Investing Master

The mergers-and-acquisitions market has slowed down so much it’s almost in reverse.

According to Thomson Reuters, the size of M&A deals cancelled in the fourth quarter now almost matches the M&A activity actually completed. So far in the fourth quarter, $322 billion in M&A deals have been cancelled this quarter, vs. $362 billion in deals completed.

A main reason for the spike in cancellations is last week’s news that BHP Billiton withdrew its $188 billion hostile buyout offer for rival mining giant Rio Tinto.

This slowdown in M&A gives a big headache to Wall Street firms trying to make their way through the credit crunch. If the BHP deal had been completed, its financial advisors were slated to receive an estimated $140 million in fees, and Rio Tinto’s advisor would have netted $162 million. Because investment banks are only paid if a deal is completed, they now get nothing.

The main thing freezing M&A activity is the same thing responsible for today’s 680-point fall in the Dow and 9% plunge in the S&P 500 and Nasdaq: Massive uncertainty.

Corporate executives, like investors, simply don’t know how bad conditions will get, so they’re holding onto their cash. A smart acquisition at this time (just like a smart stock purchase) might scoop up a great value that could pay off long-term. But that’s a risky move when you don’t know if you might need that cash for a future need instead. Plus, even if companies were willing to go into debt to finance an acquisition, banks will resist lending money. That’s why U.S. private equity M&A is off 82% from a year ago, according to Thomson Reuters. Private equity investors can’t get financing.

M&A troubles are just one more reminder why Wall Street firms, which looked so wealthy and confident a year and a half ago, look so pitiful now. According to Thomson Reuters: Worldwide year-to-date, securitizations are off 80%, the investment grade corporate debt business is down 23% and high-yield corporate debt issuance has plunged 76%.

Everywhere you look, the business model of the investment bank remains under attack.

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I did a segment this morning on Retirement Living TV’s Daily Café about gifts that will actually replenish your loved one’s nest eggs. (Some of this advice is my own reporting, and some of it came from an excellent Associated Press story.)

Here are eight recommendations on gifts that keep on giving:

1) COLD, HARD CASH. Times are tough. With the stock market down and unemployment up, some of our loved ones simply need extra cash. Why wait until they ask you for a loan? For estate planning purposes, you can give away $12,000 in cash to each individual in 2008 tax-free. (If you are married, your spouse can separately give away $12,000 to each individual tax-free.)

2) SESSION WITH A FINANCIAL PLANNER. Give the gift of financial security—chances are your loved ones need to get their retirement plan back on track, or maybe they need to get a retirement plan started. Jack Brennan, the chairman of Vanguard Group, once told me he likes to give financial planning sessions to his family members.

Prices vary widely by region. A one-hour session can cost $150 in the Midwest and $500 on the East Coast, so consider combining forces with other family members or friends. Ask the planner to give you something tangible like a gift certificate to put in a box or envelope. The Garrett Planning Network, which features advisers who work on an hourly basis, has certificates starting at $25.

3) SAVINGS BOND. Savings bonds are an ideal way to teach kids about investing. To make the gift more exciting, call ahead and ask if a bank representative can sit down to talk with the child about how savings bonds work. Some banks may even offer a behind-the-scenes tour.

And the actual gift certificates are so pretty—one parent I know actual framed a savings bond for her son as a gift. It’s also wise to offer up a safe place to stash savings bonds—either in a safety deposit box, or even a safe.

4) BROKERAGE ACCOUNT. With all that’s going on in the stock market, another way to help kids learn about investing is to set up a custodial brokerage account.

As with any financial gifts for kids, you’ll need to confer with parents first. In this case, you may have to because you’ll need personal information including the child’s Social Security number. At Charles Schwab, there are no fees for opening an account with as little as $100.

You would have control over a custodial account, but the child could track its performance online. The beneficiary becomes the account holder at age 21 in most states.

Bestowing a brokerage account on adults is trickier, because their signature will be required. This can be addressed by offering to accompany the recipient to open an account and start them off with a small sum of money.

5) ROTH IRA. A good option for young people who are just entering the work force is a Roth IRA. A Roth IRA may be preferable gift to a traditional IRA because withdrawals of contributions (not earnings) are generally tax and penalty free. A single person who earns less than $101,000 can contribute up to $5,000 in 2008. However, traditional IRAs could benefit people who earn more than that since contributions could be tax deductible.

As with brokerage accounts, you’ll need personal information for the beneficiary if you’re opening a custodial account. Beneficiaries also need to earn a paycheck to be eligible.

6) 529 COLLEGE SAVINGS PLAN. Another option is contributing to a 529 college savings plan, which offers significant tax-breaks for educational expenses. If you want to ensure your gift is put toward college, make the check out to the plan.

Grandparents can open an account under their own name to maintain control of the funds. Even better, more than 30 states offer a tax deduction for a 529 investment.

Another way to ensure the money goes into a 529 plan is to send a gift through FreshmanFund.com, which charges a 5 percent fee to facilitate donations to 529 plans. If recipients don’t have a 529 plan set up yet, the site holds the money until they do.

Why it is good for your children or grandchildren or other loved ones: You are saving for their future—and advisers recommend investing now since the stock market is on sale, and you’ve got a long time horizon

To research 529s, my favorite site is SavingforCollege.com, which tracks the performance of 529 plans across the country.

7) CHARITY CHECKS. Charity Checks giving certificates give you get the tax deduction, and then you give the gift to friends or family members and let them decide which of their favorite charities to support. Charity Checks come in various denominations and can be cashed by any one of the more than 800,000 charities in the United States. The certificates can be custom-printed to include a special message, so there is something tangible to give.

ORGANIZE A GARAGE SALE. If grandma’s basement (or garage) is impossible to navigate, consider offering your time to organize a yard sale. She can donate the proceeds to her favorite charity, and you can look forward to a clutter-free visit.

Do you have any other ideas to replenish a loved one’s nest egg? Share ‘em!

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Here are several interesting notes that came across my desk in the last 24 hours. (Sorry no links — the full notes aren’t available online.) They concern topic number one for investors these days: the economic crisis and governments’ response to it.

John Ryding and Conrad DeQuadros of RDQ Economics on the latest round of economic data:

We are tired of writing today that this is the weakest reading since sometime in the early 1980s, but this is broadly true of jobless claims, consumer sentiment, manufacturing activity, and home sales today. No doubt we will be writing this about the decline in GDP in the fourth quarter when the data are released in January.

The economics team at Deutsche Bank (DB) thinks worries about deflation are overblown, especially given the efforts of governments to flood the economy with cheap money and stimulus. However, they warn that the result of this aggressive government response could be higher levels of public debt and inflation in the future.

Societies are likely to be willing to take the risk of higher inflation in the longer-term if this reduces the risk of deflation and depression at present. Central banks will not be able to operate against such strong social preferences.

Central bankers might like to fight inflation after the crisis ends, but they’ll be limited by the huge levels of national debt the crisis created.

Brian Gardner of Keefe, Bruyette & Woods (KBW) assessed the impact of the latest announcements from the outgoing Bush administration:

Yesterday, President Bush signaled that more inventions could be on the way and Sec. Paulson reiterated that message this morning and we think that could help calm the markets for the rest of the transition period before the Obama administration takes office.

Ed Yardeni of Yardeni Research:

I no longer believe that Muddling Through is a viable economic scenario. It’s either going to be a very long and deep recession (a.k.a., a depression) or a V-shaped recovery. Washington’s policymakers have been behind the curve, as the saying goes. Now there is some reason to believe that they might get ahead of it.

Here is more on Washington’s latest efforts.

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The mergers-and-acquisitions market has slowed down so much it’s almost in reverse.

According to Thomson Reuters, the size of M&A deals cancelled in the fourth quarter now almost matches the M&A activity actually completed. So far in the fourth quarter, $322 billion in M&A deals have been cancelled this quarter, vs. $362 billion in deals completed.

A main reason for the spike in cancellations is last week’s news that BHP Billiton withdrew its $188 billion hostile buyout offer for rival mining giant Rio Tinto.

This slowdown in M&A gives a big headache to Wall Street firms trying to make their way through the credit crunch. If the BHP deal had been completed, its financial advisors were slated to receive an estimated $140 million in fees, and Rio Tinto’s advisor would have netted $162 million. Because investment banks are only paid if a deal is completed, they now get nothing.

The main thing freezing M&A activity is the same thing responsible for today’s 680-point fall in the Dow and 9% plunge in the S&P 500 and Nasdaq: Massive uncertainty.

Corporate executives, like investors, simply don’t know how bad conditions will get, so they’re holding onto their cash. A smart acquisition at this time (just like a smart stock purchase) might scoop up a great value that could pay off long-term. But that’s a risky move when you don’t know if you might need that cash for a future need instead. Plus, even if companies were willing to go into debt to finance an acquisition, banks will resist lending money. That’s why U.S. private equity M&A is off 82% from a year ago, according to Thomson Reuters. Private equity investors can’t get financing.

M&A troubles are just one more reminder why Wall Street firms, which looked so wealthy and confident a year and a half ago, look so pitiful now. According to Thomson Reuters: Worldwide year-to-date, securitizations are off 80%, the investment grade corporate debt business is down 23% and high-yield corporate debt issuance has plunged 76%.

Everywhere you look, the business model of the investment bank remains under attack.

Bookmark It

Hide Sites

I did a segment this morning on Retirement Living TV’s Daily Café about gifts that will actually replenish your loved one’s nest eggs. (Some of this advice is my own reporting, and some of it came from an excellent Associated Press story.)

Here are eight recommendations on gifts that keep on giving:

1) COLD, HARD CASH. Times are tough. With the stock market down and unemployment up, some of our loved ones simply need extra cash. Why wait until they ask you for a loan? For estate planning purposes, you can give away $12,000 in cash to each individual in 2008 tax-free. (If you are married, your spouse can separately give away $12,000 to each individual tax-free.)

2) SESSION WITH A FINANCIAL PLANNER. Give the gift of financial security—chances are your loved ones need to get their retirement plan back on track, or maybe they need to get a retirement plan started. Jack Brennan, the chairman of Vanguard Group, once told me he likes to give financial planning sessions to his family members.

Prices vary widely by region. A one-hour session can cost $150 in the Midwest and $500 on the East Coast, so consider combining forces with other family members or friends. Ask the planner to give you something tangible like a gift certificate to put in a box or envelope. The Garrett Planning Network, which features advisers who work on an hourly basis, has certificates starting at $25.

3) SAVINGS BOND. Savings bonds are an ideal way to teach kids about investing. To make the gift more exciting, call ahead and ask if a bank representative can sit down to talk with the child about how savings bonds work. Some banks may even offer a behind-the-scenes tour.

And the actual gift certificates are so pretty—one parent I know actual framed a savings bond for her son as a gift. It’s also wise to offer up a safe place to stash savings bonds—either in a safety deposit box, or even a safe.

4) BROKERAGE ACCOUNT. With all that’s going on in the stock market, another way to help kids learn about investing is to set up a custodial brokerage account.

As with any financial gifts for kids, you’ll need to confer with parents first. In this case, you may have to because you’ll need personal information including the child’s Social Security number. At Charles Schwab, there are no fees for opening an account with as little as $100.

You would have control over a custodial account, but the child could track its performance online. The beneficiary becomes the account holder at age 21 in most states.

Bestowing a brokerage account on adults is trickier, because their signature will be required. This can be addressed by offering to accompany the recipient to open an account and start them off with a small sum of money.

5) ROTH IRA. A good option for young people who are just entering the work force is a Roth IRA. A Roth IRA may be preferable gift to a traditional IRA because withdrawals of contributions (not earnings) are generally tax and penalty free. A single person who earns less than $101,000 can contribute up to $5,000 in 2008. However, traditional IRAs could benefit people who earn more than that since contributions could be tax deductible.

As with brokerage accounts, you’ll need personal information for the beneficiary if you’re opening a custodial account. Beneficiaries also need to earn a paycheck to be eligible.

6) 529 COLLEGE SAVINGS PLAN. Another option is contributing to a 529 college savings plan, which offers significant tax-breaks for educational expenses. If you want to ensure your gift is put toward college, make the check out to the plan.

Grandparents can open an account under their own name to maintain control of the funds. Even better, more than 30 states offer a tax deduction for a 529 investment.

Another way to ensure the money goes into a 529 plan is to send a gift through FreshmanFund.com, which charges a 5 percent fee to facilitate donations to 529 plans. If recipients don’t have a 529 plan set up yet, the site holds the money until they do.

Why it is good for your children or grandchildren or other loved ones: You are saving for their future—and advisers recommend investing now since the stock market is on sale, and you’ve got a long time horizon

To research 529s, my favorite site is SavingforCollege.com, which tracks the performance of 529 plans across the country.

7) CHARITY CHECKS. Charity Checks giving certificates give you get the tax deduction, and then you give the gift to friends or family members and let them decide which of their favorite charities to support. Charity Checks come in various denominations and can be cashed by any one of the more than 800,000 charities in the United States. The certificates can be custom-printed to include a special message, so there is something tangible to give.

ORGANIZE A GARAGE SALE. If grandma’s basement (or garage) is impossible to navigate, consider offering your time to organize a yard sale. She can donate the proceeds to her favorite charity, and you can look forward to a clutter-free visit.

Do you have any other ideas to replenish a loved one’s nest egg? Share ‘em!

Bookmark It

Hide Sites