Having too much cash is something of a luxury problem these days: the worst that can happen is that you find yourself subject to the occasional snarky column telling you to up your dividend. Meanwhile, the opportunities presented by having a large cash pile have never been greater. So I asked the friendly people at Gridstone Research to help me put together a list of the companies with the most cash. The very smart Sandeep Shroff came up with two spectacular spreadsheets: this one, which looks at net cash and cash flow from operations, and this one, giving the sector averages.
Nemo at Self-Evident has a great post on what he’s calling the "Geithner Put", explaining how banks could buy assets with a long-term value of 50 cents on the dollar, pay 84 cents on the dollar for them, hold them to maturity, and still make a healthy 16% profit. Which does help explain why Geithner is convinced that the banks will want to sell their toxic assets under this plan.
Jeremy Denk notes the crisis spreading:
In what is now a familiar story, Lee Ellen Jo Public, of Loma Vista Boca Loca, AZ, found herself at a piano recital, where the pianist had just concluded the exposition of the G major Schubert Sonata. Having invested some 7 minutes of very serious listening, she felt she could not abandon the equity she had built up, even though the prospect of paying off the rest of the development and recapitulation was daunting. Fellow audience member Ronald McGrumpy was much less sympathetic. "After the first two bars, I said to myself, are you kidding me, what kind of sucker do you think I am, I’m not going to stick around and wait for Schubert to develop that. If she got caught upside down on this deal, it’s her fault and her fault alone." Commenter Claude D., mainstay of the well-regarded financial blog Prelude to the Afternoon of a Fund, suggests many people are wondering whether to accept the damage to their listening credit and walk out. "Now, you see, Mozart’s solution to this problem, which is introducing a new theme in the development, carries its own risks; but Mozart seems to think you should look at the crisis as an opportunity and innovate your way out."
Tim Geithner was interviewed by Erin Burnett on CNBC today. Here’s a snippet:
Sec. GEITHNER: The alternative approach is–which you have the government buying all this stuff, taking on all the risk under a balance sheet, which would be much more expensive to the taxpayer. The alternative of letting it just sit there, let these assets just sit on the balance sheets of banks who are at risk, creating a much longer, deeper recession.
Alea has a semi-cryptic note:
This crisis being of a systemic nature, correlation is high, this means equity is risky because yields are lower than normal relative to more senior tranches and would sell off sharply if conditions were to normalize, a rational investor will bid assuming low or 0 correlation.
So there is likely to be a gap between the mtm value of the toxic assets and what a rational investor would pay, reducing or eliminating the incentive for banks to participate.
An anonymous commenter makes an excellent point this morning about banks’ willingness to participate in Treasury’s bailout scheme:
Ian Bremmer and Preston Keat, of Eurasia Group, have a new book out — which means that in the process of plugging it, they’re happy to give detailed answers to bloggers on matters geopolitical. I decided to ask Ian about sovereign defaults; he gave a broad answer to begin with, but then I pushed him on specifics, and he came up with some very interesting analysis. Here’s the full exchange; you’ll have to scroll quite far down before Bremmer says that Ecuador’s default "was probably a rational decision", but there’s a fair amount of juicy stuff before that.