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Bristlecone Monthly News Digest
Greetings!
2010 ended on a high note, with a so-called "Santa Claus Rally" boosting the S&P 500 nearly 7% in the month of December. Following a nervous summer, investors' confidence improved late in the year with signs of stabilization on several fronts: - The VIX index, a commonly-cited measure of investor fear, dropped to a 2010 low of 15.45 on Dec 22nd (over 80% below the peak levels experienced during the 2008 financial crisis);
- Successful sovereign bond auctions in Portugal, Spain, and Italy in the first weeks of 2011 exceeded investor expectations and offered hope that the Eurozone may have stemmed the tideof fiscal deterioration that led to bailouts of Greece and Ireland;
- Recent high-profile private equity offerings point to a pickup in IPO activity in 2011 and 2012. After spurning a reported $6B acquisition offer from Google, Groupon.com raised nearly $1B in new equity capital and is now reportedly planning an IPO in the range of $15B later this year. Facebook recently announced a $500MM investment (most of the funds coming from Goldman Sachs) which values the private company at $50B. LinkedIn, whose private market value is currently about $2.2B, is said to be considering an IPO in 2011. Finally, Twitter also raised $200MM of additional capital in December, at an implied valuation of $3.7B;
- AIG recently announced a recapitalization plan which will allow the firm to entirely repay the extraordinary loans provided it by the Federal Reserve at the height of the financial crisis. What was once an almost unthinkable $182B rescue package of loans and other guarantees has now been whittled down to a $68B equity stake, which the Treasury plans to sell over a period of several years. Reflecting this dramatic turnaround, AIG common stock increased over 90% in 2010, and was the 6th best-performing stock in the S&P 500 Index.
All in all, the flurry of recent private equity investments coupled with low levels of expected volatility speak to a more sanguine investor sentiment than we've seen in the last two years. While it's still a bit early to speculate about a potential social media "bubble," we are mindful of the lessons of the tech bubble a decade ago: Valuation matters, and a great business idea does not always equal a great investment. Although investment bargains are becoming harder to find, we feel that the best opportunities today lie within the largest (and some might say dullest) companies. We hope you had a very enjoyable holiday season, and we wish you a very happy and healthy New Year. |
A Goldman Unit Is Said To Have Rejected Facebook January 6, 2011 - The New York Times
In an ironic footnote to the recent Goldman Sachs investment in Facebook, the NYT Dealbook column reports that an internal Goldman hedge fund passed on an opportunity to invest in the social networking company at a $50B valuation. While the Facebook offering was heavily over-subscribed among Goldman's high net worth clients (despite fairly significant sales charges and other fees) it is telling that perhaps the most sophisticated investors at Goldman chose to steer clear of the deal. >> Read the Article
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(Government) Workers of the World Unite! January 6, 2011 - The Economist
In a recent cover story, The Economist turns a critical eye to the evolution of public sector unions over the past three decades. At a time when large fiscal deficits are forcing governments worldwide to take aggressive austerity measures, many public sector unions are pushing back to preserve benefits for their members. The conflict over public sector wages and benefits figures to take center stage as state and local governments look for ways to trim yawning budget deficits. >> Read the Article
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Could You Retire Without Social Security?
December 17, 2010 - The Wall Street Journal
Brett Arends, WSJ Personal Finance columnist, takes a look at the implications of 2010's 11th hour tax-cut deal on the long term viability of Social Security. He also analyzes what it would cost to replace a stream of social security income for the average retiree via an immediate annuity (a tool which could prove useful for retirees interested in hedging their longevity risk). >> Read the Article
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Copyright © 2004-2011: Bristlecone Value Partners, LLC.; All rights reserved. This email is provided for general purposes only and is not intended to provide specific financial, accounting, or legal advice. Any mention of third party firms or individuals is not, and should not be construed, as a recommendation, endorsement or sponsorship by Bristlecone Value Partners. Experiences expressed are not a guarantee of future performance or success and may not be representative of your experience. All investments are subject to risk. To safeguard your privacy, do not include account numbers, social security and tax ID numbers, passwords or other non-public information when replying to this email. Read more about Bristlecone's Privacy Policy. All email sent to or from Bristlecone Value Partners corporate email system may be retained, monitored and/or reviewed by someone other than the recipient.
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