07 de Octubre de 2008

Una lectura, en el medio de la tormenta

Seguramente a muchos de ustedes les estará pasando lo mismo que a mí. En las últimas semanas, me ví abrumado de información respecto de la crisis financiera global. Los medios se están haciendo una “panzada” con las noticias con noticias super amarillistas. Si bien no tengo para nada ánimos de restarle importancia a la crisis, creo que tanto amarillismo marea.

Hable con amigos que están invertidos en diversos instrumentos. Algunos amigos hiper conservadores (preocupados que no se fundan los bancos, ni les hagan un corralito), otros no tanto (preocupados que no les defaulteen los bonos con los que estan dispuestos a morir con las botas puestas) y otros hiper agresivos (que han invertido en instrumentos sofisticados y estan prendiendo una vela). Escucho diversas opiniones por todos lados, muchas de ellas con consejos opuestos.Hablo con mis asesores financieros (que se me han acercado como moscas en el último tiempo) y llegué a la conclusión que todos están mas mareados que “pedo en bombacha de gaucho” y que NADIE SABE NADA. Todos siguen al rebaño y van repitiendo lo que otro va diciendo. Igual que los diarios y muchos blogs.

Llegué a escuchar, que en estos momentos conviene apostar como en la ruleta, al rojo y al negro al mismo tiempo para no perder y rezar que no salga el cero (Black swan).

Dentro de toda la “confusión” de noticias (y pánico en la gente), por un momento pensé en parar de leer, porque me estaba mareando e iba a perder la perspectiva macro. Pero por otro lado, dije, que no puedo quedar desinformado de los lunes/viernes negros…

Pero, de todo lo que estuve leyendo y escuchando, lo que más me resultó razonable es un post de Fred Wilson (Director de Union Square Ventures) donde analiza la  historia del panico del 1873 (a diferencia de la crisis del ’29 que dice que no tiene nada que ver con lo que vivimos ahora) y comenta que es lo que cree que va a venir.

A continuación la transcripción literal del post (Perdón que está en inglés), pero creo que vale la pena leerla:

What To Look For Next

The Treasury, the Fed, and Warren Buffet have been the only buyers in this meltdown and have been largely focused on financial companies. Meanwhile the rest of the market has gone down 30% year to date and very few, if any, stocks have been spared.

What do we look for next? Does the market just keep going down endlessly? What will bring this to an end? Clearly not government intervention. While possibly necessary (we’ll see), the splurge has clearly not put an end to selling in the markets.

We need to see more Warren Buffets stepping up. And my bet is they will eventually. And they will be corporations buying back their own stock, large private equity and buyout firms doing going private transactions with all equity cap structures, and possibly foreign companies seeking bargain acquisitions in the US.

What’s interesting, as Howard pointed out repeatedly on twitter yesterday, is that corporations have not yet stepped up to stock buybacks.

Microsoft announced last month that they plan to buy back $40bn in stock over the next five years. They have $25bn in cash and short term investments and are currently earning about $20bn per year in operating cash flow. Microsoft’s stock is trading at about 11x operating cash flow.  It’s market cap is $227bn and institutions own 60% of it, meaning there is about $130bn of $MSFT stock in the hands of institutions. If Microsoft wanted to, at the current price, it could purchase all $130bn of that stock from institutions with its current cash balance plus operating earnings over the next five years. If Microsoft is confident about its business prospects going forward, it should be an aggressive buyer of its own stock at these levels. And maybe it is. It’s stock is only down 3% in the past month while the S&P has been down 15%.

What about Google? $GOOG is down almost 50% year to date and the company is valued at $115bn. Institutions own roughly 60% of its stock, roughly $70bn of it. Google is earning about $7bn of operating cash per year and has $13bn of cash and short term investments on hand. So it would take Google longer to buy back all the stock institutions own, more like eight to ten years. But still, that’s a lot of purchasing power and the market is asking the same question Howard did yesterday.

The silence of $goog into this meltdown is just as deafening with all their cash.  I am not going to be run over.

In bad bear markets, like we are in, investors look to corporations to defend their stock and Google has not yet shown an interest in doing that. That’s something to look for. When you net out Google’s cash, it’s trading at $100bn, a mere 12x operating cash flow. That’s value territory.

Let’s look at News Corp. Rupert Murdoch’s company, the best managed media company out there, is down 56% in the past year and is now trading at a mere six times operating cash flow. News Corp is also about 60% institutionally owned. So that means Rupert could buy out his external investors with four years of his cash flow. But we have yet to see him do that.

I could go on and on. Apple is worth $67bn after you back out the $20bn of cash they have on hand. It earns over $5bn a year. That’s another value stock right there.

And those are some of the best US companies right there. The list goes on and on. Starbucks trades at 7x cash flow, Walmart trades at 10x cash flow, AT&T trades at 4x cash flow, and Comcast trades at 6x cash flow.

You could buy all of America’s best corporations for somewhere around eight to ten times cash flow. Someone is going to start doing this.

Maybe it will be the large private equity and buyout firms who have been stuck on the sidelines while the debt markets have been closed for the past year. If good companies get cheap enough, they can buy them with their cash, without debt, and own them for however long the markets take to work the issues out.

Or foreign companies will come in. I am particularly interested in the asian companies. Will a company like Dell be an attractive acquisition for an asian manufacturer flush with cash? It’s only trading at 5x cash flow after you back out the cash on hand.

I read this history of the panic of 1873 yesterday after seeing a twitter post by Mary Hodder that referenced it. It’s worth reading. There are two really interesting points in it. The first is that panic was precipitated in some measure by the US’ emerging prowess as a player in the global economy and a lower cost one at that:

Wheat exporters from Russia and Central Europe faced a new international competitor who drastically undersold them. The 19th-century version of containers manufactured in China and bound for Wal-Mart consisted of produce from farmers in the American Midwest. They used grain elevators, conveyer belts, and massive steam ships to export trainloads of wheat to abroad. Britain, the biggest importer of wheat, shifted to the cheap stuff quite suddenly around 1871. By 1872 kerosene and manufactured food were rocketing out of America’s heartland, undermining rapeseed, flour, and beef prices. The crash came in Central Europe in May 1873, as it became clear that the region’s assumptions about continual economic growth were too optimistic. Europeans faced what they came to call the American Commercial Invasion. A new industrial superpower had arrived, one whose low costs threatened European trade and a European way of life.

But possibly even more interesting was who emerged as the winners of the panic of 1873:

The long-term effects of the Panic of 1873 were perverse. For the largest manufacturing companies in the United States — those with guaranteed contracts and the ability to make rebate deals with the railroads — the Panic years were golden. Andrew Carnegie, Cyrus McCormick, and John D. Rockefeller had enough capital reserves to finance their own continuing growth. For smaller industrial firms that relied on seasonal demand and outside capital, the situation was dire. As capital reserves dried up, so did their industries. Carnegie and Rockefeller bought out their competitors at fire-sale prices. The Gilded Age in the United States, as far as industrial concentration was concerned, had begun.

We have yet to see the Carnegies, McCormicks, and Rockefellers of China, India, Russia, and the Middle East emerge as capitalists on a global scale. But with prime assets like I mentioned above on sale at bargain basement prices, it’s just a matter of time until we will.

Eventually this market meltdown will be over and stability will return. But things will not be the same. There will be big winners and big losers. We have already seen many of the big losers emerge, but we have not yet seen the big winners emerge. I think we know where to look for them though.


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