May 13, 2009
Bersot Capital Management is in the news!
Read what the Marin County paper, the Ark, has to say about the firm and Mary Bersot. (Click here for PDF)
May 11, 2009
Taxation on Foreign Earnings
US companies have a presence throughout the world and benefit from exposure to many economies, including emerging markets. This advantage has led to world prominence and been a major factor in earnings growth over the years. This diverse and ever expanding source of earnings has made many US companies profitable as we suffer through this recession.
Companies often delay repatriating their earnings from foreign sources and because of this avoid income tax on the funds. Taxes are an expense and expenses reduce profits. The Obama administration needs funds to pay for the massive stimulus programs and this week proposed to tax all foreign earnings of US companies. The hope is that this will add to tax revenues and discourage shifting jobs and factories overseas.
In the end this will result in lower earnings for the US multinational companies. Below is a breakdown of the dollar amount of earnings companies in the major economic sectors report from overseas. This tax proposal is not insignificant and could impact earnings by as much as 15%. Healthcare and technology companies would be hit particularly hard.
The timing of this tax is critical as earnings are depressed by slow global growth. An added tax of any amount would further reduce earnings and could dampen stock price performance. Uncertainty is also increasing for healthcare companies as reform initiatives take center stage. Stage tuned!
February 23, 2009
Rumors and Speculation
Barton Biggs described the stock market as a “mean and sadistic beast” and recent activity has proven him right. Rumors and speculation of bank nationalization have driven stocks of such household names as BankAmerica and Citigroup to under $10. The question of the day is “will the banks be nationalized?” In the last thirty days the Obama administration has committed $3 trillion dollars to restoring economic health. To take over the banks would bloat the US balance sheet even more.
It is hard to know what this administration will do or have to do. Timothy Geithner’s well telegraphed plan for reforming the banks and solving the crisis turned out to be no more than a concept which drove the markets down 5% the day he spoke and he hasn’t been seen nor heard from since. Ben Bernanke said “we will keep the banks private, or return them to private hands, as soon as possible. Christopher Dodd topped this by saying “we don’t want to nationalize the banks, but it may happen”. The White House did say last that we “will continue to have a private banking system going forward”. Reading between the lines is crazy making. Until we see a concrete plan we can trust we don’t know what they’re up to. Banks such as Citibank are partially nationalized now and may need more help if the economy doesn’t recover.
What will happen? What matters isn’t just what got us here but what we’ve learned and what happens going forward. The current administration is making decisions and executing plans that will have far reaching implications. The trillions of dollars thrown at the problem won’t solve the basic issues unless confidence is restored and the job market is healthy. The bail out funds given to companies will be a waste of money unless customers want loans and US manufactured cars are in demand. Talk of nationalizing our banking system further destroys our confidence in the institutions and makes their recovery even more tentative. If we limit pay for executives of banks that take government funds then we are dooming these financial institutions to mediocrity. We need talented managers going forward to get us out of this mess. Shareholders, not the government, should dictate pay.
Can our country bear the consequences of these massive government programs and resulting debt? We have not touched the ailing Social Security and Medicare programs. The stimulus plans will probably work in the short run to restore economic activity and for awhile we will feel better, employment levels will stabilize and the capital markets will recover.
Then what? Taxpayers will be burdened with layers of debt at a time when demographics suggest the largest segment of the population – the baby boomers – will be spending less and utilizing the healthcare system more. The weight of this may be more than our country’s poor shoulders can bear. Stay tuned – the best may be yet to come. We may be compounding the problem, not solving it.
February 2, 2009
Traveling Fast – Going Nowhere!
The stock market feels awful as we end January on another down note. The S&P 500 lost over 8% as economic headlines continued to worsen and governments around the globe scrambled to bail out their financial institutions.
It’s wise to look under the covers. Not all stock portfolios moved together in January. Large growth portfolios declined less than 3% while large value lost over 11%. Banks got tanked and companies with reliable earnings growth came through. End of story. Owning large banks has been a disaster no matter how you cut it. Returns were much better in January if you owned some bonds and cash.
The US stock market has traded in a range since September. Stocks have moved sideways and will until confidence is restored.
Will Obama come through with the magic bullet - a stimulus plan that restores spending? Will a “bad bank” free up our financial institutions and get things moving again? It’s hard to know. What is a better bet is that companies that show earnings strength and make smart decisions will hold up better until the $8 trillion on the sidelines moves the market out of this range. It will happen. In the next 3-6 months? If anyone knows for sure then they must have a direct line to a higher being or Obama, or both. In the meantime, stay with quality. It’s tempting to buy beaten down stocks, but as we saw in January, if they don’t recover the punishment can be severe. Stocks will break out of this range and move higher when confidence improves and jobs are secure and plentiful. It is better to stick with companies that manage their business well in tough times and avoid the beaten down cheap stocks. They may stay that way for awhile.
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