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What To Look For Next

Started by fredwilson · 1 month ago

103 comments

  • A T

    1 month ago

    Good article and good points. Yes and the winners will be the guys that orchestrated this mess in the first place along with the corporations in the know. It's not time for them to pounce yet but they will if the government doesn't buy everything first. Can you say Oligopoly and Dictatorship? The wise know that it's best to preserve capital and probably in other currencies until this collapse is orchestrated. They can then come back in (converting their foreign currencies into the new one or into ultra cheap assets) and buy on the cheap.
    reply
  • sean808080

    1 month ago

    Thanks for this sober look at the likely paths that this financial storm will take. The media is a novel factor that adds to the s/n ratio. The panic and fear that are natural reactions to uncharted territories are only reinforced by the message that our Capitalist ship is sinking and something must be done NOW.
    reply
  • jasonkolb

    1 month ago

    They HAVE to clear the credit markets before growth can resume. This is a TRUST problem, NOT a liquidity problem. Nobody knows who's solvent, so nobody will lend to anybody. That's at the root of this entire mess, and it all goes back to not enforcing existing regulation and getting rid of Glass-Steagall.

    This means that they HAVE to force all the off-balance sheet stuff back onto the balance and not permit these Level III asset shenanigans. Our financial markets are the wild wild west right now, can you blame anyone for taking their ball and going home?
    reply
  • abnerg

    1 month ago

    Nice piece. My only worry is your assumption that 5 to 15x earnings equals value. Is that a ratio that has been historically consistent or one that might decline?
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  • fredwilson

    1 month ago

    Its a proxy for the present value of future cashflows. And not an exact one. The higher interest rates are, the lower that ratio should go

    I really need to suggest a good corporate finance textbook but I am drawing a blank on the one we used at wharton. It was really good
    reply
  • druce

    1 month ago

    brealey and myers?

    as a non-MBA I better not be the first one to answer LOL
    reply
  • live music map guy

    1 month ago

    count me confused too - I'd appreciate a primer on it.

    From my recollection, what counted for value was multiples of earnings, not just cash flow, which sounds like bubblespeak ca 1999. Cant companies be profitable - or lose money - with pos cash flow?

    As for Google, they are so reliant on web advertising income that they are at huge risk right now. My sites have seen steady pageviews but a distinct dropoff in eCPM over the past month.

    I can well remember in 2000, how rapidly the bottom dropped out of online ad dollars. I had a site back then that was earning just fine and suddenly my advertisers all stopped sending checks, because nobody was sending THEM checks.

    Disclosure: short GOOG @399 http://twitter.com/ManFmNantucket

    Conundrum: trying to teach HS-age son and kids about stock market.
    Need better tools; is CoVestor appropriate?
    reply
  • Marc Vermut

    1 month ago

    Actually, it's all about cash. In simplest terms, the value of a company (or financial instrument) is the present value of its future cash flows. That's because cash is (theoretically) distributable and a measure of wealth and value, and earnings is a measurement tool of performance.

    A multiple is the inverse of a discount rate applied to future cash flow (much more complicated in real practice). Different industries use different multiples as more accurate indicators of value (some use sales, some use EBIT, some use EBITDA).

    And, Fred, at Wharton, we used Brealey and Meyers, though my textbook is now very old, and sitting in my apartment.
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  • fredwilson

    1 month ago

    I just went to look on amazon for Brearly and Myers and it is apparently out
    of print

    That was an amazing text book
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  • live music map guy

    1 month ago

    sure, I can see how cashflow EBITDA matters more to an angel or VC ; they can envision taking an unprofitable co and via M&A scaling the infrastructure costs etc.

    But when I read 'this is value territory' - for the stock investor in the street or institution, is still thinking of the traditional P/E ratio, yes? http://en.wikipedia.org/wiki/PE_ratio

    From that point of view, GOOG is still 22 P/E vs historical average where 15 (avg) and below is 'value territory'. After the 99 bubble, investors returned to this definition of 'value', from what I recall, for a while. But financial memory is short.

    GOOG is 60% institution owned, but it's regularly 'gapping down at open', e.g. opened at 330 today, a -10 drop overnight. This can mean institutions are selling overnight or at least not supporting it. Institutions (big blocks) don't seem to be supporting on the Level II trading view, either. Anyway the important thing is not to *lose* money, that's what stop-losses are for!
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  • fredwilson

    1 month ago

    I think reported earnings are an accountant's mirage

    I like to stick to the amount cash is increasing, period

    The numbers I posted were "back of the envelope" because I try to write my posts in 30 mins or less

    And from what I hear from inside $goog and what I see in the comscore numbers, google's business is hanging in there better than most other advertising businesses I have visibility into
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  • jamlin423

    1 month ago

    Yeah! I never get the idea of accrued earning and asset amortization. It brings more uncertainty than predictability, while most valuation models require backing these non-cash items out of the picture. What's wrong with straight up cash-basis reporting?

    One interesting fact is that if you pull out 1-mo chart of goog yhoo and nasdaq:
    http://finance.google.com/finance?chdnp=1&chdd=...

    They've basically moved together, which means the market has beaten them down indifferently out of fear. But I do believe goog is going to do better than its peer like Fred said. That's the case, shorting yhoo to long goog might be an even better move than betting on goog alone?
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  • fredwilson

    1 month ago

    Short yahoo, long goog

    Hmm?
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  • jamlin423

    1 month ago

    there's 1 risk though -- yhoo might get acquired. so i'd long some cheap way out-of-money call options to cover that up!
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  • jamlin423

    1 month ago

    My corp finance Professor, Damodaran, from NYU Stern has a great valuation book:
    http://www.amazon.com/Investment-Valuation-Tech...

    You can also download his class materials and watch his web casts for free on his website:
    http://pages.stern.nyu.edu/~adamodar/

    He's one of the best professors I've had!
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  • Damon

    1 month ago

    +1 to the Damodaran books and site. Best practical finance stuff that I've seen. Makes me wish I went to NYU.
    reply
  • jamlin423

    1 month ago

    thank you! the beauty of his site is you don't need to go to nyu at all to learn (almost) everything he has to offer!
    reply
  • Margaret Mountains

    1 month ago

    Valuation has nothing to do with it at this point.
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  • druce

    1 month ago

    lack of buybacks? there's the mother of all a cash crunches going on.

    Since the Lehman and Wamu (parent not bank) debtors got wiped out, anyone who needs access to their money in the next year is putting it in an FDIC-insured bank (not a money market mutual fund), or Treasurys (not commercial paper).

    a CFO who suggests buybacks had better be really flush with cash, or the CEO better question his judgment.

    and if you're really flush, it is king baby. might lots of interesting things you might be able to buy other than your own stock too. and the odds of someone coming after you due to your low stock aren't too high.

    look for not just a splurge but 'shock and awe' including giant rate cut (which is symbolic pushing on the string at this point).

    http://www.nytimes.com/2008/10/07/business/07ma...

    or if not, a depression style credit contraction. then, stock up on gold, guns and bullets and canned goods.

    btw Buffet's talk on Charlie Rose is recommended
    http://www.charlierose.com/shows/2008/10/1/1/an...

    transcript, apparently taken by a partly deaf non-native English speaker -
    http://everythingwarrenbuffett.blogspot.com/200...
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  • fredwilson

    1 month ago

    I agree with your first points but not your last one. I may be naïve but I am not stockpiling anything
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  • druce

    1 month ago

    I'm not stockpiling either because if I trust Helicopter Man to do anything it's bail out early and often, especially considering the alternative.

    I'm not really LOLing either, because the alternative is financial collapse, less liquid companies not being able to make payroll, having no idea who will be next to go belly up, all financial markets totally freezing/collapsing.
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  • tomaswk

    1 month ago

    Didn't you just stock up on Google > http://twitter.com/fredwilson/statuses/939569504

    Update - whoops reading further and saw you mentioned it below and will buy some more at current levels.
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  • fredwilson

    1 month ago

    Yup and plan to buy more when I get around to it
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  • EdsNextInstinct

    1 month ago

    Very insightful. I'd wager you do have a good grasp on where to look for them.
    But I also think the key indicia will be seen by recognizing who has remaining leverage
    to manipulate Washington, albeit behind the curtain, to structure and thus control variables,
    thereby making mass buy backs of their own stock a more sure bet.
    It may be the catalyst, as usual, for the tier below Buffett.
    I just hope it's not another orgy that leads to this point again.
    reply
  • infoarbitrage

    1 month ago

    Fred, the problem with your analysis is that you are assuming static levels of cash flow applied to sharply lower share prices. What the market is saying is that it expects these companies' operating cash flows to plummet. Now one can take issue with the severity of the stock price decline relative to the likely drop in operating cash flow (OCF), but using today's OCF as a yardstick by which it could internally go private is not correct.

    Will we see buybacks emerge from cash cow companies who view an investment in their stock as the highest IRR project in which they could invest? Yes. Will this become a major phenomenon? No. Most companies, in my opinion, will conserve cash, and use it to fund operating projects, not stock buybacks. They will use their resources to continue to expand their platforms cheaply when most things around them are vulnerable and crumbling. Will huge winners emerge from the detritus? Absolutely. But even they will be cautious until it is clearer how much their OCF will decline during the global recession.
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  • andyswan

    1 month ago

    Ratio contraction precedes earnings contraction......the role of markets as forward looking appraisers :)
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  • fredwilson

    1 month ago

    And markets often overshoot

    That's all I am saying

    Roger is right about current cash flow not being equal to future cash flow for everyone

    But there are companies ($MSFT, $AAPL, $GGOG) that could actually grow cash flow in this downturn

    I am not saying they will, I am just saying it could happen
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  • andyswan

    1 month ago

    Totally agree. They are overshooting right now.... http://andyswan.com/blog/?p=102 gives my idea on why.

    Agree opportunity is here and growwing....be picky!
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  • aarondelcohen

    1 month ago

    Fred and Roger: Your respecitve anaylses are really just positions on a continuum relative to the relationship between OCF and how the market is currently valuing the stock. Fred the companies, you mention are highly established blue-chip companies. I think the bigger issue we collectively face is what happens to the smaller companies, particularly the companies who cannot get to profitablity in an advertistng recession. I lived through the last bubble as an internet executive and think it was a healthy contraction in which many companies that really had no sustainable business model and extremely high operating costs were closed.

    While our industry has become more disciplined and there we have seen the operating costs plummet (particularly regarding technology), I fear sales costs have either increased or companies who can't afford sales operations are losing significant percentages of revenue to networks/aggregators.

    Take Yelp as an example. Yelp has had the courage to try and create a new local advertising sales category by building a large sales infrastructure with their most recent financing. Can they hope to get traction in the current climate? Right now, we have issues with timing for these early stage companies. Fred, a few days ago you posted that the companies that have venture partners may have a better chance to survive this cycle by raising additional capital. This is certainly true, but you made no comment as to what the cost might be to the entrepreneur in terms of dilution. These could very well end up being down rounds. USV and its collective portfolio is best served by avoiding down rounds. But down rounds hurt entrepreneurs more than their investors in terms of absolute returns.

    I think its vital that boards and executives talk about what could happen well in advance and that entrepreneurs (particularly those that have not lived through a downcycle) do some scenario planning. This will help the Etsy, Covestor, BuddyMedia teams weather the storm as teams and not adversaries.
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  • infoarbitrage

    1 month ago

    Aaron, I had dinner last night with a group of respected VCs and entrepreneurs where we discussed exactly what you are suggesting. The VCs are still looking at deals but, without question, are focused on supporting their existing portfolio companies. A big question on the table was whether or not VCs spend too much time and resources on mediocre companies and not enough on top performers that can do even better. Another key theme was that financings are getting done, but generally with successful companies that require additional growth capital. Big deals, big valuations, but definitely companies in growth mode and well beyond the start-up phase.
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  • fredwilson

    1 month ago

    Good points roger. But you are assuming the markets are rational in their assessment of future cash flows. I can assure you that the markets are anything but rational right now. And in that disconnect lies opportunity
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  • infoarbitrage

    1 month ago

    Fred, I am assuming nothing of the sort and nothing in my language implies that. I have no idea if the market is rational or not with respect to the projection for future cash flows. My point is that you are using metrics that are in themselves flawed, e.g., Comcast and News Corp at 6x is not correct, because the denominator is wrong. How wrong I don't know and nobody does. I just know it is wrong. You think it is less wrong than the market is perceiving it, and that is fine. But you are taking a very distinct view that contains very significant risk, and you and everyone else should know that. The fact that your bet might be right is neither here nor there with respect to my comment.
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  • Kenosha_Kid

    1 month ago

    Exactly right.

    To take this one step further, the absence of stock buybacks in the market is evidence that CFOs are themselves concerned about future operating cash flow, and probably do not believe their stocks to be overvalued.
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  • jamlin423

    1 month ago

    Plus, by conserving their dry powder, they're also leaving the option open to snap up smaller competitors at a steal! EBAY/YHOO/AMZN at $10B, anyone?
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  • andyswan

    1 month ago

    I think it's difficult for anyone to step in with a big bucket of cash here given the uncertainty of our Government. Right now we do not know:

    1) Will the Government of the United States be printing even more money in a "splurge #2"?

    2) Who will be the leader of the Government of the United States?

    3) What will the tax rates likely be on my investment 3-5 years from now?

    4) Is the Government of the United States going to come in with a heavy hand in regulating the business I'm looking at?

    This is why it's important for our government and especially our leading candidates to stop talking about Keating/Ayers and start talking SPECIFICS about what they each plan to do if elected.

    The last thing we need here is paralysis because of unknown GOVERNMENT intervention/policy risk
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  • curmudgeonly troll

    1 month ago

    Indeed the root of our recent malaise is that the market cannot discount unforeseeable events such as elections, bailouts, etc.

    Fortunately Congress is hearing daily from many concerned citizens like yourself urging them to desist from such unseemly activities, and to do absolutely nothing.

    God bless them, God bless the perfect free market, and God bless America!
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  • AndyFinkle

    1 month ago

    I concur with inforarbitrage's comment... Companies will hoard their cash, not buy back their stock in larger volumes then they had in the past. Microsoft NEEDS to buy back massive amounts of stock given that they give their employees stock options as if they were dispensing tic-tacs. I would be shocked if there was not between $60-$100BILLION in employee stock options out there. Were MSFT not to buy back their stock, this would be highly dilutive. Regarding the other "smart" buyers - Bufffett? Buffett is specifically NOT interested in buying here, Buffett instead bought YIELD. Recall that he passed on AIG's assets, as well as every other bank. Foreigners? They have a history of buying at market tops, not bottoms (Witness as just a few examples Saudi's purchase price for their 10% stake in Citibank, or as another, the Japanese in the early 90'sheight of the commercial real estate bubble). For that matter, companies tend to buy other companies with their high priced stock - hence most corporate deals are done at market tops, not bottoms.

    How will this play out? I believe we have bottomed (meaning even if we have one more bid down, or some sort of testing process, we have bottomed in the market already). All the signs are out there:

    1) Yesterday's selling reeked of "panic" and PUBLIC selling, unlike the forced (hedge fund) redemption selling we HAD been seeing over the past months.

    2) Cramer (of CNBC fame) told his cramericans to sell yesterday *perfect contra indicator as this guy is never right

    3) Technical indicators support a bottom extreme VIX (50+)and back to back TRIN (sub 65)\

    4) Fund outflows at extreme levels (I backward looking indicator, but always biggest outflows at market bottoms)

    5) Markets broke key technical supports (the BEST bottoms are when even the technical guys point out breakdowns, and in turn turn bearish). Should we go down once more and make a token new low and reverse on VOLUME, that would be ideal.

    6) Borrowing money has never been cheaper (credit markets are locked up, but when they do unlock, the money there is cheap

    7) Market down 30% from highs (look back at history and the average bear market has been 20-30% DOWN...WE ARE ALREADY 30% DOWN

    8) No one can point to ANY fundamental reason for the market to rally, and this is exactly when markets bottom \

    9) They just shot the Generals (AAPL,RIMM,GOOG,AMZN) and the generals are always the last to fall.

    People should be buying companies with the best balance sheets, Buy yield, stay away from agri/commodity/industrials. Tech is ok, but only very selectively. Keep in mind that individual stocks will bottom before you see the index's bottoming. Now is the time to buying, not selling.

    www.twitter.com/A_F
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  • Ted Murphy

    1 month ago

    Regarding Microsoft's outstanding employee-held options -- they had, as of 6/30/08, 517 mm ($12.9 billion) in vested and unvested employee options and employee-held SPSAs. That's about 6% of outstanding common shares.

    That's according to their 2008 10k.
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  • fredwilson

    1 month ago

    I said this in another comment, but if $MSFT is protecting its stock and market cap with its balance sheet and $GOOG is not, then there will come a day when $MSFT can afford to make a bid for $GOOG
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  • Christian Cadeo

    1 month ago

    Fred,

    Any thoughts on why with everything crashing of all things the dollar is so strong? Is it a flight to safety?

    For me, I am interested in buying as yesterday seemed to be a capitulation with the VIX at a astounding 50 level. Unfortunately, but held back by the simple fact that all of my cash is in a foreign denomination that has depreciated vs. the dollar. So in order to put money to work, I would have to take the hit from converting to dollars. It is a tough decision as do I convert now when I am convinced this dollar rally is short-lived or wait it out but with the possibility that this may be the low of the market.converting to dollars. It is a tough decision as do I convert now when I am convinced this dollar rally is very short-lived or wait it out but with the possiblity that this may the be the low of the market.
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  • druce

    1 month ago

    it's going to be a race to the bottom in terms of throwing money at crises, and while the US is winning, people just realized Europe will be a player too
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  • fredwilson

    1 month ago

    I think the dollar rally is short lived and don't understand it but I am not an expert in currencies
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  • Tom Evslin

    1 month ago

    When cash is king, the question is what is cash? If it's not stuff in a mattress and it's not gold(because we have deflation) and it's not bank deposits and it's not money funds, for the moment at least the world seems to have decided that it's Uncle Sam's IOUs despite the fact that this has sometimes been touted as the final crisis of American strength. With real short-term treasury bill yields below zero, we're being paid to hold the world's cash. More at http://blog.tomevslin.com/2008/10/deflation-win... in a post inspired by this one.
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  • bobroth

    1 month ago

    Great post, Fred. Thank you for writing it.
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  • JH

    1 month ago

    I think Paulson just ran a bad media campaign to describe the meltdown. Goldman has a large distressed desk and he should have known how emotional the whole bankruptcy process can get especially with stay bonuses etc.

    One needs to look at the operations of distressed bankers/advisors or DIP lenders to see that this kind of stuff is done on a daily basis - finding distressed assets, value them, creditors take a haircut on debt and "make up" value in a proportional amount of equity based on future earnings and get a good return on the DIP lending. That is what Buffet did and in a way that is what the Fed is doing. This is an investment and not a bailout and chances are that the government will make some good money out of this. The media needs to educate themselves and put a halt to the panic in the markets. The word investment needs to replace bailout - which may start another debate but at least it will be directionally correct.
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  • Andy Freeman

    1 month ago

    > The media needs to educate themselves and put a halt to the panic in the markets.

    "need"? Why does the media "need" to do this?

    The panic talk satisfies media goals. It will continue as long as they believe that to be true.
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  • CoryS

    1 month ago

    Isn't this exactly why tech companies hoard cash? I thought having billions on the balance sheet to fend of the bad times was why AAPL and M$ justified why they did such a thing. To suggest these companies should rely upon the stock market for liquidity seems like a bad bet for one reason: short sellers. Fred, I'd love to have you get a guest blogger on the topic convince us that shorters add value in the stock market beyond their investors and the brokerage houses that support them. Shorting banks that have equity coverage ratios + mark to market requirements seems like bullying and gaming, not clarifying a misunderstood valuation.

    As a CFO, the forces of shorting now create an added source of stock supply with no interest but to see the company go bankrupt or close to it. As Keynes said, the markets can be irrational longer than any investor can stay solvent, so why would GOOG, AAPL, et al try to fight that cause v. acquiring (start ups) for growth, investing in innovation and growing share in this down market?
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  • Ted Murphy

    1 month ago

    It sounds like the long-term opportunities will be over in China and India, if the analogy to the 1873 panic holds true (ie Europe then is US now, US then is Asia now). Should we include Brazil and Russia? Certainly Brazil.

    Also, from the 1873 analogy, one would be better off not dumping a bunch of capital into US-focused businesses. That panic initiated a four year economic downturn that, among other things, brought the terms bum and tramp into our lexicon -- terms coined for former soldiers who were unemployed.
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  • hardaway

    1 month ago

    That's pretty scary Fred. What it means is that they are keeping their cash for themselves, thinking something terrible is going to happen, or...in the case of Google, a young company...they don't really know what they should be doing. I have a lot of faith in the future of MSFT and less in the future of GOOG.
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  • howardlindzon

    1 month ago

    My buyback argument is well refuted here but thats what twitter is for, to put out thoughts. It was eerily quiet yesterday.

    BUT, its a sign of these times that lots of cash in the corporations was used up on the WAY UP as retailers and other growth ideas used cash to buy back stock on the way up. a product of the private equity boom as well.
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  • chrisndodge

    1 month ago

    I think this was covered already in the comments, but I still have a wait-and-see attitude regarding operating results of some of these companies that you mention. Because of the positioning of the current situation as the "worst event since the Great Depression", I think consumer products are going to get hammered by consumers reducing spending.

    Remember, the AdWords/CPC model of advertising of Google has never been Recession test. In reference to yesterdays posting, I think many internet companies - startups and established firms - have been over-optimistic about ad-support services. I'll be looking forward to Google's Q3 and Q4 results.

    Anyone have a sense on how Google's revenues are holding up?
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  • RacerRick

    1 month ago

    Google's revenue's won't hold up. But they'll do better, comparably to their peers. That might be enough.

    My bet is that they'll look so much better than their competitors that the share price will hold up in the 400s.
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  • chrisndodge

    1 month ago

    Well, GOOG is down about 4.5% (at 11:20AM) which is below the market average right now.

    When does GOOG normally report their 10Q's after end-of-quarter? Do they typically issue warnings (if the need to)?

    However, I think Q4 results will be the real canary-in-the-coalmine.
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  • live music map guy

    1 month ago

    GOOG will announce on Oct 16th, here's a webcast link:

    http://www.businesswire.com/portal/site/google/...

    The way GOOG is moving down heading into a news cycle can indicate either apprehension about earnings, or that 'smart money' already knows something the public doesn't.
    Investor relations will often compose a few positive-souding 'news releases' heading into earnings to shake out shorts as well. The absence of such IR activity could indicate confidence internally. The risk-averse individual will be covering any shorts a week in advance, and not holding GOOG long OR short over earnings.
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  • RacerRick

    1 month ago

    If you have cash in this market, you're going to kick ass.

    But there's no reason to start. In fact, you can always just wait a bit and get what you want at a better price.
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  • Don Jones - VentureDeal

    1 month ago

    According to the Economist, Japanese corporations have $600 billion at their disposal, after years of good earnings and savings. The yen has also done well as a currency, making it the strongest against the dollar.
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  • Charlie Crystle

    1 month ago

    Microsoft's buyback is the absolute LEAST creative thing they can do with their cash.

    So it's a very strong statement about the business
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  • live music map guy

    1 month ago

    Until there is some regulation that ties our currency to a value, this long term trend will continue.
    In other words, the source of the asset inflation and eventual credit crunch cycle is artificial manipulation of
    the money supply and credit rates by the fed, who is not answerable to anyone.



    Suze, here's an example of the kind of thing I think of as 'printing' money - creating it by magic

    http://www.nytimes.com/2008/10/08/business/08fe...

    Read about halfway down:

    The Treasury will provide money to the Federal Reserve Bank of New York to support the new program, the Fed said. Fed officials would not say how much but believed it would be substantial. The money would not come from the $700 billion package...

    They will just 'provide money' - 'massive' amounts - think about it... from where?
    The truth is, they can 'provide money' not backed by anything - the fed and treasury don't answer to anyone,
    never have. I'm not sure whether it's better or worse to for it to be 'backed by' debt, really. Either way, we
    hand our children mountains of debt or vastly inflated prices and weak dollars...

    Note how the media just pases this info along without much remark... are they being obliging or conspiring or just
    ignorant? This happens regularly in smaller but unknown amounts, since they stopped publishing the M3 stat.

    PS I hope you got stopped out of $GOOG


    http://www.nytimes.com/2008/10/08/business/08fe...
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  • live music map guy

    1 month ago

    ... that was a bit ramblesome...

    Look. IMHO the root of the problem is 'EZ credit' and printing money from thin air, in misguided attempts to 'stimulate the economy'. And how are they trying to 'solve' this problem? More EZ credit....
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  • TNLNYC

    1 month ago

    Fred,

    Don't you think that the reason those companies are sitting on their hoards of cash instead of buying their own stock back is precisely in line with what the Carnegies, McCormicks, and Rockefellers would have done. One of the thing that does not convince me in your argument is the double challenge of companies having both vast pools of cash AND pretty strong cashflow due to existing near-monopoly positions (Google in search/ Microsoft in the OS and office suite market).

    Why wouldn't they sit on the sideline, wait for other players to get weak and then swoop in to buy those players at fire sale prices. It seems to me a more prudent strategy. Why isn't anyone looking at the quiet from companies like Microsoft and Google as a sign that they are just taking a wait and see attitude before swooping in?
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  • fredwilson

    1 month ago

    Because they need to defend their market caps as Microsoft is doing and Google is not

    What if $MSFT stays at $225bn and $GOOG drops to $100bn

    Then $MSFT makes a hostile bid for $GOOG at a 50% premium ($150bn)

    Google can't let themselves get into that spot
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  • TNLNYC

    1 month ago

    But couldn't they buy their own shares out at that point (granted, at a much higher price) as a defensive move then. Or would a buyback reflect the fear of such scenario (hostile takeover) happening, therefore putting more downward pressure on shares.

    What if the reverse happened? Also, if MSFT bough shares back, they might have less liquidity to make such a hostile takeover (unless you assume that the hostile deal would be stock-only), don't you think?
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  • chrisco

    1 month ago

    RE "What to Look for Next": Just read Nouriel Roubini's articles and blogs as they come out. Today's is "Radical Policy Steps Necessary to Avoid a Systemic Meltdown: Interview with the Council on Foreign Relations."

    RE the stock market: Cash is king. No smart corporation is wasting valuable cash buying anything they don't need to right now. True, there will be amazing buying opportunities soon... and the ones who can benefit from them will be the ones with cash.... like Google and any other cash machines. Speaking of Google's cash machine, which is AdWords, just like every other recession, advertising budgets will, overall, go down. That means quantity and bid price. Effective and positive ROI direct response advertising will continue to be made, of course, and online rules there, as you can measure and optimize very well.

    Anyway, every night has its dawn... plus a lot of good things happen at night! Last proverb is that risk = opportunity, and right now risk is present and increasing,