Upload
cazoomi
View
240
Download
0
Tags:
Embed Size (px)
DESCRIPTION
MEWs BECAME THE NEW PIGGY BANK and will take time to work thru the excesses, but have we, is the real issue for 2010.
Citation preview
R.I.P.
GOODTIMES
1
NOW WHAT?
3
WALL STREETHOW DID WE GET HERE?
ERIC UPIN
HOUSING LED RECESSION
OVER LEVERAGED FINANCIALS
FALLING ASSET PRICES
FROZEN CREDIT MARKETS
WEAK HOUSEHOLD BALANCE SHEET
GLOBALLY SYNCHRONIZED SLOWING EXACERBATING ALL OF ABOVE
FORCES OF INFLATION VERSUS FORCES OF DEFLATION
MULTIPLE PROBLEMS
0
5,000
10,000
15,000
5
10
15%
Dow Jones Industrials (solid line)
1970 1980 1990 2000 2008
Inflation (dotted line)
Source: Bureau of Labor Statistics, Dow Jones
Bear Market 1966-1982
Bull Market 1983-2000
MARKET CYCLES ARE LONG
Source: Federal Reserve, International Labour Organization
100
125
150
1996 2002 2006
Indexed global productivity
0
2
4
6
8
10%
1990 19
Fed funds
95 2000 2005
rate
Sep 20080
1
2
3
4B
1980 1990 2000 2008
Size of global workforce
DRIVEN BY PRODUCTIVITY AND CENTRAL BANK
Source: Bureau of Labor Statistics, Federal Reserve
0
4
8
12
16%
Average
2000
Yield on 10-year U.S. treasuries
1960 1970 1980 1990 June 2008-5
5
15
25%
Av
1950 1960 1970 1980 1990 2000
U.S. inflation (annual year/year CPI change)
2007
erage
RESULTING IN FALLING INFLATION AND COST OF DEBT
Source: Bureau of economic analysis
-8
-6
-4
-2
0
2%
1985 1990 1995 2000 2005
U.S. current account / GDP
FUELING A NATION OF CONSUMERS
U.S. BUYS
FOREIGNGOODS
FOREIGN COUNTRIES USE PROCEEDS TO BUY
TREASURIES
DEMANDKEEPS
LONGER-TERM RATESLOW
FOREIGN $s RECYCLED INTO TREASURIES
Source: Bridgewater
AS A RESULT, DEBT BALLOONED
Source: Bridgewater
DEPENDENT ON THE KINDNESS OF STRANGERS
Source: Bridgewater, National Association of Home Builders
0
20
40
60
80
100%
2002 2006
Alt-A
Subprime
Prime-Conforming
Government
Prime-Jumbo
Distribution of U.S. dollar mortgage originations
0
1
2M
Average
1980 1985 1990 1995 2000 2005
Single family housing starts
2008E
LIQUIDITY AND EASING SPREAD TO HOUSING
Source: Robert Shiller
50
100
150
200
250
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000
U.S. real home price index
2007
1998-2006 8.0% annualized
1930 - 19970.7% annualized
1900-1929-1.2% annualized
HOME PRICES GREW SUBSTANTIALLY ABOVE MEAN
GROWTH IN SECURITIZATIONS
LEVERAGE ON THOSE STRUCTURES
INCREASED LEVERAGE ON BANK’S BALANCE SHEETS
OFTEN MIS-RATED BY AGENCIES
REPEAL OF GLASS-STEAGALL
REGULATORY CHANGES ENCOURAGING HOME OWNERSHIP
STRUCTURED PRODUCTS AND REGULATORY CHANGES COMPOUND THESE ISSUES
Note: Outstanding amount is not a pure measure of risk as some positions are netted and have collateral; U.S. GDP was $13.8T in 2007Source: Bank for International Settlements
0
175
350
$525T
U.S. GDP
1995 1998 2001 2004 2007
Outstanding amount of open positions in OTC derivatives markets
35x U.S. GDP
HUGE GROWTH IN DERIVATIVES
Source: Bridgewater
SIGNIFICANT EXCESS CAPACITY
Source: Merrill Lynch
0
100
200
300
400
500
1998 2000 2002 2004 2006 2008
Investment grade spreads (basis points)
0
250
500
750
1,000
1,250
1998 2000 2002 2004 2006 2008
High yield spreads (basis points)
VERY TIGHT CREDIT
Source: Bank of Japan, Yahoo Finance
0
10,000
20,000
30,000
40,000
1990 1995 2000 2005
Nikkei Index 1988 - present
Oct 20080
2
4
6
8%
1990 1995 2000 2005
Japanese discount rate
Jul-08-6
-3
0
3
6%
Average
1990 1995 2000 2005
Annual real GDP growth
JAPAN MAY BE INSTRUCTIVE
GLOBAL
SECULAR
NOT “NORMAL CRISIS”, WILL TAKE TIME
CREDIT NOT EQUITY DRIVEN
SIGNIFICANT RISK TO GDP GROWTH
POTENTIAL FOR GREATER REGULATORY REFORMS / SCRUTINY
KEY THEMES
MANAGE WHAT YOU CAN CONTROL
SPENDING
GROWTH ASSUMPTIONS
EARNINGS ASSUMPTIONS
FOCUS ON QUALITY
LOWER RISK
REDUCE DEBT
OUR TAKE
21
MAIN STREETWHERE ARE WE NOW?
MICHAEL BECKWITH
THE U.S.: A NATION OF CONSUMERS
THE CHANGING FACE OF THE ECONOMY
$ TRILLIONS 1987 1997 2007
TOTAL U.S. GDP 4.7 8.3 13.8
CONSUMER SPENDING 3.1 5.8 10.1
CONSUMER AS % OF TOTAL GDP 66% 70% 73%
DISPOSABLE PERSONAL INCOME 3.5 6.0 10.2
Source: Bureau of Economic Analysis.
EXPLOSION IN HOME OWNERSHIP
LONG-TERM AVERAGE
HO
ME
OW
NER
SHIP
%
Source: Current Population Survey/Housing Vacancy Survey, Series H-111 Reports, Bureau of the Census, Washington, DC 20233.
WAGE GROWTH & PERSONAL SAVINGS
PERSONAL SAVINGS RATE FALLING REAL WAGES ERODING PCE
PERSONAL SAVINGS RATE EVAPORATED
REAL WAGE GROWTH FELL
Source: Bureau of Economic Analysis, Federal Reserve, Haver, Bureau of Labor Statistics, Census Bureau, Factset, Morgan Stanley Research.
CONSUMERS BUCKLING UNDER DEBT
HOUSEHOLD DEBT SERVICE RATIO HOUSEHOLD FINANCIAL OBLIGATION RATIO
DSR = DEBT PAYMENTS ON OUTSTANDING MORTGAGES AND CONSUMER DEBT/DISPOSABLE PERSONAL INCOME
FOR = ADDS AUTOMOBILE LEASE PAYMENTS, RENTAL PAYMENTS, H/O’S INSURANCE AND PROPERTY TAX PAYMENTS TO THE DSR
Source: Bureau of Economic Analysis.
MEWs BECAME THE NEW PIGGY BANK
MEW CONTINUES TO FADE…
Source: Haver, BEA, NAHB, Conference Board, EIA, Morgan Stanley Research.
FROM VIRTUOUS TO VISCIOUS CYCLE
MORTGAGE RESET
DELINQUENCIES/FORECLOSURES
PRICES FALL
MEWS DECREASE
CONSUMER SPEND FALLS
JOB MARKET ERODES
RECESSION
UNEMPLOYMENT SPIKES HIGHER
Source: Federal Reserve, Haver, Bureau of Labor Statistics, Census Bureau, Factset, MorganStanley Research, Case-Shiller & DB Global Market Research.
ON THE BRINK OF A RECESSIONCONSUMER CONFIDENCE AT MULTI-DECADE LOWS
ISM IS FALLING FAST GDP IS POISED TO TURN NEGATIVE
Source: Haver, NAHB, Conference Board, NFIB, Morgan Stanley Research, DoL & DB Global Markets Research.
EARNINGS BEGINNING TO ROLL
EARNINGS DOWN 18% ON ESTIMATES MADE 12 MONTHS AGO
Source: Datastream, Robert Shiller, Factset and Morgan Stanley Research.
V-SHAPED RECOVERY UNLIKELY
S&P 500ITMEDIATELECOM SVCS
Y /
Y
Current S&P 500 Consensus Actual and Expected Operating Earnings Growth (Weighted-Avg. % / Y/Y)CY00 CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08E CY09E
Financials 5% -10% 18% 25% 11% 5% 23% -37% -46% 109%Consumer Discretionary 0% -24% 33% 11% 28% 2% 9% -10% -16% 41%Media -1% -6% 34% 12% 33% 28% 27% 15% 11% 11%Information Technology 28% -63% 0% 46% 43% 20% 12% 21% 10% 17%Telecom Services 6% -24% -8% 0% -8% 14% 17% 5% -1% 10%S&P 500 17% -17% 5% 18% 20% 15% 16% -4% 1% 23%
ADVERTISING MARKETS ARE CRACKINGY
/ Y
Source: TNS U.S. Advertising Expenditure Estimates
RETAIL/ECOMMERCE DETERIORATINGY
/ Y
Source: US Census Bureau.
MOBILE IS NOT IMMUNEY
/ Y
Source: TNS U.S. Advertising Expenditure Estimates
TECH SPENDING DEPENDS ON ECONOMYY-Y Change in S&P 500 Earnings, Technology Spending (1996-2008E)
Source: Bernstein Strategy Group; First CallDrop in earnings in Dec 07 was partly due to financial services industry write offs
-30%
-20%
-10%
0%
10%
20%
30%
Jun-
95
Dec
-95
Jun-
96
Dec
-96
Jun-
97
Dec
-97
Jun-
98
Dec
-98
Jun-
99
Dec
-99
Jun-
00
Dec
-00
Jun-
01
Dec
-01
Jun-
02
Dec
-02
Jun-
03
Dec
-03
Jun-
04
Dec
-04
Jun-
05
Dec
-05
Jun-
06
Dec
-06
Jun-
07
Dec
-07
Jun
08E
S&P 500 EPS Growth Tech Spending Growth
ENTERPRISE INDICATORSP
C U
NIT
S S
OLD
(Y/Y
)
“IT spending is being more scrutinized now than at any point in the 2003 through 2007 timeframe … customers are showing more caution.”
- EMC, JUL 2008
“It's now clear that this economic softness is continuing into September.”
- INGRAM MICRO, SEP 2008
“Market developments of the past several weeks have been dramatic and worrying to many businesses. These concerns triggered a very sudden and unexpected drop in business activity.”
- SAP, OCT 2008
Source: Gartner Personal Computer Quarterly Statistics Worldwide Database, 5/08. JPMorgan estimates for 2008-2009
AMAZON.COM & BUY.COM
•Strong business model•Focus on core value proposition
•Profitable growth•Trim fat during lean times
Amazon.com Financial Performance '99‐'05
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
1999 2000 2001 2002 2003 2004 2005
$ Mil
‐40%
‐20%
0%
20%
40%
60%
80%
Revenue Opex Revenue Growth EBIT Margin
Buy.com Financial Performance '99‐'05
$0
$100
$200
$300
$400
$500
$600
$700
$800
$900
1999 2000 2001 2002 2003 2004 2005
$ Mil
‐60%
‐50%
‐40%
‐30%
‐20%
‐10%
0%
10%
20%
30%
40%
Revenue Opex Revenue Growth EBIT Margin
SALESFORCE.COM & SIEBEL
•Tailor sales message to environment•Take advantage of competitors’ weakness
•Understand your true customers•Value of quick ROI and low cost
Salesforce.com Financial Performance '00‐'05
$0
$50
$100
$150
$200
$250
$300
$350
2000 2001 2002 2003 2004 2005
$ Mil
‐150%
‐100%
‐50%
0%
50%
100%
150%
200%
250%
300%
350%
Revenue Opex Revenue Growth EBIT Margin
Siebel Financial Performance '00‐'05
$0
$500
$1,000
$1,500
$2,000
$2,500
2000 2001 2002 2003 2004 2005
$ Mil
‐25%
‐20%
‐15%
‐10%
‐5%
0%
5%
10%
15%
20%
25%
Revenue Opex Revenue Growth EBIT Margin
38
YOUR STREETWHERE DO WE GO FROM HERE?
DOUG LEONE
UPS AND DOWNS ALWAYS OCCUR
IT IS DIFFERENT THIS TIME
RECOVERY WILL BE LONG
TIME
$
CHANGES IN FINANCING ENVIRONMENT
Venture firms brace for cash crunchBig investors turn away from VCs as the financial crisis takes its toll.By Michael V. Copeland
“If you are a venture capitalist looking for a new limited partner, don't stop in here. Don't try and sell me on a new fund, and good luck trying with everyone else."
“If you’re a second or third-tier venture firm trying to raise another fund, forget about it.”
“It will start first in private equity funds where there will be a substantial miss on capital calls. Then we'll see it next in venture capital."
"If you are start-up that is not cash-flow positive you are in a tough spot right now. If you haven't figured out your business model yet you are in trouble.”
“It's going to be hard to get another round. You aren't going to get a second life this time."
NEW REALITIES
$15M RAISE @ $100M POST IS GONE
SERIES B/C WILL BE SMALLER RAISES
CUSTOMER UPTAKE WILL BE SLOWER
CUTS ARE A MUST
NEED TO BECOME CASH FLOW POSITIVE
INCREASED CHALLENGES
M&As WILL DECREASE
PRICES WILL DECREASE
ACQUIRING ENTITIES WILL FAVOR PROFITABLE COMPANIES
IPOs WILL CONTINUE TO DECREASE AND WILL TAKE LONGER
SURVIVAL
PRESERVECAPITAL
GRABSHARE
CASH IS KING
UNDERSTANDING OF MARKET UPTAKE
ASSESSMENT VS. COMPETITORS
CUSTOMERS’ ABILITIES TO PAY
NEED FOR PROFITABILITY
ESTABLISHED REVENUE MODEL✔
✔
✔
✔
✔
✔
MUST-HAVE PRODUCT✔
OPS REVIEW
ENGINEERING DECREASE HEADCOUNT FOR NEXT VERSION?✔
PRODUCT WHAT FEATURES ARE ABSOLUTELY ESSENTIAL?✔
MARKETING MEASURING & CUTTING WHAT’S NOT WORKING? ✔
SALES & BUS DEV GETTING RETURN ON EXPENSE INCREASE?✔
PIPELINE REAL PROBABILITIES OF CLOSING DEALS?✔
FINANCE✔CASHBURN WHERE CAN PAYMENTS BE DEFERRED?G&A WHAT DEPARTMENTS ARE ESSENTIAL?
DEATH SPIRAL
SURVIVAL OF THE QUICKEST
TIME
EXPE
NSE
S
DEATH SPIRAL
10/08
COMPANY ACOMPANY B
NO ONE MOVES FAST ENOUGH
OP EX % Y/Y CY01 CY02 CY03 CY04
CSCO -3%
9%
-2%
-3%
-15%
-3%
-10% -1% 9%
EMC -22% -4% 31%
ADBE -1% 12% 18%
YHOO 14% 33% 57%
AMZN -4% 10% 24%
Average -5% 10% 28%
CHOICES
WHAT DECISIONS DOYOU PLAN TO MAKE?
WHAT DECISIONS DO YOU WISH YOU HAD MADE?vs.
THE SOLUTION
PERFORM SITUATION ANALYSIS
ADAPT QUICKLY
USE A ZERO-BASED BUDGETING APPROACH
MAKE CUTS
REVIEW SALARIES
EMPLOY A HEAVILY COMMISSIONED SALES STRUCTURE
BOLSTER BALANCE SHEETS
BECOME CASH FLOW POSITIVE AS SOON AS POSSIBLE
SPEND EVERY DOLLAR AS IF IT WERE YOUR LAST
GET REAL OR GO HOME
54
Q & A