Elon Musk has turned Twitter into dead money: Morning Brief
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Monday, July 11, 2022
Today’s newsletter is by Brian Sozzi, an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
As my career has soldiered on, I have come to terms with one thing: rich, powerful people are going to do whatever they damn well please.
The reason for that is pretty simple — they have the money, connections, and the ruthless aggression to foster whatever reality they so desire.
This might sound cynical, but I have seen it time and time again. And now, everyone is seeing it firsthand with the world’s richest person, Elon Musk, backing out of his $44 billion deal for Twitter late on Friday.
Musk is terminating the merger agreement with Twitter because of what his team believes have been “material” breaches of multiple provisions in the agreement. Some of those provisions appear to include Twitter’s recent decision to can about a third of its recruiting team and not providing Musk with what he views as accurate data on “bots,” or fake accounts.
Twitter chairman Bret Taylor tweeted the company will take this to the courts to get Musk to close the deal or have him pony up the $1 billion breakup fee. Taylor declined to comment to me on the unfolding series of events. On Sunday evening, Bloomberg reported that Twitter has hired the legal heavyweights over at Watchell, Lipton to sue Musk.
A spokesperson for Twitter declined to make CEO Parag Agrawal available for an interview. (A quick aside: Agrawal has been bizarrely quiet since the merger news hit and it would be good for him to show some outward leadership to rally the troops as his company is essentially burning down to the ground.)
“This is a ‘code red’ situation for Twitter and its Board as now the company will battle Musk in an elongated court battle to recoup the deal and/or the breakup fee of $1 billion at a minimum. We see no other bidders emerging at this time while legal proceedings play out in the courts,” Wedbush analyst Dan Ives said in a note to clients following Friday’s news.
Ives cut his price target on Twitter to $30, and we expect other analysts on the Street to make similar moves this week.
To that end, here are eight reasons why Twitter’s stock is probably dead money for the foreseeable future following Musk’s iron fist slamming down on the social media platform:
Wall Street won’t trust Twitter’s operating metrics in light of the fake account debate.
Twitter’s advertising business will be hurt for a while due to Musk’s involvement.
Investor focus will return to Twitter’s subpar operating performance versus Meta (META), Snap (SNAP), and TikTok.
The talent drain has opened at Twitter amidst the Musk debacle, impacting future product development.
There is a growing lack of confidence in new, unproven CEO Agrawal.
Twitter is now locked in a costly long-term court battle with the world’s richest person, which is not a great place to be.
No other bidders are likely to appear. For years, there was a view from investors that Twitter would eventually be acquired. That has to be completely removed from the equation.
Musk is likely to dump his nearly 10% stake in Twitter, which would pressure the stock price. Just the potential for this happening could weigh on the stock.
In one fell swoop, Musk has singlehandley destroyed a public company. Destroyed it because he has the money, connections, and the ruthless aggression to do it.
The blunt truth is Musk probably doesn’t give a damn that he has left a platform used around the world in utter shambles. It comes with the territory with people like Musk.
Now, if this disaster is good news for anyone, it could be Tesla (TSLA) shareholders.
Tesla stock has lost nearly 30% since Musk announced his deal to buy Twitter, and Ives thinks this deal going away could offer a relief rally for shares. The looming court battle between Musk and Twitter, however, will likely leave the Street wary about getting too fired up for either company’s prospects in the months ahead, in Ives’ view.
Happy Trading…and we wish you well trying to come back from the abyss, Twitter.
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American Weed Stocks Are Cheap. They’re About to Get a Sales Bump.
However bad the year has been for most stocks, it has been especially harsh for state-licensed cannabis sellers.
In just the past month, the
AdvisorShares Pure US Cannabis
exchange-traded fund (ticker: MSOS), which tracks America’s multistate operators—or MSOs—fell 25%, while the
How Do Mega Backdoor Roths Work?
A mega backdoor Roth is a unique 401(k) rollover strategy that’s designed for people whose incomes would ordinarily keep them from saving in a Roth Individual Retirement Account. The advantage of using a Roth IRA to save for retirement is being able to make tax-free qualified withdrawals. But not everyone can contribute to these accounts; higher-income earners are excluded. That’s where the mega backdoor Roth comes into play. If you have a 401(k) you’d like to roll over, you could use this strategy to enjoy the tax benefits of a Roth IRA without having income be an obstacle.
Make sure you’re taking advantage of every opportunity to maximize your retirement assets by working with a financial advisor.
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Single filers: MAGI of $125,000 or less
Married filing jointly: MAGI of $198,000 or less
Head of household: MAGI of $125,000 or less
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What Is a Backdoor Roth?
A backdoor Roth offers a work-around for people whose incomes are above the limits set by the IRS. When you execute a backdoor Roth, you roll money over from a traditional IRA to a Roth account. This way, you won’t have to pay taxes on your retirement savings in the Roth IRA when it’s time to make withdrawals. And you’re not subject to required minimum distribution rules either.
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How a Mega Backdoor Roth Works
A mega backdoor Roth is a backdoor Roth that’s designed specifically for people who have a 401(k) plan at work. This type of backdoor Roth allows you to contribute up to $38,500 to a Roth IRA or a Roth 401(k) in 2021. This is in addition to the regular annual contribution limits the IRS allows for these types of accounts. To execute a mega backdoor Roth, two conditions have to be met. Your 401(k) plan needs to allow the following:
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There are three key benefits associated with executing a mega backdoor Roth. First, you can contribute significantly more to a Roth IRA upfront this way. For 2021, the contribution limit is $38,500 on top of the regular annual contribution limit and any catch-up contribution limits that may apply.
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So who is a mega backdoor Roth right for? You may consider this move if you:
Have an eligible 401(k) plan at work
Have maxed out traditional 401(k) contributions
Are not eligible to contribute to a Roth IRA because of your income
Have additional money that you want to invest for retirement
Want to leverage the higher Roth IRA contribution limits allowed by a mega backdoor rollover
Talking to your financial advisor can help you decide if a mega backdoor Roth makes sense. And your 401(k) plan administrator should be able to tell you if it’s possible, based on your plan’s guidelines.
Mega Backdoor Roth Alternatives
If you can’t execute a mega backdoor Roth because your plan doesn’t allow it, there are other ways to increase your retirement savings. For example, you could try a regular backdoor Roth instead. This might be something to consider if you still want to enjoy the tax benefits of a Roth IRA but your plan doesn’t fit the criteria for a mega rollover. You could also elect to make Roth 401(k) contributions to your retirement plan at work. This way, you still get the benefit of contributing after-tax dollars and making tax-free withdrawals. You’d be subject to the regular contribution limits and you’d still have to take the required minimum distribution. But that may outweigh the value of tax savings in retirement.
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A mega backdoor Roth strategy could work well for higher-income earners who want to take advantage of Roth account benefits. There are certain rules that need to be followed to make it work, however, so you may want to talk to your plan administrator or a tax professional before going ahead. Keep in mind also that even if you can’t complete a mega backdoor Roth rollover, you still have other options for growing retirement savings.
Tips for Retirement Planning
If you’re saving for retirement in a 401(k) or IRA, pay attention to the fees you’re paying. For instance, check the expense ratios for each fund you’re invested in to understand how much you pay to own that fund on an annual basis. You can then compare that to the fund’s performance to determine whether the fees are justified. Also, consider any administrative fees you might be paying and how those affect your net returns.
Consider talking to your financial advisor about a mega backdoor Roth and whether it could be right for you. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool makes it easy to connect with professional advisors in your local area. You can get your personalized recommendations in minutes just by answering a few simple questions. If you’re ready, get started now.
Photo credit: ©iStock.com/designer491
Alibaba Is Tumbling. Chinese Tech Stocks Have a New Headache.
Chinese tech stocks were tumbling on Monday as two of the embattled sector’s leading players faced fresh fines from market regulators over disclosure rules.
China’s State Administration for Market Regulation announced Sunday a wave of penalties for improperly reporting past deals, in breach of competition law.
(ticker: BABA) and
(0700.H.K.) were among the companies fined as a result.
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