Andre J. Peschong

This has been a decade of triumph, tragedy, happiness, sadness, glory and ruin.  The decade is not over with and we have had more news worthy and momentous news items than the last 100 years put together.  That is a bold statement but the millennium started off with a quick bang or better stated “pop” with the internet bubble bursting in March of 2000.  That set the stage for a massive revaluation of wealth and people’s expectations and it was the outcome of Alan Greenspan’s “irrational exuberance” statement.  That event set the tone of the decade and with every victory for the free market system to claw its’ way back there were again massive stumbling blocks along the way9/11, the worst tragedy on American soil, occurred as the markets were trying to right the ship and more buyers were entering the market.  This event shut the capital markets down for almost an entire week of trading.   Everything we as a free society held dear and sacred ground to a halt and exposed a new world where safety was a relative illusion.  This event crushed the markets on a short term basis but the capitalist spirit again prevailed and the markets clawed their way back. 

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There is an old saying that always comes up in uncertain times and that is “what is the definition of stupidity? Doing the exact same thing over and over again hoping for a different result”.  We must all face facts, the game has changed and the landscape has forever been altered.  It is not just the US economy but complex layers intertwined in the global economy.  Some companies get it and some companies fail to see that and are uselessly hoping for a different result.  A perfect example came out today from Caterpillar Corp. (NYSE - CAT).

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I just read this article and was floored. Point of no return: Interest on T-bills hits zero.  The great quote which sums up this entire global meltdown is the following, “Investors are so nervous they’re willing to accept the same return from government debt that they’d get from burying money in a coffee can – zero.”  This is just the sign of the times but it also points to investors wanting safety so badly that they are willing to accept no interest or even a slight loss as long as they are in liquid, secure investments.  As a student of human nature and history I have noticed when the pendulum has swung so far the other way it is usually indicative of a bottoming in the market.  My good friend Steve Kann, who was interviewed in an earlier post, said that his favorite quote was one from Warren Buffett; “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”  This comes from arguably one of the greatest investors of our time and the statement is true.
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Every pundit is sure to have their own opinion on this past week’s events and the fairly dynamic rally that ensued.  The rally happened in the face of weakening news from the retail sector, continuing write downs plaguing the financial sector as well as the fate of the US auto industry and the millions of union jobs it utilizes.  Fundamentally, nothing has really changed.  The Fed is trying to fix things by throwing money at the problem as in their recent decision to bailout Citibank which was deemed too big to fail.  These decisions are weakening the US economy for a longer period of time but serve the purpose of potentially avoiding a full scale meltdown.  The Fed is really just trying to provide confidence in the US economy by saying that they will stand behind the liquidity crisis. 

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After attending The Big Dog Conference, a very well put together event, on companies in the microcap market segment, I have decided that there is some longer term value out there in select small deals.  Liquidity has had a much larger impact on the global economy in a substantially broader way than certainly I believed it would, or for that matter, everyone else on the planet.  When I say broad I am talking about the net effect on capital for small companies regardless of industry.  Both equity and debt markets have been equally as effected, especially for the growth oriented companies.  There are some really interesting companies out there trading at what could be a ridiculous price point based on the potential of their respective products and services.  So is it time for action?  A very hearty,  but cautious yes! 

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I think the conference title speaks for itself!  Actually, this will be the 5th annual micro cap stock conference for the “Big Dog.”  This is a very unique concept in the world of financial conferences.  The Big Dog Conference is an invite only conference specializing on the microcap arena of publicly traded companies.  This will be my first year of attendance and I am anxious to see the presenting companies. 
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MIT Sloan is having its annual CFO Summit.  Here is some info about it in case you are interested in attending:

MIT Sloan CFO Summit Examines Phenomenon of “Relentless Volatility”

The current firestorm on Wall Street requires CFOs to be prepared for “relentless volatility,” the theme of this year’s leading forum in New England, the MIT CFO Summit. More than 500+ attendees will gather insights from the best of the best about the current economic crisis.

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Time for some more shameless self promotion!  If you like what I write here at DealFlowDiaires, you’ll REALLY love what you’ll see here:

I am hearing that from everyone, Main Street to Wall Street, what the ramifications of this global market liquidity crisis are.  The events over the last 10 days really highlight how fragile and intertwined the global economy has become.  What was literally isolated to the US sub prime meltdown caused the initial jolt to the financial system and like dominos one after another started to fall.  I believe that Alan Greenspan said it best in a recent interview when asked if in his career he had ever seen it this bad, he replied “no this is the worst it has ever been, this is a once in a century crisis”.  That is a bold statement from a man that ran the Federal Reserve for so many years.  The liquidity crisis will cause continuing pain for the economy, real estate pricing and increase unemployment.  Banks are starting to fail and the money market funds are in dire straits which is one reason the bailout needs to occur quickly.  Our markets are built on confidence so absent that we as a nation are in deep trouble.  [Read more →]

It is amazing that while on vacation trying to tune out the business and all the accompanying voices in my head that somehow something always brings you back to thinking about a deal or something business related.  Case in point, playing golf in wonderful Carmel at Poppy Hills Golf Club, a spectacular course that is in the rotation during the Pebble beach AT&T golf tournament.  [Read more →]