I'll admit that this post might better fit into a blog, but since I don't do that thing, here goes:
There are no small number of doomsayers out there -- I'm talking about our economy, of course, and in any "outlet" that covers the market, I'm pretty sure "worst case" scenarios have been explored.
Marketwatch has one up there today pretty prominently. They all ask tough questions like "Can the Fed stop the bleeding, if they haven't already?" Would certain cures be worse than the disease? (Recently, I read that old man Mellon advised some President to leave laborers, farmers, bankers, etc. "out to dry," so that the "rottenness could be purged from the system." [that last is pretty close to a direct quote, as I read it.]
In this instance, of course, leaving ideology aside (a VERY tricky thing, btw), I've seen interesting sniping between renters who say they were too "smart" to buy (esp. using no interest loans and the like) and folks who ARE (precarious) owners, some of whom claim that they were victimized by mortgage brokers and other "players."
The renters say that they stand ready to buy distressed real estate and they quickly say that THAT's "the American way," i.e., Mr. Market sets prices. They introduce a key term -- "moral hazard" -- that seems to boil down to -- People who make mistakes should take the consequences; anything else warps things so that people will behave even more recklessly in the future, the argument goes.
I think you can guess what the distressed sellers say.
Of course, some people mumble, "But it's not about a few thousand (or even many thousands of) homeowners -- quants whose hedges worked out poorly should definitely walk the plank if that's all they can do." ... And then the other side raises the specter that they'll drag you, me and 100 MM other Americans into the briny depths along with them.
WELL, I can't and won't deal with issues THAT big, but I'm inclined to think that we've reached a point where "all we have to fear is fear itself" -- pretty much!!
> "The merger window is now closed!
I don't think so.
Its just a temporary problem of liquidity for the lenders. As soon as the lenders get a few bucks to rub together they will join the flight to quality.
After all, mergers don't default, and good corporate paper is still holding up well, except where it is backed only by MBS.
As far as ANAD is concerned, the most likely suiters could buy them with pocket change.
> That is, I think many are exaggerating the peril
There is a lot of talk lately along these lines, that the peril is/was exaggerated. Most of it comes from the same talking heads that were doing the exaggerating last week, so you have to take it as it comes.
I think the wall street press is always exaggerating, especially to the down side, but also, in the case of this particular situation I believe they are exaggerating about the recovery.
The recovery will be slower than they seem to talk about.
Some predict 5 to 8 years, but I tend to thing it will be closer to one year - 18 months, because that is the time period it takes to either re-finance these risky loans or foreclose, resell, and move on.
I don't think loose lending will make a comeback anytime soon, and the days of Illegal Aliens walking into "oh so politically correct" California banks and getting loans are over for good. They won't be able to sell the paper.
(This may actually be GOOD for bank stocks. Instead of writing debt and selling it quickly they will have to plan on doing holding a larger quantity of this paper themselves.)
That is, I think many are exaggerating the peril, as in "It's always darkest before the dawn!" ... Obviously, to the extent that I'm right, an investment (or even my kind of speculation via calls) in ANAD is probably a good thing to have.
I'll just add one other thing. One of those doomsayers said, "The merger window is now closed!" ... Fortunately, that or a similar site pointed out that "smaller" banks were revving up their until-recently DORMANT mortgage depts., because it's as if Wal-Mart were experiencing (as if!!) a protracted labor stoppage. Lots of other retailers would order a few thousand snowshovels or the like, things they wouldn't have a prayer of selling were Wal-Mart in normal operation.
That is, maybe, some good things will come out of the housing bubble bursting -- things like mortgages being processed like significant, rational transactions, albeit just possibly at a higher cost to the borrower than prevailed in, say, 2005.
SIMILARLY, while Mr. Zell may not get to buy a media empire on a 5% down basis, I don't think that the likes of Fox are going to be spurned by the likes of Citi and B of A.
THIS is, of course, pretty important to ANAD-holders, because even B.F. (with his recent talk of ANAD maybe being able to reach $50 if it "lives that long" [as an independent]) admits that if ANAD keeps its winning streak going a few quarters, they'll probably be acquired.
I, of course, share that perception, although I probably think it'll happen sooner (and with a higher likelihood) than B.F. does.
Let's face it, if the "crisis" worsens, few among us will escape unbloodied, ... but there are a handful of cliches that boil down to -- IF YOU divine that the sun'll come up tomorrow when that's a minority view (AND YOU'RE RIGHT ABOUT IT), you can make some serious coin!
And, as the Internet has brought to record-high popularity -- "Tell me what YOU think!"
With respect to the buyout market, it too will be meaningfully impacted by the recent repricing of risk. Again some basics -- there are a very large number of "hung deals" in the market right now. The banks made commitments to underwrite a number of buyouts by the private equity shops that could not be syndicated at the pricing and with the debt covenants agreed to by the lead lenders. As a result these big concentrated and committed loans are sitting on the banks books. At present, publicly traded bonds for "similar" issuers(i use the term loosely to describe the debt of highly leveraged acquisitions of economically sensitive companies) is trading down between 5% and 10% and in some cases considerably more depending on how senior it may be. This implies big mark to market losses sitting on the banks books. If those banks also were involved in sub-prime mortgage, auto and credit card lending (think Citibank), then they also have a big black mark on their books there too. So your friend who said the buyout market is dead for the next few months is probably right as it relates to private equity shops. The strategic buyers (i.e., corporations) and dstressed palyers could be quite active though as acquisition prices will no doubt moderate.
What's it mean for ANAD? I think tech players may be a bit cautious about acquiring competitors or doing too much forward integration. They have learned that outsourcing is better over the long term than owning unless its a critical strategic positioning issue (e.g., VMWare and EMC). I love what ANAD has done to position itself as a supplier and I really love the sales and earnings momentum they have shown and will have in 2008 and perhaps even 2009, but I don't see it rising to the level of "must have" especially given the likely price demands of ANAD given the current path they probably foresee.
I do think that ANAD has telegraphed the Q3 earnings at 9/10 cents and that while 2008 EPS of $1.00 is being talked about, the options grants would have to slow and the sales/earnings trajectory would have to be accelerated a bit. My math and analysis says $0.85 is a more reasonable case. I may be wrong but I think it unlikely that unless Q3 is a positive surprise and Q4 guidance exceeds 14/15 cents EPS that we see $1EPS in 2008. Given that set of assumptions, I think $20 by Decemeber 31 is possible but not probable -- my expectation is more in the $18-$19 range as we await FY2007 results to be announced in January.
Just my opinion but I believe its reasonable and well supported by the facts so far. Best regards to you and BF and all who raise the bar on intellignet discourse on this page.
Lets start with some basics -- the recent volaility in the market had as much to do with a liquidity crunch as it did with a baisc repricing of risk. The liquidity crunch arose because hedge funds and others were using leverage to place sizable bets on the continuation of quantitative statistical correlations among and across companies based on financial metrics that their modeling had told them were relaible over the long term. When the repricing of risk caused some of these stat relationships to break down if not actually reverse, the hedge funds highly leveraged positions (of course the converse is thin equity stakes) to go quickly and furiously against them. The ensuing capital calls meant that they had to liquidate their most traded stocks -- the large caps -- which is why the S+P500 lost more than small caps during all the froth. Whats more this selling of quality names actually was opposite of the quant models' predictions about what happens in a risk repricing because the models were built to assume a "flight to quality" not sale of it. The resulting price declines exacerbated losses and resulted in more cap calls and even greater pressures on the quant driven funds.
Now, many of those funds have taken their lumps and in some cases recovered some of their losses as fundamental value buyers stepped in to buy the cheap large caps and more liquidity has been put in the system. These actions combined to bring back large cap stock prices and restore some of the quants models correlations and hence efficacy. The fund managers have also reduced their risk profile by reducing their leverage and making smaller bets relative to their overll equity stakes -- the prime brokers are also improving their monitoring of trading, aggregate positioning and the funds own risk monitoring programs.
We shall see if this has the expected impact of a bit less market volatility over the next few months as the quants, prime brokers, and others work to recalibrate their assumptions (and models) about how the markets and funds individual and "group" actions affect risk.
Next...a few words about the buyout market.