Are we heading for another depression? I try to be an optimist, but after catching up on reading three days of the WSJ this morning in the airports, I am becoming increasingly nervous. The markets are already down 25% this year, with the DJIA trading below 7,000 and the S&P 500 below 700. Accessing the capital markets has become a joke, and everyone in the free world is looking to the U.S. government for a bailout. Yikes.
Apparently GM is now more open to bankruptcy and auto sales declined 40%+ year over year. One out of ten mortgages is delinquent and Wal-Mart is one of the only retailers with increased year over year sales as people trade down to shopping at Wally World as they’re pinching their pennies. Did you know that Wal-Mart earns something like 40% of its revenues from food sales. That gives me the shivers; I’m glad I don’t have to shop at WMT for food...
People are raiding their closets and turning their living rooms into “boutique used clothes stores.” Citigroup is now trading at like a dollar per share. Merrill Lynch executives are being subpoenaed for received tens of millions of dollars in compensation for 2008 as the company was forced into an arranged marriage with Bank of America so it too didn’t have to go the way of Lehman Brothers. Hmmm…wonder if they’ll have to return any of that cash. Maybe they can redistribute it to some of the people delinquent on their mortgages and save the American taxpayers some cash. Doubtful.
Private equity firms are getting crushed as well, with Blackstone’s earnings down something like 20% and KKR’s positions down closer to 30%. Which begs the question: which funds will be worse performers – 2006 vintage year buyout funds or 1999 vintage year venture capital funds? I think the median returns for ’99 VC funds are up to a whopping 72 cents on the dollar and it sounds like the mega buyout guys should have no problem writing down their portfolios immediately by 30%. It’s looking like a very close race to take the cake on the crappiest vintage fund performance ever title.
