28 May, 2009 | by Sanjeev Kumar
Some of my friends and colleagues are busy trying to figure out what could be the shape of the most eagerly awaited recovery. The debate is whether we are going to see a V, W, and U or prolonged I__I shaped recovery.
There are some who are suggesting we are probably going to see a V shaped recovery then there are those who are predicting a U or prolonged U shaped recovery and yes there others who believe we might see a W shaped recovery. Boy! Go Figure. Someone has to be right but then I wonder isn’t this all a bit premature? Aren’t we getting ahead of ourselves on making such prognoses or am I simply being Silly?
Let’s find out, shall we?
The shape of the current economy could probably give us some clues as to what the shape of the recovery might be or at the least we could rule out some. To get a good estimate of the health of the economy let us look at some of headline news during the week ending Friday, the 15th May 09.
We will start with the numbers out from the European Union.
According to European Union’s statistic office the GDP in the 16 member Europe region fell by over 2.5% from the fourth quarter, the steepest decline in over 12 years. This was above the market expectation of continue reading »
20 May, 2009 | by Nidish Kamath
Forbes magazine had an interesting piece about large business acting as lenders to small business. This comes right behind the biggest credit meltdown in history. This lending comes in the form of retail financing or vendor financing, and in some cases, in the form of corporate venture funding. In 2008, as per NVCA, corporate venture funding arms amounted to 19.2% of all venture deals, an amount that works out to $5.4B out of total deals worth $28B. Similarly, the Forbes article pointed to $52B raised for corporate non-venture financing.
What does this mean for the shareholders in these corporations? Let us look at a few numbers. A stock screen on Yahoo for companies with positive free cash flow, and picked companies that have positive cash balance on their balance sheets reveals about 896 stocks, and most notable among them being Berkshire Hathaway with $16440 of cash available per share. Since free cash flow does not include the cost of debt servicing by these companies, one should also look at the total debt assumed by these companies. A vast majority of these companies have very little to zero debt on their balance sheets. So, to keep matters simple, let us assume there is no debt servicing expense.
The stock screen reveals that, on an average, after excluding outliers such as BRK-A, each company has a 15% return on equity, and $1.3B of cash in the bank. There is a total cash position of $1.2 trillion. In other words, the $5.4B continue reading »
14 May, 2009 | by Sanjeev Kumar
I am begining to think that the lack common sense is what got all us into this Mega Mess. The problem is that common sense is still missing and I wonder why?
The markets are rallying and it’s good but shouldn’t we do a reality check before we get too carried away? I mean the expectation are so LOW that any number above the bottomless floor is sending the markets into rallies. We all want rallies but sustainable rallies please that are supported by solid fundamentals and not driven by speculative play. Folks are talking about recovery against the backdrop of some pretty bad numbers. Yes we are now seeing some mixed numbers ( some positives )come out from the 1st quarter but the real economy is still hurting.
To get some perspective let’s just look at the numbers out of UK released back on May 01, 2009 .
According to the Govt figures, nearly 5,000 companies in England and Wales went into liquidation in the first three months of 2009 and a record number of people succumbed to insolvency. continue reading »
4 May, 2009 | by Richard Vinhais
The Berkshire Hathaway (BH) annual shareholder meeting has long been regarded as the Mecca for prestigious investors and businessmen alike. Knowledge-thirsty shareholders and spectators flock from all over the world to hear the Oracle of Omaha, Warren Buffett, and his curmudgeonly sidekick, Charlie Munger, pontificate in grand fashion on the conglomerates’ performance, as well as on a wide array of current events.
Attending the meeting had been a personal desire of mine going all the way back to my grad school years. The event has often been described as an “MBA in a weekend” or even the “Woodstock for investors”. Such sensational statements always left me feeling a bit incredulous, as I always found it hard to believe that an annual shareholder meeting could yield such a worthwhile experience. However, my incredulity was surpassed by my appetite to discover the reality for myself. So I purchased my obligatory share of BH stock and made my way to Nebraska for the 2009 annual meeting on May 2nd.
continue reading »