On Friday, we suggested consumer confidence would improve with a "quick and favorable" outcome in a war with Iraq. Well, it's too soon to say that the outcome will be favorable per se, but there's little doubt that what happened over the weekend qualifies as "quick."
Following some futile last-minute diplomatic efforts, President Bush signaled today that the U.S. and its allies are preparing for an imminent war. Many defense experts say they believe allied forces will absolutely overwhelm Iraq's military, and that the war should be extremely fast. We'll see. But the participants in the stock market decided to take this at face value, sending the broad indexes spiraling upward by well over 3% for the second straight session.
Does that mean war is actually good for the markets? Read on.
In today's Motley Fool Take:
- InterDigital, Ericsson Settle Suit
- Quote of Note
- Wal-Mart Plays Hardball
- Shameless Plug: Refinance and Save
- Mutual Fund Costs Climb
- Discussion Board of the Day: Mutual Funds
- Quick Takes: Pfizer, Tyco, European Union, more
- And Finally...
Ericsson will pay $34 million to cover its sales through the end of 2002 -- a tremendous boost for InterDigital, which had revenues just above $27 million in the last quarter. In addition, Ericsson will pay a $6 million annual license fee to InterDigital, plus a royalty on each product sold through 2006.
InterDigital claims patents on several key components in GSM, a leading, high-speed mobile communications standard, and has been fighting for years to have its patents recognized and royalties paid. Some pundits were dismissive of InterDigital's claims in years past, saying it was seeking to get onto the same gravy train that took Qualcomm
By January 2001, InterDigital traded as low as $4, which means that even prior to the most recent agreement, the stock had more than tripled -- and in a miserable market, especially for telecommunications equipment companies.
On the other hand, unless an investor has some deep knowledge about the merits of a case, counting on a legal judgment as a key component to an investing thesis isn't recommended. Even if the case seems cut and dry, the law works in strange ways.
After news of the agreement, Ericsson's stock surged as well -- up in early trading by as much as 17%. How can this be? This suit was scheduled to go to trial in May, and the potential losses for Ericsson due to a bad outcome were as high as billions. This agreement makes it unlikely that other holdouts, including Nokia
So, the $34 million paid with this agreement could spiral much higher. These are royalty payments, which have no cost of goods associated with them. As a result, they are almost pure profit to InterDigital. For a small company, getting more than its last quarter's revenues in a lump-sum settlement, if nothing else, makes for a great day.
"You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right." -- Warren Buffett
According to reports out of London, Wal-Mart's been buttering up Safeway's top shareholders in an effort to grab a substantial piece of the company.
Under curious U.K. governmental rules, Wal-Mart is the only bidder still allowed to buy Safeway shares, and the retailer's taking advantage of the opportunity. It reportedly approached several of the top 10 shareholders, which collectively own 54% of Safeway, offering a premium for their shares. Wal-Mart would need a 29.9% stake in the company to fend off a takeover.
Wal-Mart's window for buying up shares will soon shut, once British antitrust regulators begin their expected inquiry into the company's bid next week. Wal-Mart, along with at least two of the other Safeway suitors, is likely to be subjected to a months-long investigation. If the company doesn't succeed in wooing shareholders, its entire fate will rest with regulators, who must approve its bid.
British supermarket firm William Morrison still faces the fewest regulatory hurdles in the quest, and that's the bid Safeway itself purportedly supports. However, the possibility of purchasing a big stake in Safeway while also providing a generous all-cash offer to buy the entire company makes Wal-Mart a formidable competitor. Heck, just the all-cash bid and Wal-Mart's deep pockets make it a player.
For now, the situation's still in the hands of the government, as much as Wal-Mart wishes it weren't.
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Mutual fund investors can't catch a break these days. Not only have they suffered through three straight years of equity fund declines, but now they're being charged more for the right to do so.
A new study from the U.S. General Accounting Office reveals that the average management expense for the average stock fund has increased from 0.63% to 0.7% of the fund's assets over the last two years. In other words, the fund skims an extra $70 off the top of every $100,000 investment over the course of the year. That's salt in the open wounds of poor market returns.
What's worse -- these fees don't include day-to-day portfolio trading costs. Given the market volatility and the fact that funds are selling off assets to cope with waves of redemptions, the burn of the churn stings.
How could this happen? It's simple, really. Many mutual fund companies have tiered management fees. As the fund asset base grows, management fees decline based on the total asset value. Capital gains and inflows of new money, in theory, help lower the fund's expense ratio. But when net asset values plunge and folks pull out what's left of their money, expense ratios inch higher.
Sometimes, it's more than just inches. At Frontier Equity, the costliest fund in the Morningstar database, annual expenses have risen to a staggering 32%. Tack on an 8% front-end load for the privilege of having your money squandered this way, and it's no wonder the fund's assets have shriveled to a paltry $50,000.
While this is an extreme case, many stock mutual fund investments have raised expenses since you first bought in. Read the latest fund prospectus, which details what your managed money is costing you. And check out the Fool's Mutual Fund Center for more advice and information.
In this market, you don't want to add insult to injury.
If you enjoy our Mutual Fund Center, care to get interactive? Want to discuss the latest fund trends and opportunities with your fellow Fools? Is it right that fund fees are rising, while the market is declining? All this and more -- in the Mutual Funds discussion board. Only on Fool.com.
Things are tough all over. European Union leaders now say economic growth in the 12 countries that use the euro currency should be about 1% in 2003, well off their earlier 1.8% forecast. What's more, that doesn't take into account any ill effects from a possible Gulf war.
In local news, county agent Hank Kimball threw a party for his wife's birthday Saturday evening. The total bill came to $183.67, and that included the $10 tip for the singing telegram stripper.
Today on Fool.com:
- For updated stories throughout the day, bookmark our ever-changing News section.
- Weathering Iraq's Storm: Whitney Tilson offers advice in a time of geopolitical and financial instability.
- Living in Sin: More unwed couples are doing it -- and reaping the financial rewards of married life.
- Rick Munarriz says the quiet treatment hurts investors, who need profit guidance.
- Read financial statements like a pro after this preview of our latest seminar.
- House Need New Digs? Weak sales in the furniture sector promise low prices for consumers.
- Isis Cancer Drug Disappoints: Phase III trials fail to meet objectives, but studies continue.
- Eddie Bauer parent Spiegel files for bankruptcy protection.
- In Fool's School, take control of your finances and save money with this guide to using online brokers.
Bob Bobala, Robert Brokamp, Mathew Emmert, Jeff Fischer, Tom Jacobs, LouAnn Lofton, Bill Mann, Selena Maranjian, Rex Moore, Rick Munarriz, Matt Richey, Jackie Ross, Reggie Santiago, Dayana Yochim