ratcheting up the prospect of a bankruptcy filing by a U.S.-imposed June 1 deadline.
The net loss of $9.78 a share swelled from $3.3 billion, or $5.74, a year earlier, Detroit-based GM said today. Revenue tumbled 47 percent to $22.4 billion, while cash consumption almost doubled from the previous quarter.
The results add to the pressure on GM as it races to cut costs and debt to avoid bankruptcy. With bondholders resisting a plan ordered by the Obama administration to exchange $27 billion in debt for a minority stake in a reorganized GM, the 100-year- old automaker may end up in court.
“If the deadline for proving viability is a few weeks away, these earnings would indicate to me that it’s nearly impossible to get there,” said Kevin Tynan, a New York-based Argus Research analyst who advises selling GM. He said “a clean slate from bankruptcy” may be the best way to return to profit.
GM is ready to go “in and out quickly” should it need to file for bankruptcy, Chief Financial Officer Ray Young told reporters at the automaker’s headquarters. The proposed debt exchange with bondholders is the biggest piece of $44 billion in obligations that GM is working to shrink as it survives on $15.4 billion in emergency federal aid.
Cost Structure
“The first-quarter results reinforce the plan we announced at the end of April to bring our cost structure down aggressively,” Young said.
Excluding some costs, the first-quarter loss was $9.66 a share, or $5.9 billion, GM said. That beat the average $10.97 loss estimate from 11 analysts surveyed by Bloomberg.
The biggest U.S. automaker used $10.2 billion more in cash than it generated from operations, almost twice as much as the consumption of $5.2 billion in the fourth quarter. Cash on hand at the end of March was $11.6 billion, a decrease from $14.2 billion as of Dec. 31, as new government aid partially offset the drain on GM’s reserves.
Young said the cash use was less than GM projected in a February report to the U.S. Treasury, in part because of $3 billion in structural cost reductions in the quarter. He reiterated that GM will need $2.6 billion in U.S. Treasury funds in May and $9 billion more after that.
GM dropped 6 cents, or 3.6 percent, to $1.60 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have declined 50 percent this year for the worst performance in the Dow Jones Industrial Average, and they may be removed, said John Prestbo, the editor and executive director of Dow Jones Indexes.
‘Revenue Implosion’
GM slashed quarterly output by about 40 percent to 903,000 vehicles as demand waned, which accounted for “the revenue implosion,” Young said.
The net deficit included one-time gains from erasing some debt and charges such as $822 million in costs related to the Feb. 20 bankruptcy of its Saab Automobile AB unit, which GM wants to unload. Before today, losses at the company totaled $82 billion since 2004, its last profitable year.
President Barack Obama set the June 1 bankruptcy deadline on March 30, giving GM 60 days to restructure out of court. He rejected the company’s original plan to shed 47,000 jobs this year and cut about $28.5 billion in union and bond debt, saying it wasn’t enough to return the automaker to viability.
Under the survival plan unveiled April 27, GM agreed to kill the Pontiac brand, close two more plants and eliminate at least 7,000 more union jobs by the end of next year. GM said today it expects to cut more salaried and executive jobs, without elaborating.
U.S. Control
GM’s plan envisions that the U.S. would control at least 50 percent of 60 billion shares in a restructured company, and a union-run health-care fund would get as much as 39 percent. Unsecured bondholders would get 10 percent and existing shareholders would get 1 percent, GM said.
Bondholders would receive 225 shares in the new automaker for each $1,000 in principal. When the exchange is complete, GM would do a 1-for-100 reverse split of the stock.
Without support from 90 percent of the bondholders by May 26, GM plans to file for bankruptcy, Chief Executive Officer Fritz Henderson said after unveiling the offer.
Bondholders countered that proposal with a plan calling for GM to give them 58 percent of the equity in the reorganized company. Henderson told reporters earlier this week that the Treasury has indicated it “would not be supportive of shareholding in excess of 10 percent” for the bondholders. GM’s 8.375 percent bonds due in July 2033 fell 0.35 cent to 8 cents on the dollar, yielding 102 percent, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority. Dwindling Sales
The discussions among GM, Obama’s car task force and the bondholders are unfolding against a U.S. auto market that shrank 34 percent last month.
GM reported an adjusted automotive operating loss of $3.9 billion in the first quarter, wider than the $808 million deficit a year earlier.
Each of the automaker’s regions experienced a drop in earnings from a year earlier due to slumping sales, with the $3.2 billion operating loss in North America the worst deficit.
Without a new cost-saving labor agreement, GM’s Canada unit will be liquidated, the Canadian Auto Workers union said today, citing discussions with government officials. CAW leaders told reporters in Toronto they had been ordered back to the bargaining table with GM under a May 15 deadline to reach an accord or lose the possibility of more government aid.
Young said there were sales bright spots in such markets as China, Germany and Brazil, where governments implemented programs to stimulate demand. Results in those countries support GM’s argument in favor of U.S. incentives to promote auto purchases, he said.
“We just need to get this bankruptcy speculation and rumor behind us,” Young said during a conference call. “That’s clearly having an impact on our sales.”
To contact the reporters on this story: Jeff Green in Detroit at jgreen16@bloomberg.net; Katie Merx in Detroit at kmerx@bloomberg.net.
Last Updated: May 7, 2009 16:21 EDT
By Jeff Green and Katie Merx
May 7 (Bloomberg) -- General Motors Corp. said its first- quarter net loss widened to $5.98 billion as sales plunged by almost half, ratcheting up the prospect of a bankruptcy filing by a U.S.-imposed June 1 deadline.
The net loss of $9.78 a share swelled from $3.3 billion, or $5.74, a year earlier, Detroit-based GM said today. Revenue tumbled 47 percent to $22.4 billion, while cash consumption almost doubled from the previous quarter.
The results add to the pressure on GM as it races to cut costs and debt to avoid bankruptcy. With bondholders resisting a plan ordered by the Obama administration to exchange $27 billion in debt for a minority stake in a reorganized GM, the 100-year- old automaker may end up in court.
“If the deadline for proving viability is a few weeks away, these earnings would indicate to me that it’s nearly impossible to get there,” said Kevin Tynan, a New York-based Argus Research analyst who advises selling GM. He said “a clean slate from bankruptcy” may be the best way to return to profit.
GM is ready to go “in and out quickly” should it need to file for bankruptcy, Chief Financial Officer Ray Young told reporters at the automaker’s headquarters. The proposed debt exchange with bondholders is the biggest piece of $44 billion in obligations that GM is working to shrink as it survives on $15.4 billion in emergency federal aid.
Cost Structure
“The first-quarter results reinforce the plan we announced at the end of April to bring our cost structure down aggressively,” Young said.
Excluding some costs, the first-quarter loss was $9.66 a share, or $5.9 billion, GM said. That beat the average $10.97 loss estimate from 11 analysts surveyed by Bloomberg.
The biggest U.S. automaker used $10.2 billion more in cash than it generated from operations, almost twice as much as the consumption of $5.2 billion in the fourth quarter. Cash on hand at the end of March was $11.6 billion, a decrease from $14.2 billion as of Dec. 31, as new government aid partially offset the drain on GM’s reserves.
Young said the cash use was less than GM projected in a February report to the U.S. Treasury, in part because of $3 billion in structural cost reductions in the quarter. He reiterated that GM will need $2.6 billion in U.S. Treasury funds in May and $9 billion more after that.
GM dropped 6 cents, or 3.6 percent, to $1.60 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have declined 50 percent this year for the worst performance in the Dow Jones Industrial Average, and they may be removed, said John Prestbo, the editor and executive director of Dow Jones Indexes.
‘Revenue Implosion’
GM slashed quarterly output by about 40 percent to 903,000 vehicles as demand waned, which accounted for “the revenue implosion,” Young said.
The net deficit included one-time gains from erasing some debt and charges such as $822 million in costs related to the Feb. 20 bankruptcy of its Saab Automobile AB unit, which GM wants to unload. Before today, losses at the company totaled $82 billion since 2004, its last profitable year.
President Barack Obama set the June 1 bankruptcy deadline on March 30, giving GM 60 days to restructure out of court. He rejected the company’s original plan to shed 47,000 jobs this year and cut about $28.5 billion in union and bond debt, saying it wasn’t enough to return the automaker to viability.
Under the survival plan unveiled April 27, GM agreed to kill the Pontiac brand, close two more plants and eliminate at least 7,000 more union jobs by the end of next year. GM said today it expects to cut more salaried and executive jobs, without elaborating.
U.S. Control
GM’s plan envisions that the U.S. would control at least 50 percent of 60 billion shares in a restructured company, and a union-run health-care fund would get as much as 39 percent. Unsecured bondholders would get 10 percent and existing shareholders would get 1 percent, GM said.
Bondholders would receive 225 shares in the new automaker for each $1,000 in principal. When the exchange is complete, GM would do a 1-for-100 reverse split of the stock.
Without support from 90 percent of the bondholders by May 26, GM plans to file for bankruptcy, Chief Executive Officer Fritz Henderson said after unveiling the offer.
Bondholders countered that proposal with a plan calling for GM to give them 58 percent of the equity in the reorganized company. Henderson told reporters earlier this week that the Treasury has indicated it “would not be supportive of shareholding in excess of 10 percent” for the bondholders. GM’s 8.375 percent bonds due in July 2033 fell 0.35 cent to 8 cents on the dollar, yielding 102 percent, according to Trace, the bond-pricing service of the Financial Industry Regulatory Authority. Dwindling Sales
The discussions among GM, Obama’s car task force and the bondholders are unfolding against a U.S. auto market that shrank 34 percent last month.
GM reported an adjusted automotive operating loss of $3.9 billion in the first quarter, wider than the $808 million deficit a year earlier.
Each of the automaker’s regions experienced a drop in earnings from a year earlier due to slumping sales, with the $3.2 billion operating loss in North America the worst deficit.
Without a new cost-saving labor agreement, GM’s Canada unit will be liquidated, the Canadian Auto Workers union said today, citing discussions with government officials. CAW leaders told reporters in Toronto they had been ordered back to the bargaining table with GM under a May 15 deadline to reach an accord or lose the possibility of more government aid.
Young said there were sales bright spots in such markets as China, Germany and Brazil, where governments implemented programs to stimulate demand. Results in those countries support GM’s argument in favor of U.S. incentives to promote auto purchases, he said.
“We just need to get this bankruptcy speculation and rumor behind us,” Young said during a conference call. “That’s clearly having an impact on our sales.”
To contact the reporters on this story: Jeff Green in Detroit at jgreen16@bloomberg.net; Katie Merx in Detroit at kmerx@bloomberg.net.
Last Updated: May 7, 2009 16:21 EDT
Work from Home that's Not a Scam (WSJ)
CAREERS MAY 6, 2009 Negotiating the Freelance Economy
Article
By SARAH E. NEEDLEMAN
In April 2008, Rebecca Haden lost her job when the small store she managed went out of business. A year later, she's working as many as 40 hours a week and earning much more than she did before -- even though she still doesn't have a job. Her formula? Freelancing her Web skills.
Ms. Haden, of Fayetteville, Ark., is among a growing number of professionals who are making ends meet by working on a project-by-project contract basis. Even as permanent- and temp-job opportunities are shrinking, the amount of contract work to be found on freelance-jobs sites is expanding. What's more, it's moving beyond computer-programming and graphic-design gigs for small employers to include listings from larger companies and assignments in fields such as accounting, law, engineering and sales.
Between January and March, employers posted 70,500 of these work-for-hire positions on Elance.com and 43,000 on Odesk.com, which represents increases of 35% and 105%, respectively, from the same period in 2008. Sologig.com, which lists remote and on-site freelance jobs, says its average monthly postings have more than doubled to around 13,500 per month in the past year. In March, there were 750 jobs listed on VirtualAssistants.com, versus 400 in March 2008.
Rebecca Haden has landed a steady supply of project-based work, in part by using freelance-job site Odesk.
At the same time, the number of U.S. workers employed by temporary-help-services firms in March fell 27% to 1.8 million from the same month in 2008, according to the Labor Department.
As the recession takes hold, more employers are using freelance workers to avoid the expenses associated with hiring permanent staff, says Fabio Rosati, chief executive officer of Mountain View, Calif.-based Elance. "The power of online work is that it's immediate, cost-effective and flexible," he says.
Indeed, freelance workers are often cheaper and more flexible than temp workers, whose jobs, though short-term, tend to be full-time, subject to temp-agency fees, and bound by agency restrictions, such as limits on the permanent hiring of temps.
Mr-SEO.com, an online marketing firm with eight employees, began using freelance help a year ago to handle tasks in Web-site development, administrative services and copywriting. The five-year-old Seattle-based company hired 17 freelancers through Odesk.com for projects that lasted as little as a few days or as long as eight months and counting. "It gives us the flexibility to expand our work force depending on client demand," says Greg Gaskill, the company's president.
Like many workers who turn to freelance positions, Ms. Haden, a 51-year-old mother of four, didn't plan to take on piecemeal work after her layoff. At first, she approached a local Internet company about a permanent job doing Web optimization -- a technique for boosting a site's search-engine rankings. It was a skill she had learned while overseeing her former employer's online store and blog. The firm wasn't hiring, but it offered her a short freelance assignment. She accepted.
Ms. Haden, who holds a master's degree in linguistics, wrote about the experience for a popular blog on Web optimization. "People started approaching me with work pretty soon after that," she says.
'I Just Do the Fun Stuff'
One gig she landed introduced her to Odesk, which, like some other contract-job sites, can monitor freelancers' work. Since then, Ms. Haden says she's landed a steady supply of Web-optimization assignments through Odesk, as well as through her personal Web site and blog. Most months, she earns more than double her previous income. Ms. Haden says the work has been fulfilling, and she has put her permanent-job search on hold indefinitely. "I get to pick and choose what I do now," she says. "And I just do the fun stuff."
Family Money
Take This Dream and Crunch It
Many other laid-off professionals appear to be taking up freelancing, either as a new career or as a way to weather the downturn. Freelance-job sites say membership among individuals, which is free in many cases, has risen sharply. For example, Guru.com has nearly 878,000 freelance members today, up from around 760,000 a year ago.
Freelance-job sites also say they're seeing more midsize and large employers posting assignments, and the jobs have expanded into more business functions, such as finance, manufacturing and law. For example, roughly 1,700 new jobs were added to the sales and marketing category on Elance in March, a 50% increase from a year ago. That's led to new types of contract workers, too.
Last month, Lynn Welch became one of those new freelancers when she began a 96-hour home-based consulting stint for Axsys Technologies Inc., a large, publicly traded manufacturer of infrared technologies based in Rocky Hill, Conn. She was laid off in March from a senior marketing position at a midsize technology firm and says her Axsys contract is one of four freelance assignments she's landed either through networking or Guru. She's so far earned roughly $10,000 from freelance gigs in online marketing.
Pitfalls of Contract Work
Despite her successes, Ms. Welch, who is 40 and lives in a Washington, D.C., suburb, says she still deals with some of the pitfalls that come with contract work. For example, she says she once spent several hours researching and explaining how she'd handle a potential project, but didn't get the gig. "Some [employers] want to pick your brain and have no intention of paying you," she says. Now Ms. Welch is more cautious about sharing information with employers before a contract is signed. "If they're asking for a lot of details, that's a warning sign," she says.
Sites like Odesk, Guru and Elance guarantee payment after jobs are completed in return for commissions of about 6% to 10% of freelancers' fees. But many other sites hold individuals fully responsible for billing clients and collecting payments.
There are other downsides to freelancing, from the lack of health coverage and paid time off to the need to make your own retirement contributions. Striking out on your own also requires regularly searching for and vetting potential new assignments, while ensuring that you complete on time the ones you've already secured. Furthermore, you may need to invest in equipment such as computer software and a business phone line.
Carving Out a Niche
Should you decide to take up contract work, there are ways to help ensure the process goes smoothly. First, make sure to be very specific about your skills and expertise when you fill out a profile on a freelance job site, says Kate Lister, author of "Undress for Success: The Naked Truth About Making Money at Home." Doing so will help you stand out from the competition. "You want to carve out a niche," she says.
To figure out how much to charge for your work, research the rates that experienced freelancers demand for similar services, suggests Ms. Lister. The information can usually be found in members' profiles on freelance job sites. "Look at their portfolios and ask yourself, could I produce that level of work? Could I do much better than that?" she says. After settling on a figure, Ms. Lister suggests starting out at a slightly lower rate to build a track record.
Another option is to offer to work for just a few hours at first to prove yourself, suggests Gower Idrees, founder of RareBrain Capital LP, a consulting firm specializing in high-growth businesses in The Woodlands, Texas. Since early 2007, Mr. Idrees has hired about 1,500 freelancers from Guru -- including former big-company executives, many as consultants. "I've used them in every way possible," he says.
Mr. Idrees recommends discussing potential projects with hiring managers over the phone whenever possible, rather than using email, in order to build trust and negotiate a fair pay rate. That way, a potential freelancer "can educate [the company] on what the challenges really are," he explains. Sometimes, he says, employers aren't aware just how many hours a project will require.
Write to Sarah E. Needleman at sarah.needleman@wsj.com
Printed in The Wall Street Journal, page D1
Article
By SARAH E. NEEDLEMAN
In April 2008, Rebecca Haden lost her job when the small store she managed went out of business. A year later, she's working as many as 40 hours a week and earning much more than she did before -- even though she still doesn't have a job. Her formula? Freelancing her Web skills.
Ms. Haden, of Fayetteville, Ark., is among a growing number of professionals who are making ends meet by working on a project-by-project contract basis. Even as permanent- and temp-job opportunities are shrinking, the amount of contract work to be found on freelance-jobs sites is expanding. What's more, it's moving beyond computer-programming and graphic-design gigs for small employers to include listings from larger companies and assignments in fields such as accounting, law, engineering and sales.
Between January and March, employers posted 70,500 of these work-for-hire positions on Elance.com and 43,000 on Odesk.com, which represents increases of 35% and 105%, respectively, from the same period in 2008. Sologig.com, which lists remote and on-site freelance jobs, says its average monthly postings have more than doubled to around 13,500 per month in the past year. In March, there were 750 jobs listed on VirtualAssistants.com, versus 400 in March 2008.
Rebecca Haden has landed a steady supply of project-based work, in part by using freelance-job site Odesk.
At the same time, the number of U.S. workers employed by temporary-help-services firms in March fell 27% to 1.8 million from the same month in 2008, according to the Labor Department.
As the recession takes hold, more employers are using freelance workers to avoid the expenses associated with hiring permanent staff, says Fabio Rosati, chief executive officer of Mountain View, Calif.-based Elance. "The power of online work is that it's immediate, cost-effective and flexible," he says.
Indeed, freelance workers are often cheaper and more flexible than temp workers, whose jobs, though short-term, tend to be full-time, subject to temp-agency fees, and bound by agency restrictions, such as limits on the permanent hiring of temps.
Mr-SEO.com, an online marketing firm with eight employees, began using freelance help a year ago to handle tasks in Web-site development, administrative services and copywriting. The five-year-old Seattle-based company hired 17 freelancers through Odesk.com for projects that lasted as little as a few days or as long as eight months and counting. "It gives us the flexibility to expand our work force depending on client demand," says Greg Gaskill, the company's president.
Like many workers who turn to freelance positions, Ms. Haden, a 51-year-old mother of four, didn't plan to take on piecemeal work after her layoff. At first, she approached a local Internet company about a permanent job doing Web optimization -- a technique for boosting a site's search-engine rankings. It was a skill she had learned while overseeing her former employer's online store and blog. The firm wasn't hiring, but it offered her a short freelance assignment. She accepted.
Ms. Haden, who holds a master's degree in linguistics, wrote about the experience for a popular blog on Web optimization. "People started approaching me with work pretty soon after that," she says.
'I Just Do the Fun Stuff'
One gig she landed introduced her to Odesk, which, like some other contract-job sites, can monitor freelancers' work. Since then, Ms. Haden says she's landed a steady supply of Web-optimization assignments through Odesk, as well as through her personal Web site and blog. Most months, she earns more than double her previous income. Ms. Haden says the work has been fulfilling, and she has put her permanent-job search on hold indefinitely. "I get to pick and choose what I do now," she says. "And I just do the fun stuff."
Family Money
Take This Dream and Crunch It
Many other laid-off professionals appear to be taking up freelancing, either as a new career or as a way to weather the downturn. Freelance-job sites say membership among individuals, which is free in many cases, has risen sharply. For example, Guru.com has nearly 878,000 freelance members today, up from around 760,000 a year ago.
Freelance-job sites also say they're seeing more midsize and large employers posting assignments, and the jobs have expanded into more business functions, such as finance, manufacturing and law. For example, roughly 1,700 new jobs were added to the sales and marketing category on Elance in March, a 50% increase from a year ago. That's led to new types of contract workers, too.
Last month, Lynn Welch became one of those new freelancers when she began a 96-hour home-based consulting stint for Axsys Technologies Inc., a large, publicly traded manufacturer of infrared technologies based in Rocky Hill, Conn. She was laid off in March from a senior marketing position at a midsize technology firm and says her Axsys contract is one of four freelance assignments she's landed either through networking or Guru. She's so far earned roughly $10,000 from freelance gigs in online marketing.
Pitfalls of Contract Work
Despite her successes, Ms. Welch, who is 40 and lives in a Washington, D.C., suburb, says she still deals with some of the pitfalls that come with contract work. For example, she says she once spent several hours researching and explaining how she'd handle a potential project, but didn't get the gig. "Some [employers] want to pick your brain and have no intention of paying you," she says. Now Ms. Welch is more cautious about sharing information with employers before a contract is signed. "If they're asking for a lot of details, that's a warning sign," she says.
Sites like Odesk, Guru and Elance guarantee payment after jobs are completed in return for commissions of about 6% to 10% of freelancers' fees. But many other sites hold individuals fully responsible for billing clients and collecting payments.
There are other downsides to freelancing, from the lack of health coverage and paid time off to the need to make your own retirement contributions. Striking out on your own also requires regularly searching for and vetting potential new assignments, while ensuring that you complete on time the ones you've already secured. Furthermore, you may need to invest in equipment such as computer software and a business phone line.
Carving Out a Niche
Should you decide to take up contract work, there are ways to help ensure the process goes smoothly. First, make sure to be very specific about your skills and expertise when you fill out a profile on a freelance job site, says Kate Lister, author of "Undress for Success: The Naked Truth About Making Money at Home." Doing so will help you stand out from the competition. "You want to carve out a niche," she says.
To figure out how much to charge for your work, research the rates that experienced freelancers demand for similar services, suggests Ms. Lister. The information can usually be found in members' profiles on freelance job sites. "Look at their portfolios and ask yourself, could I produce that level of work? Could I do much better than that?" she says. After settling on a figure, Ms. Lister suggests starting out at a slightly lower rate to build a track record.
Another option is to offer to work for just a few hours at first to prove yourself, suggests Gower Idrees, founder of RareBrain Capital LP, a consulting firm specializing in high-growth businesses in The Woodlands, Texas. Since early 2007, Mr. Idrees has hired about 1,500 freelancers from Guru -- including former big-company executives, many as consultants. "I've used them in every way possible," he says.
Mr. Idrees recommends discussing potential projects with hiring managers over the phone whenever possible, rather than using email, in order to build trust and negotiate a fair pay rate. That way, a potential freelancer "can educate [the company] on what the challenges really are," he explains. Sometimes, he says, employers aren't aware just how many hours a project will require.
Write to Sarah E. Needleman at sarah.needleman@wsj.com
Printed in The Wall Street Journal, page D1
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