Will satellite radio survive bankruptcy?

There is something I want to address that long-term readers or those who are familiar with my past might be aware of. I was a stock broker prior to being involved with investor relations and the formation of my company M V Consulting, Inc. And in those days I made many recommendations or reviews, but I never lied. Which is why I left the industry on my terms and without ever receiving a complaint.

But some may be familiar with some documents I have written since that time discussing one of my favorite positions, SIRI – Sirius Satellite Radio. I was very familiar with the entire industry of satellite radio, being involved with Sirius back when it was still called CD Radio and had yet to purchase the frequencies from the Government.

News has now come out that the company, Sirius XM Radio is in discussions to go bankrupt under Chapter 11. The stock is currently priced at around 11 cents.

I will not give a recommendation on this stock, as I am not a broker. But what I will do is share my thoughts on the industry.

Back in the early 90’s the concept of a radio format in which people would pay a subscription was unheard of. In fact I had many debates with then-fellow brokers over the merit of the concept. I am sure that many brokers in the early stages of cable television had the same battles. The first shares I bought in the company were for a client, under his recommendation, at $6.

I learned about the company, and the marketplace it hoped to enter. Facts about the industry include:

Regular radio has poor transmission
Range of any regular station is highly limited
Travelers cannot listen to favorite programming outside of a local region with few exceptions
There are some 100 million drivers in the nation, who spend on average roughly 2.5 hours commuting to and from work to home every day.

These facts and many other conditions in the economy helped raise the stock to $65 back then. To my knowledge that was the highest sale of any share of the stock ever, and it occurred in the after market.

Since that time the company has been plagued with rumors of bankruptcy or outright failure.

The stock has fallen in a similar manner to what is happening now before. And previously I thought it was an extreme buy. Far smarter investors and institutions had placed hundreds of millions into the debt and stock purchases.

But the economy was good then. Or at least better than now.

I still like the concept of satellite radio. I think it is a fact of the future, much like cable. And I envision television and/or on-demand movies being a future capability. But the current economy, and the addition of hundreds of millions in debt are serious problems.

It’s no wonder that 24% of the shares are currently being shorted. The market smells blood, in an economic vortex of pain. And with $1 billion in debt that needs to be repaid in a year where Democrats are hurting the economy worse than it already is – in my opinion – it has a daunting task in front of it.

So the question is can the company survive a Chapter 11 filing and come out the other side with a value?

Maybe. If the economy does not breach the levels of unemployment seen in the 80’s. If inflation does not roar like a lion. If any portion of the stimulus plan works better than most fiscal conservatives believe.

People will still need and drive cars. They will still have to commute long hours. And they will need entertainment for those trips. And the satellites and equipment already out there is an asset for the future. It just might not be for Sirius XM though.

So I will say simply this. As most brokers will state, a stock trading for pennies on the dollar is a gamble that something positive will happen before the company folds. If you are right you make a huge percentage gain, if you are wrong you lose everything. Some companies are worth that bet, others are not.

My ultimate opinion will remain my own. I will not make a recommendation. Qualified investment advisors familiar with individual investor needs are best to speak with on this matter.

Only one thing is always true in the market.

“Bulls and bears make money. Pigs get slaughtered. Never be a pig.”

Looking across the pond to ride the bull

Over the years that I spent as a stockbroker I learned that you should never get so tunnel-visioned as to only see one aspect of a market. I’ve known many brokers that solely focused on technology, or banks, and so on. When their sector was in trouble, they and their clients had little safe haven until the market turned. Few things are as troubling as being over-weighted in a sector the market hates.

Conversely I have known brokers that were able to see opportunities driving down the L.I.E. (Long Island Expressway) – he noted that over a couple of months a bank with little exposure in the northeast was suddenly increasing it’s advertising and deduced they were poised to start making mergers and enter that market and was right. I have even seen brokers look at an industry and see the future potential. Such as with breakthroughs with various drugs, or the growth of the internet back in the early days of AOL.

I even saw the potential of satellite radio back when Sirius Radio (then called CD Radio) first got its FCC license for the frequency they use. [I did not get the pricing exactly correct at various points in the time I recommended that stock, I have to be honest.]

So in that vain of thought I occasionally watch what is happening across the pond and the globe, even though I am no longer a broker. And I am noticing that over in London there is an interesting wave of commonality that is unusual to me.

Lately there have been a lot of similarity in the British and American markets, which is beyond the usual trend. Of course there are many reasons for this. The similarity in our systems of government, the shared culture and past. The good will between the nations and the numerous multi-national companies that we share.

Now with all this said I have to wonder what this synchronism of market activity will mean when weighed against the advance of the Euro and the European Union? Will the effects of higher oil prices, and lower levels of alternative fuel sources trigger an adverse effect on London, and thus New York? Will the ripple effect of high transportations costs for British and American goods hasten the decline of the Dollar and Pound? And if this is correct, how long before such an effect is seen in London and then Wall Street?

So I suggest that for those looking for the next phase of this current market cycle here in the U.S. the place to look may not be in the American markets. Look across the pond to our cultural cousins and look at the big picture. Who knows what you might glimpse.